Islamic Republic of Afghanistan - Enhanced Integrated Framework ...

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Core budget expenditures will remain constantat about 25 percent of GDP although the allocationof various expenditures changes over timeto align with the Government’s developmentpriorities. Throughout the projection period,while the share of operating expenditures decreases,that of development expenditures increases.A considerable portion of expendituregoes to security, counter-narcotics, roads andsocial expenditures (i.e. education and health).Figure 4.8. Domestic revenues versus operating expendituresFiscal sustainability is essential to ensure macroeconomicstability. The operating budgetbalance (excluding grants) is projected to improvefrom a deficit of 4.4 percent of GDP in1386 to a balanced budget 1391 (Figure 4.7).This requires that the donor grants to the operatingbudget (e.g. Afghanistan ReconstructionTrust Fund) will free up domestic revenues forkey development expenditures after 1391.Two key fiscal policy challenges are on the horizon:the integration of the external budgetinto the core budget, and improvement of theabsorption capacity of line ministries. Currently,more than two thirds of foreign assistancedoes not go through the Government’streasury account, and thus information regardingthese expenditures is often partial and difficultto obtain. This impedes the Governmentin its attempts to allocate scarce financial resourcesin line with its priorities and developmentobjectives. Donors can greatly help byproviding more information and/or shiftingfrom the external budget to the core budget; theGovernment can also improve the situation byarticulating clearer priorities – which should beachieved through the ANDS itself. In the pastfew years, the government has spent less thanavailable financial resources, resulting in delayedinvestments needed for development.Improving the absorption capacity of the Government,therefore, will continue to be important.Prudent debt management will continue to beessential as Afghanistan moves towards fiscalsustainability. As a supplement to donor fundsthe country expects to continue to use limitedamounts of debt to finance specific projects andvarious program requirements. It is expectedthat any debt received will carry terms that arebelow market in nature as this is a requirementunder Afghanistan’s current agreements withvarious international financial institutions andthe Paris Club group of creditors. Debt sustainabilityin future periods is an importantgoal for the Government to achieve and willcontinue to be a guiding principle governingthe country’s use of debt in the coming years.MONETARY POLICYConsistent with DAB’s medium to long-termstrategic objectives in conducting monetary48Afghanistan National Development Strategy (ANDS)
policy, it will remain vigilant against inflation.The main goal is to maintain core inflation atsingle digit levels, preferably between 2.5 to 4percent, although this will continue to be agreat challenge. 35Nominal exchange rates are expected to remainconstant at around Afs 50 against US dollar.Stable exchange rates will contribute to containinflationary pressure from imported productsas well as provide predictability to the privatesector. Nevertheless, stable nominal exchangerates imply the appreciation of the real exchangerates. In the short-term, the impacts onthe appreciation of the real exchange rateswould not significantly hurt competitiveness asother costs associated with security and electricityseem bigger than the negative impactson the exchange rate appreciation. However,the Government will keep its eyes on the impactof real exchange rate appreciation forcompetitiveness in the medium-term.Access to finance is one of the most severe constraintsto the private sector development.High interest rates, caused by high inflationrates and a high risk premium will threaten thefinancial sustainability of the private sector.Such high interest rates could jeopardize thegrowth of the nascent financial sector in thecountry. In the medium to long term, prudentmonetary policy together with a disciplinedfiscal policy will contribute to a reduction inthe risk premium. Effective financial intermediationand macroeconomic stability will eventuallybring down real interest rates in the longrun as prospects for long term stability improve.The central bank will closely monitorthe monetary developments and ensuing liquiditysituation along with developments ininterest rates and credit markets and will reactappropriately to these developments.To achieve price stability, DAB intends to expandthe menu of instruments that have not yetbeen fully utilized in directing monetary policy.The Central Bank currently relies on foreignexchange auctions as the most dominanttool to maintain price stability and reduce exchangerate volatility. The use of other tools of35 Note, the recent rapid increase in global prices could potentiallycreate a challenge for the Government and DAB to maintaincore inflation between 2.5 and 4 percent in the short term.monetary policy – such as Open Market Operations(OMO) and Reserve Requirement Ratio(RRR) – has so far been very limited. Othermonetary policy tools, such as short-term interestrates and discount rates, have not yet beenintroduced due to the lack of a market for suchsecurities.DAB will issue capital notes with various maturityperiods and create a secondary marketfor trading of these notes. The more capitalnotes are traded in secondary markets, themore the need for foreign exchange auctionswill be diminished. Overall, by creating a capitalmarket and a strategic repositioning ofmonetary policy tools through gradual transitioningfrom foreign exchange auctions to utilizingother tools of the monetary policy, DAB’sroom for maneuverability will expand.Banking systemThrough its regulatory mandate, DAB is committedto help banking institutions to managethe risks involved in their operations. Pursuantto Paragraph 2 of Article 2, and other articlesstipulated in the DAB law, the central bank isin charge of supervising all depository financialinstitutions that are legally authorized to takedeposits from the public on a continual basis.DAB will continue to supervise banks’ lendingpractices and encourage transparency and accountabilityin the entirety of their financialtransactions, in order to avoid bank failureswhich can negatively impact the economy.DAB will strive to encourage financial institutionsto actively take part in economic developmentsby granting short-term, medium-termand long-term credits to small and mediumenterprises (SMEs), owners of factories andconstruction companies and to start mortgagelending to commercial and residential customers.Consumer lending should also becomeavailable to the citizens of this country. To doso, DAB needs to remove any prevailing obstaclesand unnecessary legal constraints by draftingrequired laws and regulations and submittingthem for approval to the National Assemblyas quickly as is practicable. Fortunately,DAB has already taken significant steps indrafting four laws which will facilitate medium-to long-term lending in the country.Macroeconomic Framework 49
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In the name of Allah, the most Merc
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Executive SummaryI. INTRODUCTIONAfg
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Executive Summarydeveloping capacit
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2. The Afghan National Police (ANP)
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Afghanistan National Development St
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Afghanistan National Development St
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Executive SummaryWater Resources Ma
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Executive Summarystrengthen the ref
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Executive Summaryfor Capacity Devel
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Executive SummaryOver the past five
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Executive SummaryA key priority of
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Executive SummarySustaining the nas
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Islamic Republic of AfghanistanAfgh
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Map of AfghanistaniiiAfghanistan Na
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Map of Afghanistan ................
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Current situation: assessment of ai
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ACACBARADBADCAfCERTAFMISAGOAIHRCAIS
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Glossary of Afghan TermsAmu DaryaBa
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percent of the seats in the Nationa
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Page 58 and 59: dress the security, governance, and
Page 61: PART IPROCESS, GOALSAND POLICYDIREC
Page 64 and 65: of the country’s 34 provinces are
Page 66 and 67: pertise, ability to manage risk and
Page 68 and 69: A Transport Sector Inter-Ministeria
Page 70 and 71: sion of service coverage and monito
Page 72 and 73: The regional cooperation initiative
Page 75 and 76: CHAPTER 2THE PARTICIPATORY PROCESS
Page 77 and 78: Figure 2.2. ANDS timeline 1385 - 13
Page 79 and 80: tation of projects. The PDPs develo
Page 81 and 82: Figure 2.3. Proportional representa
Page 83: • In the North East and Central H
Page 86 and 87: season being covered. To overcome t
Page 88 and 89: Consumption DisparityConsumption in
Page 90 and 91: correlated with higher involvement
Page 92 and 93: • Improving donor coordination an
Page 94 and 95: sickness or loss of a working famil
Page 97 and 98: CHAPTER 4MACROECONOMIC FRAMEWORKHig
Page 99 and 100: age points - from 42 percent of the
Page 101 and 102: Figure 4.4. Size of foreign assista
Page 103 and 104: ooooIncrease interdiction efforts a
Page 105: Consistent with the growth strategy
Page 109: In the short term, the Government w
Page 112 and 113: groups and neutralizing armed eleme
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Page 116 and 117: Significant steps have been taken s
Page 118 and 119: Table 5.1. Integration of the Cross
Page 120 and 121: Current Situation in the SectorAfgh
Page 122 and 123: Justice system between government a
Page 124 and 125: Table 6.2. Key Objectives of the Na
Page 126 and 127: Current Situation in the SectorAchi
Page 128 and 129: Table 6.1. Cross cutting issues in
Page 131 and 132: CHAPTER 7ECONOMIC AND SOCIAL DEVELO
Page 133 and 134: commitments to increase the goods a
Page 135 and 136: investment opportunities cannot be
Page 137 and 138: Despite progress and efforts to dat
Page 139 and 140: tor regulator, which will adopt a t
Page 141 and 142: percent of households in Kabul and
Page 143 and 144: icy priorities and decisions pertai
Page 145 and 146: at the same time rehabilitating and
Page 147 and 148: Further, the unstable security situ
Page 149 and 150: ilitation that will provide all wea
Page 151 and 152: • Increased Agricultural Producti
Page 153 and 154: the poverty reduction goals. Carefu
Page 155 and 156: separate policies - one for basic t
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tions designed to promote Governmen
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• Urban Development: By the end o
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financing or co-production with use
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• Strengthened municipal capacity
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This Sector Strategy incorporates f
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high baseline level of 165 infant d
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temporary or permanent disabilities
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• the proposals that are consider
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In Higher Education, universities h
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the primary level. In rural areas,
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carry out construction of buildings
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prosperous and productive future in
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covery, and peaceful development of
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• By end-2012/13 the Government w
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to re-forest Afghanistan (i.e., “
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policy making. However, lack of the
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countries through policy negotiatio
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Provide housing, facilities and soc
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Table 13.0.1. Cross Cutting Issues
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SectorAnti-CorruptionGendering fina
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SectorAnti-CorruptionGenderCounter-
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SectorSocialProtectionAnti‐Corrup
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CHAPTER 8CROSS-CUTTING ISSUESThe AN
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COUNTER NARCOTICSBackground and con
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inforcing the integrity of public a
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activities on gender. The Governmen
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Resources and Environment. The orga
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PART IIIAID EFFECTIVENESSANDCOORDIN
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children have enrolled in primary a
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crease donor support for preventive
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Increasing the volume and concessio
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tation of the PRGF. Moreover, the s
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CHAPTER 10IMPLEMENTATION FRAMEWORKT
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lation and execution capacities to
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By committing themselves to funding
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ROLE OF THE MTFFThe three year Medi
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Consultative Groups (CGs) will cont
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CHAPTER 11MONITORING FRAMEWORKThe A
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(for ISAF), Afghanistan Information
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Figure 11.2. ANDS Poverty Monitorin
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Table 13.1. Monitoring and Evaluati
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ANDS Monitoring and Evaluation Indi
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CHAPTER 12CONCLUSIONWhile significa
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larger and more efficient private s
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APPENDICES
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PILLAR : SECURITYSECTOR : SECURITYE
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PILLAR : GOOD GOVERNANCESECTOR : GO
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PILLAR : GOOD GOVERNANCESECTOR : GO
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PILLAR : GOOD GOVERNANCESECTOR : JU
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PILLAR : ECONOMIC GOVERNANCE AND PR
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PILLAR : INFRASTRUCTURESECTOR : ENE
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PILLAR : INFRASTRUCTURESECTOR : ENE
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PILLAR : INFRASTRUCTURESECTOR : TRA
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PILLAR : INFRASTRUCTURESECTOR : URB
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PILLAR : INFRASTRUCTURESECTOR : MIN
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PILLAR : INFRASTRUCTURESECTOR : WAT
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PILLAR : INFRASTRUCTURESECTOR : INF
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PILLAR : EDUCATION AND CULTURESECTO
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PILLAR : AGRICULTURE AND RURAL DEVE
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PILLAR: SOCIAL PROTECTION & REFUGEE
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APPENDIX IIMonitoring MatrixPILLAR:
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PILLAR: GOVERNANCE, RULE OF LAW AND
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PILLAR: GOVERNANCE, RULE OF LAW AND
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PILLAR: INFRASTRUCTURESECTOR: TRANS
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PILLAR: INFRASTRUCTURESECTOR: TRANS
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vincial capitalsImproved ICT covera
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PILLAR: EDUCATIONSECTOR: EDUCATION
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services able throughout Afghanista
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PILLAR: AGRICULTURE & RURAL DEVELOP
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PILLAR: SOCIAL PROTECTIONSECTOR: RE
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G:Islamic Republic of AfghanistanAf
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