The International Monetary Fund said on Friday it had reached a staff-level agreement with Afghan authorities on the completion of first review for $147 million financing.
The agreement is subject to approval by the IMF Executive Board, which is expected to consider the first review in early June. The review’s completion will make about US$147 million available to Afghanistan to cover external and fiscal financing needs.
The three-and-half-year ECF arrangement approved in November 2020 is supporting Afghanistan’s recovery from the Covid-19 pandemic, buttressing reforms to tackle structural weaknesses in the economy, and providing financing to enable priority spending, IMF said in a statement. The ECF was also instrumental in catalyzing donor financing at the Geneva donor conference in support of Afghanistan’s reform and development, it added.
“Afghanistan continues to face formidable challenges, with the precarious security situation hurting confidence and growth. The peace negotiations hold the promise of a resolution of the armed conflict paving the way for lasting economic development and prosperity. In the meantime, reform-oriented policies supported by donor grants and capacity development remain critical to lay the foundation for inclusive growth and poverty reduction and limit economic scarring from the pandemic,” IMF statement said.
“Afghanistan has been hit hard by the Covid-19 crisis. To mitigate its impact on the Afghan people, especially the vulnerable, the authorities raised spending for health and social needs supported by donor and IMF financing. The authorities’ swift response and the favorable weather, which boosted the agricultural production by more than 5 percent, helped contain the economic contraction in 2020 to 2 percent. Revenue shortfalls due to the slowdown and pandemic spending led to a widening of the fiscal deficit to 2.3 percent of GDP in 2020.
“High-frequency data are pointing to a recovery, with working hours, social mobility, and cross-border traffic largely back to pre-crisis levels. Growth is projected to rebound to 2.7 percent in 2021 but remains subject to considerable downside risks from the evolution of the pandemic, insecurity, and the incipient drought due to a disappointing winter precipitation.
“Monetary policy remains geared to low and stable inflation, with the authorities committed to letting the Afghani move with market trends to preserve competitiveness. The pandemic has heightened strains in the banking sector, leading to a worsening of asset quality and lower bank profits. In response, Da Afghanistan Bank has appropriately intensified its monitoring for early detection of stress, focusing on weak banks which boosted their capital and loan-loss reserves,” IMF said.
