Conflict, continuing hostilities and instability are critical barriers
to social and economic development. Numerous studies indicate that resurging
violence in Afghanistan could not only impede further advancement but even undo
the progress made to date in the country.
The withdrawal of foreign troops means that the Government of
Afghanistan will be required to take on a larger share of security spending, as
well as manage an economy with reduced purchases of domestic goods and services
by foreign troops.
In this chapter, the committee considers development assistance in light of the
fast-approaching transformation decade and the anticipated decline in
Afghanistan's revenue base. It examines in detail the economic environment in
Afghanistan and its implications for the delivery of Australian aid. The
committee considers the ways in which Australian assistance is being planned in
anticipation of Afghanistan's immediate and longer-term future.
Following the announcement that Afghanistan would take charge of its own
affairs, the international donor community held a number of important
gatherings to consider how best to manage the transition.
Bonn meeting 2011
In 2011, 85 countries and 15 international organisations gathered in
Bonn and, wishing to build on the shared achievements of the past ten years, renewed
their commitment to work in partnership for the transformation decade.
They agreed that this decade would:
...see the emergence of a new paradigm of partnership between
Afghanistan and the International Community, whereby a sovereign Afghanistan
engages with the International Community to secure its own future and continues
to be a positive factor for peace and stability in the region.
The conference recognised that as the transition gathered momentum there
would be economic risks, identified by the World Bank and the International
Monetary Fund, including the economic effects linked to a reduced international
An Afghanistan Research and Evaluation Unit brief prepared for the conference
Dependence on donor funds is high across all sectors. Many
health, education and rural development programmes may become unsustainable
because a reduction in aid flows will likely accompany the military drawdown
The international community undertook to direct financial support
towards Afghanistan's economic development and security-related costs to help
the country address its continuing budget shortfall. The intention was to
secure the gains of the last decade, make the transition irreversible, and for
Afghanistan to become self-sustaining.
Australia was one of the many countries that gave its support for this
Chicago summit 2012
The nations contributing to ISAF and the Government of Afghanistan met
in Chicago on 21 May 2012 and restated their pledge to strive for a 'sovereign,
secure and democratic' country.
Tokyo 2012 and mutual
On 8 July 2012, the Afghan Government and the international community gathered
in Tokyo to consolidate their partnership to assist Afghanistan through the transition
They acknowledged that they could not continue 'business as usual' and must
'move from promise to practice'. To do so, they adopted a mutual accountability
framework, which set out both the commitment of international partners to
sustain financial support for Afghanistan's development and the Afghan Government's
undertakings to make progress on critical economic and social reforms.
The conference recognised that tangible commitments were required to
provide the necessary long-term support for Afghanistan to achieve fiscal and
economic sustainability beyond 2014. At this conference, Afghanistan's partners
pledged US$16 billion over four years from 2015–16 to support the country's
The following section considers in greater detail the economic problems facing
Predictions and international responses
The International Monetary Fund (IMF) identified two main challenges
facing Afghanistan over the coming three to five years:
- an expected gradual decline in overall donor support over the
medium term, with a larger share of donor support possibly being channelled
through the budget; and
- the scheduled departure of foreign troops by 2014, requiring the
government to take over an increasing share of security spending.
It found that from an economic perspective, these developments would 'make
it more difficult for the government to address Afghanistan’s large social and
A number of other substantial studies also referred to the harmful
effect that the drawdown of foreign troops could have on Afghanistan's economic
growth and the government's revenue base.
A recent World Bank report formed the view that the withdrawal of most
international troops by 2014 would have a 'profound and lasting impact on the
country's economic and development fabric'. It cited international experience
and Afghanistan's own history to show that an abrupt cut off in aid could lead
to 'fiscal crisis, loss of control over the security sector, collapse of
political authority, and possibly civil war'.
The report suggested that the greatest adverse effect of transition would be
fiscal as aid flows to Afghanistan were expected to decline from 2012 onward
and 'may fall faster after 2014'.
Indeed, in September 2012, cuts to UNAMA's 2013 budget were
expected to be between 18 and 19 per cent. The Secretary-General noted that:
...a reduced footprint and fewer resources will necessarily
affect operational capacity and underline the need to focus on core strategic
According to the World Bank, Afghanistan faces a projected financing shortfall
of 25 per cent of GDP by 2021–22, even higher in some of the intervening years
(DFAT cited World Bank estimates of a fiscal gap—before donor contributions—of
more than 40 per cent of GDP in 2014–15). This gulf would be enormous despite
hoped for robust growth in domestic revenue.
The World Bank reported:
Without continued and substantial international funding for
security—even if security costs decline—the government will not be able to pay
for its security forces and equipment, nor have any money for its development
budget. In such a scenario, past development gains would not be maintained,
potentially risking instability if people's expectations went unmet. The total
future package of core basic services to be maintained will depend on
government and donor choices about what they can afford and their priorities
The Bank concluded that with civilian aid likely to fall well below the
current US$6 billion annual figure, Afghanistan would be hard pressed to fund
all its civilian programs at current levels. It noted further that political,
social and economic considerations were likely to limit the government's room
A recent ADB independent evaluation of Afghanistan's country assistance program
The external grants made available to Afghanistan account for
82% of total public spending—that is, central government spending plus
off-budget development partner spending that bypasses the budget process. 
As noted above, this flow of funds was expected to diminish. The ADB was
concerned that the level of support underpinning improvements in areas such as
education, access to health services and gender issues, rehabilitation of
critical infrastructure, improved transport routes and access to electric power
was unsustainable. While the evaluation drew attention to the need for the
international community to continue its support, it underscored the importance
of ensuring that far stronger action on capacity development and reforms to
improve development effectiveness accompanied this assistance.
According to the ADB, sustainability and risk management should be the
A number of witnesses also referred to the anticipated fall in foreign
They appreciated that the reduction in ISAF and decline in government revenue was
expected to have far reaching effects on Afghan society. They understood that as
the Afghan Government assumed more responsibilities and increased the remuneration
of its public sector workers, it would need to find revenue it did not have to
fund these activities, including significant operations and maintenance costs.
For example, according to Save the Children, Oxfam and World Vision, there was
a serious risk that in light of the projected decline in international funds,
progress in education would not be sustained.
Caritas Australia informed the committee that given the dependency of the
Afghan economy and social sectors on foreign aid, there was a risk that
development gains—notably in health and education—would be compromised after military
withdrawal. It argued that the anticipated reduction of foreign aid was likely
to produce economic consequences that 'must be mitigated by investing in
service provision that works and viable livelihoods'.
The committee has highlighted the impressive achievements made in
Afghanistan to date. Even so, evidence has also pointed to the poor state of
the country with its stubbornly low levels of development, the government's
lack of capacity to deliver basic services and endemic corruption. As the
country moves toward the transformation decade, continuing or escalating
conflict combined with government revenue shortfalls are set to compound
Afghanistan's problems. Clearly, the achievements to date are fragile and much
more needs to be done to sustain progress and secure the gains already made.
Even though the international community has indicated that it was
prepared to support Afghanistan well into the future, some commentators have
reservations about sustaining this level of assistance, especially given
Afghanistan's already heavy reliance on international aid.
The overriding message is that donors need to make important choices about what
they can afford and where they should focus their aid to assist Afghanistan, as
best they can, through its transition.
Australia's assistance post 2014
AusAID acknowledged that the road to development and reconstruction in
Afghanistan would be long and difficult.
DFAT suggested, however, that by remaining deeply engaged in Afghanistan's
development over the coming decades, Australia could consolidate the gains of
the past decade and reduce the risk that Afghanistan would 'again become a
major source of regional instability and international terrorism'.
It indicated that Australia could help Afghanistan 'find its niche in the Asian
At the Chicago summit, Australia pledged to increase its development
assistance to Afghanistan from $165 million in 2011–12 to $250 million by 2015–16.
This pledge formed part of the international community's commitment to provide US$16
billion over four years from 2014.
On 20 May 2012, the Prime Minister explained that the increased assistance
would contribute to Afghan-led multi-donor efforts to:
increase school enrolments to approximately 10 million students;
increase coverage for Diphtheria, Pertussis and Tetanus
vaccinations by 60 per cent; and
- construct approximately 3,000 kms of rural roads which would also
help to provide jobs in the immediate post transition period.
Australia endorsed the Tokyo Mutual Accountability Framework, whereby
the Afghan Government made important commitments to strengthen governance,
combat corruption, promote the rule of law and uphold the rights and freedoms for
Afghan men and women guaranteed in the Afghan Constitution.
At the end of October 2012, the Prime Minister indicated that through its aid
program, Australia would encourage the Afghan Government to fulfil these reform
commitments. She stated that Australian aid would also support the electoral
process by helping the Afghans prepare for the 2014 Presidential elections.
The Prime Minister recognised the 'great work' of the Australian-led PRT
in Uruzgan, which had contributed to improvements in education and health
services and a stronger provincial administration. She told the Parliament that
as transition proceeded in Uruzgan, Australian aid workers and diplomats would
continue their important task.
Protecting the gains
Although most witnesses were apprehensive about Afghanistan's future,
they nonetheless accepted the inevitability of the transition and advanced
numerous suggestions on the ways in which Australian assistance could make a
positive difference. While recognising the significant improvements made in
areas such as education, health and governance, they noted that these gains
remained vulnerable and possibly unsustainable.
As noted in chapter 10, there is a real fear that the security situation
in Afghanistan could deteriorate. With this in mind, Professor Maley stressed
the importance of considering not only how to sustain Australia's current aid
program, but how to salvage something of benefit for the Afghan people should
the situation in Afghanistan take 'a truly dire turn'.
In light of the expected deterioration in revenue, Professor Howes suggested
that assistance should concentrate on securing the foundations already laid. He
noted that the government should 'stop putting so much focus on investment':
There is no point building new assets if you are not going to
have the funds to maintain them, and the emphasis should go much more onto
operations and maintenance rather than asset creation at this particular stage
where you are facing possible resource shortfalls in coming years.
NGOs in particular saw potential for increased and improved efforts and
were interested in finding ways to safeguard the advances made to date. For
example, Mr Leahy, CARE Australia, stated:
...if the appropriate mechanisms and policies are put in place,
then many if not most of the gains that have been made under the recent UN and
American sponsored stability...can be maintained. At the same time I think the
move to transition will open up new opportunities as well for organisations
According to DFAT, despite the very difficult operating environment, it
was vital that Australia consolidate the gains of the past 11 years through
sustained engagement during the coming decades.
For many witnesses, it was important to have a phased and carefully
staged process that would see a gradual transition allowing the Afghan Government
to take over the direct delivery of services.
Dr Bizhan argued that the most important priority was continuation. He stated that
an immediate jump from one area to another would lead to the collapse of some
already funded programs.
Lack of capacity was recognised as a major obstacle to effecting continuity as
the Afghan Government takes charge of its own affairs. Mr Leahy explained:
...it is in everybody's interest that the Afghanistan
government be able to have the capacity to deliver services. In the short term,
that capacity, we believe, does not presently exist and alternative means of
providing services to the Afghan communities, particularly around education and
health, need to be found.
Clearly, NGOs in partnership with national and provincial
administrations have been able to fill that service delivery gap and provide
the building blocks for the eventual transfer of full responsibility to government
The challenge is to ensure that the transfer of responsibilities from NGOs to
government and local administrations occurs without significant disruption or
Because of the security and fiscal risks accompanying the transition,
another key consideration for donors is determining their priorities by
identifying the core strategic goals on which they should focus.
Focus and priorities
A recent independent review of the ARTF noted that the transition phase
for the fund was likely to be 'a period of increased uncertainty, reduced
implementation options, uneven political will and capacity to implement across
the country and sectors'. It was expected to be a time where economic returns
to activities may be lower and more difficult to measure. The review argued
that, for the moment, the ARTF should scale back ambitions regarding expanding
into new sectors and focus on defending the gains achieved by concentrating on
the more successful activities/sectors. They included public finance
management, social sectors, and rural development.
This observation about the careful and judicious selection of projects
provides a valuable reminder for all donors. Indeed, with respect to Australian
aid, a number of witnesses spoke of the need for Australian aid to be well-targeted.
Professor Maley stated that much could be said for 'doing a small number
of key things well rather than attempting too much and achieving too little—a
good rule of thumb is to invest in what is foundational: what has proved
successful in the past'.
As an example of success, he cited primary health, which had 'witnessed some
notable achievements, especially in the area of child immunisation, as well as
community development under the NSP'.
Mr Krishnan likewise saw great value in concentrating on one or two crucial
areas—to focus and deepen activities—to ensure that there was impact and
sustainability in those areas.
Dr Bizhan also suggested that the goal of Australia's ODA should concentrate on
a small number of sectors, including education, agriculture, mining and public
financial management. Within each one, the focus should be on attainable
objectives 'essential for a successful exit strategy of donors from
His view supported the weight of evidence underlining the importance of
Australia investing in priority sectors with clear, critical, concrete and
Clearly there is a serious risk that in light of the projected decline
in international funds, advances in key areas such as the delivery of education
and health services may be unsustainable or even reversed. The emphasis for the
delivery of aid should be on:
- continuity—ensuring that the transition to self-reliance is
sure-footed and smooth;
- consolidation—ensuring that the gains made to date form a solid
foundation for future growth; and
- strategic focus—ensuring that attention is given to the sectors
that are foundational and have a proven track record of success in contributing
to Afghanistan's development.
In the following chapter, the committee considers Australia's
development assistance in light of the importance of continuity, consolidation
and potential to make a lasting difference.
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