Press Release No. 21/162

IMF Executive Board Completes First Review of the Extended Credit Facility Arrangement for the Islamic Republic of Afghanistan

June 7, 2021

• Afghanistan is facing formidable challenges. The precarious security situation and rising uncertainty are hurting confidence, investment, and growth, while the Covid-19 pandemic has imposed a heavy socioeconomic toll, with higher poverty and unemployment.
• Through the Extended Credit Facility (ECF) arrangement, the IMF is aiding Afghanistan’s recovery from the Covid-19 pandemic, providing financing to cushion its impact, and supporting reforms to promote inclusive growth and advance toward self-reliance.
• Despite these challenges, the authorities remain strongly committed to the objectives of their IMF-supported economic program.

Washington, DC – June 7, 2021. The Executive Board of the International Monetary Fund (IMF) today completed the first review of Afghanistan’s economic reform program supported by the Extended Credit Facility (ECF)  arrangement. The completion of this review makes SDR 103.6 million (about US$149.4 million) available immediately for disbursement. 

Afghanistan’s 42-month ECF arrangement of SDR 259 million (about US$370 million) was approved by the Executive Board on November 6, 2020 (see press release No. 20/334). It aims to support Afghanistan’s recovery from the COVID-19 pandemic, anchor economic reforms, and catalyze donor financing. Since the onset of the pandemic, Afghanistan also benefitted from the IMF’s disbursement of SDR 161.9 million (about US$220 million) under the Rapid Credit Facility and a debt service relief of SDR 7.2 million (about US$10 million) under the Catastrophe Containment and Relief Trust.

The COVID-19 pandemic and rising security challenges have buffeted Afghanistan. While the government’s determined response, supported by donors, helped mitigate the pandemic’s impact, including by containing the economic contraction, poverty worsened and the fiscal deficit widened. Security has deteriorated and uncertainty has risen as the peace talks between the government and Taliban stalled, with the US and NATO troops set to withdraw by September.

Despite facing these strong headwinds, the authorities have kept the program broadly on track. All end-December program performance criteria (PCs) and all but two end-December indicative targets (ITs) were met. The IT on revenue and the IT on social and other priority spending were not observed, the former due to a shortfall in nontax revenue and the latter for   classification reasons. In completing the review, the Executive Board approved the authorities’ request to modify all non-continuous PCs and all ITs, other than the IT on the Treasury cash  balance, through end-2021, aligning them with the revised macroeconomic framework, and to update structural benchmarks.

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

“Afghanistan is confronting the fallout of the COVID-19 pandemic amid rising insecurity and uncertainty. Aided by donor support, the authorities boosted health and social spending to cushion the impact on the vulnerable. Nevertheless, the pandemic caused an output loss, worsened poverty and set back self-reliance efforts.

Growth is expected to resume this year, but the outlook is subject to considerable downside risks, including from adverse security developments, drought and the pandemic. Should they materialize, it will be essential to boost spending for healthcare, support to the vulnerable, and food security, using fiscal space created by spending reprioritization and grants. 

Modest fiscal loosening in 2021 is appropriate to support the recovery and mitigate scarring from the pandemic. As the economy strengthens in 2022, fiscal policy should shift gears to advance toward self-reliance to protect priority spending as grants decline. This hinges on the implementation of the VAT in 2022, tax administration gains, spending optimization and strengthening fiscal risk management.

Monetary policy should remain geared toward price stability, with the exchange rate allowed to adjust in response to shocks. Given rising strains, it is important to sustain intensified bank oversight and strengthen regulatory and supervisory frameworks, including for bank resolution and AML/CFT. Reforms of state-owned commercial banks should be reinvigorated.

Progress in improving public spending transparency, including in procurement, is commendable. The audit of pandemic spending will help reassure the public and donors about the government accountability. Further strengthening the asset declaration regime and anti-corruption institutions would help deter and fight corruption.

Despite facing formidable challenges, the authorities continued to demonstrate strong program ownership. Going forward, macroeconomic stability, reforms supported by donor grants and capacity development, and accelerating vaccinations will be key to addressing the pandemic’s legacies.”