Afghanistan: Balancing Social and Security Spending in the Context of Shrinking Resource Envelope
Examines the security-development tradeoff facing the government in its effort to rehabilitate macroeconomic stability and welfare
Abstract
For Afghanistan, the dual prospect of declining donor support and high ongoing security spending over the medium term keeps the government budget tight. This paper uses a general equilibrium model to capture the security-development tradeoff facing the government in its effort to rehabilitate macroeconomic stability and welfare. In particular, it considers strategic policy options for counteracting and minimizing the negative macroeconomic impact of possible aid and revenue shortfalls. We find that the mobilization of domestic revenues through changes in tax policy is the preferred policy response for Afghan central government. Such a response helps to place its finances on a sustainable path and preserve most of the growth potential. Cutting expenditures balances public finances, but causes the economy to permanently shrink. Debt financing helps to preserve much of the economy size but can jeopardize the sustainability of public finances.
This work is part of the ‘Macroeconomics in Low-income countries’ programme
Citation
-
Aslam, Aqib and Berkes, Enrico and Fukac, Martin and Menkulasi, Jeta and Schimmelpfennig, Axel (2013) Afghanistan: Balancing Social and Security Spending in the Context of Shrinking Resource Envelope. International Monetary Fund, (2013) 35 pp. [IMF Working Paper 13/133]
-
Aslam, Aqib and Berkes, Enrico and Fukac, Martin and Menkulasi, Jeta and Schimmelpfennig, Axel, Afghanistan: Balancing Social and Security Spending in the Context of a Shrinking Resource Envelope (September 12, 2014). Asian Development Review 31:2. Available at SSRN: https://ssrn.com/abstract=2758981