Islamic Republic of Afghanistan - Enhanced Integrated Framework ...

CHAPTER 4MACROECONOMIC FRAMEWORKHigh, sustainable, broad-based economicgrowth and the preparation of a viable macroeconomicframework are indispensable forpoverty reduction and employment creation.The overall growth strategy of the ANDS isbased on a firm policy of private sector ledgrowth. During the last five years per capitaincome nearly doubled from US$147 to US$289.Comparable rapid economic growth will beneeded during in the next five years if the povertyreduction goals of the ANDS are to beachieved. This will require a supportive environmentfor social and economic development,which will depend crucially on making significantprogress toward improving security,eliminating the narcotics industry, reducingcorruption and strengthening governance.Equally important will be the continued maintenanceof sound and stable macroeconomicpolicies.Past high growth experience does not guaranteesimilar high rates of growth in the future.In recent years strong economic performancehas reflected substantial public investment inreconstruction activities and large foreign assistanceinflows. These factors cannot be expectedto continue to contribute to economic growth tothe same extent in the coming five years. Whilepublic/donor investment will undoubtedlycontinue to be important in the near term, therewill be an increasing reliance on private economicactivity for longer term growth to besustainable and to extend the benefits of developmentto the entire population.The drivers of economic growth are the rate ofinvestment and the rate of improvement inproductivity. A key strategic objective of theANDS is to establish a secure economic environmentin which it will be possible to attractsufficient levels of investment and which willencourage the employment of human, financialand natural resources in the most productiveways possible. A critical element in achievingthis objective will be to substantially increaseinvestment in the development of capacity ofthe workforce in order to expand employmentopportunities and increase incomes.The ability to implement the projects and programsincluded in the ANDS depends upon theresources that will be available. This chapterpresents summaries of macroeconomic projectionsfor the next five years on which estimatesof available resources are based and projectionsof the domestic and donor financial resourcesthat will be required to implement the ANDS.In order to ensure that sufficient resources willbe available, a high priority for the Governmentis to significantly increase domestic revenues.Fiscal policies will remain a central policy toolfor macroeconomic stability, public resourceallocation, and implementation of the developmentstrategy – all of which are importantingredients for sustained robust economicgrowth. Foreign assistance (including core andexternal budget) has averaged 40 percent ofGDP for the past five years. In order to bestuse foreign assistance for growth and development,there are two major challenges for fiscalpolicy. One is that distribution of financialresources (including domestic revenues andforeign assistance) must be aligned with ANDSprioritization. The other is to improve absorptioncapacity to improve both quantity andquality of projects and project execution.Macroeconomic Framework 39