Afghan Aid In Doubt As Tax Goal Missed

April 2nd, 2008  
Team Infidel

Topic: Afghan Aid In Doubt As Tax Goal Missed

Financial Times
April 2, 2008 By Jon Boone, Kabul
International aid and debt relief for Afghanistan has been thrown into doubt by the country’s failure to honour an agreement with the International Monetary Fund and warnings that its three-year development master plan could be rejected.
Anwar Ul-Haq Ahady, finance minister, last week admitted to donors the government had failed to meet a target agreed with the IMF to raise $715m in taxes. At just 8.2 per cent of gross domestic product, the goal had been described by economists as “unambitious”.
At the same time the World Bank and other donors have told the government that the latest drafts of the Afghan National Development Strategy, a key document to which future funding and debt relief is pegged, is of such poor quality that it will be rejected if submitted in its current form.
The government has had almost three years to produce the document and received at least $15m from donors to support its drafting. Western observers in Kabul have caustically referred to it as the “world’s most expensive poverty reduction strategy”.
The document has been heavily criticised for being unwieldy, lacking specifics and with free-market economic principles sitting uneasily with more statist objectives.
A western official in Kabul said it “appeared the Afghans have tried to avoid making tough decision about priorities by simply throwing everything into the document”.
The World Bank says the plan has not yet been rejected and that they look forward to receiving the complete document, but time is running out.
A Ministry of Finance team has taken over the project in a desperate bid to get a workable document together before a donors’ conference in Paris in June when the international community is expected to make future development pledges.
The hope had been that they would be able to use the existing strategy document as a basis for making future donations.
Both the failure to meet the tax revenue target and the risk that it will fail to produce an adequate development strategy have serious ramifications for both future international funding and the $10.6bn of debt relief it currently enjoys through the IMF-backed Heavily Indebted Poor Countries (HIPC) initiative.
Under the terms of its agreement with the IMF, Afghanistan must produce a poverty reduction strategy – which the Afghans have wrapped into their National Development Strategy – acceptable to the fund.
At the same time, Afghanistan must meet other obligations, including gradually raising its tax take, to make it less dependent on aid.
Mr Ahady told donors in Kabul last week that the government fell short of the $715m target by about $50m because political turmoil in neighbouring Pakistan reduced customs revenues on imports into Afghanistan.
But members of the international community have questioned the explanation, and an IMF team due to visit this month is to decide whether Kabul is at fault. They could recommend that Afghanistan be stripped of its debt relief facility.

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