R ES T RI C T E D

Report No. SA-22a

l. I This report was prepared for use within the-Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

I .

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

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AND PROSPECTS

OF

AFGHANISTAN

January 12, 1971

South Asia Department

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CURRENCY EQUIVALENTS

Af per $ per Af 1,000

Official rate (June 1970) -45 22.22

Bilateral rates (June 1970):USSR 60 16.67Eastern Block 5518.18

Export surrender rates (June 1970):

Wool (multi) 55 18.18Cotton (9 lh-eR) a 20.83Cotton (multi) 70 14.29K.qr.qll (T-nl+At) 6c lNt

Free marke+t rateQ Mn'rch 21.; 1-Q96 5.51 18=n4March 21, 1964 72.22 13.85Mar-eh 21, 1970 78.77 12.70June 1970 81.56 12.26Nrma,h 91 - 1970 8529 11>71a

,~~~*S Y *~ .~ . - . - ]. . -

N'.B~. Because of thne MDu.ltbp'u 0-ity 0-5-x5z-IWZgU rart.e51 . J.L LU5

difficult to have a consistent method for converting foreignexchange into afghanis and vice versa. n Th is report, ingeneral, the free market rate was used for expressing domesticmagnitudes (e.g., income per nead) in dollar equivalents; tneappropriate surrender rate for converting export values; theofficial rate for converting financial flows; and it wasattempted to convert import categories at the rate actuallycorresponding to them, i.e. the official rate for officialimports, the free market bilateral rates for imports fromthe USSR and Eastern Europe, and the free market rate formost other imports.

This report is based on the findings of an

Economic Mission which visited Afghanistan

in May-June 1970. The Mission was composed

of the following members:

A.R. Abdel Meguid - Chief of MissionW. Lewis (Consultant) - Fiscal StudiesF. Stubenitsky - EconomistT.S. Rackham (Consultant) - Agricultural StudiesM.S. Aiyer - Industrial Studies

B. Kavalsky participated in the drafting of

this report.

CURRENT ECONOMIC POSITION AND PR03PECTS OF AFGHANISTAN

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BASIC DATA

SUMMARY AND CONCLUSIONS . . ... . .. ei .- iv

I. THE BACKGRDUND . . . . . . . . . . . . 1

The Land . . . . . . . . . . . . e * * 1The People . . . . . . . . . . . . e * * 1The Economy . . . a . . . . . . . . 2

Past Patterns of Investment and Growth 4. . . .

II. EXPLOITING THE POTENTIAL . . . . . . . . . . . 6

Agriculture . . . . . . . . . . 6 . . . . 6

Livestock . . . . . . . . . . . 10

Exports . . . 11

Industry . . . . . . . . . . . . . . . 14

Mining . . . . . . . . . . . . . . . 16

Tourism . . . . . . . . . . . . .0 17

III. MOBILIZING INTERNAL RESOURCES . . . . . . . . . . 19

The Financing Problem . . . . . . . . . . . 19

Increasing Revenues , . . . . . . . 21

Deficit Financing. . . . . . . . . 23

IV. OVERCOMING THE CONSTRAINTS . . . . . . . . . . . 27

At,titudes and Skills . . .. . . . . . . . 27

Development Administration . . . . . . . . . 28

Central. Conmnerci;l and D)elnopnment -nk-ina . 29

Conclui on . . . . . . . . . . 31

STATISTrTr AT. APP1hnTnTY

MAD 0(- A'UTl M A AT

ANNEXI A SyRtfm nfO NAtinnAl AGnGI1n+.tR foer Afcyhan,-vlstn

BASIC DATA

Area Total 6315jQoo kN2

= 63 million hectares^ab'l e : -I 1. i-on hectare (22c ofP otal)

Cropped: 4 million hectares ( 6% of total)

Pp-ulation: Totals 14 . million (1969)Rural: 10.3 million (1969)Rate of Growth: 2% (1967-69)Population density per square kilometer: 22Population density per f3guare kilometer of arable land.: 100Population density per square kilometer of cropPed land: 368

Political Status: Constitutional monarchy.

Gross National Product at current market prices (1969)S US$ 925 villion,(at free market. rate)

Real rate of growth: 3.1%Per capita GNP: $66

Gross Domestic Product at constant factor cost (1966/67 prices):

1967 1969$ 775"iTlion $ 865 million

of which, in percent:Agriculture 41.7 42.2Livestock 9.8 8.9Mining & Quarrying 0.4 0.7Manufacturing & Handicrafts 11.7 10.8Construction 1.6 1.5Trade & Transport 19.7 19.4Government Services 4.3 5.4Housing 6.0 6.2Other Economic Sectors 4.8 4.9

Percent of GNP at 1967 market prices:

1967 1969

Gross Investment 12.9 10.7Gross Savings 7.1 7.6Resoulrce gap 5.8 3.1Government Taxation Receipts 5.9 4.9

Resource GaP (Percent of Investment):

1967 45.o

Money and Credit:

Conversion - Official rate Af 45.3 = US$ 1Free market rate (May 1970) Af 81.3 = US$ 1

(May 1969) Af 75.5 = US$ 1

Percentage of(Millions of afghanis) At March 20 Change from

1970 March 20, 1969

Total money assets 14,134 + 13.4Claims on Government 9,068 + 19.2Claims on private sector 2,863 + ".1Foreign assets 2,203 - LiNational price index - 14.2Free market exchange rate - 7'.7

Annual RateGovernment Operations: 196 /66 1969/70 of Change %

Revenue receipts 3,963 4.817 + 5Non-development expenditure 2,903 I4;692 + :L3Revenue surplus 1,060 125Capital expenditure -4,270 3,809 = 3External assistance 3,277 2,383 - 6

of which: Prolect aid 3,277 1,892 6Commodity assistance 727 600 - 4

External Public Debt: (Millions of US$) As of Dec.A11 1969,

Total external Dublic debt 6h9Net of undisbursed 493

Total annnal debt service (1969/70) 20of which

TnterARt 7Amortization 13

Debt servi-e As % of' foreignexchange earnings 23.8

Balance of Payments: (Mllions of US$)Annaal Rate

1965/66 1969/70 of Change %

Total merchandise-exports 70.0 81.7 + 4L.oInvisible receipts (net) - 1.5 2.8 -

Total foreign exchange earnings 68.5 84.5 + 5.4Total imports 128.2 138 .6 + 2.0Current account deficit 59.7 54 .1 - 2.2

Official exchange reserves(1bfth) 45.. 1 29.4 - 7.8Net use df IMF credit 5.6 17.1

Commodity concentration of ($ m.) %,expozt5s Livestock products 29.. 7 +28.5

Fruits & nuts 34.0 +33-9

SUMMARY AND CONCLUSIONS

(i) Afghanistan's prospects for economic development are dominatedby its arid conditions, rugged physical terrain and remote geographicallocation for trade. About 11 million of Afghanistan's population of14 million live in rural areas, 2 million are nomadic and 1 million livein the cities. Since only 5.5 percent of the land area of 635,000 km2

is cultivated in any one year, density per unit of cultivated land ishigh, 368 persons per km2.

(ii) Po:Li-tically, Afghanistan is not yet a cohesive country;tribal and regional differences persist. The government is a con-stitutional monarchv, in actualitv the King exercises consider-able influence. In recent years, Afghanistan has been engaged in anexperiment aimed at creating a democnratic narliamentarv system; andconsiderable attention has also been given to social and politicalreforms uinder the 1965 constibituitn_ Tn the ahsence of ponnlt4alparties, representation is local, at best regional or tribal. Botht.he exeutie-1+1' andie legisla,tiveA bran-nc1hes of the cgove_rnmeAnt ronntinuei

to carry out their functions in an uncertain and seemingly undirectedway. The legislative -rocess is exceedincrlv slw hich. .h-s h-ad 2

serious effect on the pace with which the investment program is beingplanned anti i-.llem.enterl

(iii) Statistical informtion is very po, ming an -

assessment of economic conditions difficult. However, there are4n caio44is tha44- -i,n s4 o m areas, - e nomic conc-+have beeios n hav n n6

in recent years: both the primary and secondary school systems wereexpa.-,ded;a t- .e 1__ ,lway net-r a,d - eeo,,.cto. syste 4er expanded-- ---- -4-_-- --- 4

and improved; the production of wheat and export of rice have increased, andnatural gas iU being exporued To RussiLa. These improvements have SOfar had little effect on the mainstream of economic activities. Basedon fragmentary data, per capita income appears to be abouit $50 o $70.Essentially, the economy remains in static equilibrium at a level ofproductivity as high as can be achieved in the environmient. AbJectpoverty of the kind found in India is absent, but there are no strongsources of' econoc expansi on, e iter.

(is) Economic backwardness carries its own complexities; the lowlevel of income reduces the ability to save and limit8 the tax base; thelack of sRdlls and other complementary inputs reduces the productivityof investment and the rudimentary stage of public administration compoundsthe difficulties for the development effort. Under these conditions, theproblems in devising and implementing an effective policy of developmentwould be difficult enough in any event. The government's inability toprovide sound economic management or to devise and follow a strategy ofdevelopment compounds these difficulties0 Specifically the governmentfinds it exceedingly difficult to identify and prepare high priorityinvestment projects and to manage their efficient execution.

(v) Afghanistan has relied heavily on foreign advice, loans and_ _]n ex ct n 'I I nv s en w4_t ------- __ T-- _4 A 5_ AJ2X_ 4-_ 1 4

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$650 million of foreign aid and loans as well as technical assistanceprograms, averagiing nearvly $P2U mill±±ion annUally-, financed and helpedimplement the government development effort. The government also reliedhea-vily on borrowings .rom e centrl at bank 'io finance the lO( oc:al -rL-rency

component of the investment program. As a result, there was a 114 percentincrease in prices, and a (5 percent depreciation in the free marketrate of exchange between 1962 and 1967. In 1965, the government wasforced to take harsh stabilization measures which succeeded in loweringprices and stabilizing the rate of exchange, but at the cost of a dropin development expenditures, a decline in industrial Oubput and a risein unemployment.

(vi) Over the past six years, revenues have increased by about40 percent. However, current expenditures, particularly because ofrising expenditures for education and defense, have increased fasterthan revenues. Moreover, there does not appear to be much room foreconomies in non-development outlays. There is, in fact, an urgentneed to increase civil service salaries and to increase expenditureson health and education. Thus a further effort to increase publicrevenues is essential. The budget, which was presented to parliamentlast March, included a number of new measures designed to increaserevenues, but to date, the budget has not been approved by parliament.Even if parliament approves it before the end of this fiscal year, itmust be recognized that the expected increase in revenues would alsorequire a more efficient administration for the assessment and collectionof taxes than exists at the present time.

(vii) Thus, the outlook is not bright for any significant increase inpublic revenues in the near future. At the same time, the Government seesno possibility of pricing resources for development by reducing expendituresnot related to development purposes, in particular military outlays. Thus,there is the very real danger that public development outlays will besqueezed increasingly severely. The consequences of such a squeeze couldbe regrettable as Afghanistan would have to go very slowly i2 undertakingthose projects and programs that would help bring into the p.oductiveprocess the large overhead capital facilities created in the past andthereby could lead to an acceleration of economic growth. In addition,however, it could well mean the end of all efforts to strengthen thedevelopmental effects of public outlays, by concentrating on small, wellselected projects and programs which are badly in need of encouragement.

In short, inability to raise resources through additional taxationmav well deDlete attention from what is clearlv the most imDortant taskin Afghanistan today, namely, to get development going in a meaningfulway. If this were the orice to be naid. for the stalemate on newrevenue measures, the Government may well consider recourse to deficitfinancing aq a means of financing such nrniprts and nrnorams tn hb the

less costly alternative.

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in terms of rising prices, and would require supporting measureselsewnere, e.g., in the Go-verrn-Lent's exchaige rate policy. Mloreover,the risks involved are evidently worth taking only in conjunction witha thorough re-orientation of the publiC development program.

(viii) Afghanistan's Danxing and credit system faiis far short oImeeting the barking needs of the country and is even more inefficientas a means of mobilizing and channeling savings ior aevelopment.Normal banking services are confined to a very small part of theeconomy; loans and equity participation are available only for thelarger business firms, primarily to finance foreign and domestic trade.Small and medium sized enterprises in both agriculture and industry haveno commercial source of credit other than money lenders in the bazaarwhere interest rates are high, maturities are short and lending is basedon personal contacts, family connections and collateral.

(ix) The balance of payments continues to show a chronic deficit. Inrecent years, the size of the current account deficit has fallen consider-ably from its peak of $83.5 million in 1966/67 to $51.9 million in 1965/70.However, this cannot be taken as an indication that Afghanistan's ex-ternal financial position has improved in substance. What has happened.is simply that development imports have declined as a consequence offalling disbursements of external assistance which, after having reacheda peak of $84.1 million in 1966/67, came to only $55.0 million in 1969/70.

(x) Customs returns indicate that export earnings increased by about$10 million over the previous year to about $82 million in 1969/70. Mcstof the increase was attributable to increased sales of natural gas to theUSSR. EbDorts of natural aas to the USSR (which onlv began in 1967/68)increased sharply to $12 million in 1969/70 and are expected to reach$1L million in 1970/71. The number of tourists increased six-fn1d overthe last five years and with the improvement of Kabul airport and theprovision of better accommodation and internal transportation- this grnwthrate could well be maintained. Earnings from tourism are expected toincrease from about $h to $5 million at pDresent to $7 million in 197h/7q,Traditional exports of agricultural and livestock products have increasedonlv slightlv over the last ten years. This was mainlv diie to fluntiiat1onsin weather and harvest conditions and in domestic price ratios and effectiveexport. exchange rates- However; the Inng ruin nrosne?ta for some of themajor export commodities: fruit and nuts, karakul, cotton, wool and live-stck nre agood provided that measures are taken to Increase output andimprove quality control.

(xi) Merchandise imports other than those financed under foreign aid,amoulnted to somoe $70 millIon In 1969/70 anr hat not increased sigrnifIcant-ly over the past five years. Consumer goods (a great deal of which are"in transIt-" to Pakistan) accounnt for A6 percent of the imports andproducer goods for the balance. There are few quantitative restrictionsand t-ariff -- J r-'atesa .-r 1 lIo., A a r esult, a sizeble &ount of these 4ports

compete with locally produced substitutes in spite of large un-utilized.--p4a4- 4n Aomestic indus+r-i-. For ex-ple, L4_IIJJ O'r sua hav been

as high as $6.h million (1966/67) and some $10 million of textilesand $2.0 million of shoes and bicycles are being imported. There isa need for imnrov1nop the qnuality of domestic prodcrtion and alsn fora tariff structure that would support domestic industries. However,scoper fonr the latte.r S^ vrear limitedt given t.he enti+.ngr problemst ofpolicy formulation and enforcement.

(xii) Afghanistan's external debt has been growing rapidly in thepacs dec4ae rMt+.t+.nnAina rnvihli nh+. dt, incluir.g v n.dAiPh-ii?urse =mrni,n+.n

to $649 million as of December 31, 1969. Despite the generally softterms of external loans and a three year? (1O6O/67) morator±xn" on alllong-term Russian credits, repayment on foreign debt have been risingsharply. Th-e debt-srcratio *a8 92 ree-nt i 14 IOO/70 eompare toL

17 percent in 1963/64. It should be noted that 75 percent of interest-A &mori+a

4t i+ 4 -- -frmn+e 4 . + - ae-itr

4o fli a 4. o Ians. .n .,nl -as

,.t.. -lJL*JJ UJ.CJOV.Lw&J* iIl*CiLJ .( UJ £U .%.-. Da.. .LU W ----- - = 531 -t --4 6 -

exports to the USSR (with no alternative outlet) now cover two-thirdsof R.ussian CdebtAi.-.a 1072 -411 1- " 1-of t suf'icen

to cover these payments.

~(xiii) On balance, Afghanistan remains one of the least developedcountries iLn thL'e worl d . Ecor.oric -grPormace has 'keen poor anA prospectlsL.ULUIU± .L~~~D ±11 tAAi~~ W~~J± J.I.A. JUJILLI.A .1. ij± £iiD~~~~~*~ LIa.O i,jit" J L 1.JL a.w.CL I %

are not good. While there is considerable potential for economic develop-.,.en+, + th .eitng political en.v4ironmentJ (in whiCh., f0r. tbe tiMe m eing,

political roles appear to have somewhat higher priority than economicde,v"elVVrLetXJt) a.-.d adUIJLL i.t-rative i.-.adeq-uaciLes ruake a susuarL ed- lralt-e of

economic growth very difficult to achieve.

(xiv) In the absence of determined economic management and given theexisting inadequate institutional environment, tne realistLc developmenteffort is necessarily limited to establishing new institutions andstrengthening those existing ones capable of development in the circum-stances. Thus, for the time being, at least, the thin edge of thedevelopment wedge should be sound project identification, preparationand implementation and to move wherever possible step by step towardsmore effective development policies.

CURRENT ECONOMIC POSITION AND PROSPECTS OF AFGHANISTAN

I. THE BACKGROUND

The Land

1. The prospects for economic development in Afghaaistan are dominatedby the physical terrain and geographic situation. The mountains of the HinduKush range extend for some 450 miles diagonally from the northeast to thesouthwest and together with the lesser raniges and the deserts of the south andwest, limit the arable area to 22 percent of Afghanistan's 634,551 Km'T, withonly 5.5 percent actually cultivated in any one Year. They also representmajor barriers to internal communications) though an encircling road system,connecting Kabul. the canital. with Kunduz and Mazar-i-Sharif on the :Tertilenorthern plain, Herat in the west and Kandahar in the south, has been completedwi th AmA ini,n snti Riaqi an a ri d. Firnm theqA t-i esq therA i s aGess .o 17h

transport systems of Afghanistan's neighbors, Russia in the North, Iran inthe West nnd Pa.k 4stan in the East. Most of the coQne try's agriculture depandsoh irrigation. The three major river systems which drain the country are theAm.u-Darya and its t ri hta-es in the no-th, the HeLmand in the soUth t andthe Kabul, a tributary of the Indus, in the east.

2. Alfghanistan is landlocked and remote from world trade route3. Itsinra nor%ha7-n hYv.tia wi.+.h the 50v_e Tr4eU.-o a4gi it -tnegrLr 4nrp ornI

has undoubtedly induced aid flows from both the Soviet Union and the U.S., greatlyin excess of wht its share .ight have been on the basis of other cri-tera.Its other major boundaries are with Iran and Pakistan. Although Afghanistan*4~. LLU .Ua.J .J.W J Vl, l La. J A 4.4. ~U 1L1aL.PtJ. VJL4J. V"LJ "IU A)AL1J * .LJ~J. Q LJA~ LLOUL'AO.t~.L VW.

Spin Boldak provide access to the Pakistan railway system and the port ofAaracb" J.LLW I,LL.L-o .LUng Ururuj isuamu ake Iu?ZU5 L0mD r6%gu.Lut"1L Uv.L_.L.lt a qJ t erLLUorcand considerable smuggling takes place. The border with Iran with its levelterrain is especially difficult to police, 'Dut the mountainous boruer withPakistan restricts the number of trade and smuggling routes. The presenceof Pashtoon tribesmen on either side of the border, left largely to tihemselvesby the two central governments, makes for fairly unrestricted movement between4 uA n_,s_ 4_. _ _ A 9--- _ _ -L _I _ _ _ |I_ WMi _1_ - _ _. _ X_ 11 .2 - A _ - - -1 . - J. _WtV tLWU cUnLU_1trie. Afghan clamso1 n s U oo t" in1 itU trriori l dspute

with Pakistan did however lead to the closing of the border for much of theeal-y 19-7U0. This relationship has subUsq1LLUUtlJ iMProvedV, hough thes issueremains unresolved.

The People

3. Afghanistan's population of arowud 14 miUion, consists of aboutone million living in cities with over 25,000 population, two million nomadsand the rest living in rural villages. A population this size represents ahigh density of 300 per Km2 of cultivated land. Although almost entirelyMuslim, the population is tribal and ethnically varied, with some way to gobefore a cohesive national identity emerges. It is difficult to summarize acomplex social structure in a few general phrases, but it is usually charac-terized as traditional, custom-bound and hierarchical. The elite is composedof tribal chieftains, landlords and religious functionaries allied to themilitary and professional groups in the urban centers. Recently a smallentrepreneurial group has begun to emerge.

-2-

4. Afghanistan became a national state in the middle of the 18th century.Its.~, foner -e . sh+iv t bimen w.ho still connstitute the most influentialelement in the population. Afghanistan's independence from Brltain was proclaimedin W'ebrur-r 1919 hbyr Kin(r hnarnll'h The firzt connsntitutinn was adonted in 1923,but it was overturned in the disorders and civil war resulting in KingAm,niAilmlnh m-ile in 1929, O-ier waa Y-aQn+ahn1i=hdi hv WMdir Khan. there-

after elected king by a tribal assembly. Upon his assassination in 1933,his son succeeded him. I"n 1964, a new cont-n tu+l_t±on was npp rved which interalia barred members of the Royal Family from holding responsible positionsin the goveJrnmant. Thls enntitiittinn reapresants a major political experimant -

an attempt to replace what for all practical purposes had been an absolutemnnar-chy, with n amm tin 1 i Ame1nntAv v .aVS.Pm _A1i hARrtq1v and nAnt-Af'uh1V

within a short period. At this stage, cooperation between the legislativeand execut+-ve hb-nchQes of the governmant in atill panrtial, And the Kingretains de facto a great deal of power. The failure to permit the organization

genuine national focus. Representatives have tended to react to proposals inJ4_ 41 & 1_ _6 _p A. __ _. ___A AA _4 -Z _4 A z1 erM UOl IUe na X WLoUwesto Vlunters 5 LD UvL s=a UL r I ULO Ws an(1 toL r s WLL r pesoncafollowers.

The Economy

5. Per capita income data for Afghanistan can only be guessed at. An~~ J. - .1 ~~ -L d~ r'rs .7 -- A. -- -L -L-.- £ .t. J __ % ---- --.-wpprvprdate raDge -wuuld 'wt $50 uo $70 J..L tuhn Lrow lar-'et mo .Lr LdU 8

used to convert the estimates of gross domestic product. Our best estimate ofu- growth ofL UJ. umv pXwUUL;; uuc uu ULbL oLn"6M,1 VrU. Oy d4Uata ia perc.t

annually over the past decade, as compared to the estimated 2 percent perannum[ growth of population. EssentaiaLy, toe eUoVy remains inL staticequilibrium, at a level of productivity about as high as can be achievedin the environment. Abject poverty of the i.nd Soun'd in IAnda is absent;but there are no strong sources of economic expansion either.

6. Agriculture accounts for 50 percent of national income and 75 per-cent of the labor force. Of the 114 million hectares of arable land, 3.8million are under crops of which about 2.5 mdllion are irrigated. Dry landagriculture is limited to low intensity, low yleld farming mainly of winterwheat where there are suitable soils and where the amount of rainfall sustainscrops in most years. The irrigated areas of Afghanistan are in large partserved by surface water diversions from streams or by groundwater withdrawalsfrom "carezes" M and in some areas from wells. Data on surface waterdiversions are limited and the estimate of the irrigated land area is veryrough and almost certainly overstates actual availability by a very signif-icant margin. The existing irrigation systems are traditional and not capableof serving as the basis for modern, year-round cultivation. Surface watersystems are generally primitive. They divert part of the flow of a streamand distribute it to adjacent lowlands which can be served by gravity

1/ Using existing data, an-attempt was made by the mission to construct asystem of national accounts for 1967 and 1969. This is described in theAnnex to this report.

2/ A careze is a traditional, largely underground structure serving to adductwater from mountainside underground springs to areas suitable for irrigation.

flow. These are not necessarily the best lands. Also since the diversionVok ar-up'eJ . fte.>e VI R,; .rgn oleo

diversions are determined by the flow characteristics of the streamrather than by hLe -water requiremenBs of the crup. irrigationL developmenUton land served by carezes resemble that of surface water systems. RLscharge tendsto decrease during summer months in respons;e to the decline in the watertable. In the absence of seasonal storage farmers have to adopt croppingpatterns which are heavily weighted toward drought resisting varieties oflow water-use and early maturing crops.

7. On the whole, irrigated agriculture in Afghanistan, though very old,is in a very primitive state oI development. Tne basic constraint oIilrigation is the lack of assured and timely water supplies which resultsfrom a lack of storage and the primitive traditional conveyance systemsused. Farmers are unable to improve and remodel the existing irrigationstructures and except for a small understaffed and underequipped irrigationconstruction team in the Ministry of Agriculture there does not appear tobe any construction capacity in the country able to design and carry outimprovements or build modern irrigation works.

8. In recent years, the overall rate of growth of agriculturalproduction has been low. The main crops are wheat, cotton, fruit and nuts.Wheat fields account for 65 percent of the cultivated land and wheat comprises60 percent of foodgrain production; production is mainly for subsistence withonly 20 percent of the produce marketed. The average annual production of2.2 million tons is insufficient to meet demand. Cotton, which is groiLng onless than 2 percent of the irrigated land, is the major cash crop. Cotton outputdeclined sharply between 1963/64 and 1966/67 and has held a steady leveL overthe past three years. Livestock products account for 25 percent of agriculturalproduction and 40 percent of recorded foreign exchange earnings. The majorproducts are karakul skins, wool, casings and meat. Fruits and nuts are thenext most important foreign exchange earner accounting for 35 percent oE thetotal.

9. Industry accounts for some 12 percent of GDP but of this hand.i-crafts and small manufacturing establishments account for 10 percent of GDPand factory production only 2 percent. The latter is expanding rapidlyhowever, at about 10 percent per annum between 1964/65 and 1967/68. CEmentproduction increased rapidly in response to the demand generated by foreignaid financed infrastructure projects. The main commodities produced otherthan cement are shoes and cotton textiles; sugar, wheat flour and vegetableoils are produced in small quantities. Mining accounts for a further 1. per-cent of GDP. Salt, coal and more recently natural gas which is exported tothe USSR are the major items.

10. The inadequacy of social services is perhaps as important a factof economic life as anv other. The literacv rate in A-fhanistan is about11 percent with less than 5 percent of the total population attending school.Health nroblems are pervasive; faciitiPes are rinTitive and nersonnel scarce.There is no famdly planning program. Urban unemployment is emerging as aserious problem. The nroblems of deveionment in such a situation would. taxeven the most sophisticated and able set of administrators.

Past Patterns of Investment and Growth

11. During the last decade some $650 million of foreign aid and loansand the equivalent of $400 million of Government development appropriations,as well as technical assistance programs averaging nearly $20 million annually,financed and helped implement the Government development effort. Gross capitalformation in total has been roughly 11 to 14 percent of GDP during the decadewith private investment accounting for perhaps a third of- the total. In thelight of this fairly formidable total for a country at the stage of developmentof Afghanistan, the sluggLsh growth rate of the economy has been viewed withdisappointment in many quarters.

12. Some 40 percent of investment has tended to go into infrastructureprojects. These projects require ancillary investments, sometimes in additionalinfrastructure (e.g. feeder roads) and sometimes in productive capacity,beforethey yield their full potential returns to the economy. This ancillary invest-ment has been lacking, because aid donors prefer the large visible projectsas indeed do local politicians and because there has been little planning andpreparation of an appropriate investment program. As a consequence, Afghanistanhas acquired extremely unbalanced collections of both infrastructure andproductive facilities.

13. For instance: Kandahar International Airport, moderaized with U.S.assistance, is completely outside international air routes and has only minorinternal traffic. The Mahipar power project, 66 megawatts of power, constructedwith the help of a $24 million loan from West Germany, is at a standstill, andthe maximum extent of operation achieved was 44 megawatts for six months ofthe year. Even excluding the local currency component, the capital cost perkilowatt is extremely high. The Nangarhar agricultural proJect, which coversa fairly limited area has so far absorbed $50 million of Russian assistanceand will finally total over $80 million, as a result of the "discovery" thata sizeable part of the project area is rocky soil and the consequent need to"import" large quantities of topsoil by truck to the prolect area. TheHelmand Valley reclamation project: The U.S. has provided a total of $130million over two decades. From the outset, the project was beset by theproblems of attracting suitable settlers to the area and prov. ling adequateextension services to them once they arrived. The areas chosen for initialdevelopment were of low fertility with saline soils; the latter was compoundedbv inndequate drainnag qvstAmZs ThA Helmand Valley ha-s absorbed more than athird of total public investment in agriculture over the period since itsinception. -n output of 100,000 tons per a-nnu of wheat has been attainedwhich is about 4 percent of total wheat production. The circular highway,

~ '..'JSIJ.J~ ~%4,,r & ~J. WfL,L~A 0.. JJ 0 U0J"V.A.0.J C .0.LL" ~LA4. W.0U .the coT--4eAe sections of -10ch are of a st and&-rd f eyond 4-^.t

necessary under present and foreseeable future traffic conditions.

14. A large proportion of investment has therefore been absorbed byprojects -VVI.ose return s IVo 'UthLe e c onno -=v- h so far bee -P^ '- 14.A-, Some of

these projects, like Kandahar airport and the high standards on some ofthe roads, have apparen'ly been dictated boy strategic considerations; somehave been the product of genuine errors and faulty planning and some mustUbe relegated to .the category of the tota±±y inexpi cable. In auuition,

most of these large projects have been carried out in a highly capitalintensive fashion with import content as high as 75 percent in a numberof cases. Usually everything but unskilled labor has been provided by thedonor country.

15. Altogether these factors have effectively minimized the impact ofthese proJects on the economy. The government has tended to view theseprojects as somewhat outside the normal run of its responsibilities, andattemDts to coordinate the aid progran and tie it in with overall develop-ment objectives have amounted to little. "he Third Plan contained referencesto the government's recognizing the need for shifting investment from infra-structure to productive projects, but this remains a paper intention atpresent. The real choice. however. is not between two broad categorieslabelled "infrastructure" and "productive" respectively, but betweenannronriate choices within these categories which are geared to the overal1development needs of the country. Donors appear to place less importanceon Afahwindtnn in mnre reAent vears And nid nromriftmpnts haviz f'Q11An..Utilization of aid has fallen from a high of $100 million gross in 1966/67to about $55 nrllionTihn l968/69,partly becasqe of th e lack of' siuc1es of'

past projects and shortages of local currency counterpart funds. Afghanistan'sn2hiiM +.- +.n% n- rir +.nshl -n vm int.+ snri ,vnir1Ao qnma m Q-a1 ,iv"neo +.hn+ +hcQQQ

form part of a coherent development program is becoming an increasingly4 m -,.

4-.,vn+ dev 4+ nsn o +-he leewl of~ 4 d

11. XPwL-ITING THE POTENTIAAL

16. The record is not an impressive one. Afghanistan faces theseventies with the highly dubious mix of infrastructure and productivecapacity. Nevertheless there are some areas of potential,often impressive, which given appropriate policies and investment patternscould provide a motive force for growth. It is the contention of thisreport that an appropriate investment program which concentrates onutilizing the infrastructure already created in irrigation, transport andpower facilities, through carefully planned and properly supported small-scale investments, could raise the rate of growth of incomes well abovethat of population.

Agriculture

17. The agricultural sector's contribution to national income amountedto about Af 33 billion in 1969. Agriculture therefore represents over 50 per-cent of Net Domestic Product. In this sector, two relatively exclusiveactivities are involved - cropping and livestock; the first being basicallysubsistence and the second more commercially oriented. The cropplng sectorhas received most attention, and some progress has been made in the form ofadditions to arable land and improved seeds and, where cash crops have beenintroduced, opportunities for commercial production. Meanwhile this develop-ment, particularly on dry land, has impaired productivity in the livestocksector as a result of encroachment of grazine land. Altogether the azereaatechanges in agriculture up to now have barely maintained a growth rate inoutput that is sufficient to supply a growing population's consumption needsand potential export demand.

18. Of the total land area of about 63 million hectares, 22 percentor 1h million hectares are considered arablea An estimated 7.8 millionhectares are cultivated and 6 million hectares are in permanent meadowsand pastures. Of the 7.8 ml-lion hertares cultivated; onlv about half i8cropped in any one year, the remainder being left idle or fallow.With present facilities. only about 2.5 million croD hectares can beirrigated, in sone fashion, in any given year. Another 1.3 mil-lion hectareS of wheat and barley Are dry-farimed- While it may seem stralaeto qualify a figure for irrigated area which is almost two-thirds of the

is impossible without irrigation in most parts of the country and that the+ 4 r.4ga+ion-+4 a4s us-,d -. 4-eA c,ers +t-"aA4t4 iw%n aorhaa wh-1h stevery far from providing an adequate and assured supply of water. In manyareas a s.ho10-t16age 0of irr g atwo Wzte is -due to Xhe ;n A-c--c of ir-_tion systems and practices; many of the diversion structures are unable too IOLn.4 1LLL U-L L J L4UD9AL111.1 J 1_.%~ J.1.- -- A. -. I- T-st L. F %& -r -at-er level I-LOWS CI.dC MUSE be repaired or rebr4Jlt =1-11y TA

the meantime, almost all of the massive investments in irrigation have beenIA -4 AA 1 A . A _ A. w _ _A 1 A _ _ A A 4& A ..AA O +I Wm + 4A.

existing irrigation network.

19. Over 12 million people, some 88 percent of the total populationof Afghanistan, are engaged in agricultural pursuits. They include sUme2 million people who migrate from permanent winter quarters to summer

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- 7 -

pastures with their Livestock. Crop production, which has been historic-ally subsistence farming, is slowly becaming market oriented. Theproduction of cash crops, mainly fruits and nuts, has been increasingmore rapidly than the production of foodgrains, i.e., 20 percent and 6 per-cent respectively between the First and Seoond Plans.I/Methods of cultivationare traditional and the implements used are hand tools or primitive animaldraft equipment. Farm labor productivity is low because of the small sizeof plots and the limited amounts of complementary inputs combined with itin the production process. The use of chemical fertilizers, pesticides,etc., is only just beginning.

20. Agricultural output has not increased at a rate consistent withthe heavy capital investments and massive technical assistance efforts inthe sector over the last decade. Between 1962 and 1970, total Governmentdevelopment expenditures in the agricultural sector amounted to almostAf 4 billion in local currency and some $200 million in project aid (mostlyin the Helmand Valley and Nangarhar projects). In addition, ordinaryexpenditure appropriations for agriculture and land development amountedto Af 720 million and about $10 million per annum of technical assistance. 2/

21. While the produiction of wheat, the courLtry's major crop, experiencedno real increase between 1962/63 and 1967/68, and in fact fell back temporarilyin two of these years, some very significant increases have occurred in the lasttwo vears. In 1968/69. wheat production increased by 5 percent aind, despitesome setback due to poor weather, it is expected to show a further increase ofabout h percent in 1969/70. These increases have taken place more as a con-sequence of increased yields on existing crop area than through any significantincreases in new acreage. The most significant factor in the growth of wheatproduction has been the introduction of Mexipak seed, and the greater use offertilizer and imorovement of water supply have also been important. On hI percentof the total wheat area, as a result of an intensive package program, yieldsin 1969 rPer.heA 2i48 mt./ha eomnared to an average of 1.35 mt/ha for the restof the irrigated wheat area and an average of 1.1-1.2 mt/ha on all wheat croppedaea.22. If availabilities of wheat in 1970 are to be maintained, abouit 200,000ton.s will have to be imL,pored. The fLrst priortly -will be to achieve seIC-sufficiencyand the record suggests that adequate distribution of improved seeds andcreased use of fertilizer could lead to this being achieved in the near

future. Surpluses in wheat production are likely to emerge and while thesewould have Ino export market, they would provide some relief on the pricefront. Prices of cereals rose by 130 percent between 1962/63 and 1969/70as compared to a rise of onmly 13 percent for non-food items. Shifts inrelative prices and the switching of wheat land to other uses particularlyrestoring dry land to grazing, is likely to be an important aspect ofagricultural policy as surpluses emerge.

/ 1957/58-1961/62 and 1962/63-1966/67, respectively.I/ Ihe argumeLt in thisj par-a±g- raph Is underlined by the following rouzh calculation:

In this period total publIc outlays in agriculture, for investment and currentservices. amounted to about Af 22 hillion in the sAcreate; while vallue added inaSricultrire in 1970 was, accordintrgestm oy i.0 - L.54 billionhigher than in 1962.

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.Increased produc'tion of wheat and other cereals is the imwediatepriority. About 1.5 million tons of corn, barley and rice are grown inaddition to the o-ver 2.5 mil lion tons of wheat, making a total of 4 milliontons of foodgrains. Barley is grown on dry land; rice and corn are plantedon ±rr±igated land, often following wheat in the same year. Yields ofrice and corn have risen sharply in the past three years, and even on lowofficial estimates, output has risen by nearly 4 percent a year. In thelong run, however, a more diverse crop pattern will have to be developed,with cash crops and especially fodder and grazing for livestock likely toreplace cereals as the leading growth items in the agricultural sector.Fne main cash crops are cotton, fruit, vegetables and nuts.

2h. Cotton production, while declining from a high of 110,000 mtin 1963/64, has maintained a steady level of 69,000 - 72,000 mt per yearsince 1966/67. The fact that the decline has not continued is surprisingin view of the considerable pressures on the farmers to switch to foodgrains and other crops0 Prices at the farm level have been depressed as aresult of both the unattractive situation for cotton exporters and thevery strong competition from imported and smuggled cotton textiles onthe domestic market. Cotton exporters do not receive the full free marketrate of the Afghani for their exports. Although the fixed surrender ratewas increased very significantly in 1967, fram Af 45 to Af 70 to the dollar,it is still well below the free market rate which has fluctuated betweenIf 80 to Af 85 during the past year. In addition, cotton textile manu-facturers are facing increasing competition from smuggled Pakistani tex-tiles which, despite their lower quality, are grasping large portions ofthe market with prices 10 percent, or more, lower than the price of thedomestic product which averages about Af 10 per meter for coarse cloth.Smuggling of cotton textiles from Pakistan is encouraged both by the freeconvertibilitv of the Afghani currencv and bv the Pakistani Government'sexport bonus. While no statistics are available, it is fairly certainthat this smuggling has been steadily increasing, partly because of theincrease in textile production capacity in Pakistan and the further weakeningof the rupee.

25. To help increase the production of catton the Govenmment last yearraised the guaranteed price to the farmer by about 20 percent. On this basis,production of cotton i s expected to show an nreS of 20 - 2L 'Cnt in1969-1970, to about 90,000 metric tons. At the same time, however, thisprce rise makes it uprofitable to export and even more difficlt forthe textile manufacturers to compete with smuggled textiles. A partialsolution is the application of the free M..ket+ exchn".g rate to cotton.However, this still leaves the difficult situation of incentive pricesfLor 'L'e fa-l,uers arnd prohiUJULtive cost's for thbe d-4om-esti'c t-ext-iles producers.While any effective controls against smuggling are very difficult toimpiement, the Government should seek opporOunXities for increasing theproductivity of cotton farmers and the efficiency of textile manufacturers.Tne most effective improvements are likely to come with increased pro-ductivity of the farm land through better cultivation, irrigation, extension, etc.

-9-

26. The solution lies first in investing in order to improve theprofitability of growing cotton and of producing cotton teytiles, An,dsecond in increasing output of other commodities so as to lower theirprice relative to cotton. These aDDroachea would nermi+t. +.he requniriei.differential between the guaranteed price and the international price tobe established, at an adequate level of supply. Fht.h these ways areimportant. There is no magical solution to be achieved through manipulat-ing the price mechanism. The answer is that the Jnvest moent effort- i-agriculture has to look much further than the immediate goal of self-zufficiency in cereals.

27. Govermment development expenditures in agriculture constitutealmost 50 percent of the total development budget. These expendituresare mninly directed to thA large-scale projects in Helmand and Nangarhar.Relatively small amounts are provided for small-scale improvements in.larn. nnA i--ricrayt 4 em and4 st..nff i.wirk-In af.t t+.hp nnmmTnitv qnd indivi :uii1

producer level. The pre-occupation with large scale developments whichhave along gestationr period has proved to be a poor u of Ci,ntns rn+.ntraedwith quicker-yielding projects (the Pakhtia project - a comprehensive develop-ment scheme for a limited trea - mayr be regarded as ann exam.ple of th.e latter).It is easy to say that the funds should have been spent on smaller projects,hbu+ , +1ih-1., -a+ttered 4nfor mtion+ is availalhe on nposibih41itie in xrnv-aorius

areas, few specific projects have been worked out in detail and are ready#'-", ,m, J+ 4 ,1 'P1-, I~vr1^iw,,.ia,+ mnein,

4 4 ~C r, 4'-P^, -4qa + nalr nnaria o v1Annn1nforJ.~AJ.~tt.l ,,1^ra+ion Th .orr.-e. -. r..achirey~f fo t..klJ takned 4.to^ -

strengthening.

28. In the long run, investment in the expansion of the cultivatedarea nVlll. beo ar. 14 W_rtr. par o ha.s sWlu ldelpnent~ W.LJ..J. IJV 0..1 LII>iJL.LV LIU jJO.L U UL. Z"1L.LC0LAL"QU.LA 0 C61_.L'.A4J.U . 0.1. wu v V jVJJim'±.

Major irrigation developments will have their role, but for the moment theappro' wa'e co-arse 's to make rtfc r .,ore effective uase of e-Isr. g schem,esUpJ-.LLit ~ U.0 L.L bO 1dJ'.. IU.LI IIU L.L UL.LiJ_ W A.L AJJ.L,.L~ L±~

and the traditional irrigation network through the small investmentsreferreu tjo above. hne potentia-1 ±or increasing productir.vy uy e U i±±-a.and maintaining permanent structures, and establishing control over wiater flowand allocationV in eZd.sting irrigation areas is considerabue. A number ofexperts have made the following estimates: (i) Water use efficiency could bein-creased by a factor of 25 per-cent to 50 percent on 220,000 ha suit.ble forsmall scale project developments. Assumirng an overall 30 percent increase inefficency- of -water use, an additional 66,ooo ha of irritgable land now ling-fallow each year could receive water. Enlarging canals would further extendthe area by 30,000 ha; (ii) Exploitation of shallow groundwater by piumpingwould add 75,000 to 100,000 ha to irrigable area. FArther small water-retaining structures would add 10,U000 ha; (iii) Of the 2 mill-ion-plus hairrigated annually, one quarter would benefit by diversion, canal and lateralsimprovement. nhis would extend irrigation to another 56,000 ha. mherefore,tho total potential expansion of irrigation by these low-cost means `Lsestimated to be of the order of 240,000 ha. At the present rate of :Lmplement-ation, within a time-span of 15-20 years, only 100,000 ha can be brought intoirrigation under large-scale development whereas tnese lower cost improvementscould have extended irrigation by 240,000 ha.

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29. The wheat program has shown an impressive, achievable potential.Improved seeds have been extensively tested and reports indicate that adoubling of yields is not unusual. This, however, rests on the "package"of improved practices introduced with the new seeds as well as on improvementsof the irrigation system and adequate extension. The impact of this programalone, if pursued systematically and vigorously, coujd result in raising wheatoutput by 20 percent above the current level on the same planted area. Thiswould be equivalent to 400,000 to 500,000 ha of new land brought underirrigated cultivation at present traditional yields. For this to take place,however, a much better means of channeling the input package to farmers needsto be evolved. All the usual problems of this type of operation are presentin Afghanistan. What they amount to is that the right things are rarely inthe right place at the right time. The distribution of fertilizers, seeds,pesticides and credit and the availability of marketing outlets for cropsall leave a great deal to be desired. Much of the credit is provided bymoneylenders at 20-70 percent interest; rural cooperatives do not exist;the Agricultural Bank has been largely ineffective to date. The inadequacyof the agricultural extension staff can be taken as given in a country likeAfghanistan.

Livestock

30. The livestock sector provides 40 percent of Afghanistan's recorded exportearnings and 10 percent of GDP. The country has 22 million sheep (6.5 millionkarakul), over 3 million goats and 3.6 million cattle and buffalo. Thelivestock sector is marked by the fact that producers, particularly sheepowners, are responsive to commercial incentives and manage their flocks togain the maximum net benefit. However, poor techniques and facilities,and a hazardous environment, make efficient production management verydifficult. Livestock is arguably the most promising sector; it isunarguably the most neglected.

31. Over the centuries the range lands have been seriously overgrazedand in years of low rainfall, winter pasture is insufficient. The ratio ofover 2 sheep per hectare is higher than in most countries, and malnutritionis a serious problem. In the wintering areas the cold climate coupled withthe malnutrition, exact a heavv toll of sheep and goats. with losses of25 to 40 percent. In a bad winter such as that of 1969/70, high mortalityrates have a direct effect on the crop of karakul pelts as farmers restocktheir flocks. High losses also occur in the lambing season when a lack offead and low temneratures kill off -both awes qnd Tanhs- LosAse of 12 to15 percent are normal. Livestock in Afghanistan suffer from almost everydisease prevalnnt in South Asia - sheep povx scah, rindernest- foot andmouth disease, external and internal parasites, etc. Veterinary servicesare either unavailable or innaequate. A serious effort has to be made totackle these problems. Range lands need to be protected, aid waterholesprnVided in area where grazin is valabe but under-used for lack ofwater. Supplemental feed has to be available both in. the wintering areasand on the stockin routes * .'etewh,.,ww sew,ces mist be m Ae av. 1 lcombined with dipping, drenching and vaccination.

32. These measures are only the beginning of the exercise however.Ma-rketing of li-vestock products is prirti-ve, except for karakul for -whichthe Karakul Institute has introduced improvements in breeding, curing andsale of pelts. Transport of sheep for meat is often on the noof with

higb losQaes Ain wA oht due to scarcity of water and feed along the way.Wool shearing is done by hand, and results in uneven length of wool; woolcleaninga-ned scou-ri nagi iinadeuate,. and the raw wool therefore fetches alower price on the international market. Low quality wool also affects the,,,,14 -, r fAf'rrhan Tci, q- Aa'ain credit is a Droblem with owners paying

very high rates to moneylenders for credit for winter-feed purchases.The remedies nae faJrlv ohvirous. There is a need for slaughter-housesand packing plants for meat production. Cleaning and scouring plants forwool, together with Jmprnrved shearing techniques would result in sub-stantially higher returns to farmers. The Government is taking steps todevelop the sector and foreign assistance is being qonaht. PerhAps the mostimportant requirement is for trained Afghan pe±sonnel. A start is beingmade wit+h a TNDP prolect in the iveernrv f'i_eli whioh includesa 2 trnnin

program associated with a research station in Baghlan. The scale andcoverage of training needs to be rapiilyr increased if Afghanistann is to be ableto exploit the potential for a development program in this sector.

Exports

33. Afghanistan has a promising mix of exports. It is not dependentor. a- SMCa1A n.OW-bOr of traditionr." =- cAodJt-Les 01,A.1i h fca%ce _a long=1 ,--t e .- Ide c'inL e JL.n

demand. Recorded exports form only a part of the total, since much of the.liAvesvocm expoir.LAL s LO Ved L ULtVhr)Ugi1 WdJ4'lxr{, sheLIU VVer.L 1At UUwA UU.Ue

into Pakistan and Iran. It is perhaps a little unfair to use the termsmuggling for some of these eXpo-rts whi'ch are simlply a contiul-ation oftraditional trading activities.

34. Customs returns show that total export earnings increased by$10 ml-lion0 in 1969/70 vo a level of $8L na.i.aaon after stagnating since1963/64. Some of the increase in the current year over 1968/69 ($3 million)i9 a consequence of higher nat-ural gas exports to the Soviet union. This nowtotals $12 million. For the rest there were some increases in a number ofothe-r conmoditieu which had been temporarily lower in 1968/69. In practice,the export levels are almost the same as in 1963/64, with two majorexceptions. The first is natural gas, of which export only commenced in1967/68. The second is fruits and nuts, Which has grown from $14.4 miLLionin 1963/64 to nearly $28 million this year. hnis is now the leading singieexport item, though if the various categories of livestock products, suchas karakul, raw wool, carpets, hides and skins, and casings were combeied,they would be sliPtl larger. Raw cottonl exTorts declined sharply from a peakof--. 1 ~w-'-'ii .L.4. 11o7W%.P// UVI"-"P27 MIL--L-lAon In 1968/69 anu are expected to snowabout the same level from 1969/70.

35. For most commodities the stagnation in export earnings can beattributed to limitations on internal supplies rather than external denand.vith regard to karakul the decline in recorded exported pelts appears to berelated to the rapid rise in meat prices, the export tax levied on karakulpelts, and in some years to slack external demand. The first of these hascontributed to an effective meat-karakul price ratio that tends to encouragemeat production as an alternative to karakul. The second factor is probablyresponsible for extensive smuggling of pelts as a result of the difference(i.e., the export tax) in the exchange surrender rate for karakul ofAf 65 to the US dollar, versus the free rate of around Af 85. In someyears the production of pelts may decline when, after a severe winter,flocks have to be built up again; this was the case in 1968/69 and alsoappears to be a factor in 1969/70. Output is estimated at about 1.6 mJllion

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pelts in the past two years, compared to some 2 million in 1961-64. Domesticpolicy decisions could greatly arfect export earnings from karakujL, Programsfor livestock development such as providing watering wells, supplemental feedand veterinary services could reduce death rates, and increase meat and peltproduction though probably not until after the 1974/75 season. A loweringof export duties, however, would certainly increase recorded exports byreducing the incentive to smuggle karakul. The impact on recorded ex-ortearnings could then be quite substantial, wnile the total export taxproceeds would probably not decrease proportionately.

36. Raw wool exports have remained more or less stationary at around$7 million over the last 7 years. The proposed livestock developmentprograms should include wool handling improvements, more wool scouring andbetter procurement procedures on the part of the wool institute, if theyare to have an impact on wool quality and the quantity available for export.

37. Carpets are said to have declined in quality and are unsuitablein size, color and design for overseas markets, which would explain thedecrease in export earnings since 1966. Increased competition from Iranand India, and from tufted carpets is also a factor. In the absence ofproper marketing and a clear Government policy on quality control, thevalue of exports will at best only increase marginally in the near future.Exports of hides and skins and casings have remained stationary.

38. Raw cotton export earnings have declined sharply between 1966/67 and1968/69, from $14.3 million to $5.9 million, and are expected to maintain thislower level at about $5.7 million for 1969-1970. The reasons forthis have been discussed in paragraph 24. Cotton exporters have been lobby-ing for the removal of the differential between the surrender rate for cottonexoorts and the free-market rate and, in anticipation of this being done, haveaccumulated stocks. The delay in Government decision may have seriouslyaffected the level of production. The application of the free-market rateto cotton exports is an obvious and necessary step in their promotion.

39. Fruits and nuts are the single biggest export item valued ataround $28 million in I969/700 Much of the expansion is due to theintroduction of modern, clean fruit-drying in the early sixties whichopened European markets to Afghan supplies. The steady growth in theseexports over the past few vears is expected to continue. Vineyards andorchards are still being expanded in the South, as land is provided withadequate drainage and dependable sources of water for irrigation becomeavailable. There is also some possibility of further exploitation of theextensive nistachio forests. narti-cularlv in the Northwest.

40. n41 seed ePnor+ earnings have uctiuated widelv 4n thelast _qpv_n

years, reaching $45 million in 1965/66, $1.0 million in the poor harvestu,,-Qa Of IQ(66/(7 n-ni- -. Qi n,g7nin tor $31.4 ,m; nll;r on n 1((68/A9. Tr&noucMn+cntto farmers and improvement of marketing and processing would increase andstabhil;,-i nn+.-mp+. This wouldl imwrov e -thr utili ion nf the present. xcesscapacity in processing, increase exports and reduce the present reliance oninmpot+.z of ati;hla on-l fromn P&L- Ecen.

} ll * +hnv. QArn_+ _ 4s ncl l A4 *..na vege nles &nd hanA4 n.4+, a r vso 'nl ,i

at around $3.5 million in 1969/70. Export earnings could easily be muchLL*Lt1L~.L , %Av k LL j6 VI C0 AAI .L. IU ,L 0.L .L1UjD .L 'J V GO.A U OL61+ VL CO V kUOI .A.A% .v *L UJ OA V .

13 -

leather goods), organizing marketing outlets and Jmproved packagintransportation and preservation (of vegetables and fruits).

42. All in all, export earnings should increase from around $86 mnil-lion in 1969/70 to some $115 mi' ion by- 19T7(4/75, an, annual gro-wth rate ofalmost 6.5 percent. 'Therefore, the prospects for some of the major exportcommodities are relatively good, provided that certain bottlenecks canu beremedied. Changes in the surrernder rate exchange system are in order. Othermuch needed action pertains to cotton production and quality control on wooland carpets.

43. In the long run, a number of new export products should cantributeto income growth. One product that holds promise for a large market in theneighboring countries is mutton; exports of live animals are now proh:ibited b,rlaw, but smuggling to Iran takes place, involving possibly 1 milmlion sheep. ThL3potential for legal exports would appear quite favorable. Bilateralfinancing is available for slaughterhouses and packing plants. In theminerals sector potential exports include copper and beryllium.Exports of natural gas from the deposits being exploited presently areexpected to level off at about $14 million in value. Exploration for newdeposits is continuing.

44 . Rlecorded flows in Afghanistan do not reflect the actual quantumof international trading activities as sizeable transactions are takin,place through smuggling. Illegal or unrecorded exports of Afghan commoditiesappear to be mainly restricted to karakul, sheep wood, wool and lapis Lazuli.The last mentioned is probably not a very significant component, but karakuland sheep exports appear to be quite sizeable. Karakul finds its way to bothIran and Pakistan, and it is said that some of the best skins are smuggled.Estimates of the number of pelts thus exported are from 200,000 to 600,000skins (recorded exports fluctuate around 1.2 million to 1.7 million skILns),but these figures are probably much exaggerated. Exports of sheep are! il'; galin Afghanistan but nonetheless sizeable numbers of sheep appear irresistiblyattracted to the grass on the other side of the Iranian border. A slaughter-house in Meshed (Iran) with a capacity of 800o000 head a year has beenconstructed and is mainly suppli ed by Afghan sheep, reaching that citymostly on the hoof. The estimate on sheep export to Pakistan is around200,000 head a vear.

h5. Illegal or unrecorded exnorts of imnorted goods rangie from radios.rayon cloth And yarn, tires, tea, razor blades, shoes, cigarettes and matches,watches, gold and Jewelry: in short. mainlv gioods produced in Iran andPakistan under heavy tariff protection or' an absolute ban on imports. Themagrnitude of this "transit" trade has never been established, but it may wellbe sizeable.

46. The loss to governmEnt revenues on account of smuggling activitiesis substantial. There is no active attemint to control smuggling bv properpolicing of the borders. There is a loss to the economy as a whole throughthe difficulty of setting un processina in Afghanistan for potential e-Torts.

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given the kind of premiums available on smuggling out the unprocessedproduct. The system of surrender rates means that the prermium is largeras the afghani depreciates. For many products the level of the surrenderrate needs adjustment. Possibly some systen of non-specific rates, i.e.,something like an ad valorem export tax tied to the free rate rather thanthe official one, would help to achieve a speedier response.

4j7. In the long run, the export sector holds mucel promise despiteAfghanistan's distacice from international markets. The development ofhigh value products particularly off-season fruits, nuts and vegetablesfor the Earopean and South Asian markets should continue to be importantwhile the livestoclc and minerals sectors have good prospects in the longerterm.

Industry

48. The emergence of factory-scale industrial production in Afghanistanis fairly recent. The establishment of the Bank Melli in the 1930's was thebeginning of organized industrial development. The Bank sponsored the growingof cotton in the North, the setting up of a cotton ginning and oilseed pressingindustry in Kunduz, cotton textile plants in Pulji-Khumri and Jabul Seraj, anda sugarbeet factory in Baghlan. The Government's industrial ventures beganaround 1954. Since that date, the number of industrial enterprises has increasedfive times and industrial employment reached an estimated 32,000. Major publicsector industries include cement, metal Products. entineerinw. textiles and foodprocessing.149. The value of potential factory scale industrial production fromexisting capacities is estimated at Af 6 billion. The present level ofproduction (1969) is only around Af 2 billion, contributing some Af 850 mil-lion value added to the national income. While this is a contribution ofonly about 1.3 percent, it should be noted that over the last decadeindustrial capacity and production have increased very fast, although a numberof industries. particularlv those whose output is an inDut to constructionactivities, have declined sharply since 1967 following reductions ininvestment activities on maior infrastructure proJects. A slow recoveryis presently under way. Fast grodwing industries are rayon an'i woolent.,ex+iles; the frmppr st_arhed in 1961 2t 0=3 million meters, r-isrino to 1.6 mil-lion meters in 1970; the latter from 0.3 million meters, increasing to about

50. The slow recovery T sm nind s, rld em nn vn othe

should not, however, divert the attention from a number of factors that areniulyi a nc, +r ffat eonr,r, ut n ii+41a+

4n of presert c-panar. + 'kacn

include:

(a) SapPly of inputs: The major raw materials are agriculturalxro,duC ts as -ruw to oil T_^ fats I-o dt+4e4dsr .T l

cases supplies are irregular and well below requirements. Cotton ginningcapacity, for ex-Iple was 4ncreased in. 1966/1967 to 130,000 tons -- ile cottonis estimated at only 90,000 tons.

- 15 -

(b) Coordination of inter-related industries: The most seriousexample of this is in the Mazar-i-Sharif area where the natural gas is tobe used as the basic input to a 105,000 ton fertilizer plant (to be cowiissionedin 1972), and for a gas-fired steam-generating power plant. The latter has beendesigned to supply both the fertilizer and a new textile plant completed lastMarch. Absence of transmission and distribution facilities to the textileplant led to the ordering of diesel generators by the $6 million textile plantfor its own use; the plant will therefore be idle for 12-15 monthls, and sevenmegowatts of capacity of the gas-fired plant which will be commissioned in6 months will be unutilized.

(c) Competition from imported goods: In the absence of effectivecustoms protection, a number of industries such as textiles and bicyclemanufacture are not in a position to utilize their full acpacity. Thus,the privately owned Afghan Textile Company, with a capacity of 85 millionmeters has 30 million meters in stock (out of a production of 50 millionmeters), because cheaper, but lower quality, Pakistan cloth is smuggledinto the country. A similar situation prevails in the Government-ownedbicycle factorv whose output faces severe competition from legallyimported bicycles.

(d) Over-investment: With the past emphasis on large infra-structureprojects, the bhi-idn mate al JinfJu.-ies eY mnnnfied to pnirnvida the requiredconstruction inputs. Following reduction in investments requiring theseinputs, Qthe budilding material industries particularly cement, are prodelciniand will continue to do so for some years to come, at a much lower capacitythm- that achvleved in 1967 SLmilarly1,i +1th cae of war. -relativ-trly

excessive investment took place in power generation in comparison withtransmission and di striution facillties.

%-/ P4_g. _ w arid des4iBs Ts I a *fS-Mle+ of pat,t

design of the project and subsequent procurement of equipment are such+1-l+ rated capac,Ivy utilizati-on u ,`,,1 A b.e +-t+- nab,1e. I'tsi A i a

.sa. -, .4 s. Wa. a J ~.4 ~ F %."A. UJ .P U....4

lt,L'U l ... .., .,a J 'O, . L&LL' -~A.44 L

particularly true in the case of the Mahipar power plant and the Kandaharfruit| processing factO or

rf M=anMemet. Ieigex er.oed managemuent is probabl,y a cor-mon.denominator in most of the major industries in Afghanistan; responsible forlow productivity, slow exp asion and low (or- negative) profitability Vey-few industries have proper bookkeeping systems, records of production orcosts of Jnputs. In soire cases capacity has been expanded wi hout assuranceof adequate raw material supply and in others without market studies.

51. These factors have resulted in resources being utilized un-ecorio-UtLcally Jun d- Lat Ilavre seemIed ln pALciple tuo bte pr-omis'.ng indJu.s-t-Laalactivities both by the public and private sectors. The Mirnistry ofIndustry recognizes these problems and is in the process of negotiatingwith an international firm of consultants to undertake a comprehensivesurvey of industrial enterprises as a prelude to systematic improvement.in managerial and technological performaunce.

52. iollowing the Private Investment Law of 1967, 49 industrial plantshave been opened in the last two years (as of April 1970) with about- $5 mil-lion already invested; total inves-tments in these plants is to eventuallyreach some $14 mirillion. Other projects are under way; the total number ofapplications being 191 (June 5, 1970). If all these projects materializeas planned, additional employment for some 20,000 people would be generatedand the total sale value, as anticipated by applicants would be Af 3. bil-lion. About half of the approved applications are for rayon, raisinprocessing and metal fabrication. Even if only one half materialize, asseems more likely, a significant change in the industrial scene would takeplace.

53. The large number of new industries started, or applied for, underthe Private Investment Law, is evidence of the existence of industrialopportunities for the private sector and its willingness to invest. Hithertoinvestors have been mainly interested, or allowed to operate, in real estateand bazaar banking dealing with foreign exchange and money lending. Whilethis is a favorable turning point in private investment, it would be pre-mature to forecast a trend on the basis of early applications under thenew Law. Already, signs of weaknesses in the Law and its administrationare beginning to appear. Some of the "over-generous" terms provided bythe Law in the form of exemptions from the personal as well as corporateincome taxes are generating opposition.

54. On balance, although Afghanistan is hardly an ideal setting foran industry-based development strategy, the immediate outlook is promising.Despite the miniscule internal market and the fact that the most logicalmarkets, Pakistan and Iran, are both engaged in import substituting andare unlikely to be sympathetic to Afghanistan competition, the industrialbase is really so small that there are still some lines where local demandwarrants expansion. In addition transport costs do afford a measure ofbuilt-in protection. Given the livelv interest of the private sector, theshort and medium term prospects are reasonably good.

Mining

55. There have been numerous studies on minerals in AfghanistananA 4-h a n no 4- hatra otral .m 4+1 c;r? o+nc, VIA +Vcy apps v-, af V,-S.

far, limestone (for cement), coal, lapis lazuli, salt and natural gas havebeen, eaxloi,tl-A. g-a e to the S,t ITCZCD --. 4- 1.6 A -1140 ^ubi .-A a --

&JO~L Va~AJ . StA, 5 at aajJiJJ.V UtJ Ln U&- t.'./LAid h V t#cW~ ti. a'.. -*- *JJ..J.LJ I.''ttA eMW.U~.

in 1969 and are expected to reach 3 billion cubic meters in 1972. Additional-- tnerals s-- 4-- t-o 4 -4- 4n qnt4 ie. a or1 lo-g=ra p.n a,e

iron ore, copper, bauxite and beryl. Estimation of ore reserves of copper(aboLut .) A".L..Ion uons - . le4 J. percenLu eL contentVj )C UwvL b .eeAncompldV

by the USSR; Japanese companies have since completed pre-feasibilitysurveys and are no-w conducting feaibli4ty studies eApected to be f inisedat the end of 1970. Bauxite was also found last year and theexport possibilities for alumina are being stuuied by a Japanese company.Beryl deposits were also explored by a Japanese group under a grant from

- 17 -

the C,olombo Plan and a feasibility study is now expected. The orecontains about 12 percent beryllium oxide. Drilling is being conductecLbv the USSR for netroleum and other mineral deposits.

56. The IIaUiti k iron orie denosits are estimated at 2 billion torts(62 percent average iron content). Also 75 million tons of coal of whichabout 2 0 nw Jon tons awl-e _lnJa to be of coking qufality have been dis-covered on the other side of the mountains from the iron ore. (TotaleStimated re- csereS of coal n about -3 biWn 1 t t ons 1) a.) mesztone. anddolomite are also said to be available in the vicinity of the iron oredeposits. TL.JflJ.-. .JhJ4*%.S., 'A.J p to .Jlu. p o for a ste pl- tin the Fourth Plan. The cost of a 150,000 ton plant has been estimated atabout $1O ,^; m Ilson. Io11M, the fIghan mn7.ark. for qtepl isq n rnl ahl)it10,000 to 20,000 tons per annum. Thus, the plant, which is well belowt1he , minimu- tecbnologic y optimum size, wuqld be much too lnrge forAfghanistan's own needs for a considerable period of time.

57. The cost of exporting iron ore to Karachi for use in an.1 -4.-.J. I _A It..J -1 ~ ~.J.U 1, 4 4 U4LIUV +dJJ.W. J + Si.t. egrated see l appear- 4o abo uutf I LO."1e4 WLAQL +ha ofaWono

ore imported to Karachi by sea. Even if the capital costs of infra-struct-ure are excl-ued from Uhe calculation, transporL costs rLemAiprohibitive. iven if Pakistan decided to construct a steel mill in the North,it w-,'1 Se -Aike-l- th,at . U A n ore '.a- j. ...- pt. v.. Al ins-. aLl . th

export prospects for Afghan iron-ore do not appear bright given the veryha-incidl.ce of tnarsspovi costis.

58e ~ I Tn the past Mirve years -- ^-orde tou t 1ao t ',-, "tanhas increased six-fold, to some 63,000 arrivals in 1969; it is expected

+h +M^_ +- + or) Orlr) +o 4A+s -A4- hav v S4 gs`te 4u -,4- 4- ln ril-th.at *,o - U.- -/ ,O,v O O v si v "-LLJ ls>v L. L %.LW J.V VU-LU -LI L in 27v 1 V -LL

development makes tourism one of the fastest groming sectors. TheL44'"%A.Le Vi.- L 0 J..LitJr I ± P 1Lsa_LOUrt,3 LWU,VUVe,- WIIV t,.JU7 LV Uome t y Utl

goods unavailable at home, rather than to see the sights. Arrivals by0.&.±, -wttiL± accoLIJ for abvout 20 percent of sll arrivals, give a cLeareridea of genuine tourism, increased by over 50 percent in 1970. Given

Sh~~~~4 - - -4 -4. - _4. _ _J - s A P -1 - -L __ X _ - L1--l - _ *_ X_ X Cthe many tvo st attractUon.s in 1 AfghistanL , andte r-apiU expa1.nsLon ofinternational travel, there is excellent potential for continued rapidgrowl. ; Ihe- in-eaeint'>--S eas-> gs h*s beer. conse-r-a-re"y - esvi-

5~'JVIA±I U1L *11.AL%d.0Vas J.LLI tJut.L01IL WdlLL1g uao Uut1u ULflLbtrVaI..LVt:1LY UZI,±

mated at 10 percent per annum, to reach some $7.0 million by 1974/75.Cur-r Ituly thle ear-LLJgo fron, tVVU-L.SM are OTOXIUaieU at1 around u.L mii-

lion.

59. The development of Bamiyan, a serene valley with giganticrock-carved JudhLa figures, is considered a major tourist project.Nearby are the ruins of an ancient city, destroyed by Ghengis Khan; andsome 75 im from Bamiyan are a series of beautiful lakes (Band-i-Amir)set in one of the most ruggedly scenic areas. Further possibilitiesfor tourism exist in the northern area. Attractions in this part arethe famous mosque in Mazar-i-Sharif, the burial site of the fourth

- 18 -

Calif Ali; the ruins of Balgh, the Mother of Cities; Tashkurghan, acenter of handicrafts tradition with a famous covered bazaar and manyvillages where Afghan carpets are woven.

60. To capitalize fully on the potential it will be necessaryto improve Kabul airport and to provide for clean, well-managedaccommodations in the provinces as welL as transportation facilitiesfrom Kabul to the major places of interest. Airport improvement isbeing studied under a UNDP project.

III. MOBILIZlING INTEibNAL EOURUCE

The Financing Problem

61. The need for additional resources for investment is almost anaxiom of development. All too rarely is the use to which the resources

are to be put, seen as part of the same coin. In Afghanistan both thesesides need to be analyzed. The inefficiency of past investment raisesserious doubts about the usefulness of increasing resources to the publicsector, to increase public investment, expecially if this is to be donepaftially at the expense of private savings.

62. Local currency development ex-penditures in Afghanistan havegrown by 3.5 percent per annum since 1963/64. During the same period,prices rose by about 6 percent per annum. On the basis of likelyresource availabilities, projections for 1971/72 indicate a substantialfall in development expenditures.from the 1970/71 budget level. Thisaccompanies, and is linked to, a decline in foreign aid from its peakof nearly $b100 million (i.e. excludina commodity assistance) to about

$60 million this year. These declines have had serious consequencesfnr utilization of nanacity in pcrtorq such as cement and nower; and forthe level of employment.

63. Afghanistan' s undisbursed balance of committed or pledged but unutilizedloans or cred4ts iS cure-.tly at the level of about $200 4llio and a- earsto have been rising. All these commitments are for specific projects invav.J Su t staes of avat-qi+j rin or%n fovvr cs+iire A1+. •100 t wiiinn is for

projects financed by the USSR and nearly $30 million for projectsf_no,ar.cd h-r Mn-1nlnvwi (Th n - rh a m snindar-v i s forvv r ao'+_ct vl nngn,d nor

under way financed by the U.S. and Germany, France and others. In fact,$2rfll n

4 1 m4 an isa nnahahl¶rn n a4 corsderlea n~o.ee+rs-nan ,o as it 4 n.cl de<.a

projects which are not likely to be executed at all, such as theeuALLcatianJ project f.o.L I1hJ.t.L1 e V DL .L.WM ULtU.LU UA Ljhadbeen. mad-e. e10wVeVr,

development of the sectors discussed in Chapter II will require a

considerable amount of furTiher invesument. Infrastructure is by nomeans adequate in fields such as roads, electricity distribution,eUL'.a-catioJ arLLu Ld.i,VV1.4 Liea11D1 4. u1I001 JWV.LIL tLb 441 UAJAL.L0111educio d helw everL I te-.,,s of LJW1W.LeWiat rleeds. Inadti

if programs are devised to use existing infrastructure, asdiscussed~~~~4 L.evosy tey --ll - e I f gh - --- - -- -- -2X-1- n- 'IcL.LOL'" - ,l preLVV.Louly.J, 1VI& W.LJ.LJ AJ1J.Vi et LLL61L UU;UOVI MJ4L".LLy .14L Lo e a41

currency, and yet, given their low visibility, may be of limitedappea-LiL.0 UVLo %cur.t-L±.Les.

U4LnvZI.at t.aK1 i ±t iiuULU 01".v .LJ_M1 l VQL'6L4. ±VWI1t1UI,=l p±VgrLJIb W ae 1not. Qh~e only- c.lKiJ4WLb 01n reSOUrCe.~.

At Afghanistan's stage of development, and especially in relation to the1. _ J _ s0 1 _ _ _ _ _ _ _ X, ...... L L - i__.

1llLU 01 .11IV¢USl'UW±li PV11LU WU.LLI WLILO 1[epo.u1. PIVpU5e0b LncredUeu c(uUr.Ierl

expenditures will be required. Current expenditures in economic fieLds,i.e. co-m-unications, transport; public works, agriculture, etc., have beenthe slowest growing category of current expenditures, growing by 6.5 per-cent per annum as against 13 percent per annum for all current expend.-itures since 1963/64. Education and health expenditures have grown at

about the average rate, but health expenditures remain at abysmaLLy Lowlevels, and education expenditure is equal to about half of defenseexpenditures.

- 10 -

- 20 -

65. It may be difficult for an outsider to see how a country with11 npre-rnt li i tpr-v r!_wm vNnnihl nrp-yrnpnd n-n ndi-int-;i on There- isc

however, some fear in Afghanistan that this is happening and a distrustof thp scA-ial nnd political imInlications of higchea-r ae,iiitinn in np2t-ii nTThis is a problem of the nature of the educational process. There is alinrit to the niuber of a rts: cgraduatesc who cnn bhn prfit.nahlv nhaorbehA andthe experience with foreign donors who introduce inappropriately highstandn-r1d feor physic-= faeilities hasQ nnt hean 2 reiiing one. bit

expanding primary education so that people are at least able to readthe label on a fertilizer packet, and utilizing crnenzloyed graduatesby giving better salaries and allowances to go into rural areas, are the kinds of

n.F4 ,w~ nn ,,~rl~l ,.~ +h~ ~ nf icr1 ymn-iiMenn,at ~vwn i nw En iinnanrdaction-s on. wh-Ach the pacle of deIve-lopment in. the lo'negr t4er. i gin to eed

66.~~~~- ^evel of def.sMU10e re=end;tue -76-4 -1 ab30rbs ---,l 25f -- Ce-4_2.L~V. - JL. L~L 1~ Ji..L U,,O VV±A.L"AA C&&JO.S.±LJO QljjlI~ C- , J~ F~~ ILU

of the current budget is a matter for careful thought for the Government.IfL L# -LS is _LL felt a' such' a level. -L.: aLpp.LAPriate*L wtal itO -Ls iU1Ap%o-t.Ut thLatthe army's possible economic contribution should also be considered.Two-year ,w a- evc scrlusr-nA..! ssi u .- fes

I Wu ear IJLL Lto ay s eZUV.k.UU L b UV1I1PL4J_--U.y1'j U AJIi11a1.ILLUW 'UL. U U.1d.LU09

most of whom are illiterate, are given no training either in literacyor o4th'-er s RH'.s.1 Ve-y- -1--44ted Ause -. made of 4the o-S forrodwrkU ~1L.L fl.J..O. VZ ±J.JILLUi Ld U.-IV A.L JItdUt VJ.. j1LV dLU-JU .LU± i LJO.'.LiJL

and a new scheme for using them in the agricultural drive appearsb.icHl'.y IIU_ZJUV11I.cLV '.

67.* RLsitg reverl-us have barely kept pace uwth curren(t expenituresduring the sixties. MLth a determined effort to increase revenues, thes-urplus reach,ed a peak of AL 1*L billion in 1966/67, contributing nearly60 percent of development expenditures in that year. However, it fellto AL 3OU million in 1968/69 and only Ak 126 million in 9yoy6/u or18 and 6 percent of local currency development expenditures respectively.

68. The balance of development expenditures must be met throughforeign exchange aid expenditures, commodity aid (mainly PL 400) anddeficit financing. Foreign exchange aid expenditures are a separate,and in a sense, self-balancing item. Commodity aid has contriouted onaverage Af 800 million a year, but the success of the food self-sufficiency program wi.ll cut heavily Into this amount. It requireddeficit financing of the order of Af 1.4 billion to avoid a sharp cutin expenditures in 1969/70. This is illustrated below:

Financing Development E3x,enditures(In millions of afghanis)

1962/63 i966/67 1967/68 1968/69 1969/70 1970/71(Est.) (Ludget)

Development expendituresin local currency 1,446 1,728 1,708 1,911 2,026 2,332

Financed byZ:

(a) Current Surplus 35 1,100 745 359 125 363(b) Commodity Assistance 112 889 705 880 600 1,100(c) Deficit itnancing 1,299 (261) 258 672 1,301 869

Source: See Table 2.4, Statistical hppendix.

- 21 -

69. Mo-t of the normal grrowth in revenues will be pre-empte.d byincreased current expenditures. Additional sources of revenue will haveto be found to compensate for decli",-g =rmmrodit- assistancce. These ra-T_

come from tax increases aided by better administration, and recourse tofurt.hner deficit fnancing.

in.creasing Rever.ues

70. T the past seven. y.ad.ea dmest4c -rn,,ae ha ri e sen t an averag e

rate of over 12 percent. By no means all of this increase was an automaticresponse of e-s-,.ing taxe to incore growth.. A seres of actinons were + -k-

to increase revenues, including a comprehensive reform of the import dutiesat the beginnlng of the Second Fi-ve-Year Plan; severa-1 subseeuet increasesin import duty rates; increases in the prices of commodities sold by Govern-ment monopolLes such as sugar and gasoline; the introduction of to ls on theuse of major highways and a subsequent increase in rates; the introductionoI a national licensing system for motor vehicles; and several other measuresincluding improved administration. The elimination of the traditionallivestock taxes by Parliament was a step in the opposite direction. Further-more, a major drop in revenue (Af 690 million in 1969/70) resulted fromseveral cuts in exchange profits on major exports as a result of attemptsto improve export incentives.

71. The following table shows the pattern of revenue collections:

Revenues(In millions of afghanis)

1962/63 1966/67 1967/68 1968/69 1969/70

Income Tax 114 390 187 160 190Corporate Tax 77 123 144 89 55Land Tax 46 89 92 68 80Indirect Taxes 1,127 2,645 2,645 2,084 2,321Government Enterprises 389 378 613 827 882Other 367 629 1,193 1,282

Total 2,120 4,254 4,189 4 4Lt17

About half of the total comes from indirect taxes which are almost allrelated to foreign trade, either through import and export duities, or theexchange surrender system. Direct taxes are only about 7 percent of thetotal, but income from government enterprises is becoming increasinglyimportant. The rise in the residual category is almost entirely on accountof proceeds of natural gas sales to the USSR.

72. lIevenues are in the neighborhood of 7 percent of GDP;this is lower than other South Asian countries, but given the size of thesubsistence sector, comparisons with more fully monetized economies arenot entirely appropriate. The qua-litative evidence of unequal income distributionsuggests additional taxable capacity especially through direct taxation.

- 22 -

There are severe political and administrative constraints, however.Indirect taxes are evaded through smuggling, but better administrationcould raise yields substantially. Indeed this is often used in Afghanistanas an argument against tax hikes. It is of little use to talk about thecorruption, inefficiency and inadequate salaries of the tax administration.These are not unique to Afghanistan, nor is the fact that in a highlypersonal society with a small elite, in a situation where the applicationof a law is likely to hurt the influential, that law is unlikely to beapplied.

73. Income tax revenue in 1969/70 represented about 5 percent oftotal Government revenue as compared with 9 percent in 1962/63. TheMinistry of Finance is currently attempting to implement the progressiveincome tax legislation enacted in 1965. Revenues under so-called "incometaxes" will depend importantly on the older "fixed taxes" levied againstretail shops and other establishments on the basis of a seldom-changedassessment based on criteria designed to indicate the general level ofactivity. Last year, a 50 percent increase in upper bracket income taxrates (raising the top marginal rate from 40 to 60 percent on incomes netof exemptions and deductions over Af 2.5 million) was enacted. Withpresent practices, income taxes are probably collected from relativelyfew people on anything like an accurate basis, so that these high ratesare rather unrealistic. In the long run, moves towards simplificationof income tax at more realistic rates, coupled with improved enforcement,could have substantial revenue potential.

7L. Aside from exnort duties and exchange surrender rates leviedon most agricultural exports, the agricultural sector is relatively lightlytaxed. Direct land taxpR s urrentlyv v_ield onlv sahiut Af 80 millinn; whiletotal agricultural production (1969) excluding livestock products amountsto Af 25-30 billion= Rates of tax vary cnnsiderably frnm place to place,but are nowhere very high, and considerable land is not on the tax rollsat all. The unevenness of treatmant is a maior hArtier to aoross-the-board rates increases, although one such increase (resulting in a roughdoubling of revenues) was made a few years Qao. For mnny yeaQrs, hopeq forincreased revenues from land tax rested on the completion of : nationwidecadastra1 survey, andna numnber of cadastral surve,yrs have beer*n t0nad.More recently, efforts have shifted to a quicker "land inventory" approach.Le;slation has been beore the Plar1 - m- for -m.e time tha+ would, overa five-year period, move to a uniform classification system in conjunction

v.,+w the I d ir. ,ve..oY, C&nd 4 .L theAI J1V0e&.Lv:^me :oepo-tr=L %creasesOV

on existing rates subject to a minimum tax of Af 10 per jerib 1/ and ama.unum of Af 120 per Jerib (coumpared w a present average of Al 6 Or 7 perjerib and a maximum in one province of Af 45 per jerib). This programwouLU quadrupl- Qr qUUituple yields over a L.Lve-yuar perlou, wxit is givenlittle chance of early passage.

1/ 1 Jerib = 0.20 hectares

- 23 -

75. Livestock taxesp which traditionally yielded Af 80 million toAf 90 nd.iL1on aLnually (the Qector's net output in 1969 is estimated atAf 5-6 ill-on) were abolished by Parliament four years ago. Uneveneaforcrm..ent.. ,si1tina in mu_lti ni t-ayf on of some flock owners andtax freedom for others, made the traditional taxes inequitable andresented. It shollld be possible to modernize enforcement prmceduaresand to couple presentation of livestock tax proposals with the initiationof development program.s yielding direct benefits to livestock owners sothat reinstitution of these taxes would become politically acceptable.

76. Taxes on the external sector are the most important sourceof revenue,I ccomting fo r over .1 -ercnt of iom.estic reveir.ies. folllecti onscome to abouit Af 24 per dollar of import or some 30 percent of the value of

A.mer- C" iyoz-ts (.measured-A at th-Alie elffective ralte of e-_cu,nge). In and;Liton,to smuggling, there is also, undoubtedly, erosion of revenues through uider-stattemarlit, of-L val; fues. Di' rge,mentv '-- ,-,rked` im-prved recer.tly..L Inthe year ended last March, import tax collections were up by 19 percent ina year in which iMports increased by only 11 percent.

77. The Govenment could undouDtedly get a higher return on itsinvestments in commercial-type undertakings through improved management.,acco-unting and price policies. A fairly significant portion of electfriCitLyrates, for example, go uncollected at present, in part because of poorreco-rd keeping and in part because rates (reiati-ve to incomes) are toohigh for many consumers. Also, considerable capacity in textiles, cementandi electricity is unutilized at present. In the case of electricityalone, sale of full potential output coupled with successful collectionof rates could yield Af 100 milion to Af 200 million additional revenue,even at rates considerably reduced from the present nominal schedule.

78. It is difficult to put a figure oni the total impact of thechanges referred to. The political obstacles are very great but at leastpast levels of revenue growth should be maintained. This would permit theneeded expansion in current expenditures but leave little surplus forfinancing investment. The programs awaiting legislative approval such asthe land tax rise could therefore be a very important factor. Perhapsmost important of all is the unquantifiable impact of better tax admin-istration.

Deficit Financing

79. This brings the discussion back to the question of deficitfinancing through credit to the public sector. The money supply almostexactly doubled between March 1963 and March 1970, an average annual growthrate of 10.5 percent. Net credit to the public sector was at about Af 900million in 1963/64. During the subsequent stabilization the governmentreduced its outstanding credit level by some AC 650 million. Increasesresumed in L967/68 however, and reached Af 900 million again in 1969/70,with the prospect of a still higher level in 1970/71. About 60 percentof the Af 4 billion increase in the money supply since 1962/63 is onaccount of net credit to the public sector.

- 24 -

80. The monetary figures include, in addition to the figure fordeficit financing by the government, the net effect of the operationsof the government monopolies. The malor proportion of the activitiesof the monopolies and other government entities is included in the budgetbut a significant proportion is only recorded with a difference in timingfrom the monetary data, or not included at all in the budget. Thus in1969/70 for example, while the budget shows a deficit of Af 1.4 billion,the monetary data indicate that this was offset by a net contraction inthe money supplv of Af 500 million on account of higher deposits andlower credit levels of government entities (mainly as a result of thesugar and petroleum monopolies selling off accumulated stocks).

81. In trving to determine the imDact of these increases in themoney supply in the context of very slow expansion of GDP, we arehnndihannPpd hy thA unreliahilitv of the data= The nl c-e data suggesgtthat over the last seven years prices have also risen to almost doublethe 1962/63 level. One of the most reliable indi cators s the freemarket on which the price of a dollar is now 40 percent higher in termsof afghanis. An there also was inflation abroad. the nrice of a fixedbundle of imported commodities has risen by about 65 percent.

82. Since 1967/68 prices have fallen by about a quarter and theexchange rate hns been malntained at a ffirly stabhle 1level of nroundAf 75 to the dollar, though rising to Af 85 during the past year.The Rhifts in rT- ieS. howevepr- inSofqr _- theA tn+, 1et-t the renlsituation, are largely accounted for by the good harvest of 1967/68 follow-ing the previnoic bad year. It has be_r argediia tiat the+1asems w ,,,oyr,+ ahr

that the economy is able to absorb monetization of the subsistence sectorthrough increnamo in t-he moner ofin, - + au i0 nav.m but W 4-**4PAt -~J ~-- -1, V'. atn .fl .-2- pJi m.IAU /AU UShigher levels such as the 15 percent increase in 1969/70 tend to put pressureon -- ices .

83. Inferences about "safe" levels of deficit financing may or may notbe correct, but they cannot be drawn simply on the basis of available data.The initial impact of all deficit financing would be to raise demand and prices.As we know very little about the rural social structure, in particular tenurialrelationships, we do not know how the majority of the population would beaffected by price rises. Also, price rises are hardly calculated to promotesavings and over the longer run, this wouild constitute a problem.

84. One must also consider the impact of increased money incomes andprices on the demand for imports. Most food items are unlikely to be substitutedby imports. Transport costs are prohibitive. However, meat productionmight be switched to the home market thereby reducing exports. A rise in thedemand for manufacturers might provide a stimulus to domestic producers but

would certainly put pressure on the exchange rate. A depreciation in theexchange rate could provide an incentive towards restructuring agriculturalproduction towards exports if the Government allowed this to be translated intoexport incentives. Past experience seems to suggest that the exchange ratecan best be protected in a situation of low growth. This is a high price topay for stability.

85. From a purely financial point of view, deficit financing hascertain risks. The important question is therefore, deficit financing for what?It has been noted elsewhere in this report that much of the past twenty years'public investment is making a very small impact on production and incomes.If a fiscal deficit is merely to finance more such projects, then the financialrisks described above are clearlv not worth taking. In particular. thediversion of savings from the private to the public sector, however minimalthe diversion and however limited the nroductivitv of nrivate investment too.

would not be worthwhile.

86. Yet there are plenty of productive investment opportunit;ies,if only theyv cn be translated into actunal projects and programs,Relatively small but well-selected development projects could bring inlto

v- n" Air+ w v-ntvv~aa 4-hin 'Iv-r m' ai aa ',~ r- nir + &1 foo-41 -4-514+Ao -inW~~tYIe~ ~~~~~- -5dltvepoes h age^eha cap-t-l faci-4tescrae:L

the past, which are now so vastly under-utilized. Small feeder roads tobring th ebenefits Of the expensive main roads ~ +ilth population; powerdistribution facilities to use the existing generating facilities; minor

v.wi ~O+4 cMi LTP7'I +fn ' 1

+.+t,zr' 110 +4 -

I ~Jiq+=v * T l?l 1-1~ nl 4-r ho orl -irr^gation.J..f orks to better -- U.s .__ water - .y a-vl4able; th develop=ment of extension services and of fertilizer and seeds distribution

creation of facilities to better use Afghanistan's huge flocks: allrelat-4rel; s..a'' expendit-1ures,epcal -her, commre -it past pr--4ts.L C WL.&.. V%-,.J IrI~. %Jk~1AJ.U4L V espec.60"LJJ WiLL~ .A~9. %A "YWUL .1J O V&U LUJt.I

yet expenditures which, if well designed and carried out, may well drawdLLLspr-oportn Ulabely high benefitvs.

yf r-±heuiuore-, -ponseiu u t he h-uge fuorel..gii 1.LsuLa U pIuJec+vbof the past, certain investment producing facilities have developed.TLLIese incluAde, notabLJlJy, cement P.lcLLULs 0Ud at la-g s1bkLle1cns 1AicLon_

work force. While it would be wrong to make investments merely to useunderemployed capacities an worker-s, their availaility certainlyreduces the cost of these investments.

- 26 -

88. Finally, one must note - sadly - that most foreign aid giversare particularly inleresedu n1 large, e idetfUable, viLULe proJUcts.Those projects, of course, also have a local currency component, to befinanced ou-t of tLe Goverlum-nt s development uudget. Thsere is a realdanger that, in a future resources pinch, these partly foreign financedlarge proJects would be tohe last to be cut out, dud that w Uversel,Osmall, largely locally financed unspectacular but highly economicalUeve.lopMUenz e-penditLUUre50 of ole type UdeUsi-ueU auove, -would su± .ierworst. If that is the alternative, deficit financing is certainly abetter path. But it is a better path only if worthinwile investments havebeen carefully prepared.

IV. OVERCOMING THE CONSTRAINTS

89. The areas outlined in the preceding Chapter - increased foodproduction through better supply of inputs and use of existing irrigationfacilities; quality improvements in livestock and processing; a n.umber ofpossibilities for industrial production for the local market; exploitationof mineral resources; export agriculture and tourism - represent growt'hpoints which could ensure a growth rate of GDP well in excess of that f-population over the next 10 years. Hiowever, this will in fact be achievedonly to the extent that Afghanistan concentrates its efforts on overcomingthe very major constraints which the country faces.

Attitudes and Skills

90. The constraints on development in Afghanistan begin with thestructure of social and economic life. The rural structure with thepowerful malik and the extended family provides security for theindividual but robs him of initiative and forces a conformity to socialnorms. A major characteristic of these is the observance of a traditionwhich regards status and wealth as pre-ordained.

91. The dilemma is well illustrated by the manner of functioning ofparliament to date. The parliament, in the absence of binding national object-ives and without political parties, is largely representative of traditionalleaders whose power is regional and clearly linked with the existing socialstructure. Given this representation, a great deal of progressive legislationhas either been rejected or appears to be stalled. Of 1h6 Bills presented tothe Afghan parliament as of June 1, 1970, only 50 have been passed. Theseconsisted mainly of ratifications of foreign loans and the budgets. Thosenot approved have a disproportionate significance to the institutional changesnecessary for the overall development and efficient economic management of thecountry. Cooperation between the legislative and executive branches ofgovermmen-t remains wholly inadequate.

92. Except in the cases of a few ministers, economicdevelonment in not seen in Afghanistan as the most imnortant or even oneof the most important goals of the society. Yet, economic change doesnot necessarily have to wai t . for' t+hngeinout1ook to prec-ede it. Itwill itself be a factor in changing those attitudes. And attitudes are,4iiav> £ri rg - r.Iew J r g A-"wp arne aergn4 m +ha rp osi +4 o"f ^sv Tv^ isc4

being improved, and new ideas are filtering in through travel.

93. IHowever, even with the most favorable social climate, Afghanistanwould still hbe limited hy a shortage of people with the train naiexperience to man the development effort. There has been a slowing downIn thp numbAr of AfghanR going overseaR for trnining recently and the

problem of finding suitable Afghan counterparts for foreign technicalpAlrSnnnel is an seArious An ava_ Rman whdwy A aiij s abl e hftrhnl 4i avlable- 1

for the job, aid-giving agencies have been reluctant to provide adequateres-ponsibd-lity arm.d- trar4n-ng. *-h. d ..ay wl h,ave the h*g.&est u umberof foreign technical advisers and experts per capita of any country. The

-f -7- C f -

- 28 -

need for a re-thinking of the role of the educational system has alreadybeen referred to. There is also a need for better use of manpoweravailable. These weaknesses largely explain the partial failure ofplanning in Afghanistan.

Development Administration

94. The most serious barrier in the way of mounting a developmenteffort in Afghanistan is the weakness of its central administration. Thechain begins with the pitifully low level of salaries, which makes itdifficult to attract able overseas-trained Afghans into the civil service.Many who do join have independent means or have to spend a good deal of theirtime and energy on earning supplementary incomes outside the government.The civil service does not have the status it has in the Indian sub-continent,for example, where a "position" is the apex of the average man's ambition.

95. The lack of capable people is compounded by the inadequateframework in which they function. Thus. there is an almost comDleteabsence of determined and focused management of the economy. Develop-ment has indeed been thought of as something rather outside the scope ofthe administration, a matter of discrete projects selected in deferenceto the wishes of foreign donors. The capacitv to see the various stagesof a project, starting from its relation to some view of a nationaleconomv, and continuing with the various stens needed to organise andimplement it, has to be built up.

96. These problems cannot be solved overnight. Once the limitationsof the administration are recognised. attention has to be given to aselective approach. Key ministries, regional and project authoritiesanni outsi dei d,ve1 nnupint i nsti tuti ons have to bA deal t with i nt.Aneqi -Vl v

and geared up to tackle some of the problems. This emphasises theuseful role which the biki- ng system and deelopmnn.t banknIn-whinch arenot subject to the specific constraints of the existing administration,

97. The planning process is central to proper development admin-

and the need to respond to the project proposals of aid-givers andb4opefu].lv mu be somme -4--t-4 4t o nr.el 4thv r resources 4rto .mregr 1t-

oriented directions, the planning process in Afghanistan has a crucialrole toO p.lay.

97. Since its inceptJon the approauch to plannULng has prveeded uloangtwo almost independent lines. In the Ministry of Planning efforts wereconcentrated on reporting the state of the economy and the effect ofpublic sector finance on money supply. In the key development ministries,programming took the form of listing projects financed or to be financedby foreign donors. The aggregation of these projects plus some overanprmjections, not determined by the consequence of these projects,

- 29 -

represented, more or less, the Five-Year Development Plans. As aresu-lt planning as a tool of economic management has not been effective.The need for more rigorous planning is presently leading to systematictIhinking, regard-ing the +.'hp of r nfrJ.nrmi-Jnn_ thA sv-tem of collection andpresentation as well as the analytical use of these data in the Plan-r-parati on.,

98. £Achie4- better Vpl? ++=" .Inrininep 11 r Ye tnhe in+.p rrtjon of the'macro-economic work of the Planning Ministry with the detailed projectwWO k 0t' +the npr%t,n M_n m-;T4 I0istr4ms Mnit~ho? of' thesezi .twospaTieshnr

are as yet strong enough however. The major problem is still on theplrwoje:>ctSi.dQ .q7oar+oSnfraoug4 o.lf+.h!n nna-rnt.;narmn.trrs~~~~ c rm-~ ~-< ,vi 1 w ^ vi^ ^ irva nr- n ^^ts-r-- ~-~ ~~~will provide links with the planning ministry and some possibility of aTlfledia app-bc to d --- rz

VAI ntr<' ''v.9 %=erc-i '" ar.dA Develo-r,Aer,t w.a.. -' . ss_ 'P. ',.S,,S, 4

'S TA Il. O.4. _ JMLI_ _ _ L _____.- . _ _. d.L. _ LU _ : v_ I4 J J ± _ _L

99 . Xwatever the go-veIIUrmtUtE in; incrasng pr-oUktio it1,

is importiant that the basic institutional framework should be built upmore rapidlLy. This wil haVe to start with the banIing system. CreUld1is a scarce resource in Afghanistan. While the bazaar and three commercial bEnks,one of wnich also functions as a central bank, operate in the market for credi.t,the size, scope and terms of credit are not oriented effectively towards stimulat-ing economic development, and the central bankIFng functions are notadequately performed. Commercial lending services are used by oily arelatively small numoer of inuividuals and bus_Iness firmsb. The bazaarinterest rates are as high as 24 percent and this factor almost limitsthe use of' bazaar credit to the financing of highly profitable smugglngoperations. A number of changes are called for. The objectives ofthese would. be to clarify central bank functions, expand commercialbanking, and establish specialized development banking insti.tutions.

100. To achieve these (i) New central banking legislation shouldbe enacted to express more clearly the general monetary objectives ofDa Afthani.stan B&nk (DAB) and to authorize the use of more effectivetools to achieve these objectives, including authority to changereserve requirements, to affect bank credit expansion and to inspectcommercial banks. (ii) Arrangements for the continuation of DAB'scommercial. operations under separate management should be made sothat the DAB as a central bank sthould not be involved in commercialbanking. (iii) A general banking law should be enacted to regulatethe operations of banks, organize the establisthment of new bmaks,introduce reserve requirements against deposits and regulate theterms of loans and advances.

101. Following the reorganization of the Agricultural DevelopmentBank, an increase in its effectiveness in providing short and mediumterm credit to the agricultural sector has been achieved. Theindustrial. sector is still denied a similar credit institution. TheLegislative Committee of Parliament has now approved an Industrial DevelopmentBank Bill * The early establishment of an Indlustrial Development Bank iscritical at this stage of Afghanistan's economic development.

- 30 -

iO2. A Development B=L1K is needed to cuLtl[ -L-- ng and-prospective foreign aid to private sector investments which are toosmall fQr foreign Dilateral or multilateral agencies to develop andprocess efficiently on an individual basis. It must be stated thatthere was unanimous agreement on the part of those Afghan officialswith whom the mission discussed the question, that a financialintermediary, of the kind that an Industrial Development Bank wouldrepresent, is urgently needed at this stage of development, and thatsuch an institption should have objective, competent, and therefore,in the initial stages, necessarily foreign management, and shouldbe free from Government pressures to undertake specific projects.In fact, the Bank is desired even more for the objective feasibilityanalysis it is expected to provide, sadly lacking in some past publicsector investments, than the source of investment capital itrepresents.

103. Questions regarding the inadequacy and need for revising thecommercial code were raised in relation to the provisions of theIndustrial Development Bank Bill. The implications are that thecommercial code represents, in a number of important areas, a limitingfactor for efficient operations of development banking and credit, inthe protection of the rights of lenders and borrowers, on mortgages, etc.VJhile it should be noted that at presert the Commercial Code seems morehonored in the breach than the observance by most private enterprisesoperating in Afghanistan, the hoped-for expsasion in private sectoractivities would no doubt benefit from clearer and more relevant provisionsin the code, an improvement in court procedures and the general legalenvironment.

104. The main source of credit for agriculture is the money lenderor local merchant; at very high interest rates. In the livestock sectora sizeable quantum of credit is required for the purchase of winterfeed, purchase of karakul pelts, curing and baling. For the latteralone, the volume of credit is estimated at Af 150 million to Af 200 mil-lion ($3-4 million). Institutional finance to individual agricultureand livestock producers is not always available and is difficult toadminister. The logical intermediary between the banking sy tem,including the Agricultural Development Bank, and individual producersis the cooperative. The need to encourage the formation of cooperativesand expand the credit base for their operation, particularly throughthe Agricultural Development Bank, has been recognized and a CooperativeAct is awaiting approval.

- 31 -

Gonnc1 usio nf

-Io. The fnrfanino disc--.ussin mav throw some 1i¢ht on the dimensionof the problems of development and the direction and intensity of therequired Go.erment actions in the newr. fAw years. FTforts to increasdomestic revenues have not succeeded due to Parliamentary inaction at ati4 me whern increasing defe-.se appro- ations have hbeen voted. An Qtt.Pwrnt.

to change the.past behavior of some of the major economic variables needsa ba .de to 4mp.Ave the perfo.ahnce of the economy suffic4i+-tly to

allow an appreciable increase in living standards and to provide jobYUpUr±Lb.LUiLUO LtV g roL UW.L11i L-eOse-VUrLoIr oU.L.pl Ur'ess aumernd.Lii'.

changes in the Government development machinery take place, its future-iiVOUL4e1flens W'L.L UHUtLi1UW UV oUrUI.L-VLLUL,C lit.Le UV I gL-k-WWh. ±'r1ert; L9 i.Jt

point in following a policy of deficit financing if the proceeds areused for unproductive purposes. For the implementation of these UL±.:1rgesa number of institutional constraints should be remedied to sustain bheefo rt

106. Among the most important is the w-iainess of the developmen,tadministration and planning machinery itself particularly with regardto project preparation. Tne lack of statistics, and the skimpiness ofresources devoted to the preparation, analysis and follow up of pubLicand private investment projects are seriously retarding the rate atwhich foreign assistance can be effectively utilized. A strengtheningof the analytical staff of the planning organization, and the estabi-sh-ment of an industrial development institution to provide feasibilityanalyses and both direct loans and loan guarantees to the privatesector are badly needed. Improvement of the legal environment,including the enactment of a banking law, the modernization of thecommercial code, and the codification of the mortgage law, wouldimprove the climate for private investment. Inventories of naturalresources (and censuses of population, agriculture, and private industry)in forms useable to foreign and domestic private investors are alsoneeded. Honesty and efficiency in the civil service are impeded by -thevery low level of government salaries. The ahortage of accounting sidllsis a pervasive bottleneck which impedes efficiency in both public andprivate enterprises, and limits income tax and other Government revenuepotential. The speed with which these constraints are tackled willprovide a test of the genuineness of the will to develop in Afghanis-tan.

STATISTICAL APPENDIX

Table No.

1. EXTERNAL DEBT, FOREIGN TRADE & BALANCE OF PAYMENTS

1.1 Estimated External Public Debt1.? Estimated Future Service Pavments on External Debt1.3 International ReservesI1, Net B_lanees under Bilateral Accounts1.5 Foreign Loans, Grants and rechnical Assistance1.6 Valuii of Expnrts hv Commodity1.7 Export Projection1=8 Vluie of Tmnports by Commordity1.9 Balance of Payments1.10 Th-hange Rate in the Free -Mrket

2. PUBLIC FINANCE & MONETARY POLICY

2.1 Actual and Projected Estimates of Government Revenue2.2 Actual ar.d D,-octe +m vaes MCv.Ar Orinr TErpenA+,lr.2.3 Local Currency DevelopmentExpenditures

2. S&4sa o +;etr qii-tir duP r.g--+ the4- Second -d Tsh-rd Plans2.5 Sources and Uses of Government iFnds 1968/19692 h MnnMt.nr 5blravr2.7 Changes in the Money Supply and its Causative Factors2.8 National and Commodit- Price Indices

, TfTn fl tflr V Irn T r nt T fll,m nfl C. I r.RU1AtJJUU11V1 oJ1 U1tD

3.1 'v'ol-ume of Agricultural Production3.2 Agricultural Population and Landownership3 . 3 M;ajor Industrial Production3.4 Industries Established under Private Investment Law

Table I 'I -HUA1,tT? T =QtrUA1VMn L'VrTMO%TAT 1rrflTTr' T)V'P ilvTq'TIUAWTrnI AC OF nr(rUtn 31, 16'7i O /

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars)

Debt OutstandingDecember 31, 1969

Source Disbursed Including

only undisbursed

TOTAL EX'ERNAL PUBLIC DEBT 12 492,65 6j9 334

Loans from international organizations - IDA 277 8,500

Loans from governments b92,374 6Lo ,8 ah

China (M inaland) LD U4 UCC.Germany (Fed. Rep. of) 47)153 56,518Japan 2 ,00 20C0United Kingdom 2,530United Statnn 58,10c P., onU.S.S.SR. 366,71J ',71,797

Z7 Debt with an originnl or extended maturity of over one year.;/2 Excludes $l1 ,784,200 unallocated portion of frame agreements from U.S.S.R.

Statistical Services DivisionEconom"ics Department

July 16, 1970

Table 1.2 AFGHANISTA1N - ESTIMbLAUD FUTUFE 3ERVI1 PAYMENTS ON EXTERNAL PUBLIC DEBT OTISTANDTNCINCLITDING UNDISBURSED AS OF DECEMBER 31, 1969

Debt Repayable in Foreign Currency

(In thousinds of U.',. dollars) Page 1

DEBT OUTST(BEGIN oF PERIOD) PAYMENTS DURING PERIOD

INCLUDING AMORTIOYEAR UNDISSURSED ZATION INTEREST TOTAL

TOTAL EXTERNAL PUBLIC DEBT

1970 648.998 11,670 8*563 20F253SQ7{ 637J32B-- A398 93151 23J 346

1972 623J343 15#363 9*S69 24P9324973 607a9A8 19,731 9,988 29P7181974 588J249 23J359 9*531 32*89140?5 SA4 AA9 2OASa1l' 8#947 J21976 53858-5 28.692 8.304 36,995

C4LY 50Q 993 2A.Aan 7.Vat^J|^

1978 481,067 27852 To 166 35.0184 9, 0 'A P 3; 2: 24:3 4 it A A ? 3 t!9

1900 4270898 239166 6#123 29J2894AAA 0 2i:866 .RA -A:4

P, a~ -V- f 4& 4L - .-sa ~ 1982 382.866 21s165 5J 16 26J324

1984 340.622 21J276 4J 254 25.530

NJoL: Includes aeri,-ce ,.,r'. &1 rO--l l debt listed i-n Ta.le 1 p repared Tu16 19 7,h

exception or the followinp, for which repayment terms P.re not nvailable:Tonns from governm,ents:

Germaqny (Fed. Rep. of) $117,000United States 2)0r ,000

337,0()0

Tnble 1.2 AFGHANJIST'N - ESEID4AT2 FtTURE SERVICi PAYMENIS ON E;XERNAL PUBLIC DEBT OUTISTANflTMT

INCLUDIW, IfrHJ)ISBURSED AS OF DECEMBER 31, 1969 (CONT.)

Debt Repnyable in Foreign Currency

(In thousands of U.S. dollors) Page 2

u Cli---UT 5.-- Ty amYb

(BE(GIN uF PEIOD) PATMiENTS DUIRIn !r'uvnINCLUOtNG AMORTIO

YEAR UNU138§UR3E ZA;ouN NIII&RK!°01

LOAANS FROM INTERNATIONAL ORGANIZATIONS

IDA

97o0 8#500 r

19T1 8.500 * 25 251972 8,500 - 4v

vrs stsoo * ~~ ~ ~~~4r 4r1973 8.500 IR19T4 8*500 10 53 IV

1975 8.483 35 59 94j976 8.*448 35 o3 go1977 8a413 35 63 981978 8.378 35 63 9819Y9 8J8343 85 62 l471980 80258 85 62 14?1901 8*173 85 61 1461982 8.088 85 60 i4;1968 8.003 85 60 14S1964 7,918 120 59 179

LOANS FROM GOVERNMENTS

1970 640.498 110670 o,s76 20.246jr l 628,6828 13.985 9,v336 2).32119s2 614.843 15.363 9520 24.8921973 599.480 19.r37 9*941 29.6r21974 579.749 23,342 9.V49 32.82019TS 556.407 26*270 u0889 350 t1976 530.137 28,657 0.240 36,89719?? 501.481 268.95 7*666 36.4631tr6 472.666 27*617 7.104 34.9201Y9v 4440e89 25.229 6,610 31.6391t80 419.640 23.081 0.061 29.1421981 396.559 21.181 5*560 27.3411982 374.779 21.083 5.096 26.1791983 353.695 20*991 4.644 25.635j984 332.705 21.156 40194 250351

fit 0 '0 £ 056 °Z 961

10SdZ L6t 0oto' 060'Ld UP6160v ge 6 1b oio 't6 i ObOb V96 oI

nvyt"f 9gs zo91£e t96ir9Z 6161001Lf cZi 5iV;Ge iteitZ Qi6soiLl °o 99 Ott OII E 0: 61

syZw ~~gE' £161i=wZvzt xo69dG GOO I toe 4o: lt 9S 1 4:61

t9 1 " 90c¢ s>t 9M['tt 9 C yV .6 199i s 9 6 ipo s6o Ift LZvfdi Ev 61 69 gSa 0#9° 11 t IL If ' 0 ij 61,6tit7>s -ic oC ir¢ 1106 ' owf C9S 0,16 1

(do *dg *u %) ILNVNEO

aalin 5 O0OtE tp061'I, an _ 000°6 ¢

a an a 0000'?

1 a0 _ OOO'#? 06i66Qb s rl oo~~~~~~~~~AO f §ZAJA

a1 al a 000°tZ 09461- ~~~000' £"z 46 1

al, a. * OOr@1 t 9461

Oh! '.! - O0O'#~ O te ij IL

*' o wDo0ofz t461

( (INVIN IVW) Yl ITHC)N

9iN3F1N83AO03 WO?A. SNVO1

..Aa a1 V 9N.Y II ANlI

aai'83d 9NIaR~a g8.N3WAVa ca083 OCjO ;JsJSsinO 1±30

L ares (suzTop S9fn Jo PLsT%OL4'4 UI)

Souaa.m[) uOEaioq u-i al[qLexCdaj4 M qa(

(-.LNO AQ~T965T1 'Ta- HN.M fldO Sf C' 9!lT SV . qIEU NIcTMlAa NI _f

DNIQNVJSLflO J,8gn :DITIEMld "IVMLXUS fO &Lm7IEUvd 3QIA7l3s :fQil CISLLsa -GYI, INYHV Z1: alqU

'-4

0 -r_E5

b_1 0 I-IIC_¢.s - 0 - l

,4 S..

be H o C F - ~~~~~~~~~~~~~~~~~~~~~~~~~o <, Co C,o Co V- ** OD *1e 91- LNi 0 So, b- in, in 9, a C, '0 1, on -Al~~~~~~~~~~~~i tp do QC 0*D 0 CO MD to I' p<o_ '0 '0 in in t 41 s- _ _1 we _4 we_gw , h h OC T~~~~~t r m

-3 o 'JCa z atcc,:a, l -v . c La

P4 a: I,.;^ t :z ep en e tn C .fo on^ eV in (3 a4 c--t C CN 0 nl e NI CM Pol on 01 Pk OP

0 1 3 t CO 44 on I" on li e Of CY CM OfN CMl Cm Of1 CM Of cm-

5', 0 14z t

.~,-i * L. C)..~ 0. ~ ~ i p2~ ~ L.a S c I IF S IU S

r 4C. - 2 tr! 111{ V16l . V0ZCD

~~~~~2:f~ ~ ~ ~ ~ ~ ~ ~ ~-,o V : 4 U 0 Co Z ClO CCO WC O IC 4 Of Cl _ In Of % d 06 C

C: a3 s I F~~~~1 t.s z 'LS J o C> o CD co OID o -D M CO OD en- NO 'OI in, 02 -k dD 10 4* tI 06 N- W% 6t _4 -11_,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~: ,. ICD C> SCD 0 0 0 P 0 Oc O O CY rF 0o ,^ N1O C. wk 14 wt oll a A

;:~~~~~~~~~~Ca. -3 13 ,D CY CY cu CY Cm CM N (r-0t

- IL.4g , 0 IS: ; ! O a~~.1D : z cx

C'7-: ,_R | -t 4Fz O-Nf ^ e xn <t s i'-0 C aD

c. CR FF_F"F'bP'F-F-sW1-0<0X<D<O l ov0b0>*0bo0bF0i*0iO ab~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ooC1 ft40inIG vo~ COOLCl 06enqbSXJtbc oci o E c c F 0.4

daCe)v Zs qo P- do 4

Qt Il _Noo o _ Fg _e _ _* _ ow

C\j

r4H

S

Table 1,2 AFGHANISTAN - ESTIMATED FUTURE SERVICE PAYMENTS ON EXTERNAL PUBLIC DEBr OUTSTANDINGTT1'CLTADTNGJ TrhrDITSIRSFT) AS OF ThRCEMP2R V, 19 69 (CrNT )

DebT ep, 9pnyable in F icn rurrency

(In ±housinndc U.S' TT.r Pil e .

DEBT OUTST(BEGIN OF PERIOD) PAYMENTS DURING PERIOD

INCLUDING AMORTI'YEAR UNDISSURSED ZATION INTEREST TOTAL

inANS FROM nOVERNMENT1

UNITE;D STAWES

1090 83A990 2*522 1*677 4pi99s971 §r B *810468 2.752 -a o 194 4, 44619'2 78s716 2&672 1.6A7 A.!l1t93 75*844 30042 1.595 4.*63819'4 72*80! 3,217 Issa5 A,7?62

i975 69,585 3.431 1.43? 4#868,a.?6 66,153 3,758 1,324 5,082'1977 62 395 4i063 1.307 5.37C'1978 SB:332 4*244 1.2W0 5.531

10?9 54,088 1.468 1o312 2.80119!0 52:600 A.52I !^27T 2QsAtJ

1981 51#072 lo549 1.240 2*?851

1983 47 953 10592 1,164 2.756AO ZAI .AIA

U.S.S.R.

1970 471.597 530)7 49984 10*02019?1 466,560 6,968 5,747 1297151972 459J592 8x222 6,128 14,3501973 451.370 12.239 6.740 1to8O019r4 439,130 15.598 6o496 22.093197? 423#533 18.311 6#183 24.49419?6 405.222 21*194 3,818 27#012197T 384.028 21.027 5,394 26.421lore 363.000 20*331 4*973 25.3.031979 342P670 20.582 4,566 25.1481980 322.0688 19177 4.155 23.3321981 302.911 17,997 3.771 21.7681982 254*913 I17279 3.412 20.d91i98) 267.634 17T164 3.066 20*2,301964 250.470 17.306 - 2,722 20pCj3i

Statistical Services DivisionEconomics Dnnartrment.

July 16, 1970

Page 6

T?|b 1 e 1.2 A1h-LU-1[- ; -- hTESTIATMD FUTURE, SERVICE PAYTVE1TS3 014 EXTERNAL YJiMLIC DE3BT{)r! P;- 'l)Ii: ii7iThi:riG . 3'D1TSDU;ED AS OF DECEMBER 31, 1969

1)cb, Repaypble in Foreign Currency

(In thousands of U.S. dollnrs)

DEBT OIJS T(BEGIN OF FERIOD) PAYhENIS DURING PERIOD

INCLUDING AMORTI-YEAR UNDISBBURSED ZhATION IN EREST TOTAL

TOTAL ADDITIONAL EXTERNAL PUBLIC DEBT /1

1970 1h,758 5,266 n.a. 5,2661971 9 ,,92 1,b6B L. ,1,681972 5,02h 3,960 3,9601973 1;06h 971 971197h 93 93 931975 _

/1 Includes service on bilateral debts from U.S.S.R. which Pre outstandina onDecemher 31, 1969 but are not included in the regular submission. Thefolilovinc, debts are also outstanding but have been excluded from this tablebecause repayment terms are not available:

Debtor Amount

Intercontinental Hotel $ 5,851,200Baigh Textile Co. b,901,33BAfghan Cotton Industry 1,00o0,50h

Totel. $11 ,753,01,2

Statistical Services DivisionEconomics Department

July 22, 1970

Table 1 .3

INTERNATIONAL RESERVESLonso

March 20

1. Da Afghanistan BankWv 45,.16 38.59 28.93 29.66 29.41

Gold 34.69 314.85 33.04 32.97 32.99

Foreign Exchange 17,19 13.80 6. 05 14.06 7.62(Convertible) (16-,52);- (13.62) (5. 68) (13.57) (7.43)(IriconvertibleY2/ (0.67) (0.18) (0.37) (10.49) (0.19)

Special Drawing Rights - 4.97

Net IMF position -9,06 -11L.26 -8.98 -17.55 -17.11

Net balances under bilateralagreement,s 2.34 1.20 -1.18 0.18 1.04

2. Foreign Excl!ge of Conmiercial Banks 1,.63 :2.47 2. 26 -370 3.76

(Convertible) (1, 31) (2.19) (1.6$7) (2-72) (2.25)(Inconvertible)!/ (0.32) (0).28) (0.59) (0.98) (1.51)

3. TotL (] + 2) L6,79 4:1. 06 31.19 33.36 33.18

AddendumGold, convertible foreign exchange,SDR's, and net IMF position (43.46) (39.40) (31.41) (31.711 (30.53)

1/' In addition, Da Afghanistan i -k holds silver valued at TTS$10.5 million.2/ Mainly Indian and Pakistan rnuDees.3/ Adjusted for transactJions with IIff not recorded until tle hllouiiiWg tiu±thl.

Source: Da Afghanistan Bank q;ld L>T-

Table 1.4

NET BALANCES UNDER BILATERAL ACCOUNTS!/(Millions of dollars)

March 201966 1967 1968 196w9 1970

U.S.S.R. 1.88 1.33 -1.83 .18 .48

Czechoslovakia -- - 0.40 0.61 .43 .72

Poland 0.50 0.31 -0.02 - .31 - .43

Mainland China -0.05 -0.06 0.07 - .09

Yugoslavia 0.01 0.01 -- - .01 - .01

Bulgaria - .02 - .12

Total 2.34 1.20 -1.18 .18 1.04

1/ Dashes indicate that fieure is less than $.5000 totals may not adddue to rounding.

Source: Da Afghanistan Bank and IMF.

Table 1.5

lSRZows o!" )RR IDTCNivmm 0 0R~ W ICIIIAI AS8ISTAICE 1

2 966 /67 676 /O6 26C

1. 8,SeSwRw 58-9B 49.51 p0.702 33. 4 50

Loan (projects) 7.4,81O 4k,720 24,602 28,507late)50 - 680 1400(o) Orolto l Aodao (gr) 1So80 2;7S 3,420 4,100 E

(d) Toe0obol Adto (log ) 2,000 2,000 2,000 443(d TeoA *lA.- tWAO (loan

(a) i. A i ro ecti sc5. I6.".

(c) TOrXi tprujea4 (- 4 OM 6.2 5,634 5,500 E

3. Oeru 1 7A 300(a) Loan (projects) U11,50 5,S940 1,1425 930M Grant (orojeots) 1,600 ~~~~1,700 2,000 1,370(a) eo.at Aprojet.sno pt,81 ,6 5,000 5,000 E

4. CMa - 2-980 5,740

(a) Loan (projeots) _ 2,980 5,740 5,559(b) Oramt - -

5. r5ce 52 60

(b) Grant (projoets) - 32 70(a) Tobuialal Aodotane (gat) 453 506 560 560 E

6. United Dationa 4 06 6.8j'

(a) Loan (projects) 1,620 S30 2,3W4 2,164

(c) TGhr cal A stse (F) 3,010 2,614 1,047 2,561(d) World Food Progr= 1546 5,034 2,168

7. Colobo 420 672(*) Lo1 (p-ect- - -

(b) Gats (projects)(c) Technical Asaistance (grant) 385 334 420 472 E

8. Other ooomtrios (Poland, Czeeho-slovakia, Bularia, Suad.4) 1.000 1.000 1.000

(a) Loan (projects)(b) krant (projects) _ _ _-_(c) Teobnical Assistance (grnt) 1.000 1.000 1,003 1.000

TOTAL 626 451

Pr~~~Lan.a,, I.

of which J loansGrants 15,406 16,542 17.081 19.193

World Food Programs - L54 2.168

E - Estimated due to non-avail±bUty of data.

lordgn loane, grants d teoAtoal assetano. rzpeoat the foreign eaumay oomponest ofdevelopment expwnditures (for local ourrancy expditurea see Table 2.3), and they are theactuaIly distursed amownta. Io rsooneciliation oa be ad. between figures in thle table,and balance of payments data in Table 1.9. The rmin reaon re (i) comodity aid fromindividual countries is not included under Table 1.5, but is of ooures part of aid and loanfinanced imports. (i) data in Table 1.5 inalude fin?lng of manpower and adv`aors, andthese amounts are excluded from the aid and loan finnced iporto or goods in Table 1.9./ Revioed total figures for years 1966/67, 1968/69 and 1969/70 On project. were collectedby the recent IIMF utdaion to Afghalistao; no country breakowan was available. Th. newtotals are equal to actual disbursm.ts on fort loans and grantn in the developmentaccounts.

1966/67 1967/68 68/69 1969/70Prjecta

of wh(ihi Louns 71.9 59.7 38.0 34.5Orants 9.3 9. l 12.2 9.7

Sourcet Minietry of Planning.

Table 1.6

VATTE OF EOPAnRTPS TY GMWOTnTTY

(Millions of dollars)

COMMODITY 1965/66 1966/67 1967/68 1968/69 1969/70

Fruits & nuts 24.0 22.5 26.0 26.9 27.7

Karakul 16.1 11.8 14.1 8.3 1/ 13.0

Raw cotton Il.1 14.3 7.9 5.9 5.7

Raw wool 2.0 6.5 4.9 7.0 6.6

Carpets 8.9 8.2 5.2 4.5 6.3

Hides & skins 1.5 2.4 2.4 2.3 2.7

Casings 1.2 1.5 1.3 1.1 1.0

Oilseeds 4.5 1.0 0.9 2.8 3.3

Natural gas -- -- 2.9 9.0 12.0

All other 0.7 1.3 0.8 4.0 3.4

TOTAL 70.0 69.5 66.4 71.8 81.7

1/ Tha tR-l million karakul exnnrts in 1968/69 renreaent customs returns: on the basisof exchange receipts the export earnings amounted to $14.3 million.

SuStrce 1965 - 1968 Aata from the M4KIastry of Plown4ng; 1969 aw 1970 from theMinistry of Commerce and the IMF.

Table 1.7

ExaoIr PRUJC110N

(Millions of dollars)

P R 0 J E C T I C} N *

Actual Preliminary 19Y7/71 1971i72 1972/73 1973/74 ( 9 4(7/1968 - 69 1969 - 70

Traditional Exports:FrLits, luts 26.9 27.7 28.3 29.7 31.1 3e. 7 4.3Karakuulif 8.3 13.0 13.5 13.6 13.7 13.8 J4.0Raw cotton 5.9 5.7 9.0 6.7 9.5 11.5 13.5Raw wool 7.0 6.6 7.0 7.2 7.3 7.4 7.5Carpets 4.5 6.3 6.3 6.4 6.5 6 .7 7.0Hides, skins 2.3 2.7 2.8 2.9 3.0 3.1 3.2Casings 1.1 1.0 1.0 1.0 1.0 1.0 1.0Oilseeds 2.8 3.3 3.2 3.3 3.4 3.5 3.6All other 4.0 3.4 3.6 3.8 4.0 4.4 4.8

Sub-total 62.8 69.7 74.7 74.6 79.5 84.1 8B.9

Non-traditional:Natural gas 9.0 12.0 14.6 16.8 19.6 19.6 >9.6

Sub-total 71.8 81.7 89.3 91.4 99.1 104.2 108.5

Services:Touirism 2.4 3.8 4.2 4.7 5.2 _ .8 6.4

GRAND TOTAL 74.2 85.5 93.5 96.1 104.3 110.0 114,9

1/ The $8.3 million karakul exDorts in 1968/69 renresent customs returns; on the basisof exchange receipts the export earnings amounted to $14.3 million.

Mission estimate.

Table 1.8

VALUE 0" IMPOfRTS BY COMMODITY..(Millions or dollars)

1964/65 1925/66 19b6/67 1967/68 1968/69

CONSUMER GOODS: 32.1 25.7 33.4 34.0 3L4.9

oFooi 10h l.4 6.8 214.2 214.9 15.0Foo ian r cO TJT 7. 7_

Tea 14.2 2.9 6.1 4.8 9.5Other foods 0.5 0.9 1.7 6.3 4.6

Textiles 11.8 9.7 9.7 9.6 10.4Cotton fabrics 3.9 77 3.v =Fabrics excluding cotton 5.8 4.3 4.9 5.1 6.4Used clothinTg2.14101012

Othr onsumer izoos 9.9 9.2 11.5 9- .Tobacco 0.2 0.4 0.40.Footwear 1.8 1.6 1.4 1.5 1.7Medical, pharmaceutical,other chemdcal 3.9 3.1 4.3 4.8 5.0

Motor vehicles 34 4L.1 3.1 2.5 2.1Bicycles 0.5 0.2 0.3 0.3 0.2

IN 8'ERMEDIATE GOODS: 22.4 16.8 18.4 19.2 20.6of which:

Petroleum products 7.5 4.3 4.4 3.8 3.1Rubber tires & tubes 1.1 2.1 3.0 3.8 2.8Metal & metal -.anufactures 19 5Plumbing, heating, lighting

equipment 3.1 1.1 0.9 1.1 o.8Other non-metallic mineral manufactures 4.4 3.5 4.1 4.7 6.4Other miscellaneous manufactures 4.1 3.9 3.5 3.5 4.9

CAPITAL GOODS: 4.3 3.7 55.7of which:

:;chinery 3.3 2.7 3.8 3.5 14.0onner transport Aqxdp mlt 1.0 1.0 1.2 2.0 1.7

ALL OTHER COMMODITIES: 8.1 10.3 10.0 5.1 _-3

FOTAL cOMMERCIAL IMPORTS 66.2 56.5 66.7 63.8 65.5

M."D & IOAN FIWAJICrD nuI2Ois 74.5 74.4 84.1 75.4 58.9of which:

Non-project loans & grants 15.4 18.1 20.3 13.4 8.7Prnject loans & grants 59.1 56.3 63.8 62.0 50.2

TOTAL IMOR-TS: 2141.4 130.9 150.8 139.2 124.4(Commercial and aid/loan financed)

Source: Ministry of Commerce data and IMF.

Table 1.9

BATJLNCE OF 1P.AvM.,T.

(Millions of dollars)

1965/66 1966/67 1967/68 1968/69 1969/70

Exports, f.o.b. 70.0 69.5 66.4 71.8 81.7of which: traditional 70.0 69.5 77 72:g Z97

natural gas - - 2.9 9.0 12.0

Imports, c.i.f. 56-5 66.7 63.8 65.5 70.0(commercial only)

Trade balance 13.5 2.8 2.6 6.3 11.7

Adjustment between customsreturns and exchange sur-render records 2.7 0.6 -0.5 6.5 -3.6

ADJUSTED TRADE BALANCE _6.2 3.42.1 12.8 8.1

Services (net) -1.5 -1.O - 1.0 2.8

Interest Payments _1.6 -1.8 -3.4 -h.6 -7.8BAT A XTri LI ON1,T R T Am 'U'Nyl m ,. 0.6 1.3 9.2 3.1

u uIULLT UJ_ V I L.3U. U

Amortization -3.5 -3.7 -7.3 -9.0 -13.2Change in reserves -L.1 5.7 10.1 -2.2 0.2SDR aJ.location -- - I. 9Errors and omissions -5.5 -2.6 -1.5 2.0

BALANCE ON CAPITAL ACCOUNT -lA,I °o6 1.3 _9,2 -3.1

AID&LOAN FINANCED IMPORrS 74.4 84.1 75.4 58.9 5_26 i/

of which: project 56.3 63.8 62.0 50.2 34,5iR-I I . A .7 -IQ -3no =proj-e+ 9.-L 2 4 87LV 1.L

1/ The breakdown of aid & lonn financed imports for JQ6iQ/70 reprentS the 1atest informationcollected. by a recent IMF mission to Afgh anistan. The non-project aid item, mostlycommodity aid, is very high in view of increasing general self-sufficiency, and theexcellent wheat crops in 1968/69 and 1969/70. It is possible that USSR consumer goodcredits account for the big increasep but this is not certain. Also, the very high non-project co.ponent wou.d itmply that project imports have -alie by over 30% from the 1968/69figure, which itself was substanitially below the year 1967/68.

=- Fine hf , I,..,- ank A 4-lu thAe I

Table 1.10

EXCHAtIGE RATE IN THE FREE MARKET V(AfRhanis per currency unit shoxm)

YEAR ENDINGMarch 21 ULS. Dollar StarlinE Pound Indian Runee Pakistani Rnrwa

1961/62 43.6 120.9 6.5 5.7

1962/63 53.0 148.1 7.5 6.7

1963/64 51.3 144.4 7.4 6.6

1%964/65 63.6 177.1 7.8 7.2

1965/66 75.1 210.9 7.9 8.9

1966;67 76.4 213.2 6.9 8.9

1967/68 76.2 23.3 6,A 8.7

1968/69 74.3 179.3 8.1 8,4

1969/70 75.6 182.1 6.7 7.7

1969/70

April 20 74.7 181.0 6.8 7.9

May 21 75.5 180.5 6.8 7.9

.uTe 21 74.6 179.6 6.9 7.9

July22 7^4.0 17R.6 6,7 7.6

August 22 72.9 175.8 6.4 7.3

September 22 73.8 175.6 6.5 7.4

October 22 73.7 178.4 6.7 7.6

November 21 75.5 182.8 6.8 7.8

December 21 77.9 187.5 6.8 7.9

Jwamary 20 76.9 186.6 6.8 7.7

rUUA%LJ 19.7 IU.Q4 u.L 6v 7.65

March 20 79-0 1°0=0 6.4 7.5

1970

April 20 80.5 192.0 6.3 7.4

May 20 81.3 193.4 6.3 7.4

17 Averae buying rate for letter tranerors.

Seizre '1D AfgtListan Bank.

Actual and Projected Estimates of G.~overriment Revenues durir:.,tLe 3econd and the Third Plan

(iLillions of afjhanis)

Total TotailRevenue Heads___ e ec onrd Pl1a n Second T__ Thi r d P1 a n Th:.dPlam

ode Revenue Heads 1~~~~~~~,96-2/6371 3/7 qa7-~ 77- 9- 7 ?lan 17/7 -- - 7ALctual Actual ! Actual Actuatl Actul Actual Actual Lta BuLdget k

£etisto

liD. Eirect Taxes 320 376 U±8 575 60l ?,2 2i2 35-1 396. 19~1IC0. individnal income Tax T- 2s 30 123 I~ 17. 9 29I~120. Co-oorate Tncome T'ax 77 79 81 81 123 441 144i 88.81 55 195 9 6

-O0. Land TaLx h6 O5 44I 82 89 313 92 66.3~ 80 4~50 1,96h210. Livestock Tax 83 90 85 88 1 347 - 38 70 815.311150. 2]overnsmt &Rnterprises Tax - - - - - .- - -

190. Othner Direct Taxes - - - - - - - 0.2 1.5 39

200. Indirect Taxes 127 l71 1 917 2,176 2 6L5 9 577 2 6h5 21 0aIa .32 22

210. Import DUT75s T1iT 1 ~/I7~7 3220. Exporet Duties 75 7 7 80 139 167 538 159 162 A 185 -180 9.30230. Iales T'ax on Consumer Goods 72 90 198 92 80) 532 63 51.- 50 853824L0. Taxes on Comnercial Tranisactions 89 593 530 80h 9 3J. 2,950 887 262 200 232 1,65-6250. Monopoly Taxes 8 8 15 10 13 5L 15 20.15 30 Vj 1.32260. Fixed Tax on Imports - - - - - - 153 200.9 220 250 9.32270. Fixed Tax on Exports - - -- -- 13 20.7 16 25 952 90. Oth-er 1ndirect Taxes - - - - - - - 0.1 20 4

300 Tno rmSl o tt a1 116 251 196 223 27 93 197 68.J 830.4 ,11 5- 93TLC. Lanis s - 9 10 102 1-22 4h B -ir4 J-3320. Natuiral Resmirces (Gas) - -- - - -550 2 657 2,398R3 30. Rights to Exqploit Natural Resources - - - --- -1.

3I:. ir.era2. and Agricultura:l Products 35 25 L3 60 66 2L9 1.13 126.9' 130 160 8.15350. z;sed SEripuent by Auction - - - - - - 13 14 .2 4e5 100 29 336.0. Printing Servwices and Pr-oducts 3 3 3 7 1 17 2 3 .9 44413370. ~~ormrnnication Ser-vices 31 i L3 L9 52 216 55 6,6.2? 70 90 3.L0,~0. H~ealth Services 2 2 2 5 5 516 6.5 10 32

otr ery,goods and services - - -- - -12.-7 15 30 .17

Th) C-cxcie fr-om . 77 "0 ill 121 133 525 127 1iW.6 1W..6 08uTe~,tcle License-s -2 2- 4 - 12

LK~. cdrity Docuraer.ts 1 1 2 5 7 16 6 9.2 10.5 7 35L30. m-crt Charges 27 28 38 b 5 52 190 51 51.1 52 52 260LLO. Ta-x Fires and Penalties 3 3 2 L 3 15 2. 4. 42

1'0. -ueto- Fines arnd Fenalties 8 2L 11 10 13 66 10 11.9 12 13 56L 0.Marria2e and Divorce Patoers 1 1 12 11 13 38 1 0.9 1 1 5

L >'.-a:-spcrt .-.-atnission, Tr-affic Fines 35~ 32 L6 38 LI5 196 L3 4L3 48 60 22573USire~S Ticanses and Permits - z10 17.7 10 10 5--'e T-1cerses, Fees a,d. Fines 2 3A4 5 3 7

le 2 .1 ( Co:. t. 1 EL _,~ 2 e

Total o talS e c o n a ? 1 a n Second T n i r a F 1 a n Ttic Plan

Code Heveme Heads 7, ;2j- lb3S L; T/7 1 TT77 1907c;7 Plar. 9t7•77 19 C/T _ 1969/ 970/71 f:Lia.Actual Ac-.ual Actcal A tual Actu al Actual Actual Actua:L Budget t r tectiac

500. Income fom llse of State Property 30 79 86 50 123 368 89 106.9 119. 6;255. ental of Rel ate 7 7 r12 lW 9 11 'T 17520 Rental of Moviable Proper-ty lb 23 a 10 8 63 2 11.13 12 12530. Interest on Savings 2 - - - - 2 - 0.2 0.1 -51LO. Interest on Loans - 1 - 3 - 1 - - - _55'0. Investments 7 O8 59 25 96 235 35 .. �6 52 4.6:.560. Road Tclls - - - - - 31 33.2 36 50 220550. Other - 1 - - - 1 0.2 0.2 - 1

60C. I;ncome from Government Enterprises 389 570 3h8 768 378 245 613 826.1 881.7 862 1 702MI§. gMo ly a37 'i9 3253 97 V>Tqr 7w- 'O" '377762'0. Geamral Cooperative - - - 2 8 10 2 1.6 1.5 - 1163i0. Slaughter Hotises - - - - - -6UO. Government FPactories - - - - - - - 0..3 0.2650. Public Institutions - 50 21 _ 71 - -660. Prisons - - - 1 1 2 - - -670. Grain Suppli!s and Silos - - - - - - - 20 - -bO690. Other 21 1.26 170 156 1O7 520 114 10.15 110 IP 7217CY. Mlscellaneous Income 93 75 65 68 70 371 76 162.13 70 0710. Co1ection oF-jr Revenues 0O r21 TO B 5 201 3 W.T720. Domestic contributions 7 14 6 5 5 27 .4 - 7750. Otiher L6 31 9 18 25 129 IL 24i.7 25 20 819

oCO. Non-Revenue oancome 3 56 58 151 55 350 19 .55g1i5. XlAin O?ep y mtt 7 To- 7 - 7 -37 -34i7 <3820. Repaymernts of Rmplcyees Loans 3 L, 2 1L1 3 53 2 5.!? 6 7 20830. Cash Repaymewts of Advances 19 35 U4 91 39 228 15 41.4i 37.5 33 14,2890. Other - 8 6 13 6 33 - 2J, 5.5 1 3

Subtotal e131 3,19 3,229 iL124 sL25.t 1o,B97 h 18L220.7 t,817.2 6JD1 .4 2Le5,s: ommocdtty Assistanceincluded above 61 1432 168 161 - 822 - -

Total - Domestic Revenue 2,120 2,677 3,061 3963 I,,25L. 16,072 S 4 4,817.2 6,018.4

1/ ilmiatr-y Of Planningi based on 11 mcnths actual recd.pts.

Cwstom Deparb t of 1fiutry of Finance ettimate Jet abmat Afm 1,650 uilh14m.

i/ Eleven monthe actual we only ALs 193.6 n.Lin.

i/ h .stry of Plnning and Minis try of Pimnxce.

Source: Ministry of FinmLnce for 1967/68, 1968/69 and 1969/70; Mmintry of Plarming fbr all other years..

2b e .2

(H ' lions of fgnhanis)

TotalS e c o n d P l a n Second T h i r d P L a rn

19 2 19 3 3/ 9 ;l965, FT9 •7 PLan 1962/68 19527 9 =97 70 197/71Actual Actual Actual Actual Actual Actual ActuaL ActuaL o, Budget

Administration and Security Fields 1,009. 8 1,106.6 1,323.1 1,L70.4 1 T7 1 6,657.0 1,819.8 1U 1.2 2 094.SRoyal Court 20.9 21.0 27.0 3 T 137.9 32.3 39. 3H 77National Assembly 21.0 14.4 8.8 17.9 24.. 6 79.7 25.2 24.7 26.o 30.-Senate 0.6 0.5 1.2 1i.2 7.9 21.4 7.1 7.1 7.2 1.8Supreme Cairt - - - - 37.9 45.6 61.7 71.9Prime Ministry 19.5 23.4 21 .0 26.3 25.0 118.2 32.6 33.5 30.1 32.1National Dofense 593.6 6L6.o 778.0 886.1 1,099.5 4,003.2 1,189.9 1,227.1 1,347.9 1,260.0Foreign Affairs 8L.6 66.0 7'0.2 77.1 7L.9 372.8 74.6 69.3 73.1 70.1Interior (CiviL) 31.0 37.0 50.1 55.1 55.5 229.0 L2.9 56.7 56.9 73.9Interior (Police) 99.5 ]L12.8 116.5 157 .3 185.5 701.6 189.2 209.0 210.0 320.LFinamce / 102.2 ]L17.5 131.2 117.1 130.3 598.3 116.3 77.6 83.9 81.0Planning 10.0 20.2 22.0 22.5 25.4 100.1 27.0 32.4 15.9 34.3Justice 13.1 20.0 37.8 48.3 52.4 171.6 20.9 20.7 24,.5 36.9Tribal Affairs 20.8 2L.8 26.3 26.7 31.6 130.2 23.4 30.7 33.6 31.1

SociLal and Cultural Fields 313.8 429.8 522.1 569.8 601o.9 2 Uo0.4 715.6 824.1 889.8 1 101.9Education 1T7-i;I 227.9 TOO; . 373 T17 1,IR9-5 T17.9 ; 5,.Kabul University L/ 148.L 69.6 78.7 7:L.3 62.0 330.0 121.4 138.9 11.9 156.5Health LI 72.5 89.9 1()6.6 116.L4 122.9 5o8.3 109.3 117.1 120.9 175.1Information and Culture 23.7 39.7 33- 28.0 32.2 157.0 33.9 63.6 60.1 79.6Olympics 2.1 2.7 2.9 1L.8 6.1 15.6 3.1 4.1 2.1 3.7

Economic Fields 310.7 291.2 3:14.2 367.7 327.0 1,610.8 365.8 5 W41.6 L451.6Corrmtunicat1ons 3 3. 1 4177 F.1 ;T 212.9 1 514.3 3Commerce and General Transport 12.7 28.1 :L8.4 21L.2 22.L 102.8 19.9 21.1 20.8 2LI.6Public Wori s 53.1 58.0 75.6 123.3 107.0 I1t7.0 1L06.1 1i47.9 120.9 135.0Agriculture LL4.6 49.3 '52.14 17.5 147.0 2140.8 Llt.5 152.7 52.0 55.8Mines and Industries L7.8 56.o 51.8 62.2 L3.2 261.0 72.3 150.7 100.0 95.7Civil Aviation 16.0 2h.1 33.2 35.5 35.5 114.3 149.3 61.6 6:2.0 ,3.2Helmand Valley Authority 103.14 314.1 35.1 29.9 29.5 232.0 26.6 26.5 215.7 27.0

Subsidies and Continigency Reserve 2j 214.6 38.1 20.0 207.7 198.1 _488.5 67.3 237. 4 437.0 920.0Subtc; CurreTt apxenditures 1,65899 3b5775 2,1f2U 2,761'7 2,777 .1 11,196.7 2,f 7500 3,;77.7 7,5Z.

Foreign Debt Service Payments 1:26.0 519.8 378.9 286.9 277.0 1,918.6 1475.0 612.0 910.5 1,087.0

Total - Ordi-rary Expendtures 08L.9 2 L15.5 2,558.3 2,902.5 3,1514.1 13,114.3 3, 14 3.5 42.0 .69l2 5,655.1

1 _xcludes subsidies and debt se_rice pavrments. Lncludes exoenditures of Health institutes2/ Includes expenditures of PolYtechnic in 1966/67 / A reserve fDr contingencies is included from l9ro/69 or

i fncludes ekpend:-ures of Faccit- of Aed -ine / All f_gures are final excepl those of Interior (FolLce), Fina:e, Arr :- -e, ustriesand f-Židy. They are estimated by the Ministry of Flanni-r- c- ine ^ LS of 10 montnsactual. Defence exoenditures are from budget estinates.

Sou rce: Mdnistr. of ir;vzce

Table 2.3

LOCAL CURRENCY DEVfLOPMAI' EXPENLITJRiS7!Eflions of afg±iards)

Second Plan 'rhird Plan7S399E57867T :75-5E75 177EnR - u i7n u7vri-7rmActual A,:tIl Actul ALctual Actaal Actual ACtual ActuaL Badget Projected

EatimateAdu1n1strut1nn1, bAM

PrM litry .4Interior (Ciril) 1.3 24.8 115.3 131.0 137.2-i:na'a 5.2 50.8 141.6 65.8 ,25.2 23.s 59.9Suprem 0cnt

12.6 25.0 23.5Plng T n. __0

SUb-thuL ,5-6 &A !9 h1 S ± 25-2 48. ,294.8 !. 160.7

DLfe &i Other Ncm xk&ti I3rcsf.I-ntatior (fLi T 6.0Dame (OafMlI)

3-3 3.7 20.0 37.6Food At Public Needs 7 1-4 _4__

St-tOtal ;2 3.7 67-.4 37.6 203.0

Scial Overbeadsil C-1

3X 'n.37,3 80.9 39.1 76.3 102.3 108.0 :107.0 95.0 108.1VA8ith 17.5 12.9 13.3 12.3 18.8 1114 41.9 54,4 40.9Infonatium & Caltns 9.8 84.6 36.1 22.8 1-0.5 2.2 4.7 22.,9 10.3UniVeltit & InAtttIL 44.1 44.2 12.4 7.8 2I.9 _ 18 336 61.0)

Sub-Tob;L I08.7 222.6 10CW. 119.2 156.5 340.0I 200.5 205.8 220.3 20-.0

Economic aflsf8.9 7.9 19.5 23.1 32.8 17.1 14.0 4.7 22.6Gao. .2 .3 3.8 1.5 2.0 1.,3 1.4 )Public Work 791.1 923.7 850.2 370.2 325.0 276.51 W05.0 275.8 434.4 )Civil vustina 44.1 6.7 7.8 10.1 4-5 19.1A 18.6 36,0 26.6 )Poyted ic & I lsct.Iust. 16.6 17.14 63.7 87.C0 10 43.8 66.7Sr-v.yg & bumin 3.5 9.6 12.4 36.O

gabul Tmiclgality 18.5 22.6 0Ind. A_ _i _.__, _ 40.0 37.6 3 __

sub-total 8147.6 948.1 .!68 486.8 422.8 402.4 3179.6 420.1 611.9 1,5.0

ProBdctiLve 1nv=.t32.14 56.0 51.1 7?4.8 114.6 531.9 577.9 656.7 644.7 )Helzam YaII 70.0 90.3 54.6 35.2 50.8 58.Cl 82.8 120.14 96.8 )kural Developent 14.3 20.0 19.0 21.2 45.8 43.1 'lEngan ar DnuLLop1znt 266.5 250.4 lPawtia Develoat 3.3 20.0 33.9 43.7 53.3 65.8land Settlen t & Noosing 11.5 103.4lSaid Noor 17.2 13.C 6.5 1.0 _

Sub-Total 1L6.7 166.3 124.7 401.0 530-3 679.9 710.9 833.,1 910.7 930.0mining & T.Ftry 367.L 1442.1 445.2 _ 645.4 586.0 428.6 '2.1 343.2 _3905 23r.o

Sub-Total 4814.0 6o8.14 5699 10L46.1L 12116-3 1,108.5 1,0. 1,176.6 L2301i2 1.4.0

Grax Todal 1,245.9 1,829.? 1,622.2 1,719.5 1,727.8 1,708,4 1,510.6 2,025.9 2,331.7 1,990.0

SotWrce, Hmintry of Finaace fcor 1970/71, aid Mtnistry of Planning for ai! otlar years.

Table 2.4

Sununry jf Budgetary Position during the Second and Third Plkns

(Yh llionsj of afghanis)

TotalS e c on d P 1 a n Second T h i r d P 1 a n

i962/63 1 ° 9 '/ 195W7 PiLan 159 1969/7C@ 1970/7Actu-aI ActaLi Actual ActuaL Ac tual Actual Actual Actual iget Iiif' s

Fatimate IwUwAte

Domestic Revenue 2,120 2,677 3,061 3,963 4,251 16,C75 .1,:]89 4,421 4,817 6,018 5,300

Current Expenditures 1,659 1,866 2,179 2,616 2,877 11,197 2,969 3,1450 3,781 4,568 4,600

Foreign Debt Seirv-ice 426 550 379 287 277 1.,519 1875 612 931 1.087 l a

Ordinary Expenditures 2,085 2,1416 2,558 2,903 3,15I4 13,316 3,144U 4,062 4,692 5,655 5,600

Current Surplus 35 261 503 1,060 1,100 2,559 745 359 125 363 (300)

Conmodity Assistanice 112 615 t411 727 889 2,7754 705 880 600 1,100 500

lResources available for -Devrelopment 1L7 876 911L 1,787 1,989 5,713 1,450 1,239 725 1,463 6000

Developnent Expend ituresiD Local Cu<arrenlcy ]#/ 1,446 1,830 1,622 1,720 1,728 8, 345 1,106 1,911 2,026 2,332 2,2ul

COeraLl Surplus (Deficit) (1,299) (954) (706) 67 261 (2,632) (258) (672) (1,301) (869) 1,6oo

AdlanS: i/

ProJtect Aimaietance(; million) 51.6 51.5 59.1 56.3 63.8 2'82.3 62.0 50.2 ... 4) 60.0 37.5

Dlv1olp_t Expenditrwes: 3,783 4,163 4,299 4,270 4,618 21,133 4.!517 li,185 3,809 5,050 3,900

(in Loactl Currency) (1,446) (1,E130) (1,622) (1,720) (1,728) (8,3146) (1,7r08) (1,911) (2,026) (2,332) 2,2gm

(Project Aeistaunce) (2,337) (2,9l33) (2,67"') (2,550) (2,890) (12,787) (2,,809) (2,274) (1,82")*) (2,718) 1,7100

1/ Tlhe Governrntet's budgetary practice has been to show development expenditures in local currency only and show correspondiog foreign projects aaSist-ance separately in U.S. dollars equivalent. This practice may be explained by the fact that foreigi project assistance is in the forn of goods andservices and does not require ary acccuriting transactions in local currency. This is why foreign project assistance is shown asove in ar. Addendum.Total development expenditures are nevertheless showin in the Addendum.

*) Estimted as the differece be,twesn total aid ad lenu-fija%oed imports (t526 million) and pioceeds of comodity assistance as :ecorded in the 9cAgt (i 6 lX).Detar iis breakdoq-or a1-, jweZ Lportg are not available, A. 600

Source: See ftlbles 2.1, 2.2 and 2.3.

Table 2.5

SOuRCES AND usES u-r uVoN-ME-r F uNDS 196-8/oiy96

Sources Af million f Uses Af million %

I. Revenues from I. Governmernt Con-a-terr.al Sec-o sption

TnrH1rAr't Tnq Gi-rent expend-lture 2,831 314.2

Import duties 1.366 16.5Transfers 619 7.5

Export duties 162 2.0Sub-Total 3,1450 41.7

Fixed tax onimports 201 2.4

Fixed tax onexports 21 0.3

Exchange profits 262 3.2

Sub- Total 2.012 2

II. Hevenues from II. Debt ServiceDomestic Econom-Y

Interest 213 2.6Other indirect , 0

taxes 770 9.3 Amortization __ 4_u

Direct Taxes 520 6.3 Sub-Total 61 2.4

Iransfers 153 1uA.L.8 Derelopment

ExpenditureTncom.e f om,;property 965 11.6 In local currency 1,950 23.5

Sub-'iotal 2.1408 29.0 In foreigncurrency 2,274 27.4

III. Loans GrantsSub-Total 4,224 50.9

CommodityGrnToa assistance 890 10.7 Grand Total .286 100.0

Project aid 2,274 27.4 Type of Use of Fund"

Domestic Personnel services 2,063 24.9Borrowing 702 -5

Other services 418 5.0Sub~lotal 4866 640.6

Material supplies &equipment 3,)98U 47.

Property & rent 676 8.2

uu LW .LLLLo ,. Wi.LUO*J I _

Debt service 612 77

grand Total 8,286 100.0 100.00

Source: Governmerit budget, MinisLry of linance.

Table 2 .6

MONETARY SURVEY

(Millions of afghanis)

Period endiaMarch 20 19614 1965 1966 -1967-. - -1-968- 1969 1970

ALSSETS /3

Toreign Assetsa{ 2,1906-2 2,196 2,437 2,292 1,1309 2,227 2,20L/Claims on National Golvrnment 5,286 5,02CL/ 5,286 5,020 5,'122 7,196 8,773ClaiLme on Official Entitiesl 47'3 142-2/ 117 2'04 256 414 295Claims co PrivLate Sector 1,707 1,955 2,198 2,3149 2,349 2,624 2,86'

LIABILITIE&MLoney SLpply 4,886 5,900 6,h119 6,291 6,288 6,788 7.892

Currency in circ=lation (3,8814) (4,722) (4,644) (4,624) (4 BOL) (5,238) (b, 21j)Demand Deposits ( 6514) ( 578) ( 694) ( 570) ( 725) ( 693) ( 8I8)Time and Foreign Currenay

Deposits ( 3448) ( 6C0) (1,081) (1,097) ( 759) ( 857) ( 881.)

National. Government Deposits 66:2 370 439 838 640 1,126 1,30'5Official EntiLties Deposits 7614 783 737 889 781 1,522 1,9214Counterpart Funds 242 102 43 6 94 74 259Foreign Liab:Llities 235 478 5147 731 525 827 81BOther items (net)/ 2,87.31/ 1,680Q/ 1,215 1,298 1,699 1,751 2,1659

1/ Comprises gold and fore-Lgn exchange aissets of Da Afghanistan Bank and private banks, converted atthe official rate of Af 20 per US$1 through March 1963, and thereafter at the official rate of Af 145per US$1. The data do not measure the true moretarr impact of foreign transactions because su.chtransactions ara also carried out at ;rates other tham the official rate.

2/ The large increase in foreign assets and in othwer items (net) in March 19614 is due to the devalua-tion of the Afghani in April 1963. Tlhe profits; on lthe revaluation of foreign assets of Da Afghan-istan Bank (AS 1,2718 miLlion) were transferred to puiblic sector accounts in March 1965.

3/ Includes Af. 219 d.llioni of Special Drawing Rights.

1,/ Net unclassified liabilities; the balance sheet of the Da Afghanistan Bank includes a sizeable amountof other 'Liabilities, mostly representing the f'loat between the head-office and the branches in theprovinces.

Source: Da Afghanistan Bank and the IlMF.

Table 2.7

CHANGES IN THE MONEY SUPPLY AND ITS CAUSATIVE FACTORS

Changes in: 1963/64 1964/65 196566 16 67 _7/6 196/69 1969/70

MONEY SUPPLYs 962 1,014 -128 - 3 500 1,014Currency in circulation 76r ' 38 -4. 90 6Demand deposits 124 - 76 116 _ 124, 155 - 32 175Time & For. Cy. Depoeital 112 252 481 16 _ 338 98 24

Perce,ntage change: 24.5% 20.8 8.8d -2.0% - 0.0"5 8.0 16.3W

(,AUSATIVE FACTORS: 962 5 128 - 3 500 1,01411. roreign asseta (net)* ±, uy4 - 15 i72 - 329 - Ut - 1L_'2. Fublic Sector Credit (net) 883 - 324 53 - 316 703 514 877

of' which:National Governrent (net)** (892) (- 26) (32) (-251) (543) (1,096) (1,3'oGovernment Entities(net)*** (- 9) (-350) (21) (- 65) (160) (_583) ( -5 1)

3. I'rivate Sector Credit (net) 41 248 243 91 60 275 239. Counterpart funds - 161 140 59 37 - 88 20 45

5. Other items (net) - 895 " 1,1931 - 8 389 - 401 -426 -6

* Foreign Assets 1,096 -2)h -I 145 - 483 419 -2

Foreign Li-abilities - 2 _243 69 - 18h 206 -302 13

National C-overnment -Credits 9 Ll - 266 10 'J47 345 1, 5002 1,577Deposits -22 292 - 69 - 399 198 -486 - 179

-"-,overnment entities - Credits i9 - 331 - 25 87 52 158 - 119Deposits -28 - 19 46 - 152 108 -711 - 402

1/ Tn view of the fact that transactions are quite commonly effected in foreign currencies (Hundi system), foreiguinurrency deposits are Included.

2/ ieflects revaluation of gold and foreign exchange assets of Da AfRhanistan Bani (Afe. 1.195 million) in Aprtl1963 and transfer of profits to goverrnent accounts in March 1965.

3/ Includes Afn. 219 million of Special Drawing Riahts.

.*outirces )a Afgzhnnistan Bank and the TMF.

Table 2.8

NATIONA1 AND COMOVDITY PRICE INDICES(1961./62 -100)

Year Other Non- Jl1HMnth Cereals Meats Fruits Vegetables Foods Foods Items

1962/63 95.7 97.9 100.5 103.6 107.4 101.6 95.1

1963/64 143.5 110.4 138.3 127.9 106.9 98.6 132.2

1964/65 173.4 145.0 147.0 138.7 129.9 99.1 156.1

1y-6566 1oM.; 1L.y9 LD-.U 144.6 a4".U 03.4 EIu.5

lgCh,/67 ~~2L6-7 717=0 lRR.o 197-h 151.5 .1 2 h1

1967/68 336.0 212.3 177.4 155.8 151.7 110.9 266.2

2968/69 233.7 191.6 199.2 173.1 1246.1 105.5 20M.3

1969/70 V 217.5 214.2 209.9 179.3 146.7 114.9 159.6

Monthly Figures for 1969/70

P. ,1 ean1 .6 234.0 2,z .3 22. 143.2 11 ,_.4 S.

May 229.7 230.9 213.1 269.0 144.7 115.1 211.9

June 223.7 211.8 194.8 257.1 143.8 112.3 203.9

July 224.2 220.4 207.1 175.5 142.5 114.5 Z&.8

August 224.3 210.2 189.1 119.3 140.2 109.0 196.8

September 226.1 1Y8.3 180.2 1U4.7 160.0 113.2 1YT7

October 25 IQRJ. MA -A 6 171I ll<_n 1?.1 ual 7

November 209.8 2014.0 213.0 156.4 146.6 121.4 190.0

December 205.5 211.4 235.7 151.7 150.0 120.6 251.9

January 226.4 219.6 220.0 169.6 147.7 113.5 2O.7

February 207.3 227.1 227.6 169.9 148.4 109.4 55.0

1/ On the basis of e]svn moths.

Sourcet Ministry of 1lannIa

Table 3.1

VOLUME OF AGRICULTRUAL PRODUCTION1962/63 - 1969/70-

(In '000 =Mt)

New Series

1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70(Art.mll TA-;t. 7 n-l T {dr+vi 7l A {^+,, .1 {A-+,, . N (A-4+,,o . A+.1 A -II q Mt.lsl

Wheat 2279 1947 2250 2282 2033 2241 2354 2h50

Corn 700 713 720 720 720 765 773 775

Barley 378 378 380 380 375 357 361 365

Rioe 319 319 325 325 337 396 LL02 410

Foodgrain 3676 3357 3675 3707 3h65 3759 3890 4000

Cottont-(Unginned) 78 110 79 75 59 691/ 71 1/ 90

Sugar beet 61 56 31 56 56 62 62 65

Sugarcane 45 45 48 51 51 57 57 60

Oilseeds 50 50 50 52 55 35 36 40

Fruits n.a. n.a. n.a. n.a. n.a. 826 834 840

Vegetables 500 530 560 580 590 636 65h 660

1/ Includes about 12.000 tons not reported in statistics for previous years.

Note: 1962/63 - 1966/67 are from the Ministry Planning. 1967/68 - 1968/69 arefrom the Ministry of Agriculture with revised basis; 1969/70 are missionestimates based on information from the Ministry of Planning in li-ne wi hirevised statistical basis.

TabLe 3.2

AGRICULTURAL POPlJLATIC)N & LAND OWNERSHIP

Agricultural Area Land/rian Irrigated Number of Average SizeRion & Province Popuiation Cultivated Rat'Lo;- Total Cultivated Landowners of Holdixig

(hectares) (hectares) (hectares)

North: 2,805,790 2,036,346 .73 o.146 312,620 6.51Badahshan 3598,720 112,768 .28 0.36 52,080 2.16Takhir 3132,380 348,895 1.05 0.17 20,300 17. 19Kundus 354,430 286,072 .81 0.70 32,050 8.93Baghlian 466,980 222,646 .48 0.31 32,540 6.84SaiLmrgan 222,150 184,316 .83 0.23 47,010 3. 92Balkh 325,270 301,461 .93 0.71 39,850 7' 56Jawzjam 2c90,560 275,458 .95 o.61 41,850 6.58Faryab 41]5,450 304,730 .73 0.38 46,940 6.49

Central: 2,986,700 512,838 .17 0.71 324,250 1.58Kapiisa 460,810 39,1'Z .09 o.98 49,780 79Parwan 493,720 47,073 .10 0.72' 73,700 .64KabuLl 639,800 65,528 .10 o.85 35,j430 1.85Iogar 237,390' 62,017 .26 0.72 24,840 2 50Wardmlk 382,740 26,559 .07 0.9 3 29,420 .90BaWar 285,040 22,3i1 .08 0.79 27,10X .82Ortuzgan 369,920 124,957 .34 0.96 44,950 2 78Ohor 117,280 125,171 1.07 0.2'; 39,030 3. 21

East: 2,009,380 378,104 .19 0.67 294,690 1L.28Xornar 261,670 25,60)2 .10 o.88 25,700 1.00Laghsan 161,910 24,29?8 .15 0.94 36,000 .67Nangarhar 610o,900 59,785 .09 0.70 87,760 .68PaktLa 704,690 84,967 .12 o.64 79,400 1.07C?hazL2;1i 21O0,210 oL83,152 .76 0.62. 65,830 2.79

West: 1,27'0,510 605,082 .48 0.5:3 130,390 1.64Badghis 2595,260 1L34,918 .46 0.2:3 38,310 :?.52Herat ',85,000 326,471 .47 0.551 68,150 1 79Faralh 290,250 143,693 .49 O.81z 23,930 6. o

Southt 1,22'2,340 615,263 .50 o.6 3 10i,160 5.91Zabu:L 267,250 66,739 .25 0.9( 19,700 3.39Kandahar 580,000 152,549 .26 0.71 18,30 3.14lHelmand 255,990 157,852 .62 0.99 27,850 5.75Nimroz 119,100 238,123 2.00 0.24 8,580 2 7.75

TOTAL: 10,294,820 4,117,633 .40 o.51, 1, 186,110 3.50

Soarce: Preliminary Agricultural Census of Afghanistan, 1969; Department of Planning,Ministry Df Agriculture and Irrigation.

Table 3.3

MAJOR INDJSTRIAL PRODUCTION

196I4 1965 1966 1967 196e 1969 1970

F'uelCoal Briquettes ('000 tons) 26.6 27.2 37.0 29.4 35.5 27.2 30.0?1

Construction materialMarble ('000 cu.m) 8.1 6.o 5.4 4.7 3.2 4.7 6.1Marble Traso (t(O cul .)2 97 R 2.3 1 99.9 10 9 91. ICement (' 000 tons) 103.3 142.2 172.2 174.0 123.6 86.3 105.0

Eood industryWheat flour ('000 tons) 47.9 43.7 54.4 55.3 67.5 58.4 40.0Bakerv (!Coo tons) 13.8 15.0 iJ 3 15=5 16.0A I6 1 J.Sugar ('000 tons) 7.0 3.9 7.4 7.1 7.5 5.3 7.0Vegetable oil liquid ('000 tons) 0.8 1.3 1.4 1.8 1.4 1.6 2.1Vegetable oil solid ('000 tons) 1.6 1.2 2.1 1.6 1.4 1.4 1.4

Light IndustrvSoap (million cakes) 0.19 0.18 0.28 0.14 0.15 0.55 0.27Shoes ('000 pairs) 57.0 52.9 74.8 107.6 119.4 142.8 122.0Ginned cotton ('000 tons) 23.6 31.4 30.1 24.0 18.5 13.9 35.0Cotton yarn ('000 bundles) 208.6 177.8 239.4 245.2 192.2 80.3 72.o2/Cotton textiles (idllion m) 36.9 7.0 55.2 66.0 61.0 L8.0 5L.oWoollen textiles ('000 m) 200.0 213.0 305.0 463.0 443.0 445.8 1,000.0Rayon ('000 m) 300.0 700.0 1,000.0 1,304.0 1,311.0 1,500.0 1,600.0

MiscellaneousIce ('000 tons) 2.0 3.9 1.5 4.2 14.2 4.6 5.-l

Mlne Productioncalt. (!fV0^ toLn) r.17 29.5 30.1 38 .07 36.9 40.8 36.7Coal ('000 tons) 99.2 1L.2.7 144.0 161.6 151.0 1214.8 136.5Lapis Lazuli ('000 kg) 10.8 5.0 8.6 10.3 5.5 5.0 4.5Gas (million cu,m) - - - - 342.0 1,600.0 2,206.0

F1 ectri c nowerNational capacity (kw) 61,330 62,152 59,919 219,228 225,778 229,696 283 3,000O/National production (kwh) 181,636 203,616 236,248 302,298 298,278 317,409 311,0002/

I/ Inrtalled capacity In Kabul alone 13 100 3w med produotion 294 sd.lUon kwh. National capacity irn the?ublic sector in 193 mw and in the privte t e,toar about 90 my.a ti.matted fr* F 0u.aistry * dat.

Source: 'rom data supplied by Ministries of Plwnanl and Mines and Industry to the miasion. Also from Surveyof Progress 1968-69 dated S Dtuaber 1969- wh.ere -here were discp ies in figures, the ones agreedto by most sourcee wers uSed.

Table 3.48

INDUSTRIES UMDER ERIVATE INVEEThET A

IIsmber 2/cof Capltal ViLLue of Fitxecl Capital

Sub-Sector ___nLiatons hed Wlorc i'al gie outpu 2ynt _ _Qutput _toyment-! M U.olim AJ Million ALt million AL Million

Construction 6 1:8.8 15.3 34.1 33.5; 255 1.12 0.07

Food ProceedingRaisLin .13 '78.5 145. 4 223.9 653.0 737 0.22 0.11Other food iLO '73.4 39.3 112.7 233.8 4314 0.62 0.17Fralt 2 3.4 1.2 4.6 5. 3 103 1.28 0.0.3

KanufkaotuziLealther goods i 128.5 305.5 434.oC 1373.8 6290 O.a 0.0.!Metal prcducta 5 ,4L.3 53.3 914.6, 231.0 239 0.36, 0.117Chositcal 2 53.0 47.1 100.1 76.2 a8 1.35' 0.6Other including plastice 13 99.2 117.8 217.0 797,C) 907 0.25; 0.11.

Seryites 10 36.1 11.2 47.3 40.2 228 1.759 0.16

TextilesRa4Dn 28 2797.0 6862.0 9659.0C 2245.0 8332 2.5 0.314Cotton 3 425.4 145.8 571.2' 1149.7 703 5.0 0.61Knibttes goods 5 .23. _ 0.16 _2i;i

Aggregate 1 ' lo8 7 7 }3- 5 18600 01.2 0.2

1/ A:L fig*ures are taken from imfomation in individual applications provided by Thomas Mirer Associates, Kabul; the totalsare ctllferent fron Mineir's totals,,

2/ At 50 percent potemntial..

B~~ ~ ~~ r-. MELLLJ<

4 =~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4

.rr&,,¾'. - ~t'' 71 -j t , o 4 O O La.~~

j rJL. < ,t - S .§ .• ; .• 1 ; 3 O . s s . ..'

\~~~ - > I z o _ ,

\ K .. ~~~~~~~~~~~~~.....

I \ |' * ' ( F1 k I .~S .p~ ' .0

>11 , > .,4'/-'.,,,, .. ........................

N-_-_._-t_ (r) ; i~ -< >J ''-1[

ANNEX(to economic report wCurr"nt Economic Position

and Prospects of Afghanistan")

A System of National Accounts for Afghanistan

le Short- and long-term analysis of the economic performance ofAfghanistan, and a critical appraisal of the country's achievements duringthe Third Plan requires some form of an economic accounting system depictingthe level of national resources and their uses, the revenue and expenditurepattern of the public and private sectors, the interrelationships betwetenfiscal and monetary policies and the balance of payments. Moreover, evaluationof the Government approaches in the preparation of the Fourth Five-Year'Plan requires, as a first step, analysis of the resources expected to teavailable to the nation as a whole and the anticipated demands or theseresources.

2. Framing a Rnational economic budget" for that purpose undoubtedlymakes considerable claims on available statistical data. At present thtere aresome basic data available in Afghanistan which could be consolidated an,dJuztapositioned so as to produce a meaningful macroprofile of the economy.These include balance of payments and foreign trade statistics, Governmentaccounts. prices, estimates of aericultural and industrial outnut. householdexpenditure surveys, and investments, The problem is therefore to fornulatean analytical.y useful wswtem that would adAnt and uaka use of tha kindi ofdata that is in fact available. Hitherto economic analysis and reporting onAfshanistan have been esRantiaLlv of ai partital natim% ThAre AAeah sofegmert Ofavailable information is treated in relative isolation from other segmeints.Sneh analyses hav. been nndoubtedly nueful andy vc1AAe4 a nim'h^a, nf v%alvrntanalytical datum for policy decisions on various issues. While continuedeffn74.r are n_ecesnary to refine these data and to ndertAve pecinel to fill the large number of statistical gaps, it seems important to indicatethe nyn.Tmnn4tjes for mnwr yntia nnl Am-I 40 .n-mI-4%g rw+4vg o ern

a global view of the economy by connecting the various segments of information.'I'. haib^a1ta fvn mirth e aa z i'm.

(1) to heJv polcy maker aze the erll consequences oftheir decisions;

(ii) to link the Government budget with the other major macro-aaaMrt-4n ordero-Anve +.a thwi-r 4,.n J.a

and thereby improve our understanding of the economy;

(iii) to check the consistency and accuracy of the data as a by-.-roduct of the 4-+apsii r. Of -44- ino.tor ot'drvarious- . W. .sou.LJ. cUe.J.IJIA U UIL.J4&C U LLUAU.

various sgources.

Page 2

3. A system of national accounto for Afghanistan serving these purposesand a provisional set of nationil accounts tables for 1967 a8n 1969 as outl=ndbelow; and later used as a basis for pr-ojecting 1972 accounts, are the resultof a first attept to compile V'e national income of Afghanistan from theproduction side and from the expenditure side simultaneously in order to checkthe validity of tne various estimates rrequently used in economic reportingon Afghanistan and to ensure this consistency. In this way, evaluation ofAfghanistan'8 economic perrormance and ruture growth is based on a consistentand interdependent set of information.

4. Given the varying degree of accuracy of, and hence confidence in,the estimates of major economic variables, a double entry rorm of national.accounts has been devised to chock the balancing of economic identities andequations. The national accounting systen is based on the followid_g Inter-dependent equationst

National Income and Expenditure Account

nY 7 Vi (1)

i-l

GNP = Y + k + T

- * *

GNP = S + C + K + N - m- (7gh g

r.nP = v + ir - m-~(i

Government Appro iation and Capital Accounts

g9 Pg Di+ Td +Ti +F hg (5)

Sg v- r7 ff.Li g g9 gh v

B =S +A +Kf +N -Dr (7)

A iWAT1"

Page 3

Private Sector Apporation and M22ssable Income AccountS

hh h + Fhg + Td + Sh (8)

y,= Y - PM + F M%(9)h1 g e.b

Yd =Ch + Sh (10)

Y.j Y - P_ - Fhg - TA + F (11)-. g~~~ **E, %& .

Consolidated Capital Account

K K + 1 (12)

K k + S + Sh + Fwn Dr (13)

Rest of the World Account

E + F M + M +Dr (Dh)wn f r

5. Variables and Sources of Information

Vi Value added in sector i. Date obtained from "A Preliminary Estimateof (In-osn DftmAq+An P-rndmt-t. of Afahani 8tnn 1967-1972"1a+ ntcnnt.Ant.1967 prices(henceforth referred to as GDP), Table B in this Annex.

Y Nnt+in1l 4"er'-ma- A+.ninakd frem nnnt.in+An (1,

k nDrAL--eciati n. D+-n f1voM ... . ...... nDP t ar% op-.ct

Tp InT4rec+ t^.a Dnat 4%rn M4riAs+w ,#f Pla^v%4uAir,la Ia aae4V4^t n ofGovernment Revenue, codes 200, 610 and 470.

C Household private consumption. Value obtained from solution of equa-h t40r (3) na".4 ,h*dm _th eqn+4pOiV (1). T.g v & ue of +he. wni4abla

is close to the estimated value based on a sample survey of :house-1.-1A exA A4 +,.. ln 4'+l T ns regi.'onl 4ln 1969 -k. I atte1 orJA&%.L.J.% kA.AJ ~ SA.A. A & J.lA S-lS %~&S~ .AS A 'PIS.JJ JSS .L*A ~ . ±A~ .5.0 . U UV

gives an estimate of Af 60,334 compared to the solution value of,%pA4 60,658 See Tn-hle r' in- this. Anex.

^.L - -* JOO VP -.f UA-.LL. JLlllUP

Covr%Se. C orw,ti - ------ . . . . . T... ^- f4 om m "ov er i.nme t 'Budget s T -os ' or -4:-4-n yU ~~~UVJVeL IUIIJLOLV. JALJIJU.JL JJ."I5. .L.L%UAII %.UY. lJu1L LJLL.L6v5. I U UC.L U.. .LU.LA.uC"

g expenditures less debt service, subsidies and transfers. Source:S-arvey of ProFf s 198L7UV-167U7.

A U?Jlli l^D a

Page h

K nross ITvestments. Val&ue oba4rAd from equa4tion (12).E E,orts of goods -- A ..

4 ces. Dlalt.a from "-4 0tP-A of Pl.r -1rnd

IMF in US dollars, converted to At at the prevailing exchangeralte in 196M`7, AP 76 -I $1 _ 4for the _ f-ee 6 _ Ae and ^fr 50=1 A-__I ~UV LII .7 JI LI.L I IJ W- L .LL1L L"WLL -MV L LVV WILL 2¶L _)LJ P- L 101l

the bilateral rate. Given the changing pattern of direction oftIL± .I.Je tIi=e VVWLL.--LQ efL.Lr".*' v .- tLeD LV.L- exAjUL 'Lr L41 %L7UJ dIlU 1L976

are Af 65 . 9 and Af 71. 6 respectively; for 1972 a rate of Af 68.1 .1J_ &1..1 1.. JL Lu itX 4.. ~ &U 4L_ -"-as UsdL i. .e. siL"'U.LJ .LWer. WAULWL7 6 to reWfL.Lect; . Uthe rLU-WLIg tA-

ports of natural gas to USSR (bilateral rate).

M Imports of goods and services. Data from Ministry of Planning andIrr jir uo UoQ±±wr r1ouvert "U to Ai ats i]n Ei aouve* iine overaiieffective rates for imports in 1967 and 1969 are Af 66.7 andAt I 73.9 respectively; for ±197c a rata of. Al 75 was used. DolLarvalue of imports of project aid and commodity assistance were con-verted at the official rate OI Af 1453

Net factor income payments. Data irom ir- convertea at Ar^ 45.J.

Fgh uoverxment transfer payments w housenoild. Source: Government Budget.~gh The figure is contaminated with a few items of a subsidy nature.

SE Gross Ooverment savings, i.e.-before debt repayment. Obtained from eq. (6).

P Government income from property and entrepreneurship. Data fromg itnistry of Planning classification of Government Revenue, codes

300, 500 and 600 excluding 610.

Td Direct taxes. As above; codes 100 and 700.

Fh Household transfer payments to Government. As above; codes 800 and..& 400 excluding 470.

Di Interest on public debt: Government Budget.

Y Current income of Government. Obtained from equation (5).g

Dr Public debt repayment. Government Budget.

A Commodity assistance. Data from Ministry of Planning and IMF.

N Domestic borrowing (defieit financing). Obtained from equation (7).

B Total Development Budget. Source: Government Budget for local currencyappropriations. Commodity assistance and nroiect aid from IMF.

Sh Private savings. obtained from euation (8); value consistent withequation (10).

ANNEXPage 5

K Garernment gross investment: Government Development Budget. In-g cludes maintenance expenditure plus project aid converted at

official exchange rate. The classification of Governmentinv,estments for 1967 and 1969 based on "Current Economic Po-sition and Prospects of Afghanistan" (SA-6a) dated May 27,1969, after adjusting 1969 for 1967 prices. For 1972 originalplan distribution pattern is used.

Kf Project aid. Ministry of Planning and 1MF.

Private gross investments. Investments in agriculture and industryestimated by Ministry of Planming. Investment in housing cal-culated as the increase in net output of housing (rents), fromtable 3, "Current Economic Position and Prospects of Afgharni-stan" (SA-6a) dated May 27, 1969, for relevant years multipliedby a capital output ratio of 10:1 with one year time lag.

k, Maintenance expenditure by private sector is estimated at totaldepreciation funds (GDP table op.cit.) Nag estimatetd depreciation4n tet rin4ig, -ad electr4city sector- as we a lOdepreciation ini the mAnufacturing sector and one third of 'che

F Gross capital transfarR fram the rAst of the world- Obtained fromequation (14). The value need not equal the dollar equi-vnlAnt of nMt nanital transfArsR LonvArtAd tn Af at. theofficial rate, as both exports and imports have been con-vertea at '1Pff,et-+v rat.es" see above E and M.

V. rr,ve%.an1 -n4w +-a -4 vnd'p%n (= £i4-.1 vtyv4wmr+.a av-n neH44 nwv-1 fl1+.a 4 natj4A ,

equation (9).

Y Disposable private income. Obtained from equation (11). Valued consistent th eqation (10).

^l 'OS^NC n| rOOt2|r 23|ln| ° |1 | @oiE{ i4 | oS0

i | Sr 14 0 0

.2

_| g u n|Z| ues>81G ^ |l w>|r

^ =8t f O|a8i : 8t|.

§ |., ., t | | |

1 CM A , DXa | (| ,_ ,O _H| u g S H AW^

S ; - x X r-i ~ i un O § _ ,, - - --

|

WH

! nu

- 9

| i | w ^ t - | 'Dfl^ g

H~~~~~~~~~~~~~~~~~~ ,l o

laIt ,^\ ,|tS|^2

o' t^O U

ANNEXPage 7

Gross Domestic Product

6- Table B in this Annex represents an attempt at consolidatingproduction data of Afghanistan for 1967 and 1969. Data for 1972 wereprnoeteed on thA basis of the Third Five-Year Plan ending in 1972; ad-justed, however, to actual performance up to 1969. The results shou:Ld becons±dtrned nf a prelimInarv nature to be imnrnved upon bv the variou:sGovernment departments and in subsequent economic missions. The orders ofmag,nitude of Afghaniqt.tn'; air.ne doimeRstIc prodnuct do not deprArt drAmnticallv

from previously published figures. However, the sectoral origins of GDPnwav nn+. ~nvasQAny.i1v Stmiflv121

The manin sources of data are the + Mistry of Planning and thepublished material and files of the Robert Nathan Associates and theD.4ae +earn. iattch +-o +th MI in o+w p rt,x.icn

14 M U A A .4 -1 TfrTh1-P v A WTi+-4-1 T -4' Al4'14 5 + -4..A .-... se v.,,. . ,au. .c .e n. g,.L >VO.,

Nov. 1969.(ii , I"aA T, "tpr-- 'ation and TJ., 4-A Proucio -n^g4st

Nov. 1969.(I J 'i I" ). -.L - Sbz O T% -4 wngP vp. o owWS>5 !-.LJy Of

Progress 1968-69", Sept. 1969, p. S-20.(iv) n.J. Blacinan and M.D. YUsuf1tai "GNP Ior Afghanistan 1337".

(v) Robert Nathan Associates, "An Attempt at Estimating NationalrrouUCrL ox ALgnwULsLV1 1337-, !!arch 1962.

(vi) Robert Nathan Associates, "Production, Consumption and In-vestments 13.10-50u, 1906Z.

(vii) FAO-IBRD, 'Report of Livestock Identification Mission toAfghanistan", Aprti 1970.

(viii) Russian draft version of the Third Five-Year Plan, Vol. III.(ix) F.R. Monmand, :;Agricultural Products Marketing in Afghanistan",

paper presented to the Colombo Plan-sponsored conference on"Agriculture Credit and Cooperatives", Newcastle, England, 1967.

8, in addition to these sources the following estimates have beenmade in the light of similar coefficients in other development countries:

(a) Gross output of construction estimated at 50 percent of totalinvestment expenditure.

(b) Trade and transport margin estimated at 30 percent of totalmaterial output.

(c) Gross output of other services estimated at 5 percent of grossmaterial output inclusive of trade and transport margin.

(d) Net output of housing estimated at 6 percent of national income.

APd1.X

Page o

(e) Depreciation rates Ior various sectors esi-ijmatea' at: Agri-culture (1%), Mining and Quarrying (5%), Handicrafts (5%),Manufacturing (10%, Erlectricity (2%), Conatruction (10%),Trade and Transport (1%), Services (1%), Housing (5%) ofnet output respectively. Total depreciation represents 2percent of National Income.

(f) Projection of output for 1971/72 based on the Third Five-Tear Plan Estimates, adjusted by Ministry of Planning inlight of actual performance up to 1969, and mission estimatesfor tne industrial sector.

i D

B~~~~~~~~~~~ .

M~~~~~~~~~~~~~~~~~~~~~J. ~j R ° -*psin wnz'^& o E 3; igo i°0 l Sv S'> i $i

g~~~~~~ 9 ;>i~o XassuorN3 8tV8,%}gN,2 ritoltzu>^oa ic=w3nt=o4l;8' Xu

93^-^~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ A ~^: w;<

> g>fonii ReiSUX°w8ooi8i.^~.;-. SO,i> sj j §e30l s_o i"Uo;H a .: x S i> xS i

W.~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~2. ------HH

21~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~!9 '5

, M i>¢S;r;^vg)t °i'REeRS'n<t _o g ,>_Xvi R&tSS E^il98Sito i«f°l i R~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i

<: @ ua_oocloo vvooooooo oto i Is>. ioa°nC>xA o85t,8<38-e 0 Fg , R§.°ol[° o Hi='t5t ~~~~~~~~~~~~~~~~ ,-> - 8~~

i i3 0 ., ., ...... ..... .. , . gi f tz c 3 s si 2 is si s 5 c a a t 32 i 32 s 8~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~se 8 0 0 3 0 0 0 M 0 0 0 lt ? 8 8 o 8 3 8 0 0 g t I- s. t

1, ~ ~ 2 R 81I.t 3 3 @ 3 3 i^3 cs mc ̂ (¢ eX2ti = | 3 iNl fl 1 3 . | 1i . i 8 C te~~~~~~~~R

: 3t o : ^; 3" 3 $$ E^@ > es t1, , t .|1 . '' t i .t t $ | 0 i| i i 0 : g S _ _ _ _ f _ .l _ _ _ _ . N N is N N N N N . m oa n o o _7,,, 3, S,,, 8 8 H N 8 3 i ¢ 8 8 .3 N R 3 ° o o 8 ° 2~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t

ANNEXPageLV

Priv te osmton

9. In 1969, two major household expenditure surveys were undertakenby tbe Ministries of Planning and Agriculture in tnree regions:

(ij Urban areas of Bost municipaMlity in Lashkar Gah;(ii) Rural areas of Helmand Valley in Lashkar Gah;

(iii) Greater Kabul area.

The final results of the first two, and preliminary results of the thirdare now available and have been used as a basis for estimating totalprivate consumption in Afghanistan at Af 60,334 million for 1969 asshown in the following table C. The estimate is fairly close to thatobtained as a residual from the national accounting system described.The latter is used in the analysis.

10. The sources of information are:

(i) Columns 1 - 6: Ministry of Planning, Department of Statistics"Survi yof Progress l 9 68-6 9 n, table 1, p. 59 (Rural areas),table 2, p. 61 (Urban areas).

(ii) Column 7: Wlth the exception of the first three brackets ofexpenditure groups, the average monthly expenditure for thenational estimates is taken as 0.95 of the sample ruralarea. The latter is within the Helmand Valley region wheresizeable USA capital development program is in progress.Average monthly expenditure by Nomad population estimatedat 0.85 of the average expenditure in rural areas.

(iii) Column 8: Rural Areas: Ministry of Agriculture and Irrigation.Department of Planning, "Preliminary Results of AgriculturalCensus in Afghanistan 1347". The sample's population distri-bution pattern by expenditure groups is used for the nationalestimates in rural areas.

Urban Areas: V. Chapir, USSR Adviser on MInpower,Wages and Salaries to the Ministrv of Planning, 1Popnlationand Manpower Resources in Afghanistan 1965-72", table 4,p. 8 ~.- l 345 (1967) r-tio of urban pop,lation as 12 p,rcentof total population is used to estimate total urban popu-

t±+ion. Th¢ sample' popn+4tior. di@4W4 bua+4n p-atter..n of W -Ipenditure groups is used for the national estimates in urban

Nomads: K.H. Hendrikaon German Economic AdvisoryGro-p, IN-moA Pro1bl, 4i A"fg'"s +a" ." CQ---.44atin for

their - Uo lu tion55",U.JSAO 1.967

their Solution", 1967.

ANNE

Talble t: Page IL

PRELIMINARY ESTIMA1ES CFPRIVATE CONS'UMPTION 'IN AFI*ANISThN 1969

SAMPLE SURVEY FQI IASHKAR AH 1965 _AT IOL ESTIMATES 129Monthly Average Berit of Cwmulative Percent of CuTverage AnnualEcpenditure Monthly Popu1jLtion percent of Expenditure percent of MbnthLy 1969 Consumptionper capiita Expenditlre population Expenditure Expenditure Population ExpendLturei

Af Af _% _ % _ _% _ Af So0a) million)-T T T (3) (4) 5) (6) -177s) LUc)

R u r a 1 A r o a a R it r a 1 ik r e a a

O - 100 58 0 .2 0.2 0.2 0.2 5B 2L 15101 - 200 159 25.0 25.2' 11.3 11.5 15,9 2574 4,i911201 - 300 268 28.9) 5Sh3. 22.0 33-5 268 2975 9,1>68301 - 500 379 29.6 83.7' :32.0 65.5 36D 3047 13,:163501 - 700 585 lO.'i 94.2 1L7.4 82.9 555 108:L 7,200701 - 1100 808 3.F3 97.5; 7.6 90.5 767 340 3,:L29

ulQ - 1500 1324 2.41 99.5 9.0 59-5 1258 247 3,7251501 - 4000 1615 0.1 :1OO.c0 0.5 i(o.0 153,4 10 184

SuLb-Total: RURAL 100.() 100.0 10,29.5 41,l,95

U r b a n A r e a sJ U r b a n A r e a

101 - 200 1.85 9.3 9.30 3.4 3.4 185 156 3146201 - 300 270 24.1 L 33. 7 L3.2 :16.6 270 410 1,328301 - 500 4OO 31.2 64.9 -25.0 141.6 140D 52k1 2,,5155(1 - 700 6oo 18.5 83.14 22.3 653.9 600 311 2,239701 - 1100 890 10. 3 93.t :18.4 132.3 890 173 1,8148

1101 - 1500 1310 14.6 98.3 l1.9 914.2 1310 77 1,'21015(1 - 14000 1802 1. 100.0 5.8 100.0 1802 29 6t27

Sub-Total; 'BI 10-0. 10 0. 1.68D 10.,113

N c, m a d sSub-Total: NOYMADS 2,000 6,740

GFAND TOTAL (at current prices - 1969) 13,975 74(at constant 1967 prices) 0.334

ANNEX

Import Projection

il, For the purpose of projecting importa for 1972, the following

. t tJ - r-

ilc n f1 (C - MCJ (2

A ,a = A. 7 N3Ii IL4-

Mi ' f 3 , ( Y )(4)

4& ~ J%J ZILL.LL."VUA J1J. 'C lp.) AM*

Mk &1*, .... J1IJ AP V7Y - (5)

Whire N iss wtal imports of goods anu services; mc imporus of conumwers goods;MN imports of intermediate goods; Mc imports of consmirs goods through c o-dity aid (CFL); -is proceeuds of Commoudity asitiance at market prices; VOW netoutput of wheat, Mk imports of capital goods through project aid and N. importsor services.

±For iLyo6 anda iLYC, oUn tne DasiS or oata Ob1taind rroa tabLes A and Babove as well as tables 1.8 and 1.9 in the Statistical Appendix, the followingrelationsbips and 1972 projections are obtained:

Eq (z) M = Il tf M)

33.4 - f1 (55,288 - 889)

f 1 = 0.00061

1969: 34.9 - f1 (60,658 - 912)

f, - 0.00058

1972: f = 0.00060

MHc - 0.0060 (64,608 - 909)

- $38.2 million

= Af 2,865 (at the effective rate of 75, see sourcesto Table A)

A NATh WY

Page 13

c= 2 (Pw)

f2 T C . OW

1967-69 f2 8.7 - 20.311,292 - 9,267

= - 0.00572

1969-72 a Ic = - 0.0O572 (1-,358 -_ 1,292)

= - 0.4

Mca = 8.7 - 0.4

= $5.3 million

= Af 376 million (it the official rate)

Eq.(4) Mi = f3 (Y)

1967 23.)- = ft> (58,076)

f3 = 0.0001o0

1969 26.3 = f 3 (614,629)

f = 0.000403

1972 M. = 0.000O40 (70,6214)

$28.2 million

= Af 2.115 million (at the effective rate of 75)

Eq (1) M = M + I1,L + Ma + mjl, + m-- 1-1 ~~~~~L y, K

1972 N4 = 38.2 + 28.2 + 8.3 + 60o0 + 1.3

-;;136.0 millions

= 2,865 + 2,115 + 376 + 2,71L6 + 97

= Af' 8;199 millions