How much aid does Afghanistan really need?
Published: 12 November 2020
Afghanistan is exceptionally dependent on donor grants; in 2018, the most recent year for which full data is available, these amounted to at least $8.6 billion - almost 80% of the nation’s $11 billion public expenditure program. This degree of dependence reflects an unprecedented international commitment to any developing country, and one which has been central to shaping the modern Afghan state, its political system and its economy.
Prior to the signing of the US-Taliban agreement on February 29, donors had already signaled their intention to reduce grant aid over the coming years; the impact of COVID-19 on donor economies makes a reduction all but inevitable. A gradual decrease in donor assistance is a manageable proposition – provided the process is properly planned. It is critical to avoid rapid or uncoordinated reductions, or for donors to hesitate about future commitment amounts while the Afghanistan Peace Negotiations (APNs) are getting underway. Such signals would reinforce perceptions of a loss of donor confidence in the very state they have helped create, impacting both on the negotiation process and on the conflict itself.
We have set out to identify a level of public expenditure compatible with a functioning Afghan state, whatever its precise form of governance, and to propose minimum levels of civilian and military aid going forward. Our calculations – which can be accessed in more detail here, suggest that state functionality can be preserved if overall public expenditures are reduced from $11 billion to $8.6 billion per annum, and donor grants from $8.6 to $6.6 billion per annum - provided these cuts are sufficiently gradual, and properly targeted. The domestic fiscal uncertainties associated with COVID-19 and the unpredictable politics of the APNs suggest that donors should, as a prudent minimum, sustain 2018 levels of assistance in 2021, both to ensure that critical security and civilian expenditures are adequately funded and to emphasize their continuing commitment to a peaceful settlement.
On the security side of the ledger, aid could be reduced from c. $4.8 billion in 2018 to some $3.6 billion by 2025/26, through reductions in off-budget personnel, capital and O&M expenditures. The only security donor of consequence is the United States, which currently contributes some 95 percent of donor security funding (and 80 percent of all security spending in Afghanistan), and this is unlikely to change. With security expenditure the cornerstone of state stability, substantial US security assistance remains essential over the coming five years.
Turning to civilian aid, developmental and humanitarian assistance could, we believe, be reduced from $3.8 billion in 2018 to perhaps $3 billion by 2025/26. Civilian contributions are much more widely shared: the US is the largest single donor, providing over $920 million in 2018, but 76 percent of the total that year came from other sources (including $1.8 billion from EU countries and institutions). Reductions should once again come largely from off-budget development programming, with donors concentrating their efforts on core government functions and a limited number of national development programs. Humanitarian funding in 2018 totaled some $700 million, and at least this much will be needed in 2021.
The suggested reductions are predicated on two key factors. The first is rising Afghan domestic revenues. Recent revenue collection has been on a par with comparable developing countries, but future prospects have been compromised by the impact of COVID-19 on the Afghan economy, and collections are expected to decrease from $2.6 billion in 2018 to only $1.8 billion this year; nevertheless, it is still reasonable to anticipate revenues of c. $4 billion per annum by 2030. Second, major donors should not imagine that additional commitments from regional countries, earnings from mineral extraction or access to concessional lending will put a major dent in aid requirements in the short-term. Sustaining a viable Afghan state will depend for some time to come on significant, predictable levels of assistance from current donors.
Off-budget programs accounted for nearly 70 percent of all donor contributions in 2018 ($5.8 of the total of $8.6 billion). The case for focusing future aid reductions on off-budget aid is in principle widely accepted. But donors are unlikely to buy into a strategy that channels the bulk of their funding into government programs unless current concerns regarding corruption and waste are effectively addressed. Government and donors should therefore agree on a small set of critical reforms as conditions for continued on-budget assistance. Conditions could include implementation of reforms to i) strengthen public finance systems; ii) enhance transparency; iii) ensure critical government positions are filled by qualified staff; and iv) ensure stability and role clarity in government institutional arrangements.
Donors are understandably apprehensive that a future Afghan Government could roll back important human rights gains, particularly women’s and girls’ rights. It is important, however, that fear of sub-optimal outcomes should not, at this critical point, tempt donors to turn their backs on Afghanistan, and in so doing help precipitate the very outcomes they have been resisting for the past twenty years.
This blog draws on findings from an October 2020 Expert note by the same authors. Read and download it here.
- Tobias Haque is the World Bank’s Lead Economist for Afghanistan
- Nigel Roberts is the Principal Consultant for ODI’s Lessons for Peace: Afghanistan project
2 Data on off-budget aid to Afghanistan (especially on off-budget security grants) is fragmented, incomplete, and often inconsistent. This paper relies on best-available estimates through compilation of various data sources, including donor reporting and Government and international databases. Estimates are subject to an appreciable margin of error.
3 On the benefits of on-budget and budget-accountable assistance, and of using ‘country systems’, see for example, Peace Dividend Trust (2006), The Economic Impact of Peacekeeping: Final Report; CABRI (2008), Putting Aid on Budget: Good Practice Note, Using Country Budget Systems; Peace Dividend Trust (2009), Spending the Development Dollar Twice: The Local Economic Impacts of Procurement in Afghanistan; Fourth High-Level Forum on Aid Effectiveness (2011), Busan Partnership for Effective Development Cooperation; Brookings Institution (2016), Aid Effectiveness in Fragile States: How bad is it and how can it improve? - and Lessons for Peace /ODI (2020), Fragile Practice: donor mistakes in war-to-peace transitions.