Afghanistan: Unsustainable Development? David Parish

A Typical day in the Office

Going out of the Office

Encouraging Notices

Charming decor

Unusual Facilities

What kills working independent consulting economists? Sickness, especially malaria

What kills working independent consulting economists? Sickness, especially malaria Accidents, especially traffic

What kills working independent consulting economists? Sickness, especially malaria Accidents, especially traffic Crime

Overall Conclusion Safest place I ever worked

Immediately After 2001 Total Absence of Data World Bank/ADB/UN try to create overview Conferences begin in Tokyo (January 2002) Immediate demands for actions Lots of top down project appraisal Huge pressure to spend

Some Positive results Annual GDP growth averages over 10% High but controlled inflation Government revenue up from 3% to 10% of GDP Some debt relief Reserves for 7 months imports Significant natural resources Private sector growth in telecomms, airlines and media Donors only doing three things each

Kabul Process Agreed at London and Kabul conferences in 2010 Transition: government stabilises security and takes over security spending Transformation: expected gradual decline in donor support over medium term

Major Uncertainties The security outcome The economic impact of a significantly reduced foreign presence The level of development assistance from donors Relations with neighboring countries Government commitment to and capacity for reform Enabling environment for the private sector External sector adjustment

Security Outcome All projections assume security is satisfactory: it may not be Even with satisfactory security path to sustainability is difficult and uncertainties are huge

Foreign troop Withdrawals IMF estimate the withdrawals will reduce annual GDP growth by 2-3% Nobody feels at all confident about estimates

Level of Development Assistance Some development spending by military US has been far and away largest donor (over 50% of total) Projections assume donor grants fall from over 40% of GDP in 2010/11 to under 30% in 2013/14

Relations with Neighbours Problems over relations with Pakistan Relations with Iran are up and down Central Asia and China are fine but a long way to ports.

Government Capacity Two and a half civil services PMUs Old civil service New units Projects completed with development assistance will cost US$1-2 billion a year to maintain, but there is no budget. Some may have to be abandoned

Private Sector Worst enabling environment in South Asia Tax revenue is supposed to grow from 11% to 16% of GDP over five years (introduction of Vat and revenue from mining companies). But mines need infrastructure

Example 1: Railway 75km Line built from Uzbekistan No strategy or appraisal No capacity to run railway Uzbeks are running line on a management contract and ADB is subsidising the cost Lots more lines “planned” and one under development into Iran

Example 2: Power Transmission lines built into central Asia Distribution systems improved especially in Kabul Power utility created but capacity is very limited Ability of sector to self finance is uncertain

Example 3: Roads Lots of roads built, both military and civil Negligible maintenance capacity Tolls were proposed to finance system but have been dropped

Conclusion Even if the security situation is resolved successfully, it will be very challenging for the government to balance needs and resources Donor funding will be needed to keep what is there operational Great caution over any future investment