WASHINGTON: The International Monetary Fund on Tuesday approved a Staff-Monitored Programme (SMP) for Afghanistan covering the period of April-December, 2015.
The SMP is designed to build a track record and successful performance will catalyse donor flows and support a future request for an Extended Credit Facility arrangement.
An executive summary issued with the approval said Afghanistan will remain dependent on donor financing for an extended period because of its large security and development expenditure needs.
It, however, noted that a political agreement in the country had improved security conditions and added that “a stronger domestic demand and early development of mining projects would result in faster growth”.
Afghanistan completed a peaceful transfer of power in September 2014, with the conclusion of the presidential elections and establishment of the national unity government.
The international community and key donors had reaffirmed their partnership and commitment to Afghanistan at the London Conference held in December 2014.
The IMF noted that the new Afghan government was resolved to push ahead with economic reforms and improve governance to promote economic growth and development that benefits all Afghans.
It pointed out that donor nations had also welcomed the new government’s commitment to macroeconomic stability and reforms that will promote sustainable and inclusive growth.
The SMP is designed to support the authorities’ reform agenda with a framework to address economic vulnerabilities and facilitate engagement with the international community to sustain donor support.
It will also foster the Fund’s continued close engagement with Afghanistan, address immediate fiscal and banking vulnerabilities, and help manage risks.
Moreover, the programme will preserve buffers (low debt and a comfortable international reserves position), maintain low inflation and competitiveness, and lay the basis for high and inclusive growth. The budget and external deficits are projected to be financed by donor grants.
Under the SMP, fiscal policy will focus on mobilising domestic budget revenue to finance projected expenditure and rebuild the treasury’s cash balance.
Structural reforms will focus on: (i) budget revenue mobilisation, expenditure control and repayment of arrears; (ii) financial sector reform to promulgate and implement the new banking law, amend the central bank law, strengthen banking supervision to deal with weak banks; and (iii) better economic governance by strengthening anti-corruption, anti-money laundering and countering the financing of terrorism regimes.