Afghanistan : Balancing Social and Security Spending in the Context of Shrinking Resource Envelope

Author/Editor:

Aqib Aslam ; Enrico G Berkes ; Martin Fukac ; Jeta Menkulasi ; Axel Schimmelpfennig

Publication Date:

May 30, 2013

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 13/133

Subject:

English

Publication Date:

May 30, 2013

ISBN/ISSN:

9781484320587/1018-5941

Stock No:

WPIEA2013133

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

35

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