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A reformed economy: Afghanistan’s leap towards self-sustainability

economy1Afghanistan has gained an international reputation as a lost cause, a country stuck in a cycle of corruption, violence and drugs. However, the Afghanistan of 2016 offers a different reality—a reality that presents a stark difference from widespread opinions held in many Western capitals.

Since 2001, Afghanistan has come a long way. The national GDP has expanded more than eightfold in the past 15 years. According to the World Bank, GDP per capita has more than tripled from $190 in 2002 to $620 in 2015. Despite gloomy predictions, the past two years have witnessed particularly remarkable progress, marked by significant anti-corruption measures and relative economic growth.

2015 marked an all-time high of $570 million in exports—a $150 million increase from 2013, according to the Afghanistan Central Statistics Organization. The government has implemented extensive reforms that have helped boost domestic revenue by 21 percent from 2014 to 2015. In 2015, Afghanistan not only met an International Monetary Fund (IMF) revenue collection target for the first time in 15 years but also exceeded the target by more than $315 million, which led to more than $90 million in World Bank assistance. All sources of domestic revenue increased in 2015, according to the World Bank, with tax revenues increasing by 14 percent and customs duties by 17.2 percent from the previous year. Non-tax revenues recorded the most significant increase, growing by 46 percent.

As a result of reforms to both revenue collection and expenditure, the fiscal position improved significantly in 2015. Domestic revenues increased to more than 10 percent of GDP in 2015, which marked a 1.3 percent increase from 2014. Total government expenditures increased less than one percent from 2014 to 2015.

The National Unity Government has made anti-corruption a national priority, enacting a number of concrete measures to crack down on corruption. The government has set out a five-year financial management plan, called the Public Financial Management Reform Project II, which maps out the country’s long-term path to financial sustainability. The plan focuses on major reforms including a clear articulation of national priorities, reformed budget process and investment in processes that will eliminate corruption and improve efficiency. A second plan, The Afghanistan National Development Strategy, aims to lead Afghanistan towards self-sustainability, lead the international community’s support towards priorities set by the government and transform Afghanistan from an import-heavy to an export-heavy economy.

As part of an anti-corruption campaign, more than 90 percent of state officials, including the President and Chief Executive Officer, have publicly declared their assets. The government has also established a special commission, the National Procurement Authority (NPA) to take results-oriented action against corruption. President Ghani oversees the Authority, and CEO Abdullah and many ministers actively participate in the group’s activities, demonstrating a direct national government interest in anti-corruption efforts. The NPA has reviewed over 900 contracts, worth $2.5 billion, and has saved a total of $208 million that would have been otherwise lost to corruption.

Over the past 12 years, Afghanistan has achieved an eightfold increase in revenue collection, reaching $1.9 billion in 2015, according to Ministry of Finance data. The National Unity government has implemented a series of reforms that have sparked economic growth. For example, the National Unity Government introduced a new tax law, called the Tax Administration Law, which provides a legal framework for managing a centralized taxation administration. The government also took measures to deepen the tax base and formalize tax obligations for small taxpayers by conducting a comprehensive taxpayer assessment in Kabul. This assessment was the first step in the digitization of a tax registration system for thousands of small taxpayers, and records GPS coordinates of businesses to create a Geographic Information Map for future years of tax collection.

Afghanistan lies on major trade routes in the region and beyond, and customs taxes form 46 percent of the country’s national revenue. The customs system in the country has been historically besieged by rampant corruption. To address this issue, the Afghan government implemented a set of reforms which led to the dismantling of outdated systems, dismissal of 25 percent of customs officials on corruption charges, a new generation of highly trained technical staff and the establishment of a strict oversight system. The introduction of the Automated System for Customs Data (ASYCUDA), which has been implemented in 98 percent of customs locations, offers a modernized and more customer-oriented process to address the growing revenue gap that had emerged with the reduction of the international financial aid. A second system, Standard Integrated Government Tax Administration System (SIGTAS), further digitizes the tax administration process.

These reforms and the National Unity Government’s commitment to rooting out corruption, increasing domestic revenue and reducing reliance on foreign aid, has sustained the country’s economic growth, which according to the recent World Bank is projected to be 3.8 percent by 2018.

While the country has made outstanding progress towards sustainability, Afghanistan still remains dependent on foreign aid, with international aid roughly equal to GDP. Corruption in many layers of the government remains a major challenge. Unemployment is high, which fuels violence and political instability. All of these indicators point to the fragility of the achievements of the country in the past decade, particularly in the past two years. That’s why it is of paramount importance that the National Unity Government maintain its course vis-à-vis concrete reform attempts and Afghanistan’s international allies support the country through difficult but promising times. Afghanistan must become a constructive member of the global community of democracy rather a liability to the world.