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Government
strategy
Economic
governance and private sector development context
“The
establishment of sound economic management systems
is vital for the provision of high quality basic
services to Afghan citizens, and creating an
enabling environment for private sector growth. As
it cuts across the various functions of government
(national, and at the provincial and district
levels) good economic governance is essential for
guaranteeing that scarce national resources are used
to support the attainment of national development
objectives, in an effective, efficient and
accountable manner. Moreover, as the Afghan state
evolves, our economic management systems will need
to evolve to reflect changes in both revenue and
expenditure assignments, not least because of the
close interface between economic management and
public administration reform.
Economic growth and poverty reduction can only be
achieved if there is sustained growth of the private
sector based on productive investment. Only the
private sector will be able to provide the
employment opportunities and generate the resources
required by the government to achieve the vision
outlined in the ANDS. Afghanistan has already made
significant progress in achieving macroeconomic
stability. Small to medium scale private sector
activities have witnessed growth, but activities are
predominantly driven by the international
reconstruction effort and large-scale imports. With
the exception of the telecommunications industry,
the private sector has been largely reluctant to
undertake medium to long-term productive
investments, partly due to the high transaction
costs of doing business in Afghanistan. Although
trade has increased at double digit levels, most of
the exports are re-exports to Pakistan or Iran,
while imports are largely financed by international
aid and the drug economy.
As a result of 25 years of war, the absence of rule
of law, a formal regulatory environment and
provision of services have resulted in the majority
of private sector activity remaining in the informal
economy. The predominance of the informal economy
restricts long-term growth, creates anticompetitive
pressures, encourages corruption, denies protection
for employees and consumers, and reduces government
revenue. One key priority of the government is
therefore to facilitate an environment that creates
competitive advantages for the private sector to
operate in the formal economy. As more businesses
get better access to productive assets, particularly
access to finance, formalization of the economy will
also enhance productivity levels. This will, in
turn, allow the government to gradually increase its
tax base and domestic revenue, essential for
improving its capacity to deliver basic services and
to reduce its dependence on foreign aid.
Integrating Afghanistan’s markets with global and
particularly regional economies is critically
important for stability and economic growth.
Linkages with these markets will not only ensure the
competitiveness of domestic industries but will add
to the attractiveness of Afghanistan for investors.
With the development of an effective system for
international trade and transit, a large portion of
future investments will aim to capitalize on
Afghanistan’s strategic position as a land bridge,
linking Central and South Asia.
Government’s goal is to improve the management and
accountability of public expenditures so as to
increase the effective utilization of resources
through the budget as the tool of government policy.
Government will also aim to create the conditions in
which a dynamic and competitive private sector can
flourish, contributing to economic growth,
employment creation and poverty reduction
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