Via IMF (Den Internationale Valutafond)

IMF Executive Board Approves A US$370 Million Extended Credit Facility Arrangement to Support the Islamic Republic of Afghanistan







November 6, 2020











  • The 42-month arrangement under the Extended Credit Facility (ECF) aims to support Afghanistan’s recovery from the Covid-19 pandemic, anchor economic reforms, and catalyze donor financing.
  • The economic reform program supported by the ECF focuses on preserving macro-financial stability, addressing fragilities that hinder sustainable growth and poverty reduction, and advancing self-reliance.
  • Sustained donor support, steadfast reform implementation, and progress with combatting corruption will be critical for Afghanistan’s development and program’s success.

Washington, DC:
The Executive Board of the International Monetary Fund (IMF) today
approved a 42-month arrangement for Afghanistan under the Extended
Credit Facility (ECF) in an amount equivalent to SDR 259.04 million
(about US$ 370 million or 80 percent of Afghanistan’s quota) to support
the authorities’ economic reform program aimed at sustainable growth
and poverty reduction. The program seeks to preserve macroeconomic
stability, reverse the fiscal deterioration caused by the pandemic, and
protect development and social spending. Structural reforms under the
program will focus on mobilizing domestic revenue, improving the
quality of public spending and public financial management, bolstering
the financial sector, and strengthening the anti-corruption regime. The
ECF arrangement will also help cover Afghanistan’s external and fiscal
financing needs that emerged since the start of the pandemic.

Following the Board’s decision, the equivalent of SDR 80.95 million
(about US$115 million) is available for immediate disbursement; the
remaining amount will be phased in over the duration of the
Fund-supported program, subject to semi-annual reviews.

Following the Executive Board discussion, Mr. Mitsuhiro Furusawa,
Deputy Managing Director and Acting Chair, made the following
statement:

“The COVID-19 pandemic continues to weigh heavily on Afghanistan’s
economy and livelihoods. The authorities’ determined response and
expedient donor support have prevented a humanitarian crisis. However,
the pandemic has set back progress toward self-reliance.

“The Extended Credit Facility will support post-pandemic recovery,
anchor reform implementation, and catalyze donor financing. The
authorities’ reform program aims to preserve macro-financial stability
and support sustainable growth and poverty reduction. Its success
hinges on the steadfast reform implementation, continued donor support,
agile response to shocks, and capacity development.

“Macroeconomic stability, underpinned by prudent fiscal policy with low
debt, adequate international reserves, and a stable financial sector,
will be critical for sustaining the incipient recovery. Should downside
risks, including from the pandemic and the security situation,
materialize, the recovery could falter and financing needs increase.

“The fiscal deficit is widening in 2020 to accommodate needed pandemic
spending. Once the recovery gets underway, the program will aim to
reverse course and support the gradual shift toward self-reliance. With
grants projected to decline, domestic revenue mobilization, underpinned
by tax and customs administration reforms, will be key to protect
development spending and create space for a stronger social safety net.

“Monetary policy rightly focuses on price stability with exchange rate
flexibility. The program envisions intensified financial sector
oversight in the face of rising risks, reforms of state-owned
commercial banks, and strengthening the central bank’s autonomy and
governance as well as its regulatory and supervisory frameworks,
including for AML/CFT.

“The reform agenda also includes operationalizing anti-corruption
institutions and strengthening the asset declaration regime to better
deter and fight corruption. Commissioning the audit of pandemic
spending will be critical to ensuring its full accountability and
transparency and buttressing stakeholder confidence.”



Islamic Republic of Afghanistan: Selected
Economic Indicators, 2018–25

(Quota: SDR 323.8 million)

(Population: approx. 32.2 million; 2019)

(Per capita GDP: approx. US$586; 2019)

(Poverty rate: 54.5 percent; 2016-2017)

(Main exports: dried and fresh fruits and
vegetables, medical seeds, 2019)

2018

2019

2020

2021

2022

2023

2024

2025

Est.

Proj.

Proj.

Output and prices 1/

(Annual percentage change, unless otherwise
indicated)

Real GDP

1.2

3.9

-5.0

4.0

4.5

4.5

4.0

4.0

Nominal GDP (in billions of Afghanis)

1,328

1,470

1,466

1,598

1,742

1,893

2,048

2,215

Nominal GDP (in billions of U.S. dollars)

18.4

18.9

19.0

20.0

21.0

22.2

23.3

24.5

Consumer prices (period average)

0.6

2.3

5.4

4.8

4.3

4.0

4.0

4.0

Food

-1.1

3.8

Non-food

2.3

0.9

Consumer prices (end of period)

0.8

2.8

5.0

4.5

4.0

4.0

4.0

4.0

GDP Deflator

2.1

6.5

5.0

4.8

4.3

4.0

4.0

4.0

Investment and savings

(In percent of GDP)

Gross domestic investment

18.0

18.2

17.9

18.1

18.9

19.8

20.6

21.4

Of which:
Private

5.4

6.0

5.0

6.0

6.5

7.1

7.4

7.8

Gross national savings

30.2

29.9

27.2

26.1

26.9

27.4

27.9

28.3

Of which:
Private

16.0

18.7

17.4

16.2

15.7

15.2

15.5

15.7

Public finances (central government)

Domestic revenues and grants

30.6

26.9

30.3

26.0

26.9

28.5

28.1

27.6

Domestic revenues

14.3

14.1

12.1

12.0

14.2

16.3

16.4

16.6

On-budget grants (excl. donors’ direct spending
outside the budget)

16.3

12.9

18.2

14.0

12.7

12.2

11.7

11.0

Expenditures

28.9

28.0

33.3

28.2

28.2

29.0

28.8

28.5

Operating 2/

19.4

18.5

21.8

19.3

18.8

18.5

18.2

17.8

Development

9.5

9.5

11.6

8.9

9.3

10.5

10.6

10.7

Operating balance (excluding grants) 3/

-5.1

-4.5

-9.6

-7.3

-4.6

-2.2

-1.8

-1.2

Overall balance (including grants)

1.6

-1.1

-3.0

-2.2

-1.2

-0.5

-0.7

-0.9

Public debt 4/ 5/

7.4

6.1

7.7

9.0

9.6

10.1

10.5

11.0

Monetary sector

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

Reserve money

-2.7

10.6

12.4

10.9

10.5

10.4

10.3

10.2

Reserve money in domestic currency

-0.4

11.6

12.2

11.8

11.6

11.4

11.2

11.0

Currency in circulation

-0.2

13.6

14.7

10.0

9.5

9.0

8.0

8.0

Broad money

2.6

5.7

10.0

10.8

11.2

11.6

12.0

12.8

Interest rate, 28-day capital note (in percent)

3.0

3.0

External sector 1/

(In percent of GDP, unless otherwise indicated)

Exports of goods (in millions of U.S. dollars)

875

864

558

747

973

1085

1209

1360

Exports of goods (annual percentage change)

11.6

-1.3

-35.4

33.8

30.2

11.5

11.5

12.4

Imports of goods (in millions of U.S. dollars)

6,596

6,158

6,009

6,285

6,347

6,457

6,563

6,736

Imports of goods (annual percentage change)

-2.1

-6.6

-2.4

4.6

1.0

1.7

1.6

2.6

Merchandise trade balance

-31.1

-28.0

-28.6

-27.7

-25.6

-24.3

-23.0

-21.9

Current account balance 6/

Excluding official transfers

-31.4

-27.0

-30.6

-28.5

-25.3

-23.5

-21.9

-20.5

Including official transfers

12.2

11.7

9.3

8.0

8.0

7.6

7.4

6.9

Foreign direct investment

0.4

0.0

0.0

0.5

0.5

0.6

0.6

0.7

Total external debt 4/

6.8

6.1

7.7

8.7

9.0

9.2

9.4

9.7

Gross international reserves (in millions of U.S.
dollars)

8,273

8,573

8,896

8,788

8,688

8,590

8,495

8,400

Import coverage of reserves 7/

13.5

14.5

14.3

13.9

13.4

13.0

12.5

11.7

Exchange rate (p.a., Afghanis per U.S. dollar)

72.2

77.9

Real exchange rate (average, percentage change) 8/

6.8

6.1

Sources: Afghan authorities, United Nations Office
on Drugs and Crime, WITS database, 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/ Current account does not include COVID emergency
financing grants.

7/ In months of next year’s import of goods and
services.

Annex I

Recent Economic Developments

The armed conflict and fragility have hindered Afghanistan’s development.
Growth has been weak, unemployment high, and Afghanistan remains dependent
on aid, which finances its large underlying fiscal and current account
deficits.

The COVID-19 pandemic has inflicted a heavy damage to the economy and
livelihoods. The pandemic and containment measures led to a collapse in
economic activity in the first half of the year. With the easing of
containment restrictions since late May, activity is regaining its footing.
Assuming the infections don’t intensify, the output is expected to contract
by 5 percent this year, down from 3.9 percent growth in 2019. Inflation
spiked in April due to border closures and panic buying but has moderated
since as resumed trade and a new harvest boosted foodstuff supply. The
fiscal deficit has sharply widened, to 1.6 percent of 2020 GDP in
January–June, reflecting revenue shortfalls due to the pandemic and
increased expenditure to mitigate its impact. Risks to the outlook stem
from deeper and more prolonged impact of the pandemic, the uncertain
security conditions, and potential shortfalls in donor grants.

Program Summary

The reform program supported by the ECF arrangement aims to preserve
macroeconomic stability and create conditions for sustainable and inclusive
growth. It is anchored on Afghanistan’s National Development Framework
II—the authorities’ development strategy under preparation for the upcoming
November donor conference—setting out reforms to guide the transition from
pandemic containment to a recovery and promote job-rich poverty-reducing
growth.

The program accommodates spending to mitigate the pandemic and its socioeconomic
impact and provides a macroeconomic setting to exit the COVID-19
crisis. Once the recovery gets underway, the focus will shift to
reversing the fiscal deterioration caused by the pandemic and
addressing fragilities that hinder sustainable growth and equitable
social outcomes. Complementing reforms supported by development
partners, structural reforms under the program aim to improve fiscal
governance, bolster the financial sector, and advance anti‑corruption
efforts, building on gains made under the 2016–19 ECF arrangement.
Landmark reforms include VAT implementation, strengthening the
anti-corruption regime, and, subject to fiscal space and donor support,
building a social safety net over the medium term.

The program design accounts for the increased uncertainty due to the
pandemic and the strains it has placed on the authorities’ policy
implementation capacity. It features streamlined conditionality, measured
deadlines for structural benchmarks, and flexibility to adapt to the
changing environment and to the shocks that frequently hit Afghanistan
while continuing to meet program’s overall objectives.

  • Macro-financial stability.
    Prudent fiscal policy, stable inflation with a flexible exchange rate,
    and a healthy financial sector will be critical for sustained growth
    and development. The program will promote macro-financial stability and
    resilience by sustaining efforts to preserve financial sector stability
    in the post-COVID environment and maintaining low debt, a prudent
    Treasury cash balance, and an adequate level of international reserves.
  • Fiscal reforms
    aim to boost domestic revenue and strengthen the quality of public
    spending and public financial management. Revenue mobilization will be
    supported by VAT adoption in 2022 and post-pandemic recovery in
    compliance underpinned by reforms to improve tax and customs
    administration. On the expenditure side, priorities include a new civil
    service pay policy, public expenditure review, and strengthened
    management of the state-owned assets and liabilities.
  • Financial sector
    reforms target reforming the state-owned commercial
    banks, reducing informality in the sector, and bolstering regulatory
    and supervisory frameworks, including enhanced AML/CFT oversight.
  • Governance and anti-corruption
    measures build on progress over the recent years in strengthening the
    legal and institutional framework for anti-corruption. Reforms will
    focus on operationalizing and building capacity of anti-corruption
    institutions, boosting the effectiveness of the asset declaration
    regime, and strengthening accountability of public spending, including
    in response to the pandemic.

Additional Background

The Islamic Republic of Afghanistan, which became member of the IMF on July
14, 1955, has an IMF quota of SDR 323.80 million.

For additional background on the IMF and the Islamic Republic of
Afghanistan including how the IMF has been helping Afghanistan to respond
to the COVID-19 pandemic, see:

https://www.imf.org/en/Countries/AFG
.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Nadya Saber

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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