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 adviser to the president in March 2009, Mr Zakhilwal has one of the toughest jobs in sovereign finance.

After 30 years of conf lict, 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.

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In a war-ravaged economy, GDP growth, even at Afghanistan’s 8.6% for 2010, counts for little. 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 beholden to the international community for its development: since 2001, the country has sucked up more than $36bn in grants and loans.

During his short time in office, Mr Zakhilwal has sought reform the way in which international assistance is allocated. According to a Donor Financial Review report by Mr Zakhilwal, 77% of aid dispersed thus far has been spent on programmes designed and implemented by the donors themselves, with little input from the Afghan government. Only 2.1% of international assistance has been put at the full discretion 

If we are to be responsible for the failures, we have to be involved more in how the money is spent

of the Afghan government. This is no longer a comfortable arrangement for Mr Zakhilwal, who says most of the $36bn aid has not been aligned to the government’s own development priorities.

Owning Afghanistan’s problems

The government is attempting to wrest fiscal control from the raft of multilateral agencies and non-governmental organisations operating in Afghanistan, in an attempt to “own”, as Mr Zakhilwal puts it, the country’s twin problems: security and poverty. 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 20% to 50% over the next two years – and this 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, some voices have expressed dismay at increasing government control over funds. Mr Zakhilwal, who has launched new anti-corruption measures, acknowledges this conflict of interest. But the process of aid allocation has a critical role to play in rebuilding the Afghan state, he says.

“What we are presenting… is Afghan-owned programmes that will not only deliver sustainable results on the development, government and security fronts but will also cultivate institutions so that they have greater capability to develop on their own,” says Mr Zakhilwal.

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 to invest in oil, gas, iron ore and copper, and Mr Zakhilwal says he has seen some interest. 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. So far, nearly 50% of donor aid 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.