Afghan aid to cost $7bn for a decade

Even on optimistic forecasts, the cost of running the country will be twice what it can afford after western troops leave.

The opinion is that the international community should try to avoid an "aid shock" that could imperil many of the gains made in Afghanistan in the last decade. Pictured here is an old part of Kabul.

The army and police force being built up in Afghanistan to keep the Taliban at bay when western combat troops leave in 2014 will impose crippling costs on the country, leaving foreign donors with an annual $7.2bn bill for at least the next decade, World Bank forecasts show.

The detailed research reveals that even optimistic predictions about Afghanistan's future put the cost of running the country at twice what it can afford.

The report, prepared for next month's (December) conference of world leaders in Bonn, says a sharp decline in foreign spending on Afghanistan after the departure of most of Nato's 130,000 troops will drag economic growth down by almost half.

Even increased government revenues will be nowhere near enough to pay for the 352,000 security forces being trained and equipped, as well as the cost of maintaining roads, schools and other infrastructure built in the last decade.

The bleak outlook assumes that massive copper and iron mines will be developed, that insecurity will be no worse than today's high levels and that the country will enjoy several drought-free years of high agricultural output.

The $7.2bn annual shortfall, averaged out over the next decade, means Afghanistan will remain the world's biggest recipient of foreign aid for years to come. Some diplomats estimate the annual bill could be closer to $10bn once the cost of a much reduced but still sizeable foreign military mission is included.

Josephine Bassinette, the World Bank's country director in Kabul, said the international community should try to avoid an “aid shock” that could imperil many of the gains made in the last 10 years. “Although it is clear overall levels of international assistance will decline, it is really important these declines are gradual, predictable and orderly,” she said.

The Afghan government is placing high hopes on the mining sector delivering strong growth, although many observers say that is unrealistic and even the World Bank's projections suggest it will add only a few percentage points to GDP.

Bidder of iron ore contract

The Guardian has learned that the government has chosen an Indo-Canadian mining consortium as the winning bidder of a $10bn plan to exploit Asia's biggest iron ore deposit, at a remote site in the central highlands known as Hajigak.

The winning bid, to be officially announced soon, is likely to infuriate Pakistan, which is concerned about the growing activities of its arch-enemy India inside Afghanistan.

As well as Hajigak, there are plans to start rapidly offering contracts for 24 “monster” deposits of gold, iron, copper, lithium and oil in Afghanistan to overseas investors, the government says.

“No country can depend on foreigners forever,” said Wahidullah Shahrani, the Mining Minister, who said the sector would add as much as $1.5bn to government coffers as soon as 2016.

Serious doubts remain. “Even in the best conditions, you are looking at many years to make significant money from an investment,” warned one mining consultant. “Here you have to build everything from scratch in a very tough environment. It's not clear how much is viable.” ( Jon Boone in Kabul and Jason Burke in Delhi .)

— © Guardian Newspapers Limited, 2011