Afghanistan’s Economic Challenges

As American and coalition forces prepare to withdraw from Afghanistan by the end of 2014, the Afghan government faces a challenge as daunting as the need to take over the fight against the Taliban: assuming responsibility for an economy that has been almost exclusively dependent on outside assistance for more than a decade. The numbers are staggering. According to the World Bank, an estimated 97 percent of Afghanistan’s roughly $15.7 billion gross domestic product comes from international military and development aid and spending in the country by foreign troops. The economy is already contracting as troops leave, and future growth will be slower, especially in urban areas and areas of conflict. To increase the odds for a more gradual and manageable transition, the United States and other major donors pledged $16 billion in development aid through 2015 at a conference in Tokyo last week. It was an important and necessary commitment. Now they have to deliver. The United States and other nations have promised that they will not abandon Afghanistan, which happened in 1989 after the Soviet Union was pushed out. The World Bank has warned that an abrupt aid cutoff could provoke a collapse of political authority, civil war and a greater reliance on opium profits. The major donors, however, are mired in financial crisis, and they are tired of war and with the corruption and ineptness of President Hamid Karzai’s government, which has failed to build a stable and viable country despite the loss of thousands of lives and billions of dollars of assistance. Not all the money has been wasted. Since 2001, many more Afghans have access to health care, schooling and even cellphones. But the country is still one of the world’s poorest and lacks reliable basic services like electricity. The government has been unable to generate enough revenue to cover more than a fraction of its budget. Billions of dollars have been transferred to Dubai and elsewhere as Afghans with huge caches of cash bet against their country’s future and sabotage its ability to grow. Transparency International, a watchdog group, says Afghanistan is among the world’s most corrupt countries and getting worse. The group says at least $1 billion donated over the past eight years has been siphoned off. The Tokyo conference tried to address this issue by requiring, for the first time, the Afghan government to reduce corruption before receiving all of the newly promised aid. Mr. Karzai gave all the right assurances, but he has done that before. If he is serious now, he is fast running out of time. Just days after the conference, seven top members resigned from the government agency that promotes investment in Afghanistan over what they said was rampant corruption and mismanagement. If Mr. Karzai fails to enact serious reforms and prosecute lawbreakers, the United States and other donors will lose all credibility if they don’t withhold at least some aid. Now is also the time for Afghans and the international community to work to guarantee free and fair elections so a new president can be chosen as called for, in the constitution, in 2014. Eventually, Afghanistan has to wean itself from its donors. Indigenous businesses are growing, and there is even greater potential. The country has significant mineral deposits. Exxon Mobil has hinted at interest in exploring for oil. A recent conference organized by India drew investors from more than 40 countries. These opportunities will have much better prospects with a transparent, honest, competent and law-based government.