Changing Financial Flows During Afghanistan’s Transition

The Political Economy Fallout
Published: 
September 11, 2013
By: 
William Byrd

A sharp decline of financial resources during Afghanistan's transition is expected to have a profound and destabilizing impact. USIP's William Byrd explores the fallout on the country's political economy.

Summary

  • Massive amounts of money flowing into Afghanistan since 2001 (foreign military spending, aid, domestic revenues, opium profits, land takeovers and development, informal mineral exploitation, theft of funds such as at Kabul Bank) have had profound political economy impacts, not least by further entrenching factionalized politics and fragmented patronage networks.
  • The ongoing transition involving the drawdown of international troops and Afghan takeover of security responsibilities will be accompanied by drastic declines in international military expenditures and aid.
  • Total resources for patronage will fall sharply; the Afghan government’s share in remaining funds will increase; declines will be greatest at local levels, especially in insecure areas in the south/east which had heavy international military presence and high aid; and drug money will become increasingly important.
  • At lower levels of patronage, competition over declining resources may intensify, so even in the absence of major armed conflict at the national level, localized conflicts may continue and even proliferate, aggravated by taking revenge and “settling accounts” by currently excluded and marginalized groups.

About this Brief

William Byrd is a development economist and has worked on Afghanistan in various capacities over the past decade and longer. His publications include numerous reports and articles on Afghanistan’s economy, public finance management, aid issues, governance and corruption, security sector financing, extractive industries, and opium economy. He is currently a senior expert at the U.S. Institute of Peace, where his work focuses on the country’s economic transition including the political economy and conflict implications of the major changes in financial flows that are underway. The views expressed in this brief do not necessarily reflect the views of the U.S. Institute of Peace, which does not take policy positions.

September 11, 2013
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