For several years, Afghanistan’s economy and public finances have worsened, culminating in a full-blown fiscal crisis in 2014. Political uncertainties, the weakening Afghan economy, corruption in tax collection, stagnant government revenues, and increasing expenditures have contributed to the current fiscal impasse. In the absence of bold actions by the Afghan government along with proactive international support to turn around the fiscal situation, the fiscal crisis and its insidious effects will continue.
Summary
- The fiscal crisis that has been building over several years in Afghanistan came to a head in 2014, with no abatement in recent months and limited potential for improvement in the current year.
- Political uncertainty, the weakening Afghan economy, corruption in tax collection, and stagnant government revenues, as well as increasing security and other expenditures, all contributed to the current fiscal crisis.
- Massive ongoing international assistance (especially for Afghan National Security Forces) and stopgap measures by the Afghan government have averted an outright fiscal collapse.
- The crisis is having deeply insidious effects, however: The apparent political gridlock in the National Unity Government is being paralleled by financial gridlock.
- A combination of bold, coordinated actions would be required to break out of the current fiscal impasse, but it seems doubtful whether the Afghan government and its international partners are prepared to do this.
About this Brief
William A. Byrd is a senior expert at the U.S. Institute of Peace, who has been following fiscal and other developments in Afghanistan. He has published extensively on Afghanistan’s economy and related topics. The views expressed do not necessarily reflect those of the U.S. Institute of Peace, which does not take policy positions.