KABUL (Reuters) - Afghanistan is likely to need around $7 billion a year from the international community to help pay its security and other bills long after foreign troops leave, even if two large mines start production as planned, the World Bank said on Tuesday.
That annual spending, projected for the decade to 2021, does not include the cost of thousands of foreign troops expected to stay in Afghanistan to support and train Afghan forces after 2014, the deadline for NATO-led combat soldiers to return home.
The gap in how much money the Afghan government can raise and how much money it needs to fight a powerful insurgency while trying to develop one of the world’s poorest nations will be the equivalent of a quarter of national income by 2021.
This is under a “cautiously optimistic” scenario where agriculture becomes more efficient, a large copper mine and another large iron ore mine are opened on schedule, taxes increase and security does not get any worse.
None of these are guaranteed, and without them the growth will be slower and the funding gap larger, the World Bank warned in a report “Transition in Afghanistan: Looking Beyond 2014.”
Aid, which in 2011 was nearly $16 billion, will decline along with troop numbers as the West scales down its presence in Afghanistan. But the United States and its allies face a serious financial burden for many years after the official end of combat operations.
The World Bank forecasts that with firm economic growth the gap will still average around $7 billion a year after 2014.
Asking the government in Kabul to tighten its belt by cutting spending on security forces risks allowing the Taliban-led insurgents to make headway. If services like health and education are reduced instead, that could damage growth and indirectly bolster support for the insurgency.
Urging the Afghan government to increase taxes is not an option either, as the mismatch between the size of the economy and the scale of the problems is simply too large.
“If these levels of foreign assistance...are not forthcoming, then the government of Afghanistan will need to make extremely difficult and possibly destabilizing trade-offs,” the report said.
“Either grossly underfunding or significantly shrinking Afghan security forces, or crowding out essential civilian spending, or both.”
Afghanistan is one of the poorest countries in the world, with annual per person income just $528. Its fast-growing population means that to provide jobs the economy must expand far more rapidly than in countries where there is no baby boom.
With foreign troops pouring into the country and their governments supporting aid and development programs, the last decade has seen the economy grow at around 9 percent a year.
Last year’s aid spending was equivalent to the country’s entire national income, or gross domestic product.
Very few other countries benefit from such generous largesse, and those mentioned by the World Bank for comparison -- including Liberia -- are much smaller in size.
Without that spending, growth will fall; even the “cautiously optimistic” scenario will bring only a slow increase in living standards for ordinary Afghans.
“We have to note that as Afghanistan’s population is growing at about 2.8 percent a year,” said Josephine Bassinette, acting World Bank country director for Afghanistan.
“So for example if we were to assume that Afghanistan was growing 6 percent a year, their average per capita income would take about a generation to double,” she added.
Foreign governments may cut their bills if they let the Afghan government spend their money through the national budget, rather than running independent programs “off-budget.”
A World Bank estimate suggests only about a quarter of the $5.2 billion in civilian aid that Afghanistan received “off-budget” in 2010 actually fed into the domestic economy.
The rest was spent on things like imports of goods and services, or sent home as profits.
In contrast over two-thirds of civilian aid channeled through the Afghan economy stayed in the country.
The difference for aid money spent on security is even more pronounced, with only 10 to 15 percent of cash channeled “off-budget” staying in the impoverished country.
Editing by Ron Askew