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The Killid Group
Our sleeping crisis - hazy debtsWritten by Mohammad Fahim Haidari and Abdul Ghayoor Waziri
Saturday, 04 June 2011 11:43
What is the worth of the coin of the realm? The state of Afghanistan's financial health, an important component of national sovereignty, has a question mark hanging over it. While Afghanistan's impoverishment and the substantive aid support to the country is well-documented, there has been no similar healthy scrutiny of the government's indebtedness. In fact, as a Killid investigation reveals, there is ample confusion over the extent of indebtedness of the Afghan government to its international creditors. How and why were loans taken? How much remains to be paid and to whom?
A Killid investigation into loans taken by the government from donor states and organizations over the past one decade finds contradictory accounts, allegations of rampant corruption and almost no assurance about the effectiveness of projects funded by hundreds of millions of dollars in loans.
An example of this financial chaos is the issue of the debt to Russia. The Finance Ministry (MoF) says we owe almost US$1 billion to Russia but the Russian Ambassador to Kabul tells Killid his country has already forgiven all its debts to Afghanistan. This is just one of the contradicting accounts we came across. One question remains unanswered: why does the government ask for loans?
"From 2004 to 2011, Afghanistan borrowed about $1.3 billion from multilateral donors," said Ahmad Jawed Jalali, director of MoF's budget department. However, his figures were contested by Anwarul Haq Ahadi, the commerce minister, who served as finance minister in 2004-2009: "Our debts should not be more than $500 million." When asked for a breakdown of the loans, Mr. Ahadi presented yet another contradictory account: "We owed about $300 million to the World Bank, some $119 million to the International Monetary Fund and about $250 million to the Asian Development Bank." Mr Ahadi's own listing of loans amounted to $669 million, way above the $500 million he had stated. Besides, there is a difference of $800 million in the figures given by Ahadi and Jalali.
Another controversy surrounds the alleged $11.5 billion debt Afghanistan owed Russia. The loan accumulated during the 1970s and 1980. Soviet troops had invaded Afghanistan in 1979, supporting a communist government that fell in 1992, three years after the withdrawal of Soviet troops.
Ahady, the commerce minister, said Moscow had forgiven $10.5 billion of its debts to Afghanistan but that Afghanistan still owes around $1 billion to Russia. . Official documents submitted by the MoF to the National Assembly alongside this year's budget indicate that Afghanistan owes $997 million to Russia.
Killid contacted the Russian Embassy in Kabul regarding the country's loans to Afghanistan and was told, in writing, that "Russian has forgiven all its debts to Afghanistan". In the Kabul Conference last year, Foreign Minister Sergei Lavrov said Russia has written off $12 billion in Afghan debt. This was not confirmed by the MoF, however. "Our discussions are ongoing with Russian to seek a complete debt relief," said MoF's Jalali. It was immediately unclear who, the Russian Embassy or MoF's Jalali, had the most up-to-date account.
Meanwhile, MPs in the Wolesi Jirga have a different opinion. "Russia invaded our country and caused extensive human and material losses thus instead of owing to them we actually should demand compensations for all the losses," said Siddiq Ahmad Uthomani, director of the Wolesi Jirga's economic commission.
The loan list
A list sent by the MoF to the National Assembly, a copy of which was obtained by Killid, show that Afghanistan's loans exceeded $2.2 billion as of March 2011. Most of the loans came from the three international institutions: the World Bank, The Asian Development Bank and the International Monetary Fund (IMF). MoF officials said the loans were given to Afghanistan under favourable conditions - low interest rate and long-term and flexible repay procedures.
Abdul Rauof Zia, a spokesman for the World Bank in Kabul, said over the past decade the Bank had given $2.1 billion to Afghanistan of which only $4.36 million were noninterest loans and the rest were non-refundable development aid.
Ironically, Zia's figures do not match those presented by the MoF to the National Assembly. Out of the 25 mutually approved loans by the World Bank, $401.86 million is refundable loan, according to the MoF list.
In 2007 Afghanistan was declared eligible under the enhanced initiative for the Heavily Indebted Poor Countries(HIPC) of the Paris Club(The Paris Club is an informal grouping of the world's richest countries, which provides financial services such as debt restructuring, debt relief, and debt cancellation to indebted countries.)
In March 2010 the Paris Club announced the completion of the process. According to the documents it released, the total external debt of the country at that time was $2104 million with $1027 million due to Paris Club. $442 million in debts were cancelled and $585 million re-scheduled. The $585 million then owing was to be adjusted against future aid committments by the creditors in their capacity as donors to Afghanistan. But what is the position of Afghanistan's indebtedness since then? No one seems to have been keeping track.
Aid not accounted
Like our loans, exactly how much development aid has come to Afghanistan since 2002 is not known even by the key players - the Afghan Government, the United Nations and donors. The government says that most of the aid money has been spent outside its oversight and accountability mechanisms and that in 2002-2009 the government only received 10-20 percent of the foreign aid.
Donors, meanwhile, say a lack of institutional capacity in the Afghan Government to spend, administer and manage large-scale development projects has forced them to disburse funds through non-government and private channels.
Some ministries have reportedly failed to effectively disburse even 50 percent of their annual development budgets which have resulted in various bureaucratic, financial and accounting problems.
A question raised by several MPs and experts is, why do we take loans while we cannot spend free development aid?
The answer is "national priorities" according to MoF officials who say the loans are requested for development areas where donors do not provide adequate funds. According to World Bank's Zia, Afghanistan has taken loans from the Bank for the sectors of transport, customs and infrastructural projects. "All assistance in social fields such as education, health, and rural development has been through grants and are spent through the Afghan budget."
There are questions however about whether the loans have actually been spent on the areas they were earmarked for. "Some of the loans have not been spent on the projects, but their interest continues to be charged on the Afghan government, and the government has to pay it in the future".
Sediq Ahmad Osmani, member of finance and budget commission in Parliament says. The opinion is echoed by
MPs such as Ramazan Bashardost who says: "The loans are not transparent and it appears that our next generations will suffer from them." Loans given to the Afghan government are for a period of 40 years with repayment due to begin in ten years since the loan was given says Zia. Uthomani, the director of Wolesi Jirga's economic and budget commission, said that in several instances government bodies had even failed to properly disburse the loans.
"The loans remain in bank accounts with interests applied," said Uthomani. Dawood Sultanzoi, former MP and expert on economic affairs is of the opinion that the grants and loans have never been reported transparently to the Afghan people.
Mohammad Seddiq Farhang, a former minister, goes further and alleges that the bank interests of the undisbursed loans flow into the pockets of corrupt officials.
Afghanistan has been ranked among poorest and least developed countries in the world which has been flooded by largely uncoordinated foreign aid over the past decade. Now it appears that its debts only compound its problems.