IMF Executive Board Completes Fourth Review and Approves Extension of the Extended Credit Facility Arrangement for the Islamic Republic of Afghanistan

IMF News, December 7, 2018

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Published: December 7, 2018

Fourth Review, Disbursement, and Extension

On December 7, 2018, the Executive Board completed the Fourth Review of Afghanistan’s program under the Extended Credit Facility (ECF).
The Board’s decision made available to Afghanistan a disbursement amount equivalent to SDR 4.5 million (about US$6.2 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 22.5 million (about US$31.2 million).
The three-year ECF arrangement for SDR 32.38 million (or 10 percent of Afghanistan’s quota at the time of approval of the arrangement) was approved on July 20, 2016 (Press Release No. 16/348).
The Executive Board approved the authorities’ request to extend the arrangement to end-December 2019.
The Board approved modification of performance criteria on net international reserves and net credit to government, reflecting updates to the macroeconomic framework.
The extension aims to ensure uninterrupted engagement through the election year and provide time for completion of the sixth review and implementation of additional reforms.

Macroeconomic Outlook and Risks

Major downside risks cited: poor security situation, election-related political uncertainty, and a severe drought undermining confidence and growth.
Program implementation was described as satisfactory despite the challenging environment.
The authorities’ macroeconomic policy mix is characterized as maintaining fiscal and external stability with low inflation and a flexible exchange rate; it was judged to be appropriate given the challenges.
The statement emphasized that continued strong program ownership by the government and sustained donor backing are critical to program success.

Policy Priorities and Reform Recommendations

Fiscal policy:
- Focus on sustainability considering risks to revenues and grants and limited financing options.
- Priority on fair and sustainable domestic revenue mobilization for development needs while protecting pro-poor and pro-growth spending.
- Public financial and investment management should benefit from newly adopted supportive laws.
- Policy initiatives should consider good global practices in consultation with the IMF and international partners.
Financial sector:
- Continued financial sector reforms are critical for banking sector stability.
- Priorities include strengthened crisis preparedness, strict monitoring of weak private banks, and reform of state-owned commercial banks.
- Restoration of the central bank’s balance sheet is on track and should continue.
- Recovery of stolen Kabul Bank assets should be reignited.
Governance and anti-corruption:
- Anti-corruption agenda has advanced, including criminalizing corruption and adopting a law on asset declarations by public officials, and requires rigorous enforcement to build confidence.
Donor support:
- Continued support of the donor community is deemed critical for Afghanistan’s successful transition to self-reliance.
IMF commitment:
- “The IMF stands ready to continue to assist Afghanistan through policy advice and capacity development.” (statement excerpt)

Statement by Mr. Mitsuhiro Furusawa (Deputy Managing Director and Acting Chair)

Excerpted assessments and guidance:
- “The Government of Afghanistan, guided by the Afghanistan National Peace and Development Framework and supported by the IMF Extended Credit Facility arrangement, remains committed to implementing policies ensuring macroeconomic stability and socially-balanced structural reforms in pursuit of self-reliance, inclusive growth, and poverty reduction.”
- “The insurgency, regional risks, and uncertainty during the electoral cycle compounded by a devastating drought are clouding the outlook.”
- “Fiscal policy should focus on sustainability considering risks to revenues and grants and limited financing options.”
- “Continued financial sector reforms are critical for banking sector stability.”
- “The anti-corruption agenda ... has advanced, and needs rigorous enforcement to build confidence.”
- “Strong program implementation demonstrated by completion of this fourth review remains vital to the success of the reforms fostering inclusive growth in a difficult political and security environment.”

Selected Economic Indicators, 2015–19 (as presented)

Quota: SDR 323.8 million
Population: approx. 34.7 million
Per capita GDP: approx. US$570; 2017
Main exports: fruits and vegetables, US$216.2 million; carpets, US$39.0 million; 2016

Output and prices (Annual percentage change, unless otherwise indicated)

Real GDP: 2015: 1.0; 2016: 2.2; 2017: 2.7; 2018: 2.3; 2019 (Proj.): 3.0
Nominal GDP (in billions of Afghanis): 2015: 1,227; 2016: 1,318; 2017: 1,378; 2018: 1,452; 2019 (Proj.): 1,555
Nominal GDP (in billions of U.S. dollars): 2015: 20.1; 2016: 19.4; 2017: 20.2; 2018: 19.7
Consumer prices (period average): 2015: -0.7; 2016: 4.4; 2017: 5.0; 2018: 4.0

Public finances (central government) (In percent of GDP)

Domestic revenues and grants: 2015: 24.6; 2016: 26.1; 2017: 25.3; 2018: 26.4; 2019 (Proj.): 23.1
Domestic revenues: 2015: 10.0; 2016: 10.7; 2017: 12.2; 2018: 11.8; 2019 (Proj.): 11.7
On-budget grants (excl. donors' direct spending outside the budget): 2015: 14.6; 2016: 15.4; 2017: 13.0; 2018: 14.5; 2019 (Proj.): 11.4
Expenditures: 2015: 25.9; 2016: 26.0; 2017: 26.8; 2018: 23.9
- Operating 3/: 2015: 19.2; 2016: 18.9; 2017: 18.4; 2018: (value not provided)
- Development: 2015: 6.8; 2016: 7.1; 2017: 7.5; 2018: 7.4; 2019 (Proj.): 5.5
Operating balance (excluding grants) 4/: 2015: -9.2; 2016: -8.2; 2017: -6.2; 2018: -7.5; 2019 (Proj.): -6.7
Overall balance (including grants): 2015: -1.4; 2016: 0.1; 2017: -0.6; 2018: -0.4; 2019 (Proj.): -0.8
Public debt 4/ 5/: 2015: 9.1; 2016: 7.8; 2017: 7.0; 2018: 7.2; 2019 (Proj.): 6.9

Monetary sector (Annual percentage change, end of period, unless otherwise indicated)

Reserve money: 2015: 10.2; 2016: 9.7; 2017: 10.8
Broad money: 2015: 3.1; 2016: 4.1; 2017: 9.0

External sector (In percent of GDP, unless otherwise indicated)

Exports of goods (in millions of U.S. dollars): 2015: 580; 2016: 619; 2017: 796; 2018: 891; 2019 (Proj.): 956
Exports of goods (annual percentage change): 2015: -9.9; 2016: 6.7; 2017: 28.6; 2018: 7.3
Imports of goods (in millions of U.S. dollars): 2015: 7,616; 2016: 6,590; 2017: 7,103; 2018: 7,408; 2019 (Proj.): 7,562
Imports of goods (annual percentage change): 2015: 8.2; 2016: -13.5; 2017: 4.3; 2018: 2.1
Current account balance (Excluding official transfers): 2015: -34.8; 2016: -31.0; 2017: -33.0; 2018: -34.5; 2019 (Proj.): -35.9
Current account balance (Including official transfers): 2015: 2.9; 2016: 5.3; 2017: -1.1
Foreign direct investment: 2015: 0.8; 2016: 0.6; 2017: 0.3; 2018: 0.5
Total external debt 5/: 2015: 6.1; 2016: 5.9
Gross international reserves (in millions of U.S. dollars): 2015: 6,808; 2016: 7,357; 2017: 8,139; 2018: 8,251; 2019 (Proj.): 8,249
Import coverage of reserves 6/: 2015: 10.9; 2016: 11.2
Exchange rate (average, Afghanis per U.S. dollar): 2015: 61.2; 2016: 67.9; 2017: 68.1

Notes (as presented)

Sources: Afghan authorities and IMF staff estimates and projections.
1/ Excluding the narcotics economy.
2/ Comprising mainly current spending.
3/ Defined as domestic revenues minus operating expenditures.
4/ Public sector only. Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment.
5/ Public debt includes promissory note issued by MoF to settle DAB's Kabul Bank exposure.
6/ In months of next year's import of goods and services.

IMF Communications Department; Press Release No. 18/461; December 7, 2018.