Factbox - Economic challenges facing Afghan government

Thu Jan 28, 2010 1:56pm GMT

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(Reuters) - Afghanistan and some 60 foreign partners debated the way to bring peace and stability to the country at a conference in London on Thursday.

As well as the security challenges, delegates stressed the other problems facing the Western-backed government in Kabul in its efforts to rebuild Afghanistan's shattered infrastructure and improve the economy and living standards.

The following are facts about the government's fiscal position, taken from World Bank statistics.

- Afghanistan's national budget is 90 percent financed by foreign countries and multi-lateral bodies.

- Aid to Afghanistan amounted to $6.3 billion (3.8 billion pounds) in 2008-09, representing 45 percent of Gross Domestic Product, making it one of the world's most aid-dependent countries.

- Two thirds of aid that reaches Afghanistan is not channelled through the government's budget but through what is known as the "external budget," due to concerns about corruption and the government's capacity to make use of the money.

- The security sector gets the largest slice of the national budget, accounting for more than 40 percent of operating spending.

- The authorities struggle to disburse the money that is available. Planned development spending worth 9 percent of GDP remains unrealised each year. The rate of execution of planned spending on core development goals fell to 43 percent in 2008-2009 from 54 percent the previous year.

- Western donors recognise that the parallel budget system undermines the government's legitimacy in the eyes of Afghans and there is some pressure on donors to work more closely with the Afghan finance ministry with a view to eventually channelling more aid through the official budget.

- Donors say the government in Kabul has made some progress, doubling core budget spending in nominal terms in the last three years to reach $2.2 billion in 2008-09, though more far-reaching reforms are urgently needed.

(Reporting by Estelle Shirbon; Editing by Angus MacSwan)

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