Foreign grants mask weak domestic revenues in Afghanistan

Gross domestic product and domestic revenues (excluding grants) in Afghanistan, 2003-2014

CP2_Afghanistan_Domestic revenues

The increase in budget revenues since 2003 in Afghanistan has predominantly been driven by an increase in international grants rather than a growth in domestic tax revenues. A weak economy, challenges in collecting tax revenues and corruption are some of the obstacles preventing revenue generation.

The rapid economic growth seen between 2003 and 2012 in Afghanistan slowed in 2013, impacted by reduced investor and consumer confidence due to the political and security uncertainty surrounding the elections. Even though gross domestic product (GDP) slowed as of 2012, domestic revenue collection as a percentage of GDP has largely stalled since 2010.

The fiscal outlook is also weak; the fiscal gap looks set to widen in order to maintain the large security sector following the withdrawal of a significant number of foreign combat troops in 2014. Any deterioration of security could further inhibit economic growth and reduce revenue generation. Moreover, the strong economic growth between 2003 and 2012 masked structural economic problems. The domestic economy is largely based on small-scale agricultural production and is susceptible to food price volatility due to a reliance on imports.

While foreign grants have supported the budget over the past decade, the long-term sustainability of current levels of development assistance (which has remained at just over US$6 billion between 2009 and 2012) is unclear. Although pledges to maintain funding were made by donors at the Tokyo international conference on Afghanistan in 2012, the majority of these were short term and, apart from three countries, did not pledge any increase.

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Until 2012 fiscal accounts have been compiled on the solar year, which runs from 21 March to 20 March. As of 2012, data has been compiled on a new fiscal year basis running from 21 December to 20 December.


Development Initiatives based on data from the International Monetary Fund.