The Executive Board of the International Monetary Fund (IMF) on 6th November, 2020 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, according to the IMF, 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 throughout the Fund-supported program, subject to semi-annual reviews.
The Deputy Managing Director and Acting Chair of the IMF’s Executive Board, Mr. Mitsuhiro Furusawa, stated that the COVID-19 pandemic continues to weigh heavily on Afghanistan’s economy and livelihoods. He noted that 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 the 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”.
He added that the 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.
The Acting Chair further stated that 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.
