IMF Executive Board Concludes Article IV Consultation with Afghanistan --- Over the past decade, Afghanistan has made enormous progress in reconstruction, development, and lifting per capita income. Important steps have been taken to lay the foundation for macroeconomic stability and growth, to reduce poverty, and to achieve social and development objectives. However, security conditions, political uncertainty, and weak institutions continue to constrain growth and weigh on social outcomes. The international community has delivered substantial financial support and pledged to continue doing so over the medium term. -- With significant domestic efforts and donor support, Afghanistan has maintained macroeconomic stability, implemented important structural reforms, and built policy buffers—namely a comfortable international reserves position, low debt and inflation, and balanced budget and external current account positions. Nonetheless, significant vulnerabilities remain and several reforms have been delayed. After the first review of Afghanistan’s IMF-supported program in June 2012 (Press Release No. 12/245), subsequent reviews were delayed due to missed quantitative targets and slower than planned implementation of structural reforms. -- Over the past two years, economic activity has been affected by political and security uncertainties and the drawdown of international troops. These uncertainties reduced confidence, discouraged private investment, and held back economic activity. Growth slowed from 14 percent in 2012 (boosted by a bumper harvest) to an estimated 3.6 percent in 2013. Inflation remained in single digits (5.6 percent year-on-year in March 2014). International reserves also remained at a comfortable level equivalent to over seven months of imports. -- Partly reflecting weaker economic activity, budget revenue performance deteriorated significantly in 2012–13, despite additional measures, and was short of the targets established in June 2012. The revenue shortfall resulted in a tight cash position for the treasury and required limiting expenditure. As a result, expenditure as a share of GDP declined in 2013. Progress was made in structural reform efforts, but implementation was slower than planned. Noteworthy accomplishments included: publishing the inquiry into the Kabul Bank crisis; submitting the new banking, value added tax (VAT), and tax administration laws to parliament; strengthening border control management; preparing a new sukuk law; and adopting a strategic plan for financial supervision. However, delays have been encountered in introducing the value added tax and submitting to parliament the laws on anti-money laundering and countering of financing of terrorism, and amendments to the central bank law. -- This year, 2014, is crucial in the political and security transitions and the run-up to the “transformation decade,” which starts in 2015. Assuming smooth political and security transitions, continued reform and donor financing, the outlook should be positive. Large security and development expenditure needs and a limited domestic revenue capacity mean that Afghanistan will remain dependent on donor financing for an extended period. In addition to donor support, macroeconomic stability, structural reforms, and political and security stability are needed to ensure durable and inclusive growth. Risks to the outlook are mostly on the downside. - More, Press Releases - http://www.imf.org/external/np/sec/pr/2014/pr14236.htm