Securing Afghanistan’s Future

For too long, the Afghan people have experienced a culture of secrecy in Kabul, where information is concealed, billions of dollars vanish without a trace, and an unholy alliance of political elites wields undue influence. But since assuming office last year, President Ashraf Ghani has committed to reform the way Kabul works, and he has begun to do just that.

More than anything, Ghani has responded to the people’s call to fundamentally alter the philosophy of governance in Afghanistan creating a government that functions under the skeleton of contemporary concepts and principles: transparency and accountability; participation; and collaboration. In doing so, he acts on the belief that the Afghan people should know about what his administration is doing so that the government can be held accountable.

More importantly, Ghani has employed a policy and framework of accountable government combined with a roadmap for what lies ahead. All government ministries now have to develop roadmaps with realistic timelines for increased accountability, improving public knowledge of the ministries’ operations, and creating economic opportunity. Ghani has asked his cabinet ministers to provide regular reports to the parliament, including presenting the 100-day plans of their respective ministries — and televising their presentation. Doing so instills the values of transparency, creates a culture of accountability, and is responsive to what was heard consistently from the Afghan public during last year’s election campaign.

On his first day in office, Ghani ordered the Supreme Court to reinvestigate the Kabul Bank case, ushering in a new period of an accountable government aimed to bridge the widening gap with the people. Over the last 10 months, Ghani’s government has engaged in a thorough review of government revenues and spending, tracking how the government spends money. The government has reviewed hundreds of contracts in various sectors, including in defense, minerals, oil, and natural gas to pinpoint possible areas of savings and has canceled lucrative awards after findings of fraud.

Furthermore, in Ghani’s view, Afghanistan’s economy of consumption and criminality has posed a major threat to the foundations of any type of stability, order, and legitimacy in the country. For years, the key drivers of the country’s economic growth have been unconnected to the local economy, as the huge influx of foreign aid money effectively drove all economic spending. This brings to the fore the need for a fundamental transformation in the management of Afghanistan’s economic order. Ghani has focused on revitalizing the sputtered economy by developing a three-year budget (as opposed to the one-year budget that was in place before) and a proper framework for spending. Additionally, his government has fostered ties with regional countries by negotiating — and, in some cases, concluding — trade and transit agreements to strengthen economic ties, including: the Central Asia Regional Economic Cooperation; the Central Asia South Asia (CASA-1000) and the Turkmenistan-Uzbekistan-Tajikistan-Afghanistan-Pakistan (TUTAP) electricity transmission lines; the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline; the Heart of Asia-Istanbul Process; and new regional initiatives, such as the Lapis Lazuli Corridor, a shortest trade route linking Afghanistan to Turkey through Turkmenistan, Azerbaijan, and Georgia.

Ghani has intimately engaged China, which has pledged $330 million to Afghanistan in grants and has indicated interest in building the Wakhan Corridor, a transport link that will connect the two countries and boost bilateral trade and investment. At the same time, the United States has committed $800 million to bankroll and promote Ghani’s reform agenda. Moreover, to support fledgling businesses, Ghani’s government is working to increase small businesses’ access to grants and licensing opportunities to drive entrepreneurship. Furthermore, his government has worked to boost the private sector’s investments by streamlining the system for issuing and renewing trade and investment licenses while fully implementing the new anti-money laundering and anti-terrorist financing laws. Most crucially, the finance ministry has taken key measures to expand revenue collection by forging partnerships that produce taxes, rents, and profits, and by overhauling the customs process, revising the tax regime, and bolstering administration to reduce outflows. The ministry is also laying the institutional framework for a potential Kabul stock exchange to create a capital market.

In addition, by visualizing investments and its potential impact on the sectors that generate the most revenues, the government has empowered agencies to spot, and cease, wasteful projects, particularly in minerals and natural gas sectors that can drive fiscal sustainability over the long term. To address collusive government procurement practices (like incentives to engage in bribery), the government has established an independent anti-corruption commission with prosecutorial authority and has created a national procurement board that administers all government contracts and has already saved over $150 million.

Meanwhile, however, there are important constraints that inhibit the Afghan government’s ability to take key reform actions and rekindle the economy. These include a weak and frustrating parliament; an uninspiring government footprint at the provincial level due to the delay in appointing new governors; internal divisions within the unity government on important issues, including electoral reforms and key government appointments; and unsustainable fiscal space due to a large deficit and trade imbalance.

As yet, Ghani’s government approach to reducing the country’s deficit has been slow and incremental. The current budget shortfall stands at a roughly 20 percent of overall government spending and the country has a surprisingly large deficit in its goods trade. For example, according to 2014 figures, Afghanistan’s exports stood at a little over $3 billion, while its imports were over $8 billion. Estimates indicate that economic growth has tumbled sharply from an annual average of 9.2 percent during 2004-2010 to an estimated 1.9 percent in 2013. In 2014, internal revenues plummeted to an estimated 8.4 percent of GDP from 11.6 percent in 2011. Despite budgetary changes and growth prospects, the deficit does not appear to be narrowing anytime soon and will continue in the years ahead. For now, however, the Afghan government will continue to rely on foreign assistance to defray its considerable security and civilian expenditures.

Most significantly, close to half of the country’s national budget is earmarked to offset high security sector expenditures at the expense of critical development priorities. As Afghanistan takes on increasing responsibility for its security needs, a key challenge ahead for the Afghan government is to explore ways to not only make its growing security spending fiscally manageable, but also to effectively manage its meager national budget without compromising important development priorities. To be fair, the slowness of change on the budget in light of massive cuts in aid support to Afghanistan were decided before Ghani’s government took power. In the interim, restructuring the public finance management system in the security sector to make expenditure, budget planning, and control more effective can be one option — areas where the government has incrementally improved its hand in.

Nonetheless, Ghani’s reform plan has concentrated the country’s small budget and trifling resources on better outcomes to ensure they drive improved service delivery for the Afghan people. While it takes time for any reform agenda to yield tangible results, those who are engaged in collusive and corrupt practices in Afghanistan have begun to feel the pain of government’s measures and are opposing it. Nevertheless, Ghani’s reform plan will work if the political will in support of the agenda remains stronger than those who oppose it. The question, however, is whether the Afghan leaders have the forbearance and penchant for teamwork that a unity government requires, and the political authority to roll back deep-rooted patronage networks. Ultimately, the Afghan government’s success in executing its reform agenda will be measured by the extent to which the unity government lives up to its end of the bargain.

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