Press Release No. 11/358

Press Release: IMF Reaches Staff Level Agreement with the Islamic Republic of Afghanistan on a US$129 Million Extended Credit Facility Arrangement, and Concludes the 2011 Article IV Consultations Staff Mission

October 6, 2011

An International Monetary Fund (IMF) mission, headed by Mr. Axel Schimmelpfennig, and the Afghan authorities have reached a staff-level agreement on a 3-year program under the Extended Credit Facility (ECF) in the amount of SDR 85 million (about US$129 million) to support the authorities’ economic program. Pending approval by IMF management and the completion of the program prior actions, the Afghan authorities’ request for an ECF arrangement is expected to be submitted for the IMF’s Executive Board’s consideration in November.

At the conclusion of the discussions in Kabul, Mr. Schimmelpfennig made the following statement today in Washington:

“The authorities have made important progress on managing the Kabul Bank crisis that came to the fore in the fall of 2010. Kabul Bank has been put into receivership and efforts are underway to recover the embezzled assets from the former shareholders of the bank which will limit the fiscal costs of the crisis. The central bank is also stepping up supervision and ensuring that the banking law and regulations are fully enforced, including on conflict of interest. The authorities’ program outlines further steps to strengthen and develop Afghanistan’s financial sector.

“The authorities’ program also initiates measures to safeguard fiscal sustainability. In the near-term, the planned withdrawal of the international military presence in Afghanistan will put downward pressure on economic activity and revenue collection. Moreover, the government will have to balance an expected gradual decline of the current levels of donor support over the next decade. To generate additional resources over the medium term, the authorities plan to continue revenue administration reforms and to introduce a value-added tax in 2014.

“Despite a difficult external environment, a volatile security situation, and this year’s drought, real GDP growth should range between 6 and 8 percent during the program period, and could increase further once the development of the mining sector begins. Over the medium term, sustaining high and inclusive growth with a view to reducing poverty will require a stable security situation, improvements in governance, and an enabling environment for the private sector.”