On December 8, 2017, the Executive Board of the International Monetary Fund
(IMF) concluded the Article IV consultation
[1]
with the Islamic Republic of Afghanistan and completed
the second review of the arrangement under the Extended Credit Facility
(ECF) for Afghanistan.
[2]
Since 2002, with financial and security support from the international
community, Afghanistan has made important strides in rebuilding its
economy. Nonetheless, important challenges remain as the country remains
conflict-affected, poor, and aid-dependent. While macroeconomic policies
have been broadly successful in maintaining fiscal and external
sustainability, over time they need to prepare for lower external support.
The authorities should support growth by strengthening institutions,
addressing corruption, building up physical and human capital, developing
the financial sector, making access to financial services more inclusive,
and improving the business climate.
Real GDP grew by 2.4 percent in 2016 thanks to higher agricultural output,
up from 1.3 percent in 2015. For 2017, growth is projected at 2.5 percent
and at 3 percent for 2018. This is below the rate of growth needed to
reduce unemployment, and is contingent on an improvement in confidence,
implementation of reforms, and continued strong donor support. Consumer
price inflation remains moderate and is expected to average 6 percent in
2018. Afghanistan has made progress in strengthening the country’s
anti-corruption framework and its efforts in anti-monetary laundering and
counter financing of terrorism (AML/CFT) resulted in the recent exit from
the Financial Action Task Force’s (FATF) monitoring process.
Executive Board Assessment
[3]
Executive Directors agreed with the thrust of the staff appraisal. They
commended the authorities’ commitment to economic transformation in pursuit
of their objective of raising inclusive growth, boosting job opportunities
for the rapidly rising population, and reducing aid dependency. Directors
welcomed the authorities’ steps to rebuilding institutions, maintaining
macroeconomic and external stability, strengthening economic buffers, and
continuing to implement structural reforms. However, Directors stressed the
many obstacles and vulnerabilities to achieving these objectives, including
the prolonged conflict, the heavy dependence on aid, and the impact of
corruption and political uncertainty. Against this challenging backdrop,
they emphasized that continued strong program ownership and steadfast
reform efforts remain essential to help mitigate program implementation
risks, particularly given the coming electoral cycle.
Directors urged the authorities to maintain low debt levels and ensure debt
sustainability, including through the continued limits on new external debt
and the elevated concessional borrowing rate. They agreed that the overall
budget balance including grants should remain the fiscal anchor, and that
the authorities should target a broadly balanced budget. Raising domestic
revenue in a fair and sustainable manner remains a priority to meet
pressing needs while shifting toward pro poor and pro-growth spending.
Fiscal sustainability needs to be underpinned by a strong fiscal reform
effort, including enhanced tax administration and the adoption of a VAT by
2021, while avoiding tax concessions.
Directors urged the authorities to improve public financial and investment
management to make better use of existing resources and lay the foundation
for a gradual scaling up of infrastructure investment. They advised
developing and implementing a sound strategy to manage state owned
corporations and enterprises—beginning with improving transparency.
Directors welcomed the progress with financial sector reforms for banking
system stability, financial inclusion, and economic development. They
stressed the importance of continued improvement of regulatory and
supervisory frameworks, deposit insurance infrastructure, and crisis
preparedness. Directors encouraged the authorities to strengthen the
independence of the central bank and implement a sound strategy for the
state owned commercial banks. They also welcomed the progress in restoring
the central bank’s balance sheet, while encouraging ongoing determined
efforts to recover Kabul Bank assets.
While welcoming the authorities’ progress with anti-corruption measures,
most notably by criminalizing corruption in line with the United Nations
Convention Against Corruption and requiring asset declarations by public
officials, Directors urged strong enforcement to boost stakeholders’
confidence. They welcomed the FATF de listing, and encouraged further steps
to strengthen the implementation of AML/CFT measures to protect financial
stability and to detect and deter corruption and other crimes such as
illicit drug production and trafficking.
Directors encouraged continued improvement in the quality and timeliness of
economic data for sound economic policy making, with the support of IMF
technical assistance.
It is expected that the next Article IV consultation with Islamic Republic
of Afghanistan will be held in accordance with the Executive Board decision
on consultation cycles for members with Fund arrangements.
With respect to the second review under the ECF arrangement for
Afghanistan, all quantitative performance criteria and indicative targets
were met. Of the seven structural benchmarks, five were met, and the two
that were not met on time, were implemented with delay. The first review
under the ECF arrangement was completed in May 2017 (see Press Release No.
17/192). The ECF arrangement for Afghanistan was approved on July 20, 2016
for a total amount equivalent to SDR 32.38 million (see
Press Release No. 16/348).
The review completion allows for a disbursement of SDR 4.5 million (about
US$6.2 million), bringing total disbursements under the ECF arrangement to
SDR 13.5 million (about US$18.6 million). The Executive Board also approved
the authorities’ request for modification of two performance criteria
approved by the Executive Board in May 2017, reflecting updates to the
macroeconomic framework.
Continued strong ownership of the program by the government remains vital
to its success. Reforms in the financial sector (turning the page on the
Kabul Bank crisis), improved economic governance, and revenue mobilization
combined with strengthened public financial management are critical.
Sustained reform implementation will continue to be challenging in the
context of fragile security and political uncertainty. In this environment,
sustained backing by donors remains vital as well. The IMF remains
committed to playing its role in the collective international effort to
help Afghanistan.
Following the Executive Board’s discussion, Mr. Mitsuhiro Furusawa, First
Deputy Managing Director and Acting Chair, said:
“The Government of Afghanistan remains committed to implementing sound
macroeconomic policies and structural reforms to boost inclusive growth and
employment for the country’s rapidly rising population, and reduce aid
dependency. In pursuing these objectives, the authorities are guided by the
Afghanistan National Peace and Development Framework and supported by the
IMF Extended Credit Facility.
“The difficult security situation has reduced confidence, thwarted
investment, and undermined growth and job creation. Poverty remains high,
and the country continues to be dependent on external grants for external
and fiscal sustainability.
“The authorities’ macroeconomic policy mix, aimed at maintaining fiscal and
external stability with low inflation and a flexible exchange rate, is
appropriate going forward. These policies can help mitigate the impact of
insecurity and political uncertainty.
“Fiscal policy should continue to focus on fair and sustainable domestic
revenue mobilization, while resources should shift toward growth-supportive
development spending with adequate social safety nets. Public financial and
investment management need further strengthening to ensure that resources
are put to best use and to prepare for an eventual gradual scaling up of
infrastructure investment.
“Further financial sector reforms are critical to ensure a resilient
banking system. Key priorities remain overcoming the Kabul Bank crisis
legacy, implementing a sound strategy for state-owned commercial banks to
reduce fiscal and financial stability risks, and strengthening the
independence of the central bank.
“The anti-corruption and AML/CFT agenda has advanced, and strong
enforcement of these measures is needed to build confidence.
“Continued strong political will and program ownership by the government
remains vital to the success of the reforms. The IMF continues to assist
Afghanistan, including through the provision of technical assistance.”
|
Table 1. Islamic Republic of Afghanistan: Selected
Economic Indicators, 2014–18
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(Quota: SDR 323.8 million)
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(Population: approx. 33.4 million)
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(Per capita GDP: approx. US$582; 2016)
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(Poverty rate: 39.1 percent; 2014)
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(Main exports: opium, US$2.0 billion; carpets, US$92.8
million; 2015)
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2014
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2015
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2016
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2017
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2018
|
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|
|
|
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|
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Proj.
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Output and prices 1/
|
(Annual percentage change, unless otherwise indicated)
|
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Real GDP
|
|
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2.7
|
|
1.3
|
|
2.4
|
|
2.5
|
3.0
|
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Nominal GDP (in billions of Afghanis)
|
|
|
1,183
|
|
1,228
|
|
1,320
|
|
1,429
|
1,561
|
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Nominal GDP (in billions of U.S. dollars)
|
|
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20.6
|
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20.1
|
|
19.5
|
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21.0
|
22.5
|
|
Consumer prices (period average) 2/
|
|
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4.7
|
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-0.7
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|
4.4
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5.5
|
6.0
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Public finances (central government) 3/
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|
|
|
|
|
|
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|
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Domestic revenues and grants
|
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23.7
|
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24.5
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26.1
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24.0
|
25.4
|
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Domestic revenues
|
|
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8.5
|
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10.0
|
|
10.7
|
|
10.7
|
10.9
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On-budget grants (excl. donors' direct spending outside
the budget)
|
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15.2
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14.6
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15.4
|
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13.3
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14.6
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Expenditures
|
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25.4
|
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25.9
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26.0
|
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23.9
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25.4
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Operating 4/
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19.3
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19.2
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18.9
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17.7
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18.6
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Development
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6.1
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6.8
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7.1
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6.2
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6.8
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Operating balance (excluding grants) 5/
|
|
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-10.8
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-9.2
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-8.2
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-7.0
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-7.8
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Overall balance (including grants)
|
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-1.7
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-1.4
|
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0.1
|
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0.1
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0.0
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Monetary sector
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(Annual percentage change, end of period, unless otherwise
indicated)
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Reserve money
|
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13.2
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2.3
|
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11.8
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9.7
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10.8
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Broad money
|
|
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8.1
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3.1
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9.8
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7.8
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8.1
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External sector 1/
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(In percent of GDP, unless otherwise indicated)
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Exports of goods (in millions of U.S. dollars)
|
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643
|
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580
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619
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723
|
847
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Exports of goods (annual percentage change)
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26.8
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-9.8
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6.8
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16.7
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17.2
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Imports of goods (in millions of U.S. dollars)
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6,532
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7,666
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6,160
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7,065
|
7,139
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Imports of goods (annual percentage change)
|
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-19.0
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17.4
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-19.6
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14.7
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1.1
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Current account balance
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Excluding official transfers
|
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-31.9
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-30.1
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-31.2
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-30.8
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-30.2
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Including official transfers
|
|
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5.5
|
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7.5
|
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7.1
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4.5
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3.3
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Foreign direct investment
|
|
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0.2
|
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0.8
|
|
0.5
|
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0.5
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0.5
|
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Total external debt 6/
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6.4
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6.8
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6.3
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6.1
|
6.1
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Gross international reserves (in millions of U.S.
dollars)
|
|
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7,311
|
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6,808
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7,357
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7,627
|
7,725
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Import coverage of reserves 7/
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10.2
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10.9
|
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10.4
|
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10.5
|
10.0
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Exchange rate (average, Afghanis per U.S. dollar)
|
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57.4
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61.2
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67.9
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…
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…
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Sources: Afghan Authorities, United Nations Office on Drug
and Crime, WITS database, and IMF staff estimates and
projections.
1/ Excluding the narcotics economy.
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2/ Revised with improved coverage.
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3/ For comparison, 2012 is recalculated from data reported
on the solar fiscal year basis (March 21–March 20). Since
2013, the fiscal year runs December 22–December 21 (in most
years), which is more aligned with the Gregorian calendar
year.
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4/ Comprising mainly current spending.
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5/ Defined as domestic revenues minus operating
expenditures.
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7/ In months of next year's import of goods and services.
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[1]
Under Article IV of the IMF's Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country's economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.
[2]
The ECF is a lending arrangement that provides sustained program
engagement over the medium to long term
in case of protracted balance of payments problems. Details on
Islamic Republic of Afghanistan’s arrangement
are available at www.imf.org/external/country/AFG.
[3]
At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country's authorities. An
explanation of any qualifiers used in summings up can be found
here:
http://www.imf.org/external/np/sec/misc/qualifiers.htm
.
