What Led to the Marginalization
An early sign of this rift emerged at the November 2018 Geneva Conference on Afghanistan, the most recent ministerial-level conclave of the Afghan government with its development partners. In 15 years of such high-level meetings, the government has made its presentations on growth and development jointly with the World Bank. But this time, the government presented a unilateral report as the World Bank circulated a separate document. The separate presentations most likely reflected differences over the country’s growth prospects or other issues, but this was the first time such differences could not be bridged to achieve a joint statement.
The Geneva conference mandated bilateral and multilateral agencies in Kabul to examine what kind of development support would be needed to facilitate implementation of an Afghan peace agreement. In March 2019 this group offered a draft report that laid out priorities for additional investments from existing development programs. The World Bank in August used that report, titled “Post-Settlement Economic Initiatives,” to launch consultations on economic steps “to support and sustain peace in Afghanistan” in the event of a political settlement with the Taliban.
However, the Afghan Ministry of Finance almost simultaneously prepared its own document, “The Afghanistan Self-Reliance Accelerator Package,” and subsequently presented it to the July 2019 meeting of the Joint Coordination and Monitoring Board of government and international partners. This Afghan plan in its first phase calls for expedited investments of $8.6 billion for housing development, electricity distribution, and agriculture and irrigation. Though these sectors have a reasonable claim to priority, the plan would fund much of this added investment through foreign borrowing by the government. That approach carries high risks, notably the foreign debt burden and the depreciation of the Afghan currency. Moreover, such foreign borrowing could breach Afghanistan’s debt limits under the International Monetary Fund program, endangering the IMF’s seal of approval, which is essential for continuing aid to the national budget.
This kind of financing makes little sense. Housing and real estate development can and should be profitable enough that the private sector can finance such projects, using domestic borrowing as needed. Domestic financing also should be possible for electrical distribution grids, with costs ultimately recovered from electricity tariffs. And though sizable public investments will be required in agriculture and irrigation, especially the latter, financing them through foreign debt would be counterproductive. That is because irrigation projects earn low financial returns (with which to service any debts), even if they yield higher economic benefits for the country and rural households.
A second factor likely contributing to the marginalization is the changes over the past year in the leadership and management personnel of key ministries. In several cases, advisors to President Ashraf Ghani have been installed as acting ministers—a status whereby the administration avoids the normal requirement to seek parliamentary confirmation of such appointments. The finance minister and most of that ministry’s top management team have been replaced, as was, abruptly, the leadership of the Ministry of Commerce and Industry. Sudden and frequent personnel changes, particularly in the months preceding the scheduled September 28 presidential election, make little substantive sense and risk giving the impression that they are politically motivated. Moreover, personnel changes have been accompanied by at least some degree of policy instability, of which the government’s July “accelerator” package represents an example. Another is the separation of the oil and gas regulatory functions from the Ministry of Mines and Petroleum, which has sown confusion at least in the short run.
A third problematic trend is in the government’s approach to the private sector. For example, following the replacement of the minister of commerce and industry in February, the government has intervened to exert greater regulation and stronger control over the chambers of commerce and industry. There are also concerns that the government may have applied pressure on larger businesses to support the president’s reelection campaign. In this regard, a recent Afghanistan Analysts Network paper cites a U.N. report on corruption which, noting the 2019 centralization of the procurement process for larger projects under the National Procurement Authority, states that “this centralization of procurement within a single entity also risks consolidating corruption, rather than preventing it.” More generally, policy uncertainty and abrupt policy changes, as well as the uncertainties around the presidential election, peace process, and longevity of the U.S. and international commitment to Afghanistan, are prompting many Afghan businesses to delay investments, further depressing the already weak Afghan economy.
In the face of these disconnects and the reduced dialogue between donors and government, the main donor countries understandably may have sought the path of least resistance by excluding the Afghan government from the London meeting. However, working around the government in this way risks reviving some of the worst tendencies of donor-driven aid, such as a proliferation of uncoordinated projects and implementing entities, competition among them over funding, and associated higher costs. Overall, hard-won progress since 2001 in getting the Afghan government into “the driver’s seat” on the development agenda and aid management may be at risk of being dissipated.
Marginalization Weakens the Government
Afghans and their international partners have toiled since 2001 to build Afghan government capacities and responsibility for shaping the country’s development agenda and managing international assistance. The marginalization of the government now risks reversing this progress. Letting the state’s capacities and institutions languish, or even atrophy, would set back national development and undermine the machinery required to sustain a peace deal. Functioning government ministries and agencies will be sorely needed during and after a peace process.
Experience has shown that aid coordination is almost impossible unless it is at least nominally overseen by the legitimate government of the host country (as started happening in Afghanistan as early as 2002). The better Afghan national programs have demonstrated the ability to deliver development and other results, and to cohere donors around a common platform. Government budgetary institutions and processes need to be working for large amounts of international aid to be channeled through the Afghan budget as has occurred over the past decade and longer. Macroeconomic management has been an Afghan success since 2002 (with the introduction of the new Afghani currency, an independent central bank, maintenance of reasonably low inflation, prudent fiscal practices, effective balance of payments and exchange rate management, and the building of adequate foreign currency reserves to cover for volatility). It will remain essential.
And not least, future aid to Afghanistan will be conditional on progress in areas like good governance and anti-corruption, as well as on parameters of a peace agreement if it materializes. The Afghan government and international donor community, working closely together, have crafted conditions, under the Incentive Program of the Afghanistan Reconstruction Trust Fund and other mechanisms, that have helped advance government reforms in designated areas. These mechanisms will continue to be needed for coordinated, conditions-based aid in the future. However, meaningful conditionality will not be possible in the absence of reasonably functional Afghan government institutions to agree upon and implement conditions.
A peace process is likely to result in significant changes in Afghanistan’s constitutional and political structures, but the basic functions of fiscal, economic and aid management will remain vital. The very real gains since 2001 must not be dissipated.
While much ground already has been ceded by the Afghan government, its marginalization can and should be reversed in the near future. The government should stop the apparent politicization of core ministries and agencies and return to a more strategic and holistic approach to economic management, development strategy, private sector development and aid coordination. On the international side, the exclusion of the Afghan government from the London meeting should not be repeated in the future. Both sides need to recognize their interdependencies and pursue reasoned discussions, with priorities and positions evolving toward building a reasonable degree of consensus on the substantive agenda for development and aid in the context of possible peace.