Afghanistan: Balancing Social and Security Spending in the Context of Shrinking Resource Envelope
IMF Working Papers, May 30, 2013
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Bibliographic details
- Authors: Aqib Aslam, Enrico G Berkes, Martin Fukac, Jeta Menkulasi, Axel Schimmelpfennig
- Published: May 30, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484320587.001
Overview
- Title: Afghanistan: Balancing Social and Security Spending in the Context of Shrinking Resource Envelope
- Authors: Aqib Aslam, Enrico G Berkes, Martin Fukac, Jeta Menkulasi, Axel Schimmelpfennig
- Publication date: May 30, 2013
- Type: IMF Working Paper (Working Paper No. 2013/133)
- Pages: 35
Research question and approach
- Objective: Capture the security-development tradeoff facing the Afghan central government as donor support declines and security spending remains high.
- Methodology: Uses a general equilibrium model to analyze macroeconomic and welfare effects of different fiscal responses to possible aid and revenue shortfalls.
- Focus: Strategic policy options to counteract and minimize negative macroeconomic impacts from shrinking external resources.
Key findings
- Mobilizing domestic revenues through changes in tax policy is identified as the preferred policy response for the Afghan central government.
- Effect: Helps place finances on a sustainable path and preserve most of the growth potential.
- Cutting expenditures can balance public finances.
- Effect: Causes the economy to permanently shrink.
- Debt financing can help preserve much of the economy size.
- Risk: Can jeopardize the sustainability of public finances.
Policy options evaluated
- Domestic revenue mobilization (tax policy changes)
- Preferred option in the analysis for sustainability and growth preservation.
- Expenditure cuts
- Balances public finances but results in a permanently smaller economy.
- Debt financing
- Temporarily preserves economic size but raises risks to fiscal sustainability.
Relevant topics and keywords covered
- Subjects: Expenditure, Financial institutions, Infrastructure, Labor, National accounts, Public employment, Public investment and public-private partnerships (PPP), Securities
- Keywords (as listed): aggregate demand, consumption goods, demand enter, depreciation rate, development spending, expenditure cut, Global, government spending, gross domestic product, Infrastructure, infrastructure investment, interest rate, investment decision, mining revenue, physical capital, policy setup, price level, Public employment, public finance, public investment, Public investment and public-private partnerships (PPP), sales tax, Securities, security spending, shadow price, tax rate, trade balance, WP