## Islamic Republic of Afghanistan: Selected Issues

_IMF Staff Country Reports, December 14, 2017_

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**Canonical URL:** [Islamic Republic of Afghanistan: Selected Issues](https://www.imf.org/en/publications/cr/issues/2017/12/14/islamic-republic-of-afghanistan-selected-issues-45474)

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## Bibliographic details
- Published: December 14, 2017
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781484332917.002

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### Fiscal cost of conflict — key findings
- The paper estimates the fiscal revenue cost of conflict in Afghanistan, defined as the loss of government domestic revenue due to conflict.
- The order of magnitude of the estimate is around $1 billion.
- The size and the statistical significance of the results suggest the $1 billion estimate is robust.
- The loss of government revenue is identified as an important component of the humanitarian costs of conflict.

### Fiscal dynamics and peace dividend
- Almost all security spending in Afghanistan is funded by foreign grants.
- In the event of peace, foreign grants that fund security spending will most likely be scaled back gradually.
- Any fiscal peace dividend is likely to come principally from increased revenues, because reduced security spending will be mostly offset by reduced grants.
- By way of counterfactual, the results imply a sizeable potential fiscal dividend for Afghanistan should peace, or at least a significant reduction in violence, materialize.

### Trade, connectivity, and constraints on resilience
- Several country-specific factors have held back an expansion in Afghanistan’s trade, including conflict and a landlocked geography.
- An expansion in trade could increase the country’s economic resilience.
- Improving external connectivity is identified as a key factor to unlocking Afghanistan’s trade potential, including leveraging its natural resources.

### Policy implications and priorities (as presented)
- Prioritize measures to increase domestic government revenues to capture the likely fiscal dividend from reduced violence.
- Enhance external connectivity to unlock trade potential and better leverage natural resources.
- Anticipate and plan for a gradual scaling back of foreign grants that currently fund security spending, and design revenue measures to offset those reductions.

*Source: Islamic Republic of Afghanistan: Selected Issues, IMF Staff Country Reports, December 14, 2017.*

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_Source: https://www.imf.org/en/publications/cr/issues/2017/12/14/islamic-republic-of-afghanistan-selected-issues-45474_