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'More transparency' needed

Interview: Gabriel DomínguezJune 9, 2014

As Afghans head to the polls on June 14, there are growing concerns over the country's economic future after foreign troops leave. The IMF's Paul Ross talks to DW about the challenges facing the next government.

Exchange market in Kabul
Image: picture-alliance/Ton Koene

Afghans are set to go to the polls on Saturday for the second round of their presidential election. If successful, the vote pitting former foreign minister Abdullah Abdullah against ex-World Bank economist Ashraf Ghani will mark the first democratic transition of power in the war-torn country's history.

But there are also growing concerns that the scheduled drawdown of foreign troops might have a negative impact on an economy which is still largely dependent on foreign aid and rocked by corruption. Moreover, the drawdown comes at a time when the Afghan economy is starting to flounder, as growth fell to just 3.6 percent last year after an expansion of 14.0 percent in 2012,

Paul Ross, the International Monetary Fund's (IMF) mission chief to Afghanistan, says in a DW interview that economic reform, donor support alongside political and security stability are crucial for economic growth to continue in Afghanistan and adds that the incoming government needs to improve transparency and pass anti-money laundering laws to tackle the widespread problem of corruption.

DW: What will be the biggest economic challenges for the future Afghan government?

Paul Ross: Afghanistan has made substantial progress in lifting living standards in the last decade, but poverty remains a challenge. Action will be needed to mobilize budget revenue by reducing leakages so taxes paid reach the treasury and can be used for spending on poverty reduction, education, health and infrastructure spending.

Increased access to financing for the population and small businesses will also be required. In order to achieve this, the new government will need to strengthen the banking sector. In addition it should improve the business environment to promote investment and broad-based job creation.

Paul Ross, the International Monetary Fund's mission chief to Afghanistan. Copyright: IMF
Whoever forms the new government should strengthen economic governance with new laws for the financial sector, says RossImage: IWF

What must the new government do to bring the Afghan economic back on track given the recent economic slump?

Growth has continued in 2013-14, although at a lower rate than in previous years. To spur future growth, the new government should maintain low inflation, keep debt low, continue with a balanced budget, and maintain its international reserves position to support private sector development and investment. It should also continue reforms to strengthen its economic institutions, and promote growth and job creation through improving the investment climate and combating corruption.

What must the future Afghan administration do to combat the issue of corruption?

It should improve transparency and the rule of law. Specifically, it should strengthen economic governance with new laws for the financial sector (banking, anti money laundering and combating the financing of terrorism laws), for the budget (tax administration and value added tax laws), while also strengthening the capacity of regulatory bodies that fight corruption in the economy. These actions will also support private sector development and job creation.

Do you believe any future administration will be capable of tackling the problem of poppy cultivation and drug-trafficking, given that it is a major source of income in some parts of the country?

This is a subject that is outside of the IMF's scope of work. However, I think there's an opportunity for the incoming government to take stock of what has been done, to look at its own priorities, and then set the agenda.

How much will the scheduled withdrawal of foreign troops affect the Afghan economy?

The international troop drawdown has affected the economy since late 2012 by reducing aggregate demand through lower spending by international forces in Afghanistan. This has been partly offset by more spending domestically on security. Given that a large part of the troop drawdown has taken place already, going forward, the impact should be smaller.

Many analysts expect the level of violence in the country to increase as soon as the NATO drawdown begins. How might this affect decisions of potential foreign investors?

Stable security conditions will stimulate economic development and attract foreign investment. Political and security stability, as well as continued economic reform and donor support, will foster higher growth and job creation.

With the impending withdrawal of foreign troops, doesn't Afghanistan run the risk of being forgotten by the international community?

Afghan National Armies “ANA” seen during a military operation in Gozara district of Herat, Afghanistan.
Ross: "Stable security conditions will stimulate economic development and attract foreign investment"Image: DW/H. Hashami

At the 2012 Chicago NATO summit and Tokyo donor conference, the international community pledged long-term financial commitments to support security and development in Afghanistan. These commitments extend into the next decade to provide aid to Afghanistan.

How do you expect the Afghan economy to perform over the coming five years?

The conditions for stable and sustainable growth are largely in place. The economy should continue to grow, provided there is political and security stability and that economic reform and donor support continue.

Paul Ross is the International Monetary Fund's mission chief to Afghanistan.