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.”
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Islamic Republic of Afghanistan: Selected Economic Indicators, 2018–25 |
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(Quota: SDR 323.8 million) |
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(Population: approx. 32.2 million; 2019) |
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(Per capita GDP: approx. US$586; 2019) |
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(Poverty rate: 54.5 percent; 2016-2017) |
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(Main exports: dried and fresh fruits and vegetables, medical seeds, 2019) |
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2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
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|
Est. |
Proj. |
Proj. |
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|
Output and prices 1/ |
(Annual percentage change, unless otherwise indicated) |
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|
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) |
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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) |
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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) |
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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 |
… |
… |
… |
… |
… |
|
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External sector 1/ |
(In percent of GDP, unless otherwise indicated) |
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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 |
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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 |
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Current account balance 6/ |
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Excluding official transfers |
-31.4 |
-27.0 |
-30.6 |
-28.5 |
-25.3 |
-23.5 |
-21.9 |
-20.5 |
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Including official transfers |
12.2 |
11.7 |
9.3 |
8.0 |
8.0 |
7.6 |
7.4 |
6.9 |
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Foreign direct investment |
0.4 |
0.0 |
0.0 |
0.5 |
0.5 |
0.6 |
0.6 |
0.7 |
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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 |
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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 |
… |
… |
… |
… |
… |
… |
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Real exchange rate (average, percentage change) 8/ |
6.8 |
6.1 |
… |
... |
… |
… |
… |
… |
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Sources: Afghan authorities, United Nations Office on Drugs and Crime, WITS database, and IMF staff estimates and projections. |
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1/ Excluding the narcotics economy. |
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2/ Comprising mainly current spending. |
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3/ Defined as domestic revenues minus operating expenditures. |
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4/ Public sector only. Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment. |
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5/ Public debt includes promissory note issued by MoF to settle DAB's Kabul Bank exposure. |
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6/ Current account does not include COVID emergency financing grants. |
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7/ In months of next year's import of goods and services. |
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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 .
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