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How did foreign aids affect Afghan economy in the last 20 years?

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Khaama Press
Khaama Press
Khaama Press is a Kabul-based independent and non-political news organization established in 2010.


  1. Mohammad Mijtaba Reza, PhD Candidate at Philliphs-University Marburg
  2. Khujesta Saberi, Master Candidate at Philliphs-University Marburg

Contribution of foreign aid towards the economic development of Afghanistan is a debatable issue and remains unsettled at both theoretical and empirical levels. How aid is used has a considerable influence on the lives of almost all Afghans and will determine achievement of aid toward development (Waldman, 2008). Afghanistan has received significant amount of foreign aid since 2001. Specially targeted at the establishment and improvement of self-governing institutions and ministries, primary education, poverty reduction, health care and immunization, building roads and transport infrastructure, and the establishment of state security forces (ATR consulting, 2018).

Does Foreign Aid Work?

Foreign aid is a major source of livelihood and related to increasing social welfare ‏in fragile states like Afghanistan and convey ‏possibility to play a vital role in enhancing economic development (Langenkamp, 2002). After Syria, Yemen and Ethiopia Afghanistan has received large amount of Official Development Assistance (ODA) (Worldbank,2018)). Foreign aid influx positively influences the process of development by lowering the saving investment gap, increasing social welfare, growth, and other poverty-related variables (Sachs, 2005) but the effectiveness of foreign aid is influenced by healthy rules and institutions of the recipient country (Dollar and Burnside, 2004). There are authors who found that aid works best when given in a moderate level and the excess will result in aid ineffectiveness (Hansen & Tap, 2001), (Murphy & Tresp, 2006). Furthermore, aid given to fragile state is less likely to be effective than elsewhere (Caselli, Presbitero, 2021). Also, the type of aid given and the conditions influence the effectiveness (Headey, Duhs, Rao, 2004).

Which Sectors Were funded by Aid during Twenty Years?

In the past twenty years, foreign aid was the primary source of the national budget in Afghanistan and accounted for 40% GDP and 75% of Afghanistan’s expenditure plus a large amount flowed for institution and capacity building (UNDP, 2022). More than 150 billion USD and billions of euros as gift grants for democratization and development flowed for the betterment of Afghanistan. Before 2001, over two decades of conflict, chaos and lack of government had ruined majority of Afghanistan’s institution and infrastructure and severely depleted its human capital (SIGAR, 2021). For twenty years Afghanistan’s development aid were used mainly in education, health care, institution-building such as police, government reforms and infrastructure. A Significant increase in school enrolment has been observed, the percentage of girls increased, and the National police academy was built with help of German Aid after fall of Taliban (Qadam Shah, 2021).

What Were Problems in Development of Afghanistan?

According to the former NATO Special Civilian Representative, nearly half of aid to Afghanistan flows backs to donor countries, so it seems evident that a considerable amount of aid to Afghanistan was wasted (Waldman, 2008). The literacy rate is still around 43 percent (over 10 million youth and adults are illiterate [UNESCO (2020)]), and other SDGS indexes also do not present a hopeful picture. According to the Sustainable development report, major challenges have remained. 

Nevertheless, prioritizing emergency relief, rehabilitation and development is a challenging decision for the international community in most of its commitment to bring sustainable development (Banzet, Bousquet, Boyer, Geoffroy, Kauffmann, Pascal and Rivere, 2007) and the main problem in part of aid was lack of monitoring, accountability and coordination with government and the multiple donors. The Afghan government does not know how one-third of all aid since 2001-some $5bn-has been spent (Waldman, 2008).  The overall situation discussed above represents an ambiguity of where, when and how a large amount of aid that flowed to Afghanistan were used.

How Development Can be Achieved With the Help of Foreign Aid?

Foreign aid has the capability of contributing to various economic areas of countries, such as manufacturing, mining, service, retail, institution building, poverty reduction, education and rural development (Hee Yiew & Lau, 2018). areas of limited statehood such as Afghanistan compromise challenging environment for aid to be effective (Dreher, Lang, Ziaja, 2017). It is important to note that aid positively affects poverty reduction (Guillaumont, 2009). Jeffery Sachs in his popular book End of Poverty (2005) advocate that a large amount of aid is beneficial to the recipient country and leads to poverty reduction if it is designed appropriately. Recent studies suggest that aid has positively contributed to quality education (Riddell and Zarazua, 2016).

Still, others believes that effectiveness of foreign aid depends on policies and institutions in donor or recipient countries such as meta-analysis on conditional aid effectiveness by Doucouliagos and Paldam (2009) has concluded effect of aid in three conditions: good policy model ( a successful contribution of aid is only possible if the recipient country pursue good policies), Medicine model ( a moderate level of aid is effective, excess or less amount of aid will harm recipient country), Institutions models ( depends on various institutions such as democracy, quality institution, etc..) (Doucouliagos, Paldam, 2009).

In my point of view, development is only possible in Afghanistan with good governance, deep commitment of elite toward growth and working economic policy. Aid only create incentives for elite to cash in, but that, with much careful effort, it can be used properly and beneficially. 


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