Ed Dolan of the recently published There Aint No Such Thing As A Free Lunch discusses aid to Afghanistan
We hear a lot about the future of Afghanistan after NATO withdrawal in 2014.
Most of the speculation focuses on security and politics. Too little of it concerns economics.
A pair of new reports, one from the World Bank and the other from the IMF, help fill the gap.
If you thought the security and political prognosis was problematic, wait until you read what lies ahead for the country’s economy.
The most striking fact about the Afghan economy is its extreme dependence on foreign aid. As World Bank chart shows, in 2010, aid to Afghanistan exceeded the country’s GDP.
Only the West Bank, Gaza, and Liberia are equally aid-dependent.
At first glance, it might seem that the vast aid flows must be holding the Afghan economy together, and that without them, things would be even worse.
Clearly some of the aid, both military and civilian, is providing real benefits.
Still, world experience suggests that countries have limited capacities to absorb aid. When aid exceeds absorptive capacity, it can do more harm than good. Afghanistan, with its exceptionally large aid flows, is at particular risk.
To readmore visit Ed's blog