IMF: Afghanistan's prospects hurt by uncertainties, sale of New Kabul Bank, donor financing crucial

Afghanistan's 2014 economic performance has been hurt by political and security uncertainties though the country has maintained macroeconomic stability, International Monetary Fund said on Wednesday.

Part of various measures to improve revenue and expenditure scenario, the Fund has recommended restarting the sale of New Kabul Bank even as donor financing will remain essential for Afghanistan.

"The uncertainties weakened confidence, hurt economic activity and, combined with an inadequate policy response, led to the emergence of macroeconomic vulnerabilities," IMF said in a press release.

The Fund said there has been progress in its discussions with the Afghan authorities on macroeconomic policies and a reform agenda is needed for a possible nine-month Staff-Monitored Program (SMP).

An SMP is an informal agreement between a country and IMF to monitor the implementation of the authorities' economic programme.

"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."

The SMP will focus on mobilising revenue, strengthening the financial sector enforcement, improving economic governance, and laying the basis for high growth, IMF said.

However, the conclusion of the presidential elections and agreement on a national unity government has helped to reduce uncertainties and restored confidence, the Fund said.

Donor financing, New Kabul Bank

Maintaining buffers of low debt, a comfortable international reserves position, and the current account being financed by continued donor grant financing are crucial for Afghanistan, according to the Fund.

"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."

Discussions with regard to the 2015 budget focus on tax policy and expenditure measures, IMF said.

"Introducing broad-based tax measures and improved compliance are essential to mobilise revenue to move toward fiscal sustainability."

Regarding state banks, the Fund 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 stated.