Research conducted by Michael Callen, Rady School of Management Assistant Professor of Economics and Strategic Management, is being used in Afghanistan to combat government corruption and ensure government workers receive payment for their work.
To combat lost wages and corruption, Callen and his fellow researchers conducted a pilot study using mobile salary payments (MSPs) to pay workers at the Ministry of Labor in Afghanistan. MSPs allow employees to receive their salaries directly via mobile money. Callen’s research is critical for the strengthening Afghan state institutions and guaranteeing service delivery, factors viewed as critical for creating peace and stability in the country.
The preliminary results of that study indicate that using MSPs to pay workers could save the government hundreds of thousands per month, reduce travel cost associated with getting paid and provide salaries in a timelier manner. Because of Callen’s research, the use of MSPs is being written into agreements for future aid and is driving international policy.
Callen’s research is especially important because the U.S. sends more money to Afghanistan than any other country, yet there is little accountability for how that money is spent. The Afghan government spends 59.5 percent of its annual $7.3 billion (in U.S. dollars) budget on salaries. The international community covers about $5 billion of the Afghan annual budget, with most of the remaining $2.3 billion coming from domestic revenue. It is estimated that 40 percent of this money is lost to corruption. This is especially problematic with the payment of government workers, such as police, military and administrators. These agencies often pay “ghost” workers – fake employees added to the payroll so that others can capture their salary.
Delays in payment, garnishments, and payments to ghost employees are common problems in paying government employees in Afghanistan. Many of these issues stem from the fact that most of the salary payments outside urban centers happen in cash as part of a “trusted agent” system. In this system, instead of paying employees directly, the governments make a transfer to a bursar, who is in charge of then distributing cash. The problems using existing trusted agent system are widely recognized, but transitioning all government workers to bank transfers is a challenge. Only four percent of Afghans use a bank account, however, 74 percent of Afghans have a mobile phone. This makes public employee payments in Afghanistan ideally suited for MSPs.
Callen’s research has proven that MSPs are effective for government workers in Afghanistan and the Afghan government is implementing a large reform to start paying all government salaries with mobile money. The goals of this wide-scale reform are to eliminate ghost workers, reduce salary leakage, improve the payment experience and create an inclusive digital payment system appropriate for Afghanistan. The reform has been approved by the President’s High Economic Council, and milestones in the reform are being added as conditions for future assistance from the U.S. and the World Bank. The hope of using MSPs for all Afghan public employees is that in addition to saving the money and fighting corruption, the ability for the government to more accurately deliver payment will strengthen the delivery of services and effectiveness of the Afghan state.