Among countries that exemplify poorly managed economies, Afghanistan figures prominently. Many factors currently weigh down the Afghan economy, including negative current account balances, unrestrained government spending, low productivity, negligible income taxes, years of cheap and fraudulent lending and widespread graft. The prospects for the future are no more optimistic.
The impending international troop drawdown combined with inadequate security and looming uncertainty beyond 2014 have made the country a financial no-go zone for foreign investors. Afghanistan is beginning to suffer from the departure of the large sums of foreign capital and investment it has largely depended on for years. Reportedly, every year more money leaves the country than the Afghan government collects in customs duties and taxes combined. In the past few years alone, more than $4 billion -- drawn largely from U.S. and European aid projects, lucrative Western security and logistics contracts and illicit drugs -- has been moved out of the country to the Persian Gulf, Europe and the United States.
In the meantime, the Afghan economy is buoyed by foreign aid -- money from the U.S. and other countries that continue to support a government that is largely a financial black hole. Continuing along this track will have deleterious effects for Afghanistan’s economic future and is leaving the country at serious risk of collapse.