The IMF blamed a recent “drought and the challenges brought about by political uncertainty and deteriorating security conditions” for this contraction.
Growth is projected to pick up to 3pc in 2019 as agricultural production recovers. Inflation is expected to average 3pc in 2018.
An IMF team led by its senior official Christoph Duenwald visited Tashkent during Sept 25–Oct 2 to conduct discussions on the fourth review of Afghanistan’s economic programmeme supported by a three-year IMF Extended Credit Facility (ECF) arrangement. During the mission, the team met Afghan authorities to discuss the latest economic developments and review implementation of reforms under the ECF. At the end of the mission, Mr. Duenwald observed that “donor grants continue to finance large budget and trade deficits” in Afghanistan, “allowing treasury cash balances and international reserves to remain at comfortable levels.”
In March, the IMF had projected a 2.5pc growth rate for Afghanistan this year, the same rate as recorded in 2017, but also warned that continuing security challenges could have an adverse impact the Afghan economy.
In Tashkent, the IMF team and the Afghan authorities reached staff-level agreement on the completion of the fourth review under the ECF arrangement. The agreement is subject to approval by the IMF Executive Board, which meets in December 2018. Upon completion of this review, SDR 4.5 million (about $ 6.1m) will be made available to Afghanistan, bringing total disbursements to SDR 22.5m.
The team discussed with the authorities Afghanistan’s implementation of the economic reforms supported by the ECF. The programmeme sets out a structural reform agenda focused on institution building; fiscal and financial reforms while safeguarding social and other priority spending.
It also suggests measures to combat corruption, to lay the foundations for scaled up private sector development and higher inclusive growth. The IMF team commended Afghan authorities for prudent macroeconomic management and achieving progress under challenging circumstances and discussed follow up actions that would help move the reform agenda forward.
“Afghanistan continues to face daunting challenges, with the perilous security situation hurting confidence and growth. The drought, which affects two-thirds of the country’s provinces, as well as regional economic difficulties that are spilling over to Afghanistan, are compounding these challenges,” Mr. Duenwald said.
He noted that donors continued to stand by Afghanistan, providing it with much needed financial and technical assistance support.
During next month’s donor conference in Geneva, Afghanistan will have an opportunity to showcase the reform progress it is making and to explain to the international community why it deserves its continued backing.