The Managing Director of the International Monetary Fund (IMF) has approved a Staff-Monitored Program (SMP) for the Islamic Republic of Afghanistan covering the period of April-December, 2015.¹

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 new government is resolved to push ahead with economic reforms and improve governance to promote economic growth and development that benefits all Afghans. The international community and key donors have reaffirmed their partnership and commitment to Afghanistan at the London Conference held in December 2014. They 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. The SMP will foster continued close engagement with Afghanistan, address immediate fiscal and banking vulnerabilities, and help manage risks. The SMP will also 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 mobilizing domestic budget revenue to finance projected expenditure and rebuild the treasury’s cash balance. Monetary policy will aim to preserve low inflation, and exchange rate policy will protect international reserves and competiveness. Structural reforms will focus on: (i) budget revenue mobilization, 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.

The IMF has assisted Afghanistan in strengthening economic institutions and in providing advice to the government on economic policies and reforms for more than a decade. IMF staff will work closely with the authorities to monitor progress in the implementation of their economic program. In addition, the IMF will continue to provide technical assistance to support Afghanistan’s capacity-building efforts and its reform program. The SMP is designed to build a track record and successful performance will catalyze donor flows and support a future request for an Extended Credit Facility (ECF) arrangement.

¹ An SMP is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic program. SMPs do not entail financial assistance or endorsement by the IMF Executive Board.