Home > Afghanistan, Asia-Pacific, Central Asia, Economics, Politics > Afghanistan’s budget almost entirely financed by foreign countries

Afghanistan’s budget almost entirely financed by foreign countries

Afghanistan, Kabul market

Afghanistan, Kabul market

Afghanistan’s national budget is 90% financed by foreign governments despite the fact that it has increased its share of income from tax and customs revenues by 50% over the past year.

The Afghan Research and Evaluation Unit has written the following on the Afghan economy:

Consistent with the current consensus on development held by the donor community and international financial institutions (IFIs), the privatisation process has gained increased momentum in Afghanistan. The government has committed to the privatisation agenda in its Interim Afghanistan National Development Strategy (IANDS) and in the Afghanistan Compact agreed upon with the international community in January 2006. This followed the November 2005 approval by the Cabinet to amend the State-Owned Enterprise Law, allowing for the divestment of state enterprises by various means. Fifty four fully state-owned enterprises (SOEs) have been slated for privatisation as going concerns or through liquidation by the end of 2009.

The report states that the total value of these sales is estimated to be US$614, which is small by international standards.

However, the total government budget of Afghanistan in 2008 was around US$685 million, so the sale of public assets amounts to a large share for a country whose assets and resources are very small. The government revenue estimate was provided by Afghanistan’s Minister of Finance, Anwar-ul-Haq Ahadi, during an interview with foreign press.

With a national budget that is so small, many foreign infrastructure projects have only added to the problem because of their large price tags, which are more suitable to high priced markets in the developed world. Although, at the time of construction, the projects may be fully funded by foreign donors, the maintenance cost of the same infrastructure may be prohibitive, impracticle, or even impossible for the Afghan government to afford without taking loans.

Consider the Louis Berger Group’s contract to build 1,000 schools, each costing US$274,000.  In this case, the Afghan government not only has to worry about maintaining the schools, they might not even be usable. In January 2009, Ann Jones, who for years worked in Afghanistan as an aid worker, says that Louis Berger, “already way behind schedule in 2005, had finished only a small fraction of them when roofs began to collapse under the snows of winter.”

Sustaining an Afghan government financially on foreign life support requires multiyear planning from all donors involved. This requires that Afghanistan’s needs be incorporated into the budgets of NATO countries, and that many of the political decisions on funding be made by foreign governments accountable to their own people. There is not much room for self-reliance in this scenario.

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