Current Account Deficit Financed by Donor Money

The composition of the balance of payments and its changes under the current situation in Afghanistan reflect largely donor-financed reconstruction efforts and the revival of private sector activities. A presumably large current account deficit (before external grants) is currently funded mainly by official transfers. The bulk of service receipts and payments reflect activities by external actors. These include donor payments of local staff salaries as well as expatriate accommodation and restaurant expenses, and also visitor travel and the local staff cost of international forces present in Afghanistan and their local expenditures. Current transfers (inflow) in the balance of payments are mainly official donor grants to fund the budget and national development plan.

Reliable balance of payments data have not been available reflecting the poor condition of the statistical reporting system, although efforts to build statistical capacity in this area are underway with donor assistance. Best available information suggests that the formal balance of payments was in small surplus in 2002/03, and also in 2003/04. The current account appears to have deteriorated in 2003/04 due to increased imports associated with reconstruction activities. This deficit, equivalent to about 3.4 percent of GDP, was funded mainly by official transfers, some private capital flows, and modest levels of highly concessional borrowing from the Asian Development Bank and the World Bank.¹⁴

Excluding the uncertain amount of re-exports and smuggling, the government projects domestic exports and imports in 2004/05 at $190 million and $740 million, respectively, leading to a current account deficit of about 5 percent of GDP. This is again expected to be covered by donor assistance and some private capital flows.¹⁵

As loan assistance even on very concessional basis from multilateral lenders resumes and possibly followed by bilateral lenders later, external liabilities must be tracked carefully to maintain debt sustainability. The government established a debt management unit within the MOF, which is currently engaged in identifying and reconciling outstanding obligations to bilateral creditors. The outstanding debt to Russia appears to be by far the dominant but the most controversial in terms of future negotiation.

Comment(s)

There are [0] comment(s) for this entry. Post a comment.