IMF, Afghanistan reach staff-level agreement on ECF arrangement
KABUL (Pajhwok): An International Monetary Fund (IMF) mission has reached staff-level agreement with Afghanistan authorities on an economic programme to be supported by a three-year Extended Credit Facility (ECF) arrangement.
The IMF mission, led by Christoph Duenwald, held discussions with Afghanistan authorities in May and June last year on IMF support for Afghanistan’s economic program. Following the discussions, Duenwald said: “IMF staff and the Afghanistan authorities have reached staff-level agreement on an economic program to be supported by a three-year ECF arrangement which the authorities have requested.”
In a statement, Duenwald said access under the arrangement was proposed to be set at 10 percent of Afghanistan’s quota in the Fund (SDR 32.4 million, or about US$45 million) in keeping with the current healthy international reserves position.
“The arrangement is subject to approval by the IMF Executive Board, which is scheduled to consider the authorities’ request on July 20, 2016.”
“Economic conditions remain difficult. Real GDP growth was only 0.8 percent in 2015, and, while a small uptick to two percent is projected for 2016, this remains far below the level that is needed to ensure increased employment and improved living standards,” he said of Afghanistan economic growth.
He said large fiscal and external deficits continued to be financed by donor aid and downside risks, related to uncertain security conditions and potential shortfalls in external support, could lead to worse outcomes.
“The new ECF arrangement builds on the nine-month Staff Monitored Program1 that was successfully completed in April 2016, and aims to play a catalytic role for continued strong donor support. The program supported by the ECF arrangement would rest on two pillars
Structural reforms to facilitate private sector development
These will concentrate on areas where the Fund has a comparative advantage to complement policies supported by Afghanistan’s other international partners. Initial measures will support the authorities’ anti-corruption efforts and fiscal reform agenda, including reforms to mobilize revenue and strengthen public financial management to enhance the efficiency of expenditure.
Policies to preserve macroeconomic and financial stability
The ECF arrangement will aim to gradually reduce underlying fiscal and external imbalances to prepare for a time when donor aid declines. Buffers—low public debt and ample international reserves—will remain strong to absorb adverse shocks. The budget will increasingly favor development spending to support a recovery in growth, while financial sector policies will aim to strengthen vulnerable and weak banks and reform the state-owned commercial banks.
Monetary policy will continue to be focused on maintaining price stability and a flexible exchange rate regime, while fostering confidence in the domestic currency in the context of high dollarization.
“The authorities’ program supported by the ECF arrangement is part of a broader multi-year development framework that sets Afghanistan on a path to self-reliance and will help tackle economic challenges and assist in improving conditions for sustainable growth.”
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