IMF Gives Afghanistan Mixed Economic Review

Source: Voice of America (VOA News)

By Barry Wood
Washington
20 February 2008

The International Monetary Fund Wednesday gave Afghanistan a mixed economic report card, saying the country's overall reforms are on track but corruption and a dramatic rise in opium production pose significant problems. VOA's Barry Wood has more. 

The IMF says opium production has risen by 4,000 percent since 2001 and earns Afghan farmers about $1 billion a year. An estimated 93 percent of the world's heroin, made from opium, comes from Afghanistan. Analysts say the Taliban insurgency derives much of its revenue from the illegal opium trade.

The IMF says a mounting anti-government insurgency, instability in neighboring Pakistan and rampant corruption have slowed the inflow of foreign direct investment.

Economic growth, the IMF reports, slowed to six percent in 2007, mainly due to drought, but is expected to more than double to over 13 percent this year. The political environment is described as increasingly complex with the government confronted by multiple and competing demands. Jobs remain scarce and living standards have been slow to rise.

The IMF says foreign aid accounts for a whopping two-thirds of Afghanistan's gross domestic product.

Afghanistan has been rebuilding an economy that was shattered during six years of rule by the fundamentalist Taliban, that was overthrown in 2001. Since then an estimated four million refugees have returned while NATO-led peacekeepers maintain security in the mountainous territory.

IMF Afghanistan mission chief Mohammed Elhage says trade ties with Pakistan remain strong despite problems.

"There has been some disruption in trade. The trade links between Pakistan and Afghanistan are very strong," he said.

Elhage says Afghan wheat exports to Pakistan have slowed significantly.

Afghanistan is ranked as one of the world's most corrupt countries by Transparency International, a Berlin-based monitoring agency. Because of graft, many aid agencies channel their assistance through non-government organizations, a practice opposed by the central bank. Elhage agrees that an increasing flow of aid should be disbursed through the central government.

"We do support the authorities' objective to have more aid channeled through the central government budget. But again, we need to take into account the institutional capacity and the absorbtive capacity of the central government," he said.

Elhage says privatization of state enterprises is lagging behind and he called attention to alleged corruption in the electricity company, saying no further funds should be disbursed to the company until an audit has been made.

Despite widespread problems, Afghanistan has achieved macroeconomic stability and a stable currency. Its overall economy has doubled in size in the past five years.