Afghan economy: World Bank recommendations and projections

[T]he current assumption of having more than 300,000 troops would be too expensive. “That would actually crowd out all the developmental expenditure that needs to happen.”

Currently two-thirds of the foreign aid to Afghanistan goes outside of the government [to NGOs].

Rightsize military, World Bank asks Kabul
By Lalit K Jha
March 20, 2012
Pajhwok Afghan News [via e-Ariana]

WASHINGTON - The World Bank (WB) has urged Afghanistan, which is preparing for a sustainable economy after 2014 when foreign troops are expected to withdraw, to prioritise national programmes and rightsize its military.

The bank also urged foreign donors not only to increase their financial assistance but also route it through the government and not NGOs.

The economy of Afghanistan, which post-Taliban has sustained average GDP growth of 9.1 percent, one of the highest in South Asia, is expected to drop by half after the international troops leave the country in 2014, the World Bank estimates.

“The issue right now most important is the transition weather and how economic situation is going to be effected by it,” Isabel Guerrero, the World Bank vice-president for the South Asia Region, told Pajhwok Afghan News in an exclusive interview.

A rapid decline would reduce growth to 5.5 percent until 2018 and around three percent in the long term due to less consumption and investment. This is roughly 50 percent less than the current growth, she noted.

The World Bank, she said, has been recommending a number of measures to ensure that there is a sustained level of development in Afghanistan. With population growth at 2.8 percent, Afghanistan needs strong economic growth to reduce poverty and improve development outcomes.

A growth rate of six percent a year would be required to double Afghanistan’s per capita GDP in about 22 years, Guerrero said. As such, she asked the Afghan minister of finance to prioritise the country’s expenditure, consolidate national programmes and remove plans that are not really crucial.

Guerrero believes Afghanistan needs to 'rightsize' its military. This means having enough security forces so that the private sector can work and there is developmental activity.

But it should not be a drain on the national exchequer. She said the current assumption of having more than 300,000 troops would be too expensive. “That would actually crowd out all the developmental expenditure that needs to happen.”

All aid-giving countries, she said, should think of using some of the savings that they are going to get from the Afghan withdrawal and having less troops to increase development aid.

It is important that foreign aid is routed through the government and not through the non-government sector, as is the case now. Currently two-thirds of the foreign aid to Afghanistan goes outside of the government.

The World Bank official also called for assisting in reconnecting Afghanistan with world markets by helping remove restrictions on trade and transit, and to encourage the building of infrastructure (rail and roads) to realise the potential of mineral wealth.

Guerrero said ... in 2010/11 total public spending, including the “core budget” and “external budget,” was 5.7 billion [and] financed by aid and .9 billion [?] of it “on budget”. This reflects how much Afghanistan is dependent on foreign aid.

According to a recent World Bank study, domestic revenues are projected to increase from 10 percent of GDP to 17.5 percent by 2021/22, which would be driven largely by planned value-added tax and mining revenues.