Moving Away from Foreign Aid: A Case Study of Afghanistan

Karimi, Abdul Matin (2020): Moving Away from Foreign Aid: A Case Study of Afghanistan.

Abstract

After the United States invasion of 2001 that toppled the Taliban’s Islamic Emirate, a Republic Government was established in Afghanistan. The newly formed Government could not raise adequate public revenue to meet the growing public expenditure, which resulted in a large fiscal deficit. As the Afghan government could not afford debt-financing, it relied on foreign aid grants to fill the fiscal deficit. Since 2002, foreign aid grants influx helped the Afghan Government (and the economy) in many ways. However, a continued and massive reliance on foreign aid grants had several counterproductive consequences for the country, too. To understand the sources and implications of aid-dependency, as well as explore the potential solutions for overcoming aid-dependency, the author conducted this research. This research study uses a mixed research method, and the analysis is based on primary and secondary data.

This research’s findings indicate that the small size of the economy, informality, high unemployment, lack of technical and institutional capacity, high level of corruption, and enormous military spending are some of the main reasons impeding the enhancement of domestic public resource mobilization (DPRM) in Afghanistan. To overcome these challenges, the author recommended short-term, medium-term, and long-term policy recommendations that could have a reasonable chance of success to enhance DPRM in Afghanistan. These recommendations are based on the analysis of the situation in Afghanistan and the lessons learned from other countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Foreign Aid; ODA; Aid-Dependency; Afghanistan; Foreign Aid in Afghanistan; Afghanistan Aid Dependency; Fiscal Policy; Domestic Public Expenditure; Domestic Public Revenue; Domestic Revenue Mobilization; DPRM; DRM; Self-Reliance Policies; Financial Self-Reliance.
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; F - International Economics > F3 - International Finance > F35 - Foreign Aid; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt ; Debt Management ; Sovereign Debt; H - Public Economics > H6 - National Budget, Deficit, and Debt > H68 - Forecasts of Budgets, Deficits, and Debt

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