Economic Management in Afghanistan: What worked, what didn’t, and why?
Photo: Christine Roehrs 2015
Afghanistan’s past experience with economic management has seen both notable successes and salient failures. A new paper for AAN by Bill Byrd, a former head of the World Bank in Afghanistan (currently a senior expert with the US Institute of Peace), reviews several economic policies during the period 2002-2014. It points to important lessons for Afghanistan’s future which may also be applicable to other conflict-affected or post-conflict countries.
The paper finds that virtually all important achievements in Afghanistan’s economic management and public financial management spheres were set in motion in the first few years after 2001 while the situation was still relatively fluid, illustrating the importance of flexibility and political space. The successful interventions were greatly helped by the introduction of relatively rudimentary but appropriate measure and by a confluence of “incentives and dynamics.”
In general, progress has been greater where the responsible Afghan government institutions have had strong leadership and limited where these were not in place. Like in other sectors, progress has further tended to be easier for activities that were overtly ‘technical’ in nature and that did not attract much political attention. Afghanistan’s experience, moreover, shows that if financial accountability and integrity are not prioritised up-front, it becomes more difficult to deal with corruption later,
The paper also discusses the limits to progress in the macroeconomic management and public financial management spheres and, looking ahead, identifies several important challenges. The political space, even for the more technocratic reforms, appears to have significantly narrowed over the years. With the declining levels of aid important positive incentives towards solid macroeconomic and public financial management will also decrease, leading to the question whether, in the current fiscal squeeze, having only negative incentives can continue to stimulate public financial management improvements.
Finally, Afghanistan’s rapid economic growth in the past, fuelled by large inflows of resources, meant that difficult trade-offs in macroeconomic and fiscal management could be avoided. But in the current low-growth environment macroeconomic management by the Ministry of Finance and the Da Afghanistan Bank will be much more difficult.
Download the full paper here.