Omar Zakhilwal, Afghanistan's minister of finance

Afghanistan's minister of finance tells The Banker how the government is addressing its significant security and infrastructure challenges and calls for Afghanistan to be given more control over how international aid money is spent within its territory. Writer Michelle Price

If Europe's embattled finance ministers think the unpopular task of fiscal consolidation is tough, they should spare a thought for Omar Zakhilwal. Appointed to Afghan president Hamid Karzai's government as minister of finance and chief economic advisor to the president in March 2009, Mr Zakhilwal has one of the toughest jobs in sovereign finance.

After 30 years of conflict, Afghanistan remains one of the poorest countries in the world. According to the UK's Department for International Development, 50% of Afghanistan's 25 million-strong population subsists below the international poverty line, while 40% of Afghans do not have enough to eat on a daily basis.

In a war-ravaged economy, gross domestic product growth, even at Afghanistan's 8.6% for 2010, counts for little. Despite progress in recent years, the country's primary export remains illegal opium and the government is able to finance just 64% of its operating expenditure from domestic revenue, meaning that Afghanistan is almost entirely beholden to the international community for its development: since 2001, the country has sucked up more than $36bn in grants and loans.

Reforming foreign aid

During his relatively short time in office, Mr Zakhilwal has sought to challenge the status quo and reform the way in which international assistance is allocated.

According to a ministry of finance Donor Financial Review report authored by Mr Zakhilwal and published in November 2009, 77% of aid dispersed thus far has been spent on programmes designed and implemented by the donors themselves, with little if any input from the Afghan government.

Only 2.1% of overall international assistance has been put at the full discretion of the Afghan government. This is no longer a comfortable arrangement for Mr Zakhilwal, who says most of the $36bn international aid has not been aligned to the government's own developmental priorities. "Quite a big amount has not produced sustainable results," he says.

It is clear that the Karzai government is attempting to wrest fiscal control from the raft of multilateral agencies and non-governmental organisations operating in Afghanistan, in a broader attempt to "own", as Mr Zakhilwal puts it, the country's twin problems: security and poverty. The Afghan government is "standing up" to the presumption that the international community is best placed to allocate its financial assistance, he says.

In a bid to improve aid efficiency, the Karzai government has urged that the proportion of aid channelled through the national development budget be raised from the historical 20% to 50% during the next two years - and this process is now under way. "At the end of the day, we [the government] become responsible for all the failures, but many of the failures are not ours," says Mr Zakhilwal. "If we are to be responsible for the failures, then we will have to be involved more in how the money is spent in Afghanistan."

But in a country plagued by corruption - an affliction from which the Karzai government is reportedly not immune - this is not a straightforward argument and some voices have privately expressed dismay at increasing government control over funds.

Mr Zakhilwal, who has launched new anti-corruption measures, acknowledges this conflict of interest. But the benefits of aid are not only defined by the success of the projects to which they are allocated, he argues. The process of aid allocation has a critical role to play in rebuilding the Afghan state, he says, meaning that the current practice of bypassing Afghanistan's public institutions - which have also received significant investment in recent years - serves only to frustrate the country's development.

"What we are presenting on all fronts... is Afghan-owned programmes that will not only deliver sustainable results on the development, government and security fronts but will also cultivate institutions such that they have greater capability to develop on their own," says Mr Zakhilwal. "We need to strengthen institutions that are responsible for delivering services to the Afghan people."

Private institutions

Afghanistan is also badly in need of more private institutions, particularly those able to help the country explore its natural resources. The government has long hoped to attract foreign firms wishing to invest in oil, gas, iron ore and copper, and Mr Zakhilwal says he has seen some interest from potential investors.

He acknowledges, however, that the country's security and infrastructure must be greatly improved before it can capitalise on its untapped wealth. "We hope to improve security, but security alone won't make the environment more conducive [to foreign investment]: infrastructure is the next biggest priority," he says. Nearly 50% of donor assistance has been spent on security, with about 10% on infrastructure, according to the Donor Financial Review. The long-term nature of infrastructure projects has proved a turn-off for many donors, says Mr Zakhilwal, and this must also change, he adds.


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter