KABUL - Annette Dixon, Vice President for South Asia Region, The World Bank, summed up Afghanistan's present economic climate in a speech to delegates at the Senior Officials Meeting (SOM) in Kabul and said that although they expected the transition period to be difficult, they now see it has "affected Afghanistan much more severely than many of us anticipated".
In her speech she said Afghanistan faces tremendous challenges surrounding growth, employment creation and poverty reduction and the role of peace and reconciliation in enabling the government's vision for greater self-reliance.
She said: "We expected the governance and security situation to dip momentarily, economic growth to decline and fiscal management to be difficult. The Chicago and Tokyo commitments prepared us for this. But what we did not predict was how long-lasting the impact of the political transition would be and how deeply it would affect the recovery process."
"The National Unity Government inherited weak governance institutions and serious fiscal situation as a result of the transition. Increased violence and conflict, pervasive corruption and political uncertainty have taken a toll on private investment and employment generation. Over one third of the population lives below the poverty line and over half is vulnerable. The most recent household survey indicates that poverty has increased during the transition process, mainly due to fewer employment opportunities. Even more growth and investment is now needed to bring the country back on a more sustainable growth path," she said.
Acknowledging that the government has taken steps to address these challenges, she said government has, in its bid to move towards greater self-reliance, put forward an ambitious macro-fiscal reform program, anchored in various global assistance programs.
"However, these reforms will take time to translate into impact – as will the current efforts to achieve peace and stability," she said.
"The medium-term economic outlook is therefore not very favorable: growth will remain sluggish this year at 1.9 percent– which is insufficient for a country with a population growth of 2.7 percent to lift people out of poverty," she said.
"Our projections indicate a slow recovery over the medium-term. Fiscal vulnerabilities will remain high and will require a large revenue effort, expenditure consolidation and sustained levels of aid from the international community."
"Our recent analysis shows that Afghanistan's economic revenue potential, even with considerably enhanced effort to reduce leakages and improve administration of the tax regime, is below 16 percent of GDP. This is grossly inadequate to finance its current level of spending which is at 36 percent of GDP and does not yet fully account for liabilities that are currently financed off-budget, especially in the security sector," she said.
She went on to say that increasing Afghanistan's revenue potential will require investment in a growth model that is viable in the context of continued fragility and a slow path to peace.
A key area was that of mining, which she said was needed to generate fiscal revenue and export receipts while agriculture development will be critical for job creation.
She said that both sectors have the potential to drive demand for services in the future.
In addition, she listed four areas that needed urgent attention.
Firstly, private sector confidence needs to be restored and urged that closer dialogue in this respect was key to garnering their support.
Secondly, poverty impact of public expenditure needs to be enhanced. She said the only way to mitigate poverty in the short-term is to re-program the existing portfolio of development interventions.
Her third point was that the needs for security and development assistance needs to be re-articulated. "Afghanistan's security strategy and commitments need to be re-visited in light of the changes in the security situation. Achieving greater self-reliance will critically depend on how realistic and affordable the country's security will be in the long-term," she said.
Lastly, government must deliver on its reform program, she said adding that early wins, even when modest, are important building blocks for confidence building and expanding the constituencies for reform and for peace. (Tolonews)