Afghanistan has made enormous progress in reconstruction, development, and lifting per capita income. This progress, including steadily rising per capita income, has occurred despite security challenges and decreasing donor commitments from 2002-2013. Paul Ross, head of the International Monetary Fund’s Afghanistan mission, reported these findings at an Atlantic Council’s South Asia Center discussion on Afghanistan’s economic outlook. Ross recently returned from Afghanistan, where the IMF just completed its Article IV Consultation, an annual review the Afghan economy. “The outlook is positive,” the IMF concluded, “assuming smooth political and security transitions and continued reform and donor financing.” Moreover the IMF will “continue its close engagement” by discussing economic policies with the Afghan government and Central bank, and providing technical assistance to help build and strengthen economic institutions.
With unwavering optimistic, Ross addressed audience concerns regarding governance and corruption. “It’s a long term process,” he said, suggesting the region generally suffers from weak governance, “improving the legal infrastructure and key economic laws” will set a clear framework for the rules and penalties associated with breaking those rules. These could address banking, tax administration, money laundering, and terrorism financing. “Corruption is a two-way street. It’s the public sector and private sector.”
Fiscal sustainability also presents major immediate challenges to Afghanistan, particularly with donor and military spending on a rapid decline. Currently domestic revenue remains almost 10% below Afghanistan’s operating expenditure, and the IMF estimates this gap to remain and even increase before 2030. However, Ross suggested the need to maintain low inflation through a reserve buffer and flexible exchange rate policy. Moreover, new laws to strengthening the banking sector and promote lending will build a business-friendly environment, and area where Afghanistan has already made progress. A continued focus is necessary on inclusive growth, including structural reforms, female inclusion, and pro-poor spending, to ensure wages and livelihood of Afghans continue to rise.
Ross remained hesitant to suggest the impact of political changes on the country’s economic outlook, given the current uncertainty regarding the presidential elections. He suggested that the IMF “partners” with host country governments and central banks, with other financial institutions, to promote governance improvements alongside economic reforms. Ross extended his optimism for Afghanistan’s economic potential, through continued macroeconomic efforts, but also considering the potential increase in regional trade and growth of the agriculture and the natural resources sectors.
