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IMF and Afghanistan agree three-year economic reform programme

Following a visit to the war-torn country, IMF staff said at the weekend they would propose $45m, three-year programme for Afghanistan to the fund’s executive board, who are expected to consider the proposal later this month.

Christoph Duenwald, who led the IMF mission to Afghanistan, explained that economic conditions in the country “remain difficult”, after the economy grew by just 0.8% in 2015.

“While a small uptick to 2% is projected for 2016, this remains far below the level that is needed to ensure increased employment and improved living standards,” he said.

“Large fiscal and external deficits continue to be financed by donor aid. Risks related to uncertain security conditions and potential shortfalls in external support could lead to worse outcomes.”

Ravaged by years of war, Afghanistan remains desperately fragile and heavily reliant on international aid.

Since the ousting of the Taliban in 2001, more than $100bn in aid, largely from the United States, has gone some way in supporting the reconstruction process. However, a substantial majority went to rebuilding the country’s security forces.

As foreign troops pulled out of the country last year however, Afghan security forces have lost important ground and a growing insurgency has set the country back again.

Funding slumps due to donor fatigue and Afghanistan’s reputation as one of the most corrupt countries in the world have exacerbated economic and social problems.

Already, a shortfall in grants in 2015 led to a deficit of 1.4% of gross domestic product. The deficit excluding grants was 9.7% of GDP.

In May this year, when the IMF announced it would consider loans for Afghanistan following the successful completion of a nine-month technical assistance programme, the fund explained that security and political uncertainties and weak institutions had hampered recovery.

Duenwald explained that the new proposed programme will work to gradually reduce fiscal and external imbalances and prepare for declines in donor support.

He said it aims to keep buffers strong so that the economy can absorb shocks and encourage a budget that increasingly favours development spending to support a recovery from growth.

The programme also includes measures to support the government’s anti-corruption efforts and fiscal reform agenda, which encompasses improvements to revenue mobilisation, public financial management and efficiency.

Reforms to help develop the private sector, strengthen vulnerable banks and overhaul state-owned commercial banks, as well as maintain appropriate monetary policy, will also be pursued.

Duenwald said the government’s programme is part of a “broader multi-year development framework” that will tackle economic challenges, work to improve living conditions, encourage sustainable growth and set Afghanistan “on the path to self reliance”. 

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