January 28, 2020

Afghan Government Faces Cash Crunch, I.M.F. Says

A confidential assessment of Afghan finances by the International Monetary Fund said the potentially severe cash crunch was caused by widespread tax evasion abetted by government officials, the increasing theft of customs revenues by provincial governors and softening economic growth.

The I.M.F. assessment, which has not been publicly released but was described by American and European diplomats who were recently briefed on its findings, estimated that Afghan revenue in the first quarter of the year was roughly 20 percent to 30 percent short of an informal target the fund had set for the government.

After a decade of steadily growing tax and customs revenue, the budget shortfall has caught Afghanistan’s international backers by surprise. Diplomats portrayed it as an unwelcome reminder that the Afghan government remains weak and corrupt — and years away from being able to pay its own expenses.

If the trend is not reversed, diplomats said, the Afghan government will be unable to pay salaries by midsummer, though Finance Minister Omar Zakhilwal disputed that assessment. He put the shortfall at no more than 20 percent.

No one here expects the Afghan government to actually run out of money. It is supposed to cover about 40 percent of its nonsecurity spending this year, projected to total roughly $5 billion, and it could raise money by cracking down on tax evaders or imposing new fees for services.

As a last resort, international donors could always fill the gap. They already pay nearly the entire cost of Afghanistan’s police force and army, and have agreed to cover roughly 60 percent of the government’s other spending this year.

For now, fear of instability still trumps the desire for good governance among Western donors, and aid commitments are likely to hold through the end of the NATO combat mission in 2014, diplomats said.

But the looming cash crunch comes at a delicate time. Kabul is negotiating a long-term security deal with the United States and is looking for other Western countries to make good on aid pledges that amount to tens of billions of dollars after 2014.

Smaller countries with little or no military commitment here are especially likely to reassess their aid spending at that point, diplomats said.

If Afghan officials “don’t have the confidence in their own country to find a way to pay for it themselves, than why should we?” said a European diplomat from one of those smaller countries. The diplomat and others spoke on the condition of anonymity to avoid angering Afghan officials.

For President Hamid Karzai, who has been pushing for greater control of Afghanistan’s affairs, the revenue problems strikes at a more fundamental issue: a country that cannot pay for itself is not its own master.

“Let us be honest,” Bernard Bajolet, the recently departed French ambassador, said at a farewell cocktail party. “Sovereignty won’t be effective as long as Afghanistan won’t be fully self-reliant financially.”

Afghanistan, to be sure, has made huge economic strides since 2001, and the signs of growing prosperity abound. Dozens of international flights a week arrive in Kabul, late-model cars crowd the congested streets of the capital, and cellphones have largely replaced the hand-held satellite phones that just over a decade ago were the sole way to make a call.

But the country will nonetheless need billions in financial aid through 2032 to cover its nonsecurity spending, never mind to pay for its army and police force, according to another I.M.F. review that was quietly released in February.

American and European officials rarely speak of horizons that long. The current aid pledges for nonsecurity spending, which are contingent on the Afghan government combating corruption, run only through 2016

— it is 2018 for security spending — with only vague assurances of what will come afterward.

   Alissa J. Rubin contributed reporting. 

Article source: http://www.nytimes.com/2013/05/03/world/asia/afghan-government-faces-cash-crunch-imf-says.html?partner=rss&emc=rss

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