IMF Executive Board Completes First Review of the Extended Credit Facility Arrangement for the Islamic Republic of Afghanistan
IMF News, June 7, 2021
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- IMF Executive Board Completes First Review of the Extended Credit Facility Arrangement for the Islamic Republic of Afghanistan
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- Published: June 7, 2021
Context and objectives
- Afghanistan faces a precarious security situation and rising uncertainty that are hurting confidence, investment, and growth, while the Covid-19 pandemic has imposed a heavy socioeconomic toll, with higher poverty and unemployment.
- The 42-month Extended Credit Facility (ECF) arrangement aims to support Afghanistan’s recovery from the COVID-19 pandemic, anchor economic reforms, and catalyze donor financing.
- Afghanistan’s ECF arrangement of SDR 259 million (about US$370 million) was approved by the Executive Board on November 6, 2020 (see press release No. 20/334).
Key developments and program performance
- The Executive Board completed the first review of Afghanistan’s economic reform program and approved immediate disbursement of SDR 103.6 million (about US$149.4 million).
- Since the onset of the pandemic, Afghanistan also benefitted from:
- IMF disbursement of SDR 161.9 million (about US$220 million) under the Rapid Credit Facility.
- Debt service relief of SDR 7.2 million (about US$10 million) under the Catastrophe Containment and Relief Trust.
- All end-December program performance criteria (PCs) were met.
- All but two end-December indicative targets (ITs) were met:
- The IT on revenue was not observed due to a shortfall in nontax revenue.
- The IT on social and other priority spending was not observed for classification reasons.
- The Executive Board approved the authorities’ request to modify all non-continuous PCs and all ITs, other than the IT on the Treasury cash balance, through end-2021, aligning them with the revised macroeconomic framework, and to update structural benchmarks.
Economic outlook and downside risks
- Growth is expected to resume in 2021, but the outlook is subject to considerable downside risks, including:
- adverse security developments,
- drought,
- the pandemic.
- The pandemic caused an output loss, worsened poverty, and set back self-reliance efforts.
- If downside risks materialize, boosting spending for healthcare, support to the vulnerable, and food security will be essential.
Policy recommendations and conditionalities (summary of Deputy Managing Director statement)
- Fiscal policy:
- Modest fiscal loosening in 2021 is appropriate to support the recovery and mitigate scarring from the pandemic.
- As the economy strengthens in 2022, fiscal policy should shift to advance toward self-reliance and protect priority spending as grants decline.
- Achieving this hinges on:
- implementation of the VAT in 2022,
- tax administration gains,
- spending optimization,
- strengthening fiscal risk management.
- Monetary and financial sector policy:
- Monetary policy should remain geared toward price stability, with the exchange rate allowed to adjust in response to shocks.
- Sustain intensified bank oversight and strengthen regulatory and supervisory frameworks, including for bank resolution and AML/CFT.
- Reforms of state-owned commercial banks should be reinvigorated.
- Social and governance measures:
- Boost spending for healthcare and support to the vulnerable if risks materialize, using fiscal space created by spending reprioritization and grants.
- Continue progress in improving public spending transparency, including in procurement.
- Conducting the audit of pandemic spending will help reassure the public and donors about government accountability.
- Further strengthen the asset declaration regime and anti-corruption institutions to help deter and fight corruption.
- Program ownership:
- Despite formidable challenges, the authorities continued to demonstrate strong program ownership.
- Macroeconomic stability, reforms supported by donor grants and capacity development, and accelerating vaccinations are key to addressing the pandemic’s legacies.
Immediate financial action
- Completion of the first review makes SDR 103.6 million (about US$149.4 million) available immediately for disbursement under the ECF arrangement.
Press Release No. 21/162, June 7, 2021