May 17, 2012
Jan Assakzai

As TV studios in Washington and London discuss whether to ‘precipitously’ withdraw NATO forces from Afghanistan or stick to the scheduled 2014 deadline, they largely ignore the predicted decline in aid to Afghanistan’s economy once the transition of security to Afghan forces is completed. The dire prediction comes from none other than the World Bank itself.

However, before the negative effects of the coming decline in financial assistance are discussed, a cursory look at what has been achieved over the past decade in the economy, following NATO’s intervention, is warranted. The best gauge is perhaps the state of the reconstruction effort. On the positive side, ring roads have been constructed linking the country’s major cities (around $ 8 billion was spent on these infrastructure projects). All the big cities now have electricity. A rail service has been started linking Uzbekistan with Afghanistan’s Mazar-e-Sharif city — no small feat given Afghanistan’s poor infrastructure. Around $ 2 billion has been privately invested in Afghanistan’s telecom industry — an act of faith by investors given the precarious security environment.

Chinese, Canadian and Indian companies have promised billions of dollars worth of investment in the mining of minerals, higher education, transport, food security, railway links and employment-generation projects. But much can go wrong between now and the honouring of these pledges. Although these efforts have begun to improve significantly the poor infrastructure of the country, ruined by decades of civil war, they will be insufficient to solve Afghanistan’s medium- and long-term problems.

The 95 percent of the development budget financed by foreign aid presents the main challenge. With the deadline for NATO to hand over security to Afghan forces fast approaching, and the recession-hit economies of western donors struggling to recover, the predicted reduction in aid could be catastrophic. No wonder then that owing to financial constraints, the number of Afghan security forces have already been quietly reduced from 375,000 to 220,000.

As the NATO forces withdraw, the accompanying decrease in aid will hack into government and development budgets. According to the World Bank, Afghanistan’s total budget, both for development and government’s expenditures, was around $ 17 billion for the years 2010 and 2011; nearly 60 percent of the total amount was spent on the Afghan security forces, including the police (Source: World Bank, Afghanistan, Beyond 2014).

For the coming decade, the World Bank grimly projects a financing gap of around 25 percent of GDP ($ 7.2 billion) a year. It forecasts a decline in the growth rate to 5.5 present by 2018 and to 3.3 percent in the longer term. Against this backdrop, Afghanistan not only needs a yearly commitment of $ 4-5 billion for its security forces but also at least $ 25-30 billion over the whole next ten years in order to ensure a growth rate at modest levels, i.e. around six percent, as against the phenomenal 9.1 percent average rate over the last ten years (thanks to donors’ aid money and nearly $ 3.5 billion average yearly remittances from the Afghan diaspora).

The ability to launch mega projects and create job opportunities in post-2014 Afghanistan will be stifled by donor fatigue; but it is the demographics that raise the stakes, as 60 percent of the population is under 25. Unemployment, currently a massive 40 percent and if left to continue, will fuel poverty, social unrest and vulnerability — especially amongst the young — to the influence of violent and extremist groups. No wonder more and more unemployed youth will likely take all sorts of travel risks ending up on the shores of Europe and the UK, exacerbating the already controversial immigration issue.

The World Bank’s predictions for the national economy beyond 2014 also point to the relationship between declining aid money and the growing share of the opium trade; this threatens, effectively, to turn Afghanistan into a ‘narco-state’. According to a study by the United Nations Office on Drugs and Crimes in its 2011 report, funds earned, even now, from opium cultivation are around $ 70 billion and $ 500 million go to Afghan farmers. The middlemen get another $ 2.5 billion. The big barons in Asia and the west get the rest of the money. No wonder opium cultivation has a correlation with other dynamics like overall insecurity, loss of accessible areas and harmful outside interference in the country. The money obtained feeds the insurgency, drawing on the unemployed youth.

President Karzai knows that if a political solution to the insurgency is not found and found quickly and a regional consensus on post-2014 Afghanistan is not hammered out, the resulting negative security environment will further cripple the national economy.

The World Bank’s warnings for post-2014 are likely to add further to the disillusionment of Afghans and suggest — as the troops leave — the coming of a failed state, home to abject poverty, mass unemployment and social misery. These are the perfect conditions for breeding and recruiting al Qaeda-linked jihadists. This threatens the future not just of Afghans but all of us here in Pakistan and the west alike.

The writer is a London-based Afghan affairs analyst with vast experience in financial reporting. He has also worked with the BBC World Service’s Afghan Stream in London from 1999-2007
-Daily Times