May 24, 2017

• A pickup of growth to 3 percent in 2017 is projected but is contingent on an improvement in confidence, implementation of reforms, and continued strong donor support.
• Continued strong program ownership by the government remains vital to the success of the program.
• Reforms in the financial sector, corruption and economic governance, and revenue mobilization combined with improved public financial management will all be critical.

On May 24, 2017, the Executive Board of the International Monetary Fund (IMF) completed the first review of the arrangement under the Extended Credit Facility (ECF) [1] for Afghanistan. The completion enables the release of SDR 4.5 million (about US$6.2 million), bringing total disbursements under the arrangement to SDR 9 million (about US$12.4 million). The Executive Board’s decision was taken on a lapse-of-time basis. [2] The ECF arrangement for SDR 32.38 million was approved on July 20, 2016 (see Press Release No. 16/348). 

In completing the review, the Executive Board also approved the authorities’ request for modification of two sets of performance criteria: first, the exclusion from the zero ceiling on non-concessional borrowing of two loans from the Islamic Development Bank to finance an important infrastructure project; and second, modification of three performance criteria, approved by the Executive Board in July 2016, reflecting updates to the macroeconomic framework and methodological changes affecting the monetary variables.

Program implementation through end-December 2016 has been satisfactory, despite the challenging security situation. All quantitative performance criteria and indicative targets were met. On structural reforms, three out of five benchmarks were met, and all requirements for one of the remaining two benchmarks were implemented with a delay.

Afghanistan’s security situation remains challenging, undermining confidence and growth. In 2016, real GDP is estimated to have risen by 2 percent, up slightly from 2015 reflecting improved agricultural output. But this is still far below the rate of growth needed to create sufficient jobs to absorb labor market entrants and raise living standards. In 2017, a pickup to 3 percent growth is projected. However, this is contingent on improvement in confidence, implementation of reforms, and continued strong donor support. Consumer price inflation remains moderate.

Continued strong program ownership by the government remains vital to the success of the program. Reforms in the financial sector (turning the page on the Kabul Bank crisis), corruption and economic governance, and revenue mobilization combined with improved public financial management will all be critical. However, sustained reform implementation will be difficult in the context of fragile security and political uncertainty. In this challenging environment, the backing of donors remains key to success, together with the determination and commitment of the authorities. The IMF remains committed to playing its role in the collective international effort to help Afghanistan.