OREANDA-NEWS. An International Monetary Fund (IMF) staff team, led by Paul Ross, met with the authorities of the Islamic Republic of Afghanistan from November 10-21, 2014 to discuss macroeconomic policies and a structural reform agenda that could form the basis of a possible nine-month Staff-Monitored Program (SMP).1 Mr. Ross issued the following statement on the outcome of the discussions:

“The Afghan authorities and the IMF staff team held constructive discussions on Afghanistan’s recent economic performance, the new administration’s policy framework, and reform plans. The authorities have indicated their desire to move with energy and determination to address the challenges Afghanistan faces, and the IMF staff team very much looks forward to supporting their efforts.

“Political and security uncertainties have weighed on Afghanistan’s 2014 economic performance. Afghanistan has maintained macroeconomic stability. However, the uncertainties weakened confidence, hurt economic activity and, combined with an inadequate policy response, led to the emergence of macroeconomic vulnerabilities.

“The new administration is resolved to lay the foundation for a vibrant economy that benefits all Afghans. The conclusion of the presidential elections and agreement on a national unity government helped reduce the uncertainties and restored confidence. We welcome the authorities’ determination to maintain macroeconomic stability and to implement reforms that promote sustainable and inclusive growth. A possible SMP would support their macroeconomic policy and reform agenda for 2015 with a framework to address economic vulnerabilities and facilitate engagement with the international community to sustain donor support. It will focus on mobilizing revenue, strengthening the financial sector enforcement, improving economic governance, and laying the basis for high growth.

“Good progress was made in discussions on an SMP. Understandings were reached on macroeconomic policy objectives and on several key structural reforms. Provided that a common understanding is reached on the 2015 budget, the macroeconomic framework will maintain buffers of low debt, a comfortable international reserves position, and the current account financed by continued donor grant financing. Exchange rate flexibility will help protect competitiveness and the international reserves position. On structural issues, understandings were reached on measures to safeguard financial sector stability and strengthen the financial sector as well as the need for domestic revenue mobilization. Also, the authorities plan to strengthen further the anti-money laundering and combating the financing of terrorism framework and step-up anti-corruption efforts.

“Discussions are ongoing on the 2015 budget, medium-term revenue mobilization, and the state banks. On the 2015 budget, discussions focus on tax policy and expenditure measures. Introducing broad-based tax measures and improved compliance are essential to mobilize revenue to move toward fiscal sustainability. Regarding state banks, IMF staff has recommended restarting the sale of New Kabul Bank and recommended steps to address problems in other state banks.

“Given Afghanistan’s big development and security needs, donor financing will be needed over the medium term. Continued provision of substantial external grant financing is needed to support the move toward fiscal sustainability and to enhance confidence in the Afghan economy.

“The IMF staff team met with National Economic Advisor and Acting Finance Minister Omar Zakhilwal and Da Afghanistan Bank Governor Noorullah Delawari, and other senior officials. We will resume discussions with the authorities on a possible SMP after the London Conference on Afghanistan. The staff team will remain closely engaged with Afghanistan and continue to provide policy advice and capacity building assistance.”