Statement at Donor Meeting

Statement by Mr. Agustín Carstens, Deputy Managing Director of the IMF, at the London International Donors' Conference on Afghanistan

January 31, 2006

Your Excellencies, Ladies, and Gentlemen,

The Interim Afghanistan National Development Strategy and the Compact presented during this conference are impressive documents that provide an important guide for framing Afghanistan's future development. By focusing on areas of crucial importance to sustain growth and reduce poverty, the Compact is complemented by the IMF staff-monitored program that Afghanistan has had with the Fund for nearly two years.

Much has been achieved since the Government of Afghanistan entered into the staff-monitored program in March 2004. Over the last two years, GDP per capita increased by 47 percent in US dollar terms; inflation was kept in check; fiscal revenue rose by 85 percent; and international reserves increased to more than $1.5 billion, the equivalent of 4 months of imports. On the structural side, the Afghan authorities have carried out major reforms that helped improve revenue collection, and have started to establish a transparent public expenditure system with fiduciary standards. The authorities have also modernized central bank operations while strengthening the banking sector regulatory framework. These achievements are particularly commendable, as they took place within a difficult environment, dominated by continued insecurity and a heavy electoral agenda.

Looking ahead, Afghanistan continues to face formidable challenges. These include: diversifying the sources of growth; preserving fiscal and external sustainability despite large spending demands and pressures for lower taxes; improving the competitiveness of the economy; eliminating institutional and structural obstacles to private investment; developing the financial sector; and gradually eliminating opium-related activities.

Meeting the above-mentioned challenges will require renewed government resolve, substantial continued donor support, and targeted and timely delivery of technical assistance. The Interim Afghanistan National Development Strategy is a key step in outlining a medium-term strategy for sustained economic growth and poverty alleviation.

I am very pleased to inform you that the IMF had preliminary discussions with the authorities on moving toward a program supported by the Poverty Reduction and Growth Facility. Such a program could provide a framework aimed at sustaining high growth and reducing poverty. Formal program negotiations are expected to take place in March this year, with the aim of submitting the authorities' request for a PRGF arrangement in the second quarter of 2006.

In conclusion, the Afghan government led by President Karzai and assisted by Minister Ahady and Governor Delawari deserves to be congratulated for its skillful management of the economy over the past two years. Looking ahead, there is no doubt that the challenges facing Afghanistan are considerable. For its part, the IMF will continue to work closely with the authorities and the donor community to help address these difficult challenges. I wish the people of Afghanistan and its Government the best of success in their endeavors.