VZCZCXRO9382
RR RUEHBC RUEHDE RUEHDIR RUEHKUK
DE RUEHBUL #5504/01 3190935
ZNR UUUUU ZZH
R 150935Z NOV 06
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 4107
RUEATRS/DEPT OF TREASURY WASHDC
INFO RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEKJCS/OSD WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RUCPDC/USDOC WASHDC
RUCNAFG/AFGHANISTAN COLLECTIVE
RUCNIRA/IRAN COLLECTIVE
RUEHXP/ALL NATO POST COLLECTIVE
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC

UNCLAS SECTION 01 OF 02 KABUL 005504 
 
SIPDIS 
 
SENSITIVE, SIPDIS 
 
DEPT FOR SCA FRONT OFFICE (DAS GASTRIGHT) AND SCA/A 
DEPT FOR ISN/ECC:JCOLLINS 
DEPT PASS AID/ANE, USTR, AND OMB:PCALBOS 
TREASURY FOR LMCDONALD, JCIORCIARI, AND ABAUKOL 
NSC FOR AHARRIMAN 
 
E.O. 12958:N/A 
TAGS: EFIN ECON MASS MARR PGOV AF
SUBJECT:  DEPUTY FINANCE MINISTER SHAHRANI - BUDGET ON TRACK BUT 
POLICE EXPANSION CREATING FISCAL WORRIES 
 
REFS:  A) KABUL 5427, B) KABUL 5373, C) KABUL 4916 
 
KABUL 00005504  001.2 OF 002 
 
 
(U) This cable contains SENSITIVE BUT UNCLASSIFIED information. 
Please protect accordingly.  Not for internet distribution. 
 
1.(SBU) SUMMARY:  Deputy Finance Minister Wahidallah Shahrani is 
concerned that, with revenue not growing as fast as expected and 
pressure to expand expenditures mounting,  the rapid expansion of 
both the ANA and the police (Afghan National Police and Auxiliary 
Police) could put the GOA in deficit and in breach of its IMF 
commitments.  This could jeopardize the GOA's push for a HIPC 
decision that would lead to complete debt forgiveness for 
Afghanistan.  Yet, as a policy matter, we cannot tolerate 
underpaying Afghan security forces in the midst of a war.  To keep 
pressure off the GOA budget, Shahrani welcomed the donor decision to 
expand the Law and Order Trust Fund for Afghanistan (LOTFA) from its 
current limit of $75 million.  While Shahrani requested an MOU on 
police pay reform similar to that reached on ANA (Afghan National 
Army) pay signed in September, this does not appear to be the right 
solution given the manner in which ANP salaries are paid through the 
Law and Order Trust Fund Afghanistan (LOTFA).  END SUMMARY. 
 
2.(SBU) In an October 30 meeting with Econ Counselor and Deputy Econ 
Counselor, Shahrani expressed concern about prospects for achieving 
the GOA's budget sustainability goals.  In response to ECON 
Counselor's question, Shahrani acknowledged that customs revenue is 
not growing (REF C).  Overall, he continued, the MOF has met IMF 
revenue collection benchmarks, but total revenue is growing at a 
lower rate than the economy. 
 
3.(SBU) Meanwhile, fiscal pressures are mounting, he lamented.  The 
government just signed a $27-$30 million contract for diesel fuel to 
keep power plants running through the end of the fiscal year (March 
20, 2007).  The contract, Shahrani noted, provided flexibility to 
cover one month of diesel purchases into the next fiscal year should 
parliament fail to pass next year's budget in time.  Another major 
drain on the budget, he noted, is the approximately 181,000 teachers 
on the Ministry of Education's payroll. 
 
4.(SBU) Shahrani expressed serious concern with projections that the 
ANA would double in size to 70,000 within two years.  Given current 
revenue growth rates, such an expansion would put huge pressure on 
the recurrent budget.  In addition, he expressed frustration with 
MOD and CSTC-A's failure to provide any data showing actual 
recruitment and retention rates.  This, he stressed, is essential 
for budget forecasting.  (COMMENT: In the interest of increasing GOA 
capacity, MOD should take the lead in briefing MOF on manpower 
issues; however, Embassy and CSTC-A will encourage MOD to coordinate 
more closely with MOF.  END COMMENT.) 
 
5.(SBU) An even larger problem, he continued, is finding a way to 
fund police pay reform.  Increasing the ANP to 82,000, adding 11,000 
Auxiliary Police, and increasing police pay rates without expanding 
LOTFA from its current level would put the GOA in deficit and in 
breach of its IMF commitments.  Shahrani expressed gratitude that 
the LOTFA Steering Committee and donors had recently agreed to 
increase the maximum amount of the LOTFA to meet this year's needs. 
However, Shahrani also suggested that he would like an MOU for 
police pay similar to the MOU between MOD and CSTC-A covering the 
ANA pay reform as another mechanism for limiting the impact of these 
changes on the GOA's fragile recurrent budget situation. 
 
6.(SBU)  COMMENT:  While the decision to raise the ANP force to 
82,000 has not yet been formally proposed to the LOTFA Steering 
Committee, much less agreed by all member nations, the rumor that it 
may be considered has generated this MOF concern.  A strong policy 
argument can be made for more ANP forces.  How to pay them will have 
to be factored into the discussion, but it is assumed that over the 
near term the international community will continue to bear the full 
burden of ANP salaries, whatever the size of the force.  Over the 
longer term, Shahrani's concern about GOA ability to pay is 
reasonable since the IC would expect to eventually hand this 
responsibility to the GOA (as has been done with ANA).  The 
auxiliary police are on one-year contracts and are paid through 
 
KABUL 00005504  002.2 OF 002 
 
 
LOTFA and equipped by the U.S., so that transitional force should 
not be an additional burden on MOF resources by the time it takes 
over the burden of paying ANP salaries.  With regard to an MOU for 
police, the bilateral U.S.-GOA MOU covering ANA would not be an 
acceptable model since the ANP are paid through the international 
mechanism of LOTFA; it is unclear what kind of agreement could be 
reached with all the LOTFA donors that would meet the MOF's needs. 
 
 
7.(SBU) COMMENT (CONTINUED):  The Finance Ministry is clearly trying 
to do its best to balance hugely important competing priorities. 
The GOA's credibility with the Afghan people depends as much on its 
ability to deliver basic services - power, water, health, and 
education - as it does its ability to provide security.  Indeed, 
given the overwhelming presence of coalition military forces in the 
country, the GOA's credibility may depend more on its provision of 
basic human needs to the people.  Making sure the LOTFA has 
sufficient funds to pay salaries for ANP patrolmen over the short- 
to medium-term, as well as limiting the impact of increased security 
expenditure requirements on the recurrent budget is critical, 
especially as the GOA moves towards a HIPC decision point and debt 
forgiveness.  END COMMENT.