current economic position and prospects of afghanistan...
TRANSCRIPT
Report No. 684a-AF
Current Economic Positionand Prospects ofAfghanistan FILFCOPYJuly 7, 1975
Country Programs Department IDivision 1 DEurope, Middle East and North Africa Region
Not for Public Use
Document of the International Bank for Reconstruction and DevelopmentInternational Development Association
This report was prepared for official use only by the Bank Group It may notbe published, quoted or cited without Bank Group authorization. The Bank Group doesnot accept responsibility for the accuracy or completeness of the report.
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CURRENCY EQUIVALENTS
INF Rate
1 US dollar = 45 Afghani1 Afghani = .022 dollars
Free Market Rate
Septemnber 19741 US dollar = 53. Afghani1 Afghani = .0187 dollars
Average Rate 1973/741 US dollar = 61 Afghani1 Afghani = .0164 dollars
All conversions are made at the average free market rate during
the Afghan year.
NOTE: The Afghan year is March 21 to March 20, therefore 1973/74 refers
to March 21, 1973 to March 20, 1974.
PREFACE
This report is based on the findings of an Economic Mission which
visited Afghanistan in October-November 1974. The Mission was composed of
Messrs. Vinod Dubey (Chief of Mission), Francis Colaco (Fiscal Economist),
Cyrus Ardalan (General Economist) and Chandra Sharma (External Debt Specialist).
CURRENT ECONOMIC POSITION AND PROSPECTS OF AFGHANISTAN
TABLE OF CONTENTS
Page No.
BASIC DATA
SUMHARY AND CONCLUSIONS ...... .................... i-iv
I. INTRODUCTION ..................................... 1
Economic Structure and Institutions .... .......... 2Objectives of the Republican Government .... ...... 3
II. ISSUES IN DEVELOPMENT POLICY ..... ................ 4
Administrative Reform. Project Formulation, Selection and Implementation. 5Education, Training and Manpower Planning .... .... 6Domestic Resource Mobilization ..... .............. 7Coordination of Economic Policies .... ............ 8
III. ECONOMIC DEVELOPMENTS AND PROSPECTS .... .......... 8
Overall Economic Developments ..... ............... 8
Agriculture ......... .................... 10Industry and Mining ...... ................... 13
Planning ......................................... 1-5Public Finance and Monetary Developments .... ..... 18Balance of Payments, External Aid and External
Debt ........... ............................. 20
ANNEX A: Public FinanceANNEX B: Monetary Developments and PoliciesANNEX C: Balance of Payments
STATISTICAL APPENDIX
MAP OF AFGHANISTAN
Page 1 of 3 pages
EASIC DATA
1/
AREA POPUIATION
Total: 635,00o km' Total: 18 million
= 63 million hectaresRural: 13 million
Arable: 8 million hectares Nomadic: 3 million
Pasture: 40 million hectares Rate of Growth: 2.3%
EDUCATION (1970) HEALTH (1969)
Adult Literacy Rate: 8-10% Population per physician: 32,000
Primary School Population per hospital bed: 6,890
Enrollment Ratio: 22,(Adjusted)
2/GNP per capita (1972): $80
Rate of Growth: .8%(1965-72)
LABCR FORCE (1973/74)% Q(171/72-1573/74)
Millions of Total Rate of Growth
Agriculture 3.Ž 62 2.5
Handicrafts .3 6 5.5Manufacturing .09 2 6.3
Services .38 7 4.3
Construction and Mining .12 2 4.5
Unallocated .68 13 2.3
Unemployed 8 7 -1.3
Total . 100
GOVERNMENT FINANCE(Afs. Mln.)
1972/73 1973/74
Current Receipts 6,111 7,017
Current Expenditure 5.659 6 J31
Current Surplus 452 486
Capital Expenditures 4,287 3,571
External Assistance 3,150 2,207
1/ Central Statistics Office of AfghanistanT/ World Bank Atlas
2, n -' F
.EPi ,IC DATA
MIONEY, CRD!TT' A'TD FTICES1/
1972 1973 1974 1297(Miluicr on outstandinp end OfI rE:
MIoney and Quasi nev 10,262 12,309 13,901 15,219Bank Credit to Public Sector 10,671 11,106 12,057 12,L62Bfunk Credit to Private Sector 3,1i85 L,253 4,25$ 5,193
Annual. percentage change indomestic prices +18.1 -114.6 -7.8
BAIAL4VCE OF PAYMKITS
1 73/71,(US $ million)
Exports of Goods 159.LImports of' Goods 192 Q2
Balance of Trade -32.8Other current - 2.8
account (net) - 2.
Balance on Current Account -35.6
Net Loans and Grants 46.4(Disbursements), (68.9(Amortization, (22.5
Other Items n.e.i. 4.1
Increase i-n Reserves (+)
"ITCHUTDISE EXPCRTS (1973-74)
Dry Fruits and nuts 97.1 29.5Fresh Fruits 21.9 13.7Karakul 16.8 10.5Cotton 7.2 4.5Carpets and rugs 14.5 9.1Natlnral Gas 18.0 11.3All- other comimodities 33.9 21.3
Total 159 .1 100.c
1/ Preliminary
Page 3 of 3 pages
BASIC DATA
RATE OF EXCHANGEFREE RATE
1972/73 1973/74 197L/7gUS $ 1.00 = 50.0 Af - US $ 1.00 = 60.98 Aft US$ 1.00 = 56.86 AfAf 1.00 = US $ .0125 Af 1.00 = US $.o164 Af 1.00 US$ .0176
EXTERNAL PUBLIC DEBT, March 20, 1974 US $ Million
Total External Public Debt 973.4Disbursed 727.0Undisbursed 246.4
Service Payments (1973/74) 32.1Interest 9.6Amortization 22.5
Debt Service Ratio (1973/74) 19.3
IERD/IDA LENDING ( M.y 31, 1975 ) (Us $ kil].ion)
IERD IDA
Outstanding & Disbursed - 10.2Undisbursed _30.6Outstanding incl.
Undisbursed 40 8*
* $0.8 million reflects exchange adjustment. over the totalas of October 31, 1975.
SUMMARY AND CONCLUSIONS
i. The last IBRD report on the economic position and prospects ofAfghanistan was based on the findings of an economic mission which visitedthe country in June-July 1971. Since that time there have been two majordomestic events which have affected Afghanistan's economic development: (a)two years of good crops have followed the severe and prolonged drought of1970 and 1971, which had severely curtailed crop production and decimated thelivestock herd; and (b) the establishment of a Republican Government in 1973which is committed to the economic development of Afghanistan and to theundertaking of basic economic and social reforms. In addition to these do-mestic events, Afghanistan has also been subject to the effects of the majorrecent international events.
ii. It was the purpose of the present IBRD economic mission to examinethe changes which had occurred in the Afghanistan economy in the past fewyears and in that context to formulate a view of the country's long-term dev-elopment prospects.
iii. In summary, after the two years of drought there was a dramatic andrapid recovery of agricultural production in 1972/73 and 1973/74 partly as aresult of more extensive use of improved seeds and fertilizers, but principal-ly because of two successive years of good precipitation. There was, however,a slowdown in economic activity following the change of government in July1973 and the uncertainties which it engendered. At least in part for thisreason, domestic private trade and investment is still relatively depressed.Export performance during the past two years has been better than was expect-ed partly because of rising prices for the major export commodities -- freshand dry fruits, nuts, karakul, and carpets. However, there has recently beena weakening of some prices, for example for karakul, which is considered to bea luxury item, resulting mainly from the economic recession in the developedcountries.
iv. There has been a very large appreciation of the exchange rate - thevalue of the Afghani has increased by 31 percent as compared to the averageexchange rate during 1972/73. The exchange rate for the dollar is for allintents and purposes freely determined in the "money bazaar" and the officialexchange rate is set by the Central Bank at about one Afghani above thebazaar rate. The market is quite thin and influenced primarily by the cur-rency requirements of the unofficial re-export trade, mainly to Pakistan. Inthe last year there seems to have been a fairly sharp reduction of this tradeboth for political and economic reasons. The appreciation of the exchangerate has tended to discourage traditional exports (carpets and karakul) andmay also in the longer run affect adversely the development of new importsubstituting industries. On the other hand, the appreciation of the exchangerate has partially cushioned the impact of the international inflation ondomestic prices in Afghanistan. The Government is intervening in the marketin an effort to bring down the Afghani/dollar rate.
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v. The recent rise in international prices affected Afghanistan in anumber of ways. On the one hand the rise in prices inflated the import billadding a new burden to the balance of payments. This is especially apparentwith imports of sugar which could now absorb almost one-sixth of the country'sconvertible exchange earnings. On the other hand, the rise in internationalprices encouraged domestic import substitution and has to a large extent morethan offset the impact of the appreciation in the exchange rate. This effectis most visible in textiles where capacity utilization has increased fromabout 40 percent to around 80 percent. The production of cement, shoes,mosaic and sugar has also been favorably influenced.
vi. The rise in oil prices did not have an immediate direct impact onthe balance of payments. Total oil imports in 1972/73 were $9.5 million;about 60 percent of Afghanistan's requirements of oil and oil products aremet from the U.S.S.R. and the prices till recently remained unchanged. Thebilateral agreement which included provisions for the sale of oil toAfghanistan by the U.S.S.R., and for the sale of natural gas to the U.S.S.R.by Afghanistan has now been re-negotiated. The prices of both oil importsand natural gas exports were adjusted upwards to reflect more closely worldprices. The price of natural gas has been raised by about 130 percent whilethe unit price for oil and oil products has increased by over 200 percent,thus implying a deterioration of the terms of trade on this account. However,the increase in receipts from natural gas exports would roughly offset the ex-pected sharp jump in the cost of payments for imports of oil and oil products,and Afghanistan still expects to maintain a net surplus on these transactions.(The surplus in 1972/73 was $8 million). The energy crisis has, however, hadmajor indirect impact on the Afghanistan economy. The rise in fuel costs hasled to an increase of about 10 percent in the already high cost of transportingcommodities to and from Karachi. Even more important is the problem createdby the rise in fertilizer prices, particularly as the Government agriculturalpolicy has been encouraging more intensive cultivation and higher yields. Theconsumption of fertilizer in 1973/74 was about 50,000 tons, which is expectedto rise at an annual rate of 10-20 percent. Fertilizer imports in 19-73/74reached a 80,000-ton level in anticipation of future price increases; withlarge stocks being carried over, fertilizer imports in the current year areexpected to be 26,000 tons. In 1975/76, fertilizer requirements will amountto 80,000 tons. A part of this will be met by domestic production from aplant with a capacity of 105,000 tons established with U.S.S.R. assistancewhich has recently started production and is expected to reach capacity out-put by 1978. This would make Afghanistan self-sufficient in fertilizer on anet basis; urea could be exported and other types of fertilizer notably DAPcould be imported in return. Production in the current year is expected toreach 60,090 tons. There is the possibility, that a part of the fertilizer(mainly DAP) requirements in 1975/76 would be financed, as in the past, byUSAID.
vii. One of the major characteristics of the Afghanistan economy hasbeen a heavy reliance on external assistance. In recent years, about 80 per-cent of the overall budget deficit has been covered by external assistance,and the remainder by borrowing from Da Afghanistan Bank. Shortfalls in theavailability of external assistance combined with inability to prepare andimplement projects has resulted in development expenditures consistently fall-ing below planned levels. Recently, Afghanistan has received offers of aid,
notably from the Islamic oil producing countries, which are likely, in thenear future, to reverse the past tendency of a decline in the net inflow ofexternal capital into the country. At present there are firm commitments ofgrants of $10 million each from Iran and Saudi Arabia and $2 million fromIraq for feasibility studies with an understanding that the resulting soundprojects would also be eligible for finance. Kuwait has also agreed to fi-nance feasibility studies but with no specific financial commitment. Besidesproviding $10 million in grants for feasibility studies, Saudi Arabia has alsoagreed to an interest-free loan of $55 million. No precise figures can begiven for the commitments for project aid that may eventually result fromthese offers. Recently an economic cooperation agreement with the USSR hasbeen concluded, making available about $400 million for Afghanistan's futuredevelopment programs. In addition, another $100 million has been made avail-able through rescheduling of past debt.
viii. The utilization of these aid offers, as well as the realization ofthe country's development potential requires timely and vigorous action toremove a number of obstacles that have severely inhibited the country's econo-mic and social development in the past. Included among these are:
(a) inadequacies in public administration and manpower developmentwhich lead to inefficiencies in the implementation of policiesand projects;
(b) inadequacies in project preparation and the resulting shortageof projects to be financed relative to offers of external eco-nomic assistance.
(c) shortfalls in domestic resource mobilization and the need fornew policy measures; and
(d) absence of a well-defined framework for the examination and-coordination of policies.
If appropriate actions are taken on each of these major problem areas, giventhe large undeveloped human, agricultural, and mineral resources, the country'slong-term development prospects could be considered to be favorable.
ix. The implementation of these major institutional changes will taketime, and for that reason action on them needs to be initiated at the earliestpossible date. The development potential of the economy is thus likely to berealized only over the long-term. Given the importance of agriculture in theeconomy and the dependence of agriculture on precipitation, Afghanistan willcontinue to be vulnerable for some time to come to temporary and sometimessevere economic difficulties resulting from unfavorable weather conditions.
x. A number of immediate measures can, however, be taken to improvethe ability of the economy to deal with adverse conditions. In crop produc-tion, for example, improvements in irrigation facilities (particularly small-and medium-scale) and the continued spread of use of fertilizers and improvedseeds would enable the building-up of buffer food stocks. In livestock breed-ing also, improvements in feeding and health practices, could result in very
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major increases in output. Finally, in the industrial and mining sectormajor increases in output and in budgetary revenues, could be realized byimproved efficiency of existing public enterprises which dominate the sectorand have generally had very low rates of return. The generally dynamic pri-vate sector would play a more important role in industrial development if ithad confidence in the governments policies and knew clearly what the scopewas for its activities.
xi. The Republican Government has committed itself to the economicdevelopment of Afghanistan and to improvements in the standard of living ofthe masses of the people. This is a difficult objective and one which willtake some time to achieve. A beginning must, therefore, now be made bymobilizing the efforts of the country towards the over-coming of some of themajor obstacles which have in the past constrained the achievement of suchdesirable objectives.
xii. Chapter I of the Report looks at the overall structure of the Afghaneconomy and the objectives of the new Republican Government. Chapter II con-siders the major constraints facing Afghanistan, which have in the past andare presently adversely effecting the country's growth potential. Recenteconomic developments and future prospects are briefly discussed in ChapterIII. A more detailed analysis of fiscal, monetary and the balance of paymentdevelopments are provided in the Annexes.
CHAPTER I - INTRODUCTION
1.1 Afghanistan is a landlocked country whose geography is characterizedby rugged mountainous terrain, large desert areas and scattered and sometimesisolated habitable areas. The location and distribution of human settlementshas been principally eetermined by the availability of water. Topographicconditions have hampered the development of internal transportation and re-sulted in the physical isolation of village settlements. It is only in thelast fifteen years that all-weather roads have been constructed linking themajor cities and also joining Afghanistan with its neighboring countries.This period also saw the development of modern communications and of domesticand international air transport. The ruggedness of the terrain has so farbeen an impediment to the development of rail transportation.
1.2 The geographic location and isolation of Afghanistan has been animportant determinant of national policies. Historically, Afghanistan hasbeen at the cross-roads of the major trade routes in the area and thisaccounts for the trading skills of the population. Also, as a landlockedcountry, Afghanistan depends on good relations with its neighboring countriesfor its trade and transit facilities, and the maintenance of good relationswith its neighbors therefore is an important influence on the selection ofpolicies. Finally, the combination of the ruggedness of the terrain andthe fact that the country is landlocked makes for high transportation costsand influences the structure of domestic production.
1.3 According to official estimates, Afghanistan has a total populationof 18 million, including 3 million nomads. Other estimates of the populationrange from 13 million to 18 million. These figures should be considered onlyas rough estimates since a population census has never been undertaken. Apopulation census is planned for 1977 with U.N. assistance. It is estimatedthat 13% of the population is urban, with the remainder of the settled popula-tion living in widely scattered and often isolated rural villages.
1.4 The geographical diversity of the country is matched by linguisticand ethnic diversity. Traditional tribal loyalties are important. ThePashtuns (numbering 5-8 million) and the Tajiks (about 3 million) are thelargest tribal groups; other large groups are Uzbeks, Turkomans, and Hazaras.Dari and Pashto are the official languages of Afghanistan, but more thantwenty other languages are spoken of which Uzbek and Turkoman are the mostimportant.
1.5 The Durrani Confederation of the Pashtun tribal group has ruledAfghanistan for over two hundred years, with a single brief exception. InJuly, 1973, after almost forty years of rule, King Mohammad Zahir Shah wasdeposed in a military coup led by his cousin Sadar Mohammed Daud Khan, and aRepublican form of government was established. President Daud is also thePrime Minister and has retained the portfolios of Defense and Foreign Affairs.
Economic Structure and Institutions
1.6 There are no national income statistics for the Afghan economy. 1/It is estimated, however, that about 50 percent o' GDP originates in the agri-cultural sector which absorbs about 70 percent of the active labor force.The handicrafts and cottage industries sector is estimated to contributeabout 10 percent of GDP, trade and transport contribute 20 percent; modernmanufacturing and mining accounts for only about 5 percent of GDP, but itsshare has doubled during the last decade. Much of the economic activity iscarried out on traditional lines for subsistence purposes or to meet localneeds. However, monetization of the economy has been increasing and withimprovements in communications, trade has been growing and production forthe market has become increasingly important. An active "re-export" tradehas developed in commodities imported from developed countries (e.g. rayon,watches, and consumer durables) and sold in neighboring countries, partic-ularly Pakistan.
1.7 The importance of the agricultural sector in the Afghan economy isreflected not only in its large contribution to CDP and its employment of alarge fraction of the population, but also in its provision of the raw mater-ials on which a major part of industry and trade, both domestic and foreign,is based. Cotton is the raw material for the textile industry which is oneof the major elements of the manufacturing industry, and wool is the inputfor the carpet industry. Cotton seed is the basis for the oil extraction,refining and soap industries. Sugar beets are used by the sugar refinery,and dried fruits are processed and packed and exported. Livestock herdsprovide karakul skins and casings as well as other hides and skins whichare further processed for domestic use and export. Agricultural productsand their derivatives account for about 90 percent of total exports. Indus-tries other than those using agricultural raw material include a nitrogenfertilizer plant, cement manufacture, coal and salt mining, exploitation ofnatural gas resources, and electric power generation.
1.8 Although the full extent of the mineral wealth of Afghanistan isnot known, since the country has not been completely surveyed, it is knownthat fairly rich mineral resources exist, including barite, beryllium, coal,copper, chronite, gold, iron ore, natural gas and talc. Production of bariteand talc on a small-scale is being initiated. The magnitude of iron and cop-per deposits is large enough to justify exploitation under normal circumstances.Given the high transportation costs and the quality of the available infra-structure, however, very large investments would be required and the economicfeasibility of the exploitation of these resources is under study.
1/ The GDP of Afghanistan for 1972 was estimated by the IBRD Report ofJanuary 1971, to be Afs 72.5 b. An alternate estimate of Afs 62 b for1971/72 has been made by the Ministry of Planning in the "StatisticalPocket-Book of Afghanistan 1350."
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1.9 As one of the "least developed" countries, the framework of moderninstitutions in Afghanistan has developed only in patches and is not fullyintegrated with economic and social life. The legal framework consistentwith a modern economy is still being developed. Currently a number of itemsof legal reform are under consideration, including a new central and commercialbanking law, and reforms designed to improve the security of bank lendingand to facilitate the use of checks and other negotiable instruments.
Objectives of the Republican Government
1.10 The major objectives of the Republican Government which came topower following a coup in July 1973, were spelt out in a speech by PresidentDaud on August 23, 1973. The President indicated that Afghanistan would bea "guided" economy with strong welfare objectives, the state sector would bestrengthened, and importance would be given to the development of heavy in-dustries based on the country's mineral resources. He also committed theGovernment to basic economic and social reforms including taxation, landtenure and public administration. It must be stressed, however, that theGovernment during this first period has put emphasis on maintaining politicalstability.
1.11 In the past, economic decision-taking has been beset with legisla-tive delays. The abolition of the Parliament following the change of govern-ment enables the Government to act quickly once a decision is made. Newlaws for providing the necessary framework for much of economic activity arebeing, or have been, drafted and some new laws have even been passed (e.g. arevised customs law, a new Foreign and Domestic Private Investment Law). Or-ganizational changes aimed at more effective development and policy planninghave been initiated (e.g. reorganization of Ministry of Planning and a newSecretariat in the Prime Minister's office for the High Economic Council).An active policy of mobilizing and diversifying assistance flows has alsobeen adopted with some success (see paragraph 3.50). The Government has madea strong effort to eradicate corruption and improve tax collection.
1.12 Despite these changes, however, some major elements of the Republi-can Government's program, including taxation, land and public administrationreform have still to be unndertaken. Uncertainty regarding the nature of thesereforms, combined with the adjustments called for by the new laws (for example,the customs tariff law) which have already been promulgated, has weakenedpublic confidence and adversely affected private investment. The elaborationby the Government of the major points of its program into a consistent policyframework is important in restoring public confidence. The annual plan couldbe used more effectively than it has been so far as a vehicle for spelling outthe policies and measures to be adopted for the attainment of objectives.
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CHAPTER II - ISSUES IN DEVELOPI'TNT POLICY
2.1 The Republican Government has conmitted itself to a program for thedevelopment of Afghanistan and for improving the conditions of life of thepeople. The development of a strategy to achieve these objectives wouldbenefit from an examination of the Afghanistan's past development experience.The major weaknesses of past development experience are well known. First,the productivity of past investments was low and did not lead to a growth ofproduction commensurate with the volume of investment. Second, there wasno marked improvement in the standard of living of the masses of the people.Third, investment was primarily based on foreign assistance and little atten-tion was paid to domestic resource mobilization. Since the emphasis was onlarge infrastructure projects, the external assistance, even though it wason soft terms, has left a legacy of a-heavy debt service burden. Fourth,there was an almost total neglect of the development of an institutional andlegal framework conducive to growth, and of the reorganization and reform ofthe structure of public administration without which no significant departurefrom past unsatisfactory economic trends is feasible. Finally, insufficientattention was given to manpower training and development and the creation ofa domestic capability to formulate, appraise, and implement projects.
Administrative Reform
2.2 A key factor which pervades all aspects of future development andwithout which significant progress and a break with past trends does notappear possible is the need for administrative reform. The administrativeframework in Afghanistan is, like other traditional administrations, primarilyoriented towards maintaining law end order and has not yet evolved a develop-ment oriented framework. It is relatively inefficient, insufficiently motiv-ated and bureaucratic. Salaries are very low - the last revision of salaryscales was in 1964 with no adjustment even for inflation, and there is noincentive for efficiency and performance. Recruitment, transfers, promotionsappear to a large extent to be arbitrary and there is little incentive forcivil servants to acquire qualifications to further their prospects.
2.3 A number of approaches have been tried to deal with this issuewhich is widely recognized. One method has been to set up semi-autonomouspublic entities with their own administrative organizations and procedures.However, the device has not been fully effective because (a) the public enti-ties work in the environment created by the bureaucracy and are affected byit (b) the administration of the entities themselves is not always devoid ofarbitrariness and inefficiencies (c) there is no feedback from the entitiesto the administrative system generally which would help spread any improve-ment.
2.4 The problem of administrative reform has to be tackled directly.A commission to study the whole question and come up with recommendationsregarding a system of recruitment, salaries, incentives and training and
promotion should be appointed. At the same time, development cannot awaitthe implementation of a reform of the whole administrative system which inany case even after it is formulated would have to be carried out in stages,if for no other reason but the implicit financial implications. In themeanwhile, a start should be made for securing more effective and dynamicadministration in areas identified as being of key importance in developmentprograms. Several elements in this immediate, starting program for adminis-trative reform can be distinguished. Firstly, the existing manpower resourcesare not put to the best use. As a start key positions in development adminis-tration may be identified and given to the most suitable qualified personsthrough a system of recruitment, promotion, etc. with patronage appointmentsbeing restricted to other jobs. Secondly, the salaries of these developmentrelated positions should be revised and an incentive program based on perfor-mance evaluation and a training program for improving qualifications be ap-plied. Thirdly, the program should be gradually widened in scope. The num-ber of these positions would be increased to cover a greater part of totaladministration. For example, a start may be made with 1,000 positions with adoubling every two years. In the widening of the scope of these develop-ment oriented positions particular attention should be given to identifyingthe administrative bottlenecks that must be included in the program at eachstage.
Project Formulation, Selection and Implementation
2.5 The shortage in Afghanistan of projects -- well formulated, pro-perly appraised, prepared and presented -- suitable for external financing,has been a subject of much comment. The problem has been highlighted bythe recent offers of external assistance that have been made by Iran, SaudiArabia and the USSR and the access to financial institutions like the KuwaitFund and the Islamic Bank (see paragraph 3.50). This shortage of projectsis due to several factors, some of which have been often discussed:
(a) inadequate advance planning (given that the lead time for pre-paring projects can be quite long) including the early specif-ication of project ideas leading to project identification andpre-investment studies which would bring projects to the fea-sibility study stage at the appropriate time;
(b) even more important than the inadequacy of advance planning,is a lack of clear statement of objectives and priorities atthe inter-sectoral and intra-sectoral level which makes itdifficult to select projects for preparation on a prioritybasis from among many general ideas about possible projects;and
(c) the lack of an effective policy, once the project is identifiedand the decision to go ahead with it is made, to expeditiouslyprepare or arrange for the preparation of feasibility studies.Afghanistan has had a great amount of foreign expertise avail-able to it, but this does not appear to have been effectively
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utilized to either develop indigenous capabilities for nroj-ect identification and preparation or to prepare additionalprojects independently.
2.6 There is some progress as indicated and the situation is likely toimprove. The tasks of project preparation and evaluation have been allottedto the planning units in the operating ministries with a re-evaluation rolefor the Ministry of Planning. Standard guidelines and manuals are under prep-aration (see paragraph 3.37). However, the units have to be adequately mannedand staffed and their role given importance by the ministries concerned. Thegrant funds made available for feasibility studies by Iran and Saudi Arabiawould result in suitable project proposals on the basis of foreign consul-tants. However, the opportunity should be used to develop indigenous capa-bility for this task. The selection and training of counterparts should bemade an integral part of the consultancy arrangements. The trained counter-parts should then be used in the fields in which they have acquired compe-tence, given responsibilities and judged on performance. This requires acomplete change in attitudes frr- the past. People should learn to take res-ponsibility and not hide behind the aprons of the foreign consultants; theyshould be allowed to make mistakes. It also requires a much larger supply oftechnically qualified people in the administration -- accountants, economists,engineers, financial analysts, etc.
Education, Training and Manpower Planning
2.7 The education, manpower and training needs for development have beenstudied recently under a Cooperative Agreement between UNESCO and IBRD. 1/There is an imbalance between the increase in output from the secondary educa-tion system and the available places in higher education and consequentlythere is a significant problem of unemployment of high school graduates. Thesolution is not to increase the available university positions but to. re-orient the syllabus of secondary schools so that a larger part of the gra-duates could move to suitable employment. There should be an adequate capa-city, together with Afghans returning from education abroad, to meet the needsfor professional and middle level engineers and of skilled labor for the in-dustrial work force. The essential problem, therefore, 2/ appears to be oneof proper curriculum in secondary education and the quality of technicaleducation.
1/ Quality and Equality in Education, UNESCO, Paris, January 1975.
2/ Of course, there is the other problem of meeting the need for masseducation -- providing schools, equipment, teachers -- in differentparts of the country, particularly to isolated and scattered ruralsettlements and to the large nomadic population. The section aboveconcentrates on the needs for meeting the direct manpower needs ofeconomic development.
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Domestic Resource Mobilization
2.8 The problem of more effective do:;estic resource mobilization throughthe budget for financing more rapid development is also faced by other devel-oping countries. It is even more pressing in Afghanistan for two reasons.First, as pointed out above reform of public administration is a major req-uisite for economic development. One element of such a reform would be im-provements in the salary structure and career advancement prospects of theCivil Service. The freeze in salaries since 1964 is a factor contributing tothe existing inefficiencies in public administration. The increased costs ofthe suggested administrative reform would require higher budgetary revenues.Secondly, the increased availability of project aid to Afghanistan (see para-graph 3.50) requires a greater mobilization of domestic resources. Accordingto estimates made by the Ministry of Planning and incorporated in recent planseach dollar of project aid utilized requires Afs. 40 of domestic resources forinvestment and operating costs. Measures to improve domestic resource mobili-zation should be undertaken forthwith because of the time lags involved intheir implementation, so that as a stream of prepared projects ready to befinanced comes up, Afghanistan would also have the machinery to generate thecomplementary domestic finance required.
2.9 The Annual Plan for 1974/75 recognized the importance of domesticresource mobilization and envisaged increases in tax revenues through reformof the land tax and re-institution of a livestock tax. 1/ However, adminis-trative, technical and political factors were important constraints on theearly implementation of rational agricultural tax measures for greatly in-creased revenues; nevertheless, further efforts are intended to increaserevenues from these sources. There are also alternative sources of increasedrevenues which could be explored. Public enterprises could be one importantand proximate source of increased revenues. According to estimates made in1972/73, there were about 60 public enterprises accounting for a total invest-ment of Afs. 20 billion. Included in this number were approximately 50 indus-trial enterprises with a total investment in the range of Afs. 6-10 billion(see paragraphs 3.19 to 3.23), which if they provided a reasonable rate ofreturn could yield additional revenues of between Afs. 600 and 1,000 million.
2.10 The Government is aware of the shortcomings of public enterprisesand a new law on public enterprises has been adopted to eliminate some of thestructural constraints on their improved performance. In addition, with theassistance of ILO experts, new procedures for developing and training manage-ment personnel are being applied on a pilot basis to a small number of publicenterprises. Efforts in this direction deserve to be strengthened and accel-erated.
1/ The yield from the land tax has stagnated at between 70 and 89 millionAfs. during 1968/69-1973/74. The livestock tax repealed in 1967 yielded88 million Afs. in 1965/66. For details see Annex I - Public Finance.
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Coordination of Economic Policies
2.11 The lack of well articulated and coordinated monetary, fiscal andbalance of payments policies partly reflects the current stage of evolutionof the institutional framework. For example, the financial and banking struc-ture is still rudimentary and the unorganized financial sector has key impor-tance. 1/ There is also some lack of awareness of the importance of a coor-dinated policy frame for short-term economic management and long-term devel- -opment programming. Even the awareness that exists is hindered from resultingin such coordination because of administrative and bureaucratic weaknesses.
2.12 Adequate financial planning -- the explicit reconciliation in ad-vance of monetary, fiscal, and foreign exchange variables -- should receivepriority attention. In Afghanistan, the size of the budget deficit is amajor determinant of domestic liquidity. So far, the size of the budgetdeficit to be financed by the banking system has been (with the exceptionof a preliminary attempt in the 1974/75 Plan) a simple residual and notpolicy-determined. The size of the budget deficit obviously has importantpolicy implications, and it is essential that it be viewed in this manner.For example, at the present time, reduction in planned budget deficits byconstraining domestic liquidity may have undesirable effects on the level ofeconomic activity given the inability of the monetary authorities to institutediscretionary changes.
CHAPTER III: ECONOMIC DEVELOPMENTS AND PROSPECTS
3.1 This section of the report presents a summary analysis of economicdevelopments and prospects in selected sectors. A more detailed discussionof public finance, monetary and balance of payments developments and prospectsis contained in Annexes to this report; issues in the agricultural sector ofAfghanistan were studied by the IBRD Agricultural Sector Survey Mission whichvisited Afghanistan in September/October 1974.
A. Overall Economic Development
3.2 In the absence of national income and population statistics, it isdifficult to quantify with any measure of reliability the overall trends inthe Afghanistan economy in recent years. Available estimates, which must beconsidered at best to be rough orders of magnitude, indicate that in the1960's GDP in real terms increased at less than 3 percent per annum whilepopulatfon increased by about 2 percent per annum. On this basis, the in-crease in per capita income was rather small in a period which saw a largeincrease in investment financed principally by external assistance. The lowrate of growth of GDP reflects the bias in the investment programs towards
1/ See Annex II, Monetary Development and Policies.
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large-scale and long-gestation infrastructure projects; however, this bias inthe investment program did have an important beneficial effect on the economy,which is not reflected in the GDP statistics, to the extent that it increasedthe geographical unification of the country and the market orientation ofproduction.
3.3 In the two years ending in March 1972, a prolonged drought followedby severe winter weather produced major declines in agricultural output andin the size of livestock herds. The decline in agricultural output, given theimportance of this sector, produced a decline in economic activity throughoutthe economy. It, therefore, seems clear that there was a decline in GDP ineach one of those years, though the extent of the decline is not known.
3.4 Favorable weather conditions in the past three years combined withincreased public sector investments in agriculture have resulted in goodharvests and in a consequent strong economic recovery. In 1972/73, agricul-tural output is estimated to have increased by 12 percent, and real GDP by 8percent, from the severely depressed levels of the previous year. In 1973/74real GDP is estimated to have increased by about 7 percent partly as a resultof the slowdown in economic activity following the change in government inJuly 1973; the rate of agricultural growth was also slower than the recordlevel of the previous year.
3.5 The Annual Economic and Social Development Plan for 1974/75 callsfor a 4 percent increase in agricultural production, a 10 percent increasein the output of the mining and manufacturing sector, and a 5 percent in-crease in real GDP. Weather conditions have continued to be favorable in1974/75. Although the precipitation has been below the levels of the previousyears, agricultural output is expected to be at about the 1973/74 level.
3.6 Recent international economic events have so far had only a smalldirect effect on the economy of Afghanistan. The rise in oil prices did notcause an immediate direct impact on the balance of payments. Total oil importsin 1972/73 were $9.5 million (6 percent of total imports of goods and services)about 60 Percent of which are met from tho TJ.S.S.R. and the prices on theseremained unchanged till recently. The bilateral agreement which includedprovisions for the sale of oil to Afghanistan by the U.S.S.R., and for thesale of natural gas to the U.S.S.R. by Afghanistan has, however, now been re-,negotiated. The prices of both oil imports and natural gas exports were ad-justed upwards to reflect more closely-world prices. The price of naturalgas has been raised by about 130 percent while the unit price for oil and oilproducts has increased by over 200 percent, thus implying a deterioration ofthe terms of trade on this account. However, the increase in receipts fromnatural gas exports would roughly offset the expected sharp jump in the costof payments for imports of oil and oil products, and Afghanistan still expectsto maintain a net surplus on these transactions. (The surplus in 1972/73 was$8 million). Even though the rise in oil prices did not have a direct effecton the economy of Afghanistan, there have been fairly important indirecteffects. The rise in fuel costs has led to an increase of about 10 percentin the already high cost of transporting commodities to and from Karachi,reflecting increased transport costs in Pakistan. Currently freight costs
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from Kabul to Hamburg through the U.S.S.R. or Karachi can be anywhere between$70 to $240 per ton. Even more important is the problem created by the risein fertilizer prices particularly as the Government agricultural policy hasbeen encouraging more intensive cultivation and higher yields. The consump-tion of fertilizer in 1973/74 was about 50,000 tons, which is expected to riseat an annual rate of 10-20 percent. Fertilizer imports in 1973/74 reached a80,000-ton level in anticipation of price increases in forthcoming years; withlarge stocks being carried over, fertilizer imports in the current year werearound 26,000 tons. In 1975/76, fertilizer requirements will amount to 80,000tons. A part of this will be met by domestic production from a plant with acapacity of 105,000 tons which has been recently established with U.S.S.R.assistance. The plant is expected to reach capacity production only in 1978but production in 1975/76 could reach 60,000 tons. Since it produces onlyurea, other fertilizer needs, notably DAP (comprising approximately one-thirdof current needs) will still have to be imported. It is likely that part offertilizer requirements (mainly DAP) during 1975/76, would be financed, as inthe past, by USAID.
3.7 The impact of increases in international prices has been cushionedin the case of Afghanistan by an appreciation of the Afghani versus the U.S.dollar of more than 30 percent in the past two years (the reasons for theappreciation are discussed in Annex C below). In addition, the good agricul-tural crops of the past three years have resulted in declines in the pricesof cereals and other agricultural commodities. As a result, the nationalprice index (which gives a 90 percent weight to food, and a 58 percent weightto cereals alone) which increased by 50 percent in 1970/71 and 1971/72, de-clined by about 15 percent in 1972/73 and 8 percent ir 1973/74. The recentrise in international prices has affected Afghanistan in a number of ways.On the one hand the rise in prices has inflated the import bill adding a newburden to the balance of payments. This is especially apparent with sugar,imports of which account for four-fifths of total domestic consumption. Onthe other hand, the rise in international prices has encouraged domestic im-port substitution and has to large extent more than offset the impact of theappreciation in the exchange rate. This effect is most visible in textileswhere capacity utilization has increased from about 40 percent to around 80percent. The production of cement, shoes, mosaic and sugar has also beenfavorably influenced.
(1) Agriculture
3.8 The importance of agriculture in the economy of Afghanistan, and alsothe heavy dependence of crop production on the level of precipitation, is clearlyevidenced by the outcomes of the last few years. But the speed of recovery ofproduction in the last two years also reflects the effects of some structuralchanges that have been going on in recent years as a result of increased gov-ernment investment in agriculture. The most important of these are the in-creasing use of fertilizers and improved seeds (as a result of the Governmentpolicy of providing these at subsidized prices and on easy credit terms);modest improvement and expansion of irrigation; improvements in pricing pol-icies and marketing arrangements, particularly for cotton; and improvementsin the quality of extension services.
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3.9 There were heavy animal losses, particularly of sheep, during thedrought years, and it seems that it will be several more years before live- -stock herds will be restored to optimum levels. Flocks of sheep and goatsperform the extremely important function of converting millions of hectaresof rough natural pastures into food supplies, export products, and raw mater-ials for industrial production. The two most important ways to increase pro-duction are to control diseases and parasites and to improve nutrition. Dis-ease and parasite control is made difficult by the migratory characteristicsof flocks. The provision of feed in years of drought presents the problem ofcompetition with humans for a limited supply of edible crops.
3.10 The catastrophic effects of the recent drought years have emphasiz-ed the importance of food self-sufficiency. The agricultural sector, as in-dicated earlier, is critical to the economic development of Afghanistan.Furthermore, there are social welfare reasons for the more rapid developmentof the agricultural sector. Such evidence as is available suggests that therural population is at a considerable disadvantage in most respects in com-parison with the urban population. Services of all kinds, partly as a resultof the physical isolation, are lower in volume and quality. While there maybe no more unemployment, possibly even less, under-employment is probablygreater in rural than in urban areas. A large majority of the rural popula-tion, therefore, seems to live at the bare level of subsistence. In addition,although there is little solid evidence to indicate whether disparities be-tween urban and rural areas are increasing or decreasing, there is cause forconcern that they may be increasing.
3.11 Given appropriate policies, major gains can be made in the agricul-tural sector. Agricultural producers have rapidly adopted new techniques ofproduction as witnessed by the enormous increases in use of fertilizers andimproved seeds. Also, an increase in the price of cotton relative to that ofwheat has resulted in a substantial increase in cotton production, albeit fromdepressed levels in the past two years, reflecting a strong responsiveness ofcrop production to market incentives.
3.12 The new Republican Government is undertaking some programs designedto benefit the masses of the rural population to a greater extent. It hasamong its policy objectives a land reform program which could benefit smalltenant farmers and peasants; the absence of a cadastral survey 1/ and otheradministrative and political difficulties, however, make it difficult toassume that there will be major changes in the near future.
3.13 As an explicit reflection of its concern for the rural masses theGovernment re-established in 1974 a rural Development Department in the PrimeMinistry. The new regulations of the Department state that the basic aim isdevelopment of all sectors of rural areas through economic and social programs
1/ A cadastral survey with USAID financing was started several years agobut as yet only about 35 percent of the land has been surveyed.
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for the benefit and up-grading of the standards of rural life. To encouragelocal initiative and participation, the regulations also provide for provin-cial committees under the chairmanship of the Governor and including repre-sentatives of each Ministry in each province, administrative heads of provin-cial sub-divisions, and a representative of the people chosen by the governor.There are completed designs for about 150 rural works projects throughout thecountry of which only six are under construction, principally because of ascarcity of technical expertise and skilled personnel. In each of the lastthree years, only between one-third and one-half of the funds budgeted were
actually spent and it appears that the outcome for 1974/75 will be similarin nature.
3.14 Obviously, improvements in the standard of living of the ruralmasses require improvements in agricultural productivity. The recent IBRDAgricultural Sector Review Mission indicates a number of measures that couldbe taken to significantly increase agricultural production. In order forAfghanistan to be self-sufficient in food grains, one of the objectives of theRepublican Government, use of fertilizers and improved seeds would have to
continue to be extended. Also, there would have to be more effective use of
surface and groundwater resources through the development of one or morelarge-scale projects, while continuing the medium and small scale projectsthat are currently under way.
3.15 The expansion of output of the major cash crops--cotton, sugar
beets, fruits and nuts--will also require increased availability of water andfertilizers and in addition in the case of fruits and nuts improvements invariety and protection from pests. With these measures, annual cotton outputcould increase considerably and this would require installation of additionalcotton gins and oil extraction aad refining facilities. Fresh grapes andraisins are the largest foreign exchange earners; cold storage facilities arerequired to make possible the spacing of fresh grape shipments, and newgrading, cleaning, and packing plants, are required for the handling of
raisins.
3.16 It is estimated that improvements in nutrition, and in the controlof diseases and parasites, would each have the potential for increasing meatproduction by as much as 20 percent; since these effects are more than addi-tive there might be an increase of as much as 45% in meat production when theproposed measures become fully effective. A reasonable goal might be a 15percent increase in production in the next five years, in addition to thegains accruing from the recovery of flocks after the drought.
3.17 Increases in agricultural output are, thus, not only necessary for
the economic development of Afghanistan, but they are also attainable. Theseincreases would reduce the vulnerability of the economy to climatic conditionsand also improve the standard of living of the rural masses.
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(2) Industry and Mining
3.18 The industry and mining sector is dominated by government enter-prises (including electric power generation) which it is estimated account forapproximately three-quarters of total investment. Prior to 1967, private in-dustrial investment in Afghanistan was limited to a few relatively large-scaleenterprises particularly textiles, but with the enactment of the Foreign andDomestic Private Investment Law in that year, a number of small scale enter-prises have come into operation such as rayon textiles, tanning and leatherprocessing, plastic, metal and wooden furniture, pharmaceuticals, etc.
(a) Public Sector
3.19 The amount of funds currently invested in public enterprises inAfghanistan is not known. According to estimates made in 1972/73, there wereabout 60 public enterprises accounting for a total investment of Afs. 20 bil-lion. Included in this number were approximately 50 industrial enterpriseswith a total investment in the range of Afs. 6-10 billion.
3.20 A number of these enterprises are inactive, and some of them havebeen inactive for a number of years. Of those enterprises which are activesome, including some of the larger enterprises, operate at low capacity util-ization levels. Data are not available, however, to provide quantificationeven in broad terms for unutilized and under-utilized capacities. But, pub-lic enterprises as a group make only a very small contribution to total publicsector revenues, and provide a negligible, if any, rate of return on pastcapital investments.
3.21 Studies undertaken in the past have identified a number of factorswhich have been responsible for fhe low efficiency levels of public enter-prises. Included among these are: (a) the inadequate demarcation of respons-ibilities between responsible Ministers and operating managers so that managersneed to clear even day-to-day commercial decisions with their Ministers; (b) acorollary of the lack of authority of managers is their lack of accountability-- annual balance sheets are not prepared by many enterprises, and even whenthey are prepared they are sometimes available only with considerable delays;(c) lack of proper qualifications of some managers of enterprises and politicalinterference in their selection; etc.
3.22 The past record, therefore, indicates that there is great scope forimprovement in the performance of public enterprises. Such improvements wouldproduce output increases with minimal additional investment and would also con-stitute-an important source of additional budgetary revenues. For example, a10% rate of return on investment would provide additional revenues of betweenAfs. 600 million and Afs. 1,000 million.
3.23 The Government is aware of the short-comings of public enterprisesand is considering a new draft law on public enterprises in order to elimi-nate some of the structural constraints on their improved performance. Inaddition, with the assistance of ILO experts, new procedures for developingand training management personnel are being applied on a pilot basis to asmall number of public enterprises. Efforts in this direction deserve to bestrengthened and accelerated.
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(b) Private Sector
3.24 The growtlh of the private industrial sector will be an importantelement in the future development of Afghanistan; a prerequisite for the dev-elopment of alternative and more stable sources of export earnings, a moreeconomical use of her primary products and natural resources, as well as ameans of creating the much needed changes in the socio-economic environment,notably in business practices and attitudes. Although the small size of thedomestic market with its isolated communities and large nomadic populationact as constraints to domestic industrialization, given an appropriate envi-ronment the potentials for future growth of the industrial sector could never-theless be fairly encouraging. There are at present several factors whichlead to a favorable assessment of the growth potential of the private sector.
3.25 The reform of the tariff structure to a system of graduated tariffsrising with the degree of fabrication has removed many of the anomalies ofthe previous system, as a resu' most domestic import substituting industriesare benefiting from positive rates of effective protection in addition to thenatural protection which the market benefits from because of the high costsof importation of commodities into Afghanistan. At the same time the highrates of inflation in the industrialized countries have provided a strong in-centive towards domestic production of certain commodities. This effect ismost visible, as already noted, in textiles where capacity utilization hasincreased from about 40 to 80 percent, other industries to benefit in thisway have been sugar, shoes, mosaic, fertilizers and cement. The establishmentof the Industrial Development Bank of Afghanistan has provided a new sourceof specialist long-term finance for newq industrial projects though it has yetto have an impact on industrial development. Finally Afghanistan's presentraw material base provides many hitherto unexploited opportunities for theprocessing of and hence increasing the value added to the country primaryexports e.g. skins, fruits, while the newly discovered sources of mineralwealth offer good prospects for the future.
3.26 However, a number of important factors are still hindering thefull realization of these potentials. Firstly, there is a need to restorepublic confidence in the government economic policies and a sense of mutualtrust be forged between the public and private sector. An important elementin this respect will be the need for the government to set out explicitly therole to be played by the private sector, and the domain in which it is tooperate. One of the adverse effects of this mistrust has been the desireby the business community to disclose as little information as possible,which has limited their access to bank financing and encouraged the continueduse of the bazaar market with its high rates of interest. Secondly, through-out the past there has been little conscious effort to coordinate commercialpolicy and industrial policy. The revision of the tariff schedules is a stepin the appropriate direction, but other anomalies still persist. The sharpappreciation of the Afghani in recent years (over 30 percent in two years)itself a function of special factors such as the unofficial re-export trade
into Pakistan, could act as a severe disincentive to future industrial growth.
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The barter agreements with neighboring countries have at times discouragedlocal production through allowing imports at prices below those ruling atinternational markets, e.g. soap from the U.S.S.R. Finally, the smugglingtrade while beneficial in offcring competition to local producers, caTn alsube disruptive by discouraging the establishment of infant industries whichmay through time and experience be able to compete with inmported commodities.
3.27 In June 1974 a revised Foreign and Domestic Private Investment Lawwas passed, as a result of which the criteria for approval of licenses weremade more coniprehensive and precise, the time limit on duty free importsremoved, clauses relating to use of local supplies and auditing strengthenedand greater incentives offered to projects located outside Kabul. The lawhowever incorporates a number of unfortunate features. Much stress is placedon the notion of "guidance" and "control" of private investment which couldattract attention to these activities rather than promotion and assistance.The tinme limit on duty free imports has been abolished but instead an annualreview procedure has been introduced which could greatly add to businessuncertainty. Other unfavorable features include less attractive financialincentives, a ban on majority foreign ownership of firms and the retroactivenature of the law which could be damaging to existing enterprises operatingunder the old law.
3.28 It appears from the above analysis that while the Government duringa relatively short period made a beginning in stimulating industrial develop-ment there are certain facets e.g. the mobilization of private enterprise andthe development of a coordinated policy framework, that could receive moreattention.
B. Planning
3.29 Development planning has formally existed in Afghanistan since themid-fifties. The First Five Year Plan (1955/56-1960/61), as did the SecondPlan (1961/62-1966/67), emphasized investments in transport and communicationswhich reflected the importance attached to geographical unification and thelinking of Afghanistan with its neighboring countries. Other infrastructureprojects initiated in this period were in power generation, and in agriculturewhere the emphasis was on large-scale irrigation and land reclamation schemessuch as the Helmand Valley.
3.30 The Third Plan (1967/68-1971/72) shifted the emphasis of investmentexpenditures away from infrastructure and towards directly productive projectsin agriculture and industry. This emphasis was expected also to lead to anexpansion of private investment in agriculture, livestock and industry, and agreater generation of domestic savings - objectives which were not realized.
3.31 The Draft Fourth Plan (1972/73-1976/77) was prepared in 1972 andearly 1973 but had not been approved by Parliament when the change of govern-ment took place in July 1973. This Plan was similar to the Third Plan inthat it placed emphasis on investment in directly productive projects and onits financing by greatly increased government revenues.
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3.32 The Fourth Plan is not now an official basis for planning. In theinterest of flexibility in planning and to permit for the continuous revisionof targets, the concept of annual investment programs has been adopted whichit is expected will eventually be considered in the framework of long-termindicative plans. Work on such a long-term perspective plan has not yetstarted.
3.33 In the First Plan period, actual development expenditures amountedto Afs 10.6 billion; they increased to Afs 25.3 billion in the Second Planbut declined to Afs 19.0 billion in the Third Plan both because of the lackof major new projects and of a decline in availability of external financing.
3.34 As indicated above, there was a shift in the sectoral allocation ofinvestment between the Second and Third Plans. In the Second Plan, the trans-port and communications sector was allocated 39 percent, and agriculture andirrigation 18 percent of total investment; in the Third Plan 31 percent oftotal investment was allocated to transport and communications and 35 percentto agriculture and irrigation. In the Draft Fourth Plan, these two sectorswere to have received 37 percent and 40 percent respectively of total invest-ment resources. (See Table 1).
3.35 The bulk of the financing of the development Plans has been providedby external sources: in the Second Plan period, 76 percent of total develop-ment expenditures was financed by external loans and grants; in the ThirdPlan period this figure had declined to 72 percent and the Draft Fourth Planenvisaged its maintenance at approximately the same level. In the Third Plan,domestic resources for the financing of development (28 percent) were providedby borrowing from the Central bank (17 percent) and by the surplus in theordinary budget (11 percent).
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Table 1: Sectoral Distribution of Public Investment /1
/9 1972/73-First Plan Second Plan Third Plan Fourth Plan'L- 1974/75 /3Bill. Bill. Bill. Bill. Bill.Afs. % Afs. % Afs. % Afs. % Afs. %
Agriculture andirrigation 1.20 12.8 4.40 17.8 6.63 34.9 10.81 40.2 4.19 33.8
Mines, industryand energy 2.60 27.8 8.40 34.1 5.85 30.8 9.80 36.5 4.49 36.2
Transport andcommunications 5.04 53.9 9.60 38.9 3.38 17.8 2.89 10.3 1.64 13.2
Social servicesand other 0.51 5.5 2.25 8.2 3.16 16.6 3.37 12.5 2.09 16.8
Total 9.35 100 24.65 100 19.02 100 26.87 100 12.41 100
/1 Private investment is estimated at 1.00 billion Afs. in the First Plan,0.36 billion Afs. in the Second Plan and 1.7 billion Afs. in the ThirdPlan.
/2 Proposed. The figures for the First, Second and Third Plan are actuals./3 The sum of actual expenditures for 1972/73, revised estimates for 1973/74
and 1974/75.
Source: Ministry of Planning and Ministry of Finance.
3.36 Development planning in-Afghanistan has suffered from a number ofweaknesses. First, the major emphasis of planning has been on the formula-tion of five year public investment programs which were little more than acollection of projects and did not reflect a clearly perceived developmentstrategy. Second, little attention was given to the creation of the institu-tional foundation for effective planning, e.g., there did not exist strongwell staffed planning units in the operating ministries which could coordinateeffectively, with the Ministry of Planning as well as ensure that the projectsselected for implementation by the ministries reflected sector priorities andwere economically sound. Further, projects included in the Plans often didnot have suitable feasibility studies and schedule for implementation andconsequently were not taken up. At the same time projects not in the planswere carried out if associated with an offer of assistance. Thirdly, theplans wqre not kept under annual review to take account of progress in imple-mentation and changed domestic and international conditions, and graduallywere increasingly ignored by the annual budgets. Finally, the public invest-ment program of the Plans was not complemented by a framework of policies -monetary, fiscal, balance of payments, or sectoral - for supporting and in-ducing growth.
3.37 A beginning has been made to reform and strengthen the planningframework. A small secretariat to the High Economic Council of the Cabinet
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has been established in the Prime Minister's Office. The tMnistry of Plan-ning has been reorganized and strengthened. Some preparatory work on develop-ing a perspective plan frame has been initiated in the Ministry of Planning.Attention has been given to strengthening the project formulation and apprai-sal and monitoring mechanism. A new cell in the Ministry of Planning ischarged with developing standard guidelines for use of the operating minis-tries and elsewhere in the Government. Three manuals are being prepared withthis objective -- a manual for project evaluation, a manual for project imple-mentation monitoring, and a manual for preparing sector plans and programsfor use by the operating ministries. It is hoped that the manuals would re-sult in some uniformity of standards and procedures and reduce the element ofarbitrariness in project selection and implementation. The reorganizationaims to improve the Ministry of Planning's capability to re-evaluate projectssubmitted by the operating Ministries by creating separate departments staff-ed with technical experts for each major sector. Attention is also given totraining the Afghan personnel in the Ministry. A department for training hasbeen established and a start made with training courses to be given by theUnited Nations? Development In'-itute, Bangkok. It would be premature to at-tempt to judge the effectiveness of these measures which are certainly alongthe right lines.
C. Public Finance and Monetary Development
3.38 As should be evident from the preceding paragraphs, the CentralGovernment plays a dominant role in the Afghan economy. Not only is the Gov-ernment the single largest source of investment expenditures, but the re-course of the Government to Da Afghanistan Bank (the central bank) for financ-ing of budgetary deficits plays an important role in determining changes inthe domestic price level and in the exchange rate (a possible exception tothis are the past fifteen months).
Budgetary Accounts, 1968/69-1975/76(millions of Afghanis)
1968/ 1969/ 1970/ 1971/ 1972/ 1973/ 197 / 1975/69 70 71 72 73 74 75- 76.
Budgetary revenue 4,465 5,085 5,713 5,821 6,111 7,017 9,200 12,152Less: Ordinary expenditure 4,254 4,732 5,156 5,450 5,699 6,531 7,250 9,855
Equals: Surplus in ord. budget 210 352 557 371 452 486 1,950 2,297Less: Development expenditure 4,094 3,945 2,981 3,277 4,287 3,571 4,060 9,321
Equals: Budgetary deficit 3,884 3,593 2,424 2,906 3,835 3,085 2,L110 7,024
Financed: Project aid 2,274 2,025 1,250 1,360 1,900 1,585 1,810 5,176Commodity aid 1,018 479 628 929 1,250 622 600 1,048Domestic financing 592 1,089 546 617 685 878 -300 800
/a Revised estimate./b Budget.
Sources: Information received from Ministry of Fi,nance and Ministry of Planning.
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3.39 In the period 1968/69-1972/73, budgetary revenues increased at anaverage annual rate of 9.0 percent, and ordinary expenditures about 8.3 per-cent a year. The ordinary budget, thus, has been consistently in surplusthroughout the period. Indirect taxes have accounted for 49 percent, anddirect taxes for only 8 percent, of total revenue. Surplus from monopoliesand government industrial enterprises contributed about 18 percent of totalrevenue and gas exports another 11 percent. The small portion of budgetaryrevenue provided by direct taxes reflects the fact that agricultural income,which accounts for about 50 percent of total income, is largely untaxed.Other factors accounting for the relatively slow growth of total revenues areinefficiencies in the administration and collection of revenues from existingtaxes; poor performance of government enterprises (see paragraphs 3.19 to3.23 above); and limited measures to develop additional revenue sources. Thebudget for 1974/75 proposed to raise major additional amounts of revenuesthrough improvements in administration of existing taxes, through upward re-vision of land taxes, and through the re-introduction of livestock taxes. Im-provements in tax administration resulted in increased revenues from incomeand corporate taxes in 1973/74, and some further revenues from this sourcewere available in 1974/75, thus establishing a new and higher revenue base.Because of political and administrative difficulties the major proposed re-forms in land and livestock taxes were not undertaken in 1974/75, but it isproposed in the 1975/76 budget that efforts will continue to be made to raiseadditional revenues from these sources. Improvements in the efficiency ofoperation of public industrial enterprises could, in addition, yield betweenAfs. 600 and 1,000 million of additional revenues a year (paragraph 3.22).
3.40 The slow increase in total ordinary expenditures is largely attri-butable to the fact that the ordinary expenditures of ministries increased ata very small rate. While foreign debt service payments increased by over70 percent, and exchange and other subsidies and grants by 90 percent, be-tween 1968/69 and 1972/73, the ordinary expenditures of ministries increasedby only 18 percent largely because of the almost total freeze in the salariesof civil servants since 1964. The current low level of salaries of civilservants is now generally acknowledged to be a significant barrier to thehiring of staff and to their development of experience required for a higherlevel of efficiency of government operations, and also to be a factor that hascontributed to the corruption of the civil service. It, therefore, seems essen-tial that adjustments of civil service salaries and changes in career advance-ment possibilities be made an integral part of any administrative reforms thatare being considered. The budget for 1975/76 does not provide for a generalsalary increase, but does provide increased fringe benefits to civil servants.
3.41 Total development expenditures declined by about 27 percent between1968/69 and 1971/72, but in 1972/73 they returned to approximately the 1968/69level. The budget for 1975/76 proposes a 130% increase in development expend-itures over the level attained in 1974/75. Development expenditures in thisperiod have generally fallen below planned levels both because of difficultiesin project preparation and implementation and shortages, on occasion, of ex-ternal assistance.
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3.42 About 80 percent of the deficit in the total budget during 1968/69and 1973/74 was covered by external assistance -- commodity and project aid --and the remainder by government borrowing from Da Afghanistan Bank. In 1974/75,external assistance was Afs. 300 million above the budgetary deficit thus per-mitting a decrease of the same amount in net domestic borrowing.
3.43 Government borrowing from Da Afghanistan Bank is the major source ofadditional domestic liquidity. Currency in circulation represented approxi-mately 66 percent, and deposits (demand, time and savings, and foreign cur-rency) only 34 percent of total domestic liquidity during 1968/69 to 1973/74.The low ratio of deposits to domestic liquidity is an indicator of the limiteddevelopment of financial sector of Afghanistan.
3.44 There are a number of factors which account for the present stageof development of the financial sector, including: (a) the dual role -- cen-tral bank and commercial bank -- of Da Afghanistan Bank; (b) absence of com-mercial banking law providing security for bank loans; (c) absence of legalbasis for development of financial instruments such as checks and negotiablesecurities; (d) recent economic integration of country and lack of popularconfidence in banking system. A new banking law was promulgated on May 31,1975; its detailed provisions are currently unavailable but seems to be in-tended towards the Government assuming ownership of the two privately ownedbanks, the Bank Mellie and the Industrial Development Bank. The new bankinglaw also seems intended to separating the central and commercial banking func-tions as well as increasing the regulatory and supervisory powers, of DaAfghanistan Bank.
3.45 The Government is currently considering other draft laws to reformthe financial sector. But so faD, only limited efforts have been made to im-prove the mechanism for financial planning, or in other words to establish alink between the development plan and its financial implications and the re-quirements for domestic and external resource mobilization.
D. Balance of Payments, External Aid, and External Debt -/
3.46 Any attempt to analyze the balance of payments of Afghanistan hasto be made with an awareness of the special factors relating to the usefulnessof these accounts. First, due to the fragmentary and non-standardized form ofdata available from a number of different sources, the estimation of Afghanistan'sbalance of payments faces difficulty. Second, even if a more consistent set offigures were available these could not be interpreted in the usual ways since alarge proportion of foreign trade (estimates range between 20 percent and 40 per-cent) is unofficial and hence would not be reflected in official statistics.Third, although the more conventional factors such as the level of domestic ac-tivity, relative prices, and commercial policy all play their respective roles,a number of additional special factors -- "re-export" trade with Pakistan andhigh proportion of imports (over 30 percent) financed by loans and grants --play an important role in the determination of net external reserves and of the
1/ For a more extensive discussion see Annex C.
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exchange rate. Finally, estimates suggest that between 50 and 65 percent ofall trade (including part of the unofficial trade) is financed through theKabul money bazaar, and as a result demand and supply factors determines thefree exchange rate; the official rate has ranged within one Afghani per USdollar of this freely determined, bazaar rate.
3.47 The discussion which follows is based on the available officialstatistics. Exports increased by about 16 percent in 1972/73, by another31 percent in 1973/74 and are estimated to show a similar increase in 1974/75.The increase reflects mainly price increases (dry fruits, cotton, carpets andrugs, and natural gas) but volume increases also contributed. Recently therehas been a weakening of some export prices (mainly cotton) resulting from eco-nomic difficulties in the developed countries. Imports increased by 15 per-cent between 1971/72 and 1973/74 but are estimated to have increased by another26 percent in 1974/75 again to a large extent due to price increases. Thus,the current account deficit in 1974/75 is estimated to be $35 million. Therehas been an increase in loan and grant financed imports from $53 million in1971/72 to $69 million in 1973/74 reflecting increased disbursement of externalaid.
3.48 Export projections for the years 1973/74-1979/80 are based on theassumption that the favorable price increases of the past two years forAfghanistan's major exports will either be reversed or moderated. The totalvalue of export however, is expected to rise at about 11 percent per annumas a result of an expected three-fold increase in the volume of cotton ex-ports as well as some export diversification mainly through the processingof traditional exports. Cotton exports in 1973/74 declined despite an eightypercent increase in cotton production reflecting substantial stockpiling. Theexpected rapid increase in cotton exports is therefore projected from a lowbase year. In the case of imports, a large increase in the value of food im-ports is expected initially reflecting the recent rise in international sugarand tea prices. Imports will continue to rise reflecting rising internationalprices, a growing need to import intermediary goods and the anticipated rapidincrease in loan and grant related imports. As regard the effects of the risein oil prices, projections are based on the assumption that the price at whichoil is purchased from the U.S.S.R. will remain unchanged at the recently adjust-ed levels. Given the surplus that Afghanistan has on its sales of gas for oil,the relative price of gas would have to deteriorate substantially to have anadverse effect on the balance of payments.
3.49 There has been a very large appreciation of the exchange rate --the value of the Afghani has increased by 31 percent as compared to the aver-age during 1972/73. The exchange rate for the dollar is for all intents andpurposes freely determined in the "money bazaar" and the official exchangerate is set at about one Afghani above the bazaar rate. The market is quitethin and influenced primarily by the currency requirements of the unofficialre-export trade, mainly to Pakistan. In the last year there seems to havebeen a fairly sharp reduction of this trade both for political and economicreasons. The appreciation of the exchange rate has tended to discouragetraditional exports (carpets and Karakul) and may also affect adversely dev-elopment of import substituting industries. The Government is intervening inthe market in an effort to bring down the Afghani/dollar rate.
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3.50 Afghanistan has made a successful beginning in mobilizing externalaid from the oil rich Mliddle Eastern countries. At present there are firmcommitments of grants of $10 million each from Iran and Saudi Arabia and $2million from Iraq for feasibility studies with an understanding that theresulting sound projects would also be eligible for finance. In the case ofIran, a number of potential programs have been discussed notably, the develop-ment of the Helmand Region, establishment of a cement factory, wool and cottontextile plants, sugar factories, the establishment of an export promotion bankand finally a technical cooperation program in meat and food production. Be-sides $10 million in grants for feasibility studies Saudi Arabia has alsoagreed to an interest-free loan of $55 million to be used for the Harirod ir-rigation project. Kuwait has agreed to finance feasibility studies but withno specific financial commitment. No precise figures can be given for thecommitments for project aid that may eventually result from these offers.Recently an economic cooperation agreement with the USSR has been concluded,making available about $400 million for the financing of Afghanistan's futuredevelopment program. The agreement is believed to cover agriculture, oil,gas, irrigation and power, and food and consumer goods industries. In addi-tion another $100 million equivalent has been made available through the re-scheduling of repayments on existing debt. Finally Bulgaria has signed anagreement to provide $10 million for a number of projects in the agriculturaland food processing sectors, and the Peoples Republic of China has committed$55 million in an interest free loan for financing of, as yet, unspecifieddevelopment projects. Disbursements from the large volume of aid commitmentsare expected to be slow during the next few years as projects are studied andprepared for implementation. In view of the country's current debt burden,its extreme poverty and its stage of development, Afghanistan does not, andis unlikely to have in the foreseeable future, the capacity for sustainingexternal borrowing on conventional terms and will therefore require substan-tial capital inflow on concessionary terms.
3.51 As of March 20, 1974, Afghanistan's external debt amounted to $973.4million of which $727.0 million was disbursed. Of the undisbursed amount of$246.4 million, $166.3 million is the uncommitted part of the frame agreementwith the USSR. The major creditors are the USSR (71.9 percent of outstandingdebt) and the USA (10.2 percent) and the Federal Republic of Germany (7.5 per-cent). The People's Republic of China, a relatively new creditor, holds 2.4percent of the loans. Loans from governments account for 98 percent ofall disbursed external public debt. Afghanistan concluded in July 1972, anagreement with the USSR to reschedule $30.2 million of some $152.4 million indebt service obligations due to existing debt during the period 1972/73-1976/77.In addition, in early 1973 the USSR agreed to convert some $16.5 million ofloan commitments into grants. In 1974 agreement was reached on the resched-uling of another $100 million of debt obligation.
3.52 The relatively favorable balance of payments situation during thepast two years resulting from favorable export trend, improved self-sufficien-cy in food grains, reversal of the trend of declining aid and the respite fromthe impact of the international oil price rise because of the special relationswith the USSR, together with the rescheduling of a part of servicing debt withthe USSR and the increased commitments of aid, helped to reduce the burden of
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debt service which had caused a crisis in the drought years. The presentdebt service ratio is about 18 percent and is expected to decline consider-ably in the next five years.
3.53 Afghanistan, however, still remains very vulnerable on the balanceof payments. The favorable export performance partly reflected favorableprice trends for traditional agricultural exports (dry fruits, carpets andrugs) and the emergence of cotton as an important new export at a time wheninternational prices were very high, and increase in exports of natural gas.However, price trends have already turned less favorable and the terms oftrade are anticipated to worsen with continuing rise in prices of imports.Further, the bulk of exports are agricultural, and are dependent on theweather.
3.54 Consequently, the Government has to continue to carefully study andplan for a structurally more sound and stable balance of payments. To theextent agricultural output is made less vulnerable to the weather, the im-plications for exports would be good. MIore directly, measures to increaseimport substitution in both agricultural and mass consumption manufactureshave high priority, and make sense given the high "natural" protection in theshape of high transport costs in money and in time. The Government has plansfor a major investment in sugar production to substitute for imports, whichat present absorb a sixth of the country's convertible exchange earnings.Another major import, fertilizers, is essential for planned increase in agri-cultural production. The present level of consumption would require a sub-stantial part of the convertible exchange earnings of the country. Recently,a plant producing urea has started production. In the longer term, the Gov-ernment also pins hopes on the export of minerals like copper and iron ore ascontributing to the balance of payments. In the more immediate future, how-ever, the production of consumer goods for domestic use in small and mediumprivate sector industry also offers more scope.
ANNEX APage 1 of 8
PUBLIC FINANCE
Introduction
1. The Central Government plays a dominant role in the economic develop-ment of Afghanistan. Not only is the Government the single largest source ofinvestment expenditures, but the recourse of the Government to Da AfghanistanBank (the central bank) for financing of budgetary deficits also is the prin-cipal determinant of changes in the money supply. With the possible exceptionof the past 15 months, the size of the budgetary deficit has thus also playedan important role in determining changes in the domestic price level and inthe exchange rate.
2. The State budget of Afghanistan consists of three principal parts:
(a) Budgetary Revenues which include revenues from all sources,excluding project aid -- direct and indirect taxes; revenuefrom monopolies and other public enterprises; revenue fromthe sale of government property and services (including thesale of natural gas); and other miscellaneous revenue sourcesincluding licences, fees, and fines.
(b) Ordinary Expenditures which include the current expenditureof Ministries; exchange and other subsidies and grants; andforeign debt service payments;
(c) Development expenditures, except those for projects financedby external assistance.
3. Budgetary expenditures -- ordinary and development -- are financedby domestic revenues; revenues from the sale of commodities financed by ex-ternal assistance (commodity aid); and by borrowing from the banking systemwhich is the amount uncovered by the other two items. Accordingly, theexpansion of the money supply is largely a passive response to governmentborrowing from Da Afghanistan Bank to cover budget deficits.
Trends in Budgetary Accounts 1968/69 - 1973/74
4. In the period 1968/69 -1973/74, as can be seen in Table 5.1 in thestatistlical appendix, budgetary revenues increased from Afs. 4.5 billion in1968/69 to Afs. 6.1 billion in 1972/73, or at an annual average rate of 9.0percent. In the same period, ordinary expenditures increased from Afs. 4.3billion in 1968/69 to Afs. 5.7 billion in 1972/73, or at an annual averagerate of about 6.8 percent. The ordinary budget has thus consistently been in
ANNEX APage 2 of 8
surplus throughout the period. Budgetary development expenditures fluctuatedaround a level of Afs. 1.8 billion in the period 1968/69 - 1972/73. 1/ Total de-creased to Afs. 2.4 billion in 1972/73. Project aid expenditures declinedfrom Afs. 2.3 billion in 1968/69 to Afs. 1.9 billion in 1972/73. Total de-velopment expenditures declined from Afs. 4.1 billion in 1968/69 to aboutAfs. 3.0 billion in 1970/71 but in 1972/73 they returned to approximately the1968/69 level. About 79 percent of the deficit in the overall budget wascovered by external assistance -- commodity and project aid -- and the re-mainder by government borrowing from Da Afghanistan Bank.
5. Between 1972/73 and 1973/74, budgetary revenues increased from Afs.6.1 billion to Afs. 7.0 billion, that is by 15 percent or at about twice theaverage rate in the period 1968/69-1972/73. Ordinary expenditures increasedfrom Afs. 5.7 billion in 1972/73 to Afs. 6.5 billion in 1973/74, or by 15.8percent. The surplus in the ordinary budget in 1973/74 amounted to Afs. 486million and was 7.5 percent higher than the surplus in 1972/73. Total dev-elopment expenditures in 1973/74 amounted to about Afs. 3.6 billion, or adecline of Afs. 716 million from the level in 1972/73; there was, however, adecline in budgetary development expenditures from Afs. 2.4 billion in 1972/73to Afs. 2.0 billion in 1973/74 and also a decline in project aid expendituresfrom Afs. 1.9 billion to Afs. 1.6 billion. In 1973/74, about 72 percent ofthe budgetary deficit was financed by external assistance, and the remainingamount of Afs. 989 million (as compared with the budget estimate for thatyear of Afs. 880 million, and the actual amount of Afs. 685 million in 1972/73) was domestically financed mainly by borrowing from the banking system.
Trends in Budgetary Revenues
6. In the period 1968/69 - 1972/73, revenues from indirect taxes haveaveraged about Afs. 2.7 billion and have accounted for 49 percent of totalrevenues. On the other hand, direct taxes have represented on average onlya little over 8 percent of total revenue. The small portion of budgetaryrevenue provided by direct taxes reflects the fact that agricultural income,which accounts for about 50 percent of total income, is largely outside thetax base; land taxes provided only Afs. 84 million in revenues in 1973/74,and the livestock tax which had provided revenues of Afs. 88 million in 1964/65, was abolished in 1966 but was supposed to be reinstated in 1974/75 al-though no action was taken on it. The major measures undertaken in the period1968/69 - 1972/73 to increase revenues from direct taxes were a revision ofthe income tax structure in 1970 and the elimination in 1973 of certain taxcredits enjoyed by corporations. Nevertheless, revenues from those directtaxes which were in force did not increase rapidly both because of the slowgrowth of the economy in the period and of inefficiencies in tax administra-tion and revenue collection.
1/ Project aid in 1972/73 - 1973/74 is converted at the IMIF exchange rateof Afs 45 = $1 and hence is understated.
ANNEX APage 3 of 8
7. Indirect taxes have been the major source of budgetary revenues.These are principally revenues raised in connection with foreign trade andother international transactions. During the period, import duties on speci-fied groups of commodities have been raised both in 1969/70 and 1972/73. Amajor reason, however, for the large volume of revenues raised from thissource has been the long experience which the country has had with this formof taxation combined with the relative case of its administration. It isunlikely that in future indirect taxes can be relied on to be the principalsource of the increased budgetary revenues that would be required for morerapid economic development.
8. Revenue from monopolies and government industrial enterprises de-clined from Afs. 1,008 billion in 1968/69 to Afs. 928 million in 1972/73;on average, these revenues have represented about 18 percent of budgetaryrevenues. The bulk of these revenues have been provided by the two majorgovernment monopolies -- Sugar and Petroleum. Revenues from governmrent in-dustrial enterprises have declined from Afs. 171 million in 1968/69 to Afs.23 million in 1972/73. It is not known what the total amount of capitalinvestment in government industrial enterprises has been; estimates are thattotal investment has been in the range of Afs. 6-10 billion. Clearly, therevenues arising from such a large investment are inadequate and reflect a highlevel of inefficiency; in fact these enterprises represent a drain on thebudget since they receive fairly sizeable subsidies. They, therefore, providea potential source of increased revenues, if major needed reforms are im-plemented.
9. Revenues from gas exports increased from Afs. 429 million in 1968/69 to Afs. 727 million in 1972/73 and represented about 11 percent of totalrevenues in the period. Revenue from other government property and servicesincreased by Afs. 158 million over the period, while revenues from licences,fees, fines and other miscellaneous revenue sources increased by Afs. 216million.
10. The relatively slow growth of total revenues in the period 1968/69 -
1972/73 was, therefore, due to a combination of a number of factors: thelimited tax base for direct taxes; inefficiencies in the administration andcollection of revenues from existing taxes; poor performance of governmentindustrial enterprises; and limited measures to develop additional revenuesources.
11. In 1973/74, according to revised estimates, budgetary revenuesincreased by about Afs. 1 billion (14.8 percent) over the 1972/73 level. Ofthis increase, Afs. 245 million was accounted for by increased revenues fromincome and corporate taxes, partly as a result of revisions in these taxesand partly as a result of improvements in administration, and Afs. 177 millionby improvements in the collection of fees, licenses and fines. Indirect taxesincreased by Afs. 603 million and this was a result of an increase inthe general tax on imports from 4 percent to 6 percent selective increases induties, and of improvements in tax administration and collection. Revenues
ANNEX APage 4 of 8
from monopolies and government industrial enterprises declined by about Afs.193 million, despite increases in the price of gasoline and diesel oil soldby the Petroleum Monopoly and an increase of Afs. 20 million in revenues fromgovernment industrial enterprises, because of a significant decline in thepfofits of the Sugar Monopoly, reflecting the effects of the higher interna-tional prices of sugar. Revenues from the sale of natural gas declined slight-ly from Afs. 727 million in 1972/73 to Afs. 690 million in 1973/74.
Trend of Expenditures
12. Ordinary expenditures increased from Afs. 4.3 billion in 1968/69 toAfs. 5.7 billion in 1972/73 or by 33 percent over the period. While foreigndebt service payments increased from Afs. 601 million in 1968/69 to Afs. 1035million in 1072/73 (over 70 percent) and exchange and other subsidies andgrants increased from Afs. 368 million in 1968/69 to Afs. 721 million (96percent). The ordinary expenditures of Ministries increased by only 18 per-cent, from Afs. 3.3 billion to Afs. 3.9 billion, this increase resultedprincipally from defense, security and educational activities, while therehas been an almost total freeze in the salaries of civil servants since 1964.The current low level of salaries of civil servants is now generally acknowl-edged to be a significant barrier to the hiring of staff (and particularly qual-ified staff), and to their development of experience required for a higherlevel of efficiency of government operations since changing of jobs becomesthe sole legitimate way of increasing one's income. Also, the low level ofsalaries has been a major contributing factor to the corruption which hasexisted in the civil service. It, therefore, seems essential that reformsin civil service salaries and career advancement possibilities be made anintegral part of any administrat-ive reforms that are considered.
13. As has already been indicated earlier, development expendituresdeclined from Afs. 4.1 billion in 1968/69 to Afs. 3.0 billion in 1970/71 andreturned in 1972/73 to approximately the 1968/69 level. Budgetary develop-ment expenditures increased from Afs. 1.8 billion (44 percent of developmentexpenditures) in 1968/69 to Afs. 2.4 billion (57 percent of developmentexpenditures), while project aid expenditures declined from Afs. 2.3 billionin 1968/69 to Afs. 1.4 billion in 1971/72 and recovered slightly to Afs. 1.9billion in 1972/73. The decline in project aid expenditures is in large parta reflection of the unavailability of adequately prepared new projects towhich expenditures of such aid are directly linked.
14. I Revised estimates for 1973/74 indicate that ordinary expendituresincreased by Afs. 872 million (15.4 percent) over the 1972/73 level. Theordinary expenditures of Ministries increased by Afs. 383 million, and 57percent of the increase was accounted for by defense and security expendituresand almost all of the remainder by expenditures on social services. Foreigndebt service payments increased by Afs. 376 million (36 percent) and repre-sented about 22 percent of total ordinary expenditures. Exchange and othersubsidies and grants increased by 16 percent.
ANNEX APage 5 of 8
15. Total development expenditures were substantially below their levelin 1972/73. Budgetary development expenditures, however, declined from Afs.2.4 billion in 1972/73 to about Afs. 2.0 billion in 1973/74 due to an almostcomplete stoppage of all such expenditures for a few months following theestablishment of the Republic in July 1973 and a decline in the financingof the fertilizer distribution program. Project aid expenditures alsodecreased from Afs. 1.9 billion in 1972/73 to Afs. 1.6 billion in 1973/74.
Preliminary Estimate of 1974/75 Outcome and Budget for 1975/76
16. The 1974/75 financial plan, reflected in the State Budget for theyear, had as its objectives "to accelerate economic growth by increasing therate of investment, and to stabilize prices and improve the balance of pay-ments." The plan envisaged total -- both ordinary and development -- govern-ment expenditures of Afs. 12.3 billion which were estimated to be 21.2 percenthigher than the 1973/74 level, and are in fact 21.8 percent higher than thefinal estimate for 1973/74. Ordinary expenditures were expected to accountfor about 60 percent, and development expenditures for 40 percent, of totalexpenditures. The surplus in the ordinary budget was estimated to amount toalmost Afs. 1,000 million, or 20 percent of budgetary revenue.
17. The 1974/75 Plan envisaged a 60 percent increase in revenues fromdirect taxes and only a 6 percent increase in revenues from indirect taxesfrom the level in the 1973/74 budget. The increase in direct tax revenueswas to result from a 412 percent increase in land taxes (from a low base ofabout Afs. 80 million or less than 1 percent of the net income from lands);revival of the livestock tax which was supposed to yield Afs. 100 million;and improvements in collection of taxes from private individuals and companies.The Plan noted that social justice required increased revenues from land andlivestock taxes since vast government investments in recent years had playeda major role in increasing agricultural output; social justice was also givenas a determinant of the projected small increase in revenues from indirecttaxes. Income from monopolies and government enterprises was expected toincrease by Afs. 600 million, with only Afs. 80 million being increasedrevenues from government industrial enterprises.
18. As has been noted earlier in this report, the Government as part ofits social welfare measures, provides direct or indirect subsidies for theimport and consumption of sugar, textiles, vegetables oil, and paper prod-ucts. This policy was continued. Increases in international prices wereestimated to increase claims on budgetary resources for this purpose by aboutAfs. 300 million, and it was proposed to increase export duties on commoditiesbenefiting from higher international prices in order to meet at least part ofthe increasing subsidy costs.
19. Budgetary expenditures were expected to amount to 56 percent, andproject aid expenditures to 44 percent, of total development expenditures in
ANNEX APage 6 of 8
1974/75. The overall budgetary deficit was expected to amount to about Afs.4.0 billion, 80 percent of which was to be financed by external project andcommodity assistance. Borrowing from Da Afghanistan Bank was expected toamount to Afs. 800 million.
20. Preliminary data for 1974/75 indicate that revenues in that yearwere about 31 percent higher than in 1973/74 and were also 11 percent higherthan the estimates in the Budget. Revenue from direct taxes increased byAfs. 274 million or 33 percent because of improvements in tax administrationand collection and the end of the five-year tax holiday (provided by thePrivate Investment Law) for some enterprises which resulted in a sharp increasein revenues from personal and corporate income taxes, and despite the factthat the planned reform of the land tax and reintroduction of the livestocktax did not go into effect. Direct tax revenues, however, still accounted foronly about 12 percent of total revenues. Revenues from indirect taxes in-creased by Afs. 1,560 million or 44 percent in 1974/75 and represented 55 per-cent of total revenues. The increase in revernues from indirect taxes was inlarge measure due to improvements in customs collection procedures which wereintroduced in 1974/75 and from the export taxes on cotton, raisins, walnuts,and oilseeds under the tax/subsidy scheme of the same year.
21. Revenue from monopolies and other government enterprises which haddeclined from about Afs. 928 million in 1972/73 to Afs. 735 million in 1973/74remained around the latter level in 1974/75. Almost all the revenue in thiscategory has been accounted for by the surpluses of the Sugar and PetroleumMonopolies. The surplus of the Petroleum Monopoly in 1974/75remained vir-tually unchanged from the level of the previous year since the increase inimport prices of petroleum products was accompanied by increases in domesticprices 1/. The Sugar Monopoly, however, suffered a substantial loss sincethe increased import prices of sugar were only partially offset by increasesin domestic retail prices. 1/ As a result of the increase in the exportprice, proceeds from the sale of natural gas yielded an additional Afs. 210million in 1974/75 and this amount is expected to more than double in 1975/76.
1/ The price of gasoline was raised from Afs. 6 to 8 per liter in March 1974and to Afs. 8.5 in March 1975; diesel oil prices were also increased inMarch 1974 from Afs. 5.5 to Afs. 6.0 and in March 1975 to Afs. 8.0. Theretail price of sugar was raised from Afs. 16 to Afs. 24 per kilo in March1974 and again to Afs. 30 per kilo in March 1975, but still remains wellbelow the import price.
ANNEX APage 7 of 8
22. Ordinary expenditures increased by 11 percent in 1974/75, reflectinga 30 percent increase in toreign debt service and despite only a 3 percentincrease in current expenditure of ministries as a result of strict expendi-ture controls that were imposed. Development expenditures increased fromabout Afs. 3.6 billion in 1973/74 to Afs. 4.1 billion but fell below theplanned level of around Afs. 5.0 billion.
23. The deficit in the overall budget for 1974/75 was much smaller thanprojected and in fact registered a cash surplus of Afs. 300 million. This wasdue to a combination of a number of factors including curtailment of non-essential expenditures; shortfalls in development expenditures; increases inrevenues from indirect taxes; improvements in tax collection and administra-tion; and an increase in external assistance,
24. The major features of the budget for 1975/76 are a projected in-crease of around 32 percent in total revenues as a result of continued in-creases in revenues from direct taxes (including again the proposed reform ofthe land tax and re-introduction of the livestock tax) and indirect taxes,and an increase of around Afs. 1.1 (125 percent) over the estimated level of1974/75 in revenue from the sale of natural gas. Total ordinary expendituresin 1975/76 are projected to increase by about 36 percent over the estimated1974/75 level due mainly to some relaxation of the stringent expenditure con-trols which were in effect last year and increased budgetary claims for sugarsubsidies. There are increased allocations for defence and security, educa-tion, health and some economic services. Although the budget does not providefor a general increase in salaries for civil servants, there will be someincrease in fringe benefits and in subsidies for purchases through cooperativefor essential commodities.
25. The budget forecasts a 130 percent increase in 1975/76 in develop-ment expenditures (the largest single increase being in the allocation tomines, industries, and energy) which would raise them to approximately thesame level for the first time, as budgeted current expenditures. Almost85 percent of the projected total development expenditures of Afs. 9.3 billionis for on-going projects. External project assistance is expected to finance67 percent of total development expenditures. Deficit in ordinary budget willbe about Afs. 2.3 billion (increase of Afs. 347 million over the estimated1974/75 level) and recourse to the banking system is estimated to be Afs. 800million.
Issues in Public Finance
26. The preceding discussion points up the difficulties inherent indomestic resource mobilization in Afghanistan; difficulties which are alsofaced by other developing countries. The Mission is, however, of the viewthat at the present time, improvements in domestic resource mobilization,particularly through the budget are necessary for two reasons. First, reformof public administration is a major requisite for the economic development ofAfghanistan. One element of such a reform would be improvements in the salarystructure and career advancement prospects of the Civil Service. The freeze
ANNEX APage 8 of 8
in Civil Service salaries since 1964 -- which in effect constitutes, in aperiod of rising prices, a disguised tax on civil servants -- is a contributingfactor to existing efficiencies in public administration. Increases in CivilService salaries should be met by increased budgetary revenues.
27. Secondly, according to estimates made by the Ministry of Planningand incorporated in recent plans, each dollar of project aid utilized requiresAfs. 40 of domestic resources. Project preparation has been a constraint onutilization of project aid in the past, and efforts need to improve performancein this respect in view of the major new offers of external assistance. Butimmediate attention needs to be given to improvements in domestic resourcemobilization, because of the time lags involved in theii implementation, sothat the additional domestic resources are available when required. As dis-cussed earlier, it seems clear that administrative, technical and politicalfactors will continue to be important constraints on the early implementationof rational agricultural tax measures. Even if the across-the-board doublingof land taxes, which was under consideration, was implemented, it will notproduce the major increases in domestic revenues that will be required.
28. Public enterprises could be one important and proximate source ofincreased revenues. As has been discussed earlier, improvements in the effi-ciency of government industrial enterprises could produce additional revenuesof between Afs. 600 and 1,000 million, which would be equivalent to between 9and 14 percent of actual budgetary revenues in 1973/74. The reasons for thelow level of efficiency of government industrial enteprises are well-known andinclude poor initial investment decision, political interference in managementand administration, lack of independence and accountability of managers, inade-quate accounting procedures, etc. The acknowledged efficiency of, for example,Bagrami Textiles shows that such enterprises can be operated efficiently. TheGovernment is aware of the importance of improvements in the administrationof these enterprises and is currently, with the assistance of the InternationalLabor Organization, undertaking a number of pilot projects. Greater, and moreurgent, efforts in this direction should be a priority item.
29. A second major issue which emerges from the preceding discussionis the absence of adequate financial planning. One aspect of this is thequestion of domestic resource mobilization; another aspect is the relationshipbetween fiscal and monetary outcomes. In Afghanistan, the size of the budgetdeficit is a major determinant of domestic liquidity. But, so far, the budgetdeficit to be financed by the banking system has been (with the exception ofa preliminary attempt in the 1974/75 Plan) a simple residual and not policy-determined, and little consideration has been given to the implications ofreductions in budget deficits, on the levels of domestic liquidity and ofeconomic activity.
ANNEX BPage 1 of 4
MONETARY DEVELOPMENTS AND POLICIES
1. The objective of discretionary monetary policy is to ensure theexpansion of money and credit available to the economy at a rate which isconsistent with a planned or forecast rate of economic growth, while at thesame time ensuring relative stability of domestic prices and equilibrium inthe balance of payments. A rate of expansion of domestic liquidity (moneyand credit availability) which is slower than that required by the targetrate of economic growth would act as a constraint on economic development;on the other hand, a rate of expansion which is faster than required wouldresult in pressures on domestic prices and on the balance of payments.
2. The current stage of evolution of the banking system of Afghanistanaccounts for the absence of a well - articulated monetary policy and hence alack of coordination of economic and financial objectives of plans. The or-ganized financial system consists of Da Afghanistan Bank which performs bothcentral and commercial banking functions; two other commercial banks -- thegovernment-owned Pashtany Tejaraty Bank (PTB) and the privately-owned BankMellie; and three specialized banks -- the Agricultural Development Bank(AgBank), the Industrial Development Bank (IDBA), and the Mlortgage and Con-struction Bank. In addition, there is the unorganized financial sector whichconsists of the money bazaars -- the largest of which is located in Kabul --which are important in foreign trade financing; and the money-lenders whofinance domestic economic activities.
3. The dual role of Da Afghanistan Bank is an outcome of the histori-cal evolution of the banking sysiem. Da Afghanistan Bank was established in1941 -- Bank Mellie was established in 1930 -- to take over a number of func-tions which until that time had been performed by Bank Mellie, and also tocompete with Bank Mellie in its commercial banking activities. Da AfghanistanBank was given the responsibilities of acting as the fiscal agent of the Gov-ernment; controlling the currency issue; regulating bank credit; controllingforeign exchange transactions; and promoting investment in the national in-terest. So far, however, Da Afghanistan Bank does not have either the statu-tory powers or the instruments to control the money supply and domestic liquid"ity -- for example, increases in the money supply result principally from theneed to finance budget deficits. Da Afghanistan Bank also provides financingto the AgBank in the form of equity participation and to IDBA in the form ofloans. Direct financing to the private sector, which amounts to about 5 per-cent of' loans made by Da Afghanistan Bank, has been limited to loans made topublic enterprises and to cotton ginning companies.
4. Although Da Afghanistan Bank maintains the official exchange reser-ves of Afghanistan, all three commercial banks engage in foreign exchangetransactions. Da Afghanistan Bank is intervening in the market to preventfurther appreciations of the exchange rate of the Afghani. A new banking law
ANNEX BPage 2 of 4
(7Ts-llions of Af,ghanis)
Year ending March 2019T69 19 1 192 IV(3i 1971495/
A: Fo.rcn assntb 2,218 2,2^8 ?,413 2,B86 3,081 3,606, 5 ,461For*.3iz liabilities -889 -871 -692 -658 -428 .- 348 1LL
r22 FOREIN; i.SSFTS 1 1 72 2, 653 1L,317
B: N,ati.onal Government: Cl. rL: 7,130 8,771 9,478 10,671 11,106 12,057 12,462Deco sits -3r -13,t2 -15014 -956 -1 308 -,,6 °
Nat Cl: dras on Na3tional Gcver:evtnt 5, 21 7,359 9,715 t 10 ,552Official en'ities: Clcin,u of Touca.t. 229 168 277
:Depocits cf 2-Jod Dat. -180 -1C4 -377 -986 -378 -222 -5°3Net depasits of llonopolies: R -294 -480 -663 -199 1C6 1,148
: ael -clu T.m -425 -182 -4183 - 32 -147 -331-226 -111 - 93 -159 -159 -1
IMT CTr-s k o5 : RN3'r T7Th 6,52 7,102 7,1290 8,940 l0
C: 2A NIS ON PRITA5T SECTOR 2,8.15 3,364 3,585 3,485 14,953 L,259 5,193
D: INPO2T DEPOSIT'S 126 317 433 519 541 951 1 ,839
E: :.DR ALLOCATIONS 219 397 574 574 574 574
F: Inter-Da Afgharistan Beakl: iter 239 L27 374 667 788 725 1,296Gzh. 1,271 iJ2-{° 14514 1 181 1 6143 1 63,
; -- ,-' E 'S 17>.T 1,,3 1 < 2 2,6 7L Ylnc
G: Currency in circulaticn 5,321 6,CC7 6,315 6,607 7,915 9,174 9,891Dext-r de-aeit. 971 1 ,L77 1 ,132 1_,66 1,616 2,216
!.c.1 :. SUF?lY 6,2i9? T 7,7/^7 8.3 9,53 11,002 12,107
k: Ti-ime and 1ava:j-9 depos_ts 1,292 1,260 1,6L5 1,939 2,1430 2,666 2,871Forei7,-. c ' V •'p^f; ts - 2 15& 135 150 310 233 2L1
QUJSr - {-CUN v. l 1,7836 2,089 2 , 77b~W2 3,112
vOrITTh I" -Q;IDI2Y 7,633 8,910 .55 12 12,309 13,901 15,21y
;E;RANDUM IT1MSDeposits as °7o doi-estic liquidity 30.30/a 32.6% 33.7% 35.69 35.7% 3L.0?/o 35 .05
"/o changes in: domcstic liquiiity 16.7% 7.2% 7.5% 19.9% 12.90/o 5 0Imoney supply 18.9% 3.8% 5.2% 16.6% 1.LO/o 1 0.0%
:clains on pvt. sector 19.7% 6.6% -2.8% 22.0% 0 21.9%
Sout :e: Research Department, Da Afghanistan Bank
a/ 'reliminaz-y
ANNEX BPage 3 of 4
was promulgated on May 31, 1975 but its details are not yet available. Itseems, however, that the law provides for the Government assuming ownershipof Bank Mellie and IDBA as well as for the separation of the central andcommercial banking functions, and increased regulatory and supervisory powers,of Da Afghanistan Bank.
5. As can be seen in Table 1 which presents a monetary survey ofAfghanistan, domestic liquidity which had increased by around 7 percent ayear in 1969/70 and 1970/71, increased by 20 percent in 1972/73 and 13 per-cent in 1973/74. Changes in domestic liquidity result from changes in for-eign assets and in domestic credit (that is, credit to the public and privatesectors) provided by the banking system. The 20 percent increase in domesticliquidity in 1972/73 reflected an increase of Afs. 2.2 billion in net domesticassets (of which Afs. 1.5 billion was an increase in claims on the publicsector). Net foreign assets had an expansionary impact of Afs. 425 millionand net unclassified liabilities of the banking system had a contractionaryimpact of Afs. 583 million. In 1973/74, domestic liquidity increased byabout 13 percent. There was, however, no increase in credit to the privatesector 1/, and the increase in domestic liquidity reflected the increasedexpansionary impact of net foreign assets (Afs. 600 million) and of creditto the public sector (Afs. 1.3 billion).
6. Deposits increased steadily from 33 percent in 1969/70 to 36 per-cent in 1972/73, of domestic liquidity; they declined, however, to 34 percentin 1973/74. The decline in this ratio in 1973/74 reflected the freezing ofprivate sector deposits for a short time after the change of government inJuly 1973, and the withdrawal of deposits once the freeze had been lifted.The low ratio of deposits to domestic liquidity is an indicator of thelimited development of the financial sector of Afghanistan. The Afghanauthorities are currently considering raising the interest rate on savingsdeposits from 6 percent to 8 percent in order to mobilize additional savings.
7. The 1974/75 Annual Economic and Social Development Plan, in a firsteffort in Afghanistan at establishing consistency between economic and fi-nancial planning, estimated an increase of Afs. 1,500 million in credit tothe public (Afs. 850 million) and private (Afs. 650 million) sectors. Itwas assumed that the deficit in the balance of payments would amount to$5 million (Afs. 250 million) so that the increase in domestic liquidityin 1974/75 would be about Afs. 1,250 million, or about 9 percent above the1973/74 level. It was considered that the rapid monetization of the economywhich had been taking place in recent years, combined with cash withdrawalsinto private holdings, would ensure that a 9 percent increase in domesticliquidity, although higher than the projected 5 percent increase in output,would not produce inflationary pressures or have adverse effects on thebalance of payments.
1/ lhe more vigorous enforcement of tax collection in 1973/74-further con-strained the ability of the private sector to finance investment fromits own resources.
ANNEX BPage 4 of 4
8. Preliminary estimates of monetary developments in the 1974/75 showabout 10 percent increase in domestic liquidity resulting from the impact ofan increase in net foreign assets of Afs. 1,059 million; Afs. 934 million tothe private sector primarily for cotton financing; and Afs. 743 million to thepublic sector.
9. The financial outcome last year, and particularly the significantdeviation of expansion of domestic liquidity from planned levels reflectedthe inability of the financial authorities to use discretionary monetarypolicy as an effective tool for regulating the economy.
10. The rapid expansion of domestic liquidity in 1972/73 and 1973/74did not have a significant inflationary impact. The price decreases in thatperiod, reflected to a large extent the effects of output increases and theinsuilation of the domestic economy, as a result of the significant apprecia-tion of the Afghani, from the effects of international price increases.
11. As noted above, there was in 1974/75, as in the previous years, alack of expansion of credit to private individuals and enterprises other thanfor cotton financing. The weak demand for credit by the private sector reflectscontinuing business uncertainties; the commercial banking system on the otherhand,hias' been reluctant to expand loans rapidly both because of lack of ade-quate collateral and the high default rate on loans.
ANNEX CPage 1 of 8
BALANCE OF PAYMENTS AND THE EXCHANGE RATE
Introduction
1. Any attempt to analyze the balance of payments of Afghanistan hasto be made with an awareness of the special factors relating to the use-fulness of these accounts.
2. First, due to the fragmentary and non-standard form of the dataobtainable from a number of different sources, reliable estimates of Afghan-istan's balance of payments are not available. The Ministry of Commercecollects customs data on exports and commercial imports. But owing to thedifferences in coverage, timing and valuation of these data they differ fromthe exchange surrender data of Da Afghanistan Bank. Secondly, more importantand less adequately stressed, is that even if a more consistent set of figureswere available these could not be interpreted in the usual ways. A largeproportion of Afghan trade is conducted unofficially; while no consensusexists estimates place this trade from anywhere between 20 to 40 percent ofall trade. As a result, official figures reflect only a part of total trade,and at that, not necessarily the part that is most important in the deter-mination of the free exchange rate. Furthermore statistics on the changesin the official reserves will be a product of both recorded and unrecordedtrade, as well as changes in the private holdings of foreign exchange in thebazaar. As a result they bear little relationship to the underlying changesrecorded in the official balance of payments accounts.
3. Thirdly, the factors that determine the volume of official importsand exports are very particular to Afghanistan. It is still true that moreconventional factors such as the level of domestic activity, relative pricesand commercial policy all play their respective roles, but they tend to effectonly a small part of total trade. There are a number of additional specialfactors to which the greater part of trade is subject. Among these arethe re-export trade to Pakistan which distorts the trade figures and is animportant element in the determination of the exchange rate. A number ofcommodities have in the past entered Afghanistan legally thus being reflectedin official statistics on imports, but then have left the country unofficially,commodities "pretext industries" were established to act as a front for thisre-export trade. As a result the trade account provide a poor indicator ofthe supply and demand.conditions underlying the foreign exchange market, afact brought out by the large net residual component of the balance of pay-ments which varies erratically in sign and size from year to year. A furtherpoint to note is that about one-third of all imports are loan and grantrelated, and thus are uniquely determined by the magnitude of official aidflows. In addition to loan and grant-related imports, nearly 55 percent ofall Afghanistan trade is conducted on a bilateral basis which providedgreater certainty and at times helps to insulate the country from the fullforce of external events, e.g. cotton. On the negative side, however, thistrade can distort resource allocation, postpone necessary adjustments and
ANNEX CPage 2 of 8
hamper domestic import substitution industrialization. Finally, given theimportance of the smuggling trade, attempts at controlling domestic pricesof various essential commodities can be often circumvented by selling thegoods to the neighboring countries. This and the fact that a number ofAfghanistan's exports commodities can be marketed in a number of differentforms, e.g. sheep as karakul skins or meat, cotton as raw cotton or processedcotton, has meant that in the past domestic pricing policies have led tocomplex trade flows which are only sometimes picked up by official statistics.
4. This brings us to the fourth special factor in Afghanistan, namelythe role of the Bazaar. The bazaar has traditionally played, and does soat present, a key role in financing trade and in determining the exchangerate -- a further sign of the fragmented nature of the economic system.While no official statistics exist, estimates suggest that between 50-65percent of all trade (including unofficial trade) is financed through thebazaar. The exchange rate is determined by supply and demand factors in thebazaar. Other than in exceptional cases when the Da Afghanistan Bank inter-venes in the bazaar, since 1969 official exchange rate has been set within1 Af per 1 US dollar of the freely determined bazaar rate. This policymeans that the 60 percent of all officially recorded trade (73 percent forexports) which has to be settled through the account of the Da AfghanistanBank plays no active role in determining the exchange rate. Accordingly,the official balance of payments accounts are of limited use in determiningthe appropriate level and future trend in the exchange rates. The prospectsfor all exports and imports are determined in a market which is very thin(the volume of trading is put at $3-400,000 per day) and which is dominatedby unofficial trade.
5. One of the striking features of the Afghan economy in the past twoyears has been the very large appreciation of the Afghani. Although-thetrend started in 1970/71 it began to accelerate sharply from about February1973; of the total appreciation of just over 30 percent since 1970/71, nearly27 percent occurred after February 1973. The exchange rate, as mentionedearlier is determined in the bazaar market, which is thin and heavily depend-ent on unofficial trade flows. Official trade statistics are a poor indica-tion of the supply and demand conditions of that market; an understanding ofthe recent appreciation requires an understanding of the particular forces atwork in the bazaar market, which are documented only to a limited extent.What follows are a series of conjectures of the potential causes of the re-cent appreciation of the Afghani. Firstly, there was the once and for alleffect of the second devaluation of the U.S. dollar in February 1973. Whilethis can explain the rise in the value of the Afghani between February andMarch, it cannot act as an explanation for the continuing falling trend. Asecond more persuasive factor affecting the longer-term trend appears to bethe fall in the re-export trade into Pakistan beginning in 1973. In June1972 Pakistan liberalized its commercial policy and coupled this with adevaluation of the Rupee. The liberalization reduced much of the incentiveto smuggle commodities into Pakistan, thus leading to fewer official (andunofficial) imports into Afghanistan for the purpose of re-exportation and
ANNEX CPage 3 of 8
reducing the demand for foreign exchange. In the more recent past growinghostility between the two countries has further curtailed the flow of trade.Thirdly, there has been an air of pessimism towards the dollar and otherWestern currencies which has reduced speculative demands for foreign exchange.A contributing factor may also have been the fear that holdings of foreignexchange might be made illegal. Finally, although the balance of trade onmultilateral trade (which mainly goes through the bazaar) has been movingerratically, the overall balance of trade has shown a strong and growingsurplus in the last two years with rapidly increasing reserves, this in it-self may have had indirect effects on the bazaar market. For one thing, al-though all bilateral trade transactions with India are required to pass throughthe Da Afghanistan Bank, in practice most of the trade is being handled throughthe bazaar; as a result the recent surge in the exports of dry and fresh fruitsand nuts and the trading surplus with India would be expected to have strength-ened the Afghani.
6. In the last year the Republican government has drawn up a newtariff schedule to replace the 20 or so year-old system that presently pre-vails. (There were some revisions to the structure in 1964.) A system oflinking tariff rates to stages of production has been adopted. Coverage isto be more comprehensive, the system more standardized, and generally aimedat encouraging domestic industry and exports. A Permanent Tariff Commissioncomprised of 5 Ministers is intended to meet periodically to review the tariffstructure in the light of changing circumstances.
Balance of Payments Trends
(a) Exports
7. Afghanistan's export trade continues to be dominated by a rela-tively small number of traditional exports closely linked to the agriculturesector. Five major categories, namely, fruits and nuts, karakul skins, rawcotton, wool, carpets and rugs, account for 68 percent of total exports.Proceeds from the export of natural gas which account for another 11 per-cent of all exports are utilized entirely for the servicing of public debtsdue to the U.S.S.R. In the last three years Afghanistan's merchandise ex-ports have been growing at a hitherto unprecedented pace. While the valueof exports rose by an annual average of 5 percent per annum between 1966/67 -
1970/71, they increased by more than 21 percent per annum in the followingfour years. Exports for the current year will be around $209 million whichwould imply an increase of about 31 percent over the level of the yearbefore.
8. Table 3.3 provides a breakdown of the major export commoditiesinto price and volume indices. The interesting characteristic of the ex-port "boom" of the past few years is that the rapid rise in exports hasbeen a product of a number of diverse and independent forces varying fromyear to year. Much of the increase for the year 1971/72 was accounted for
ANNEX CPage 4 of 8
by the 68 percent rise in the value of karakul exports. The rapid increasein exports was partly an adjustment to their particularly low level in 1970/71 and partly due to increased slaughtering of sheep in fear of shortages offeed and water. Prices increased during 1971/72 mainly because of the pros-perous conditions in the importing countries and perhaps to some extent inanticipation of future shortages of karakul. Other key exports all facedunfavorable movements in world prices though export values were maintainedthrough compensating increases in volume.
9. In the next two years (1972/73 and 1973/74) we see a new set offorces affecting exports. With no exceptions all of Afghanistan's exportsnow faced extremely favorable price movements. The price indices for freshfruits and dry fruits and nuts doubled, while karakul prices rose by over60 percent, and carpet prices rose by 68 percent. Cotton prices, howeverincreased less, around 24 percent. Rising world prices were accompanied byincreases in the export volume of most exports, the two exceptions beingkarakul and raw cotton. The number of karakul skins sold fell by 40 percentas a result of the decimation of the karakul flocks the year before. The fallin raw cotton export volume which follows a continuing downward trend was dueto the substitution in production by farmers of cotton for wheat which duringand immediately after the drought enormously increased in price. The re-sult was that total domestic production of cotton fell from 76,000 tons in1970/71 to 58,000 tons in 1972/73. The fact that exports continued to declinetill 1974/75 despite output recovery in 1973/74 is a reflection of the lag be-tween production and exports as well as increases in stocks.
10. Estimates for thie present year 1974/75 reflect yet a third set of fac-tors. Prices for most commodities are estimated to have risen much less rapidly,and a much slower rise in the volume of exports is estimated. However, therising trend for exports as a whole is maintained through a dramatic role inraw cotton exports, and a less dramatic, though still fairly substantialincrease in exports of natural gas. These two commodities alone account fortwo-thirds of the estimated rise in 1974/75 exports. Despite a falling trendin recent months, cotton prices are expected to be up for the year as a whole.The increase in prices is partly a reflection of the adjustment of Afghanprices to the previous increase in world prices and partly due to more salesbeing made on a multilateral rather than a bilateral basis. The volume ofraw cotton exported is expected to be over 40 percent higher this year,mainly an adjustment to the previous year's decline in the volume of cottonexports, as against a 34 percent increase in cotton production. With theprice of cotton relative to wheat having risen even further, cotton productionis expected to increase by a further 40 percent in the current year. Theprice of gas has been recently re-negotiated with the USSR with prices beingrevised upwards by 40 percent in 1974/75 and a further 77 percent in 1975/76.As a result the value of natural gas exports will by the end of 1975/76 be150 percent higher than for 1973/74.
ANNEX CPage 5 of 8
11. Thus while Afghanistan's export performance has been extremely en-couraging in the last few years, it has been founded on a series of eventswhich may not repeat themselves in the future. There has been hardly anydiversification of exports. The only consistent trend is for karakul andnatural gas to account for a fixed percentage of total exports while carpetsand rugs have somewhat increased in importance. The share of other commod-ities has been extremely erratic, which points to the main weakness of thepresent situation, namely that Afghanistan's exports have been vulnerableto the extremely volatile external and domestic conditions. The prices ofseveral of her major export commodities have risen dramatically in the lastthree years, the trend has already weakened and could lead to an equallysharp fall in prices in the future. Depressed conditions in the industrializednations have already had adverse effects on karakul exports and are likely todepress carpet prices also. Exports of dry and fresh fruits and nuts aremainly to the Indian subcontinent; the present economic difficulties of thearea may depress future demand and prices. External factors aside, domesticweather conditions have played an important role in determining the volumeand share of various exports. The drought initially increased karakul ex-ports at the cost of the decimation of the flocks and of future increasesin exports. Similarly, the shortage of wheat and its associated pricerise during this period induced farmers to shift out of cotton productiontowards wheat, hence reducing cotton exports. Furthermore, the 30 percentappreciation of the Afghani in the last 2 years will begin to have its ef-fect on exports before long, especially with the present tendency for theexport price of most of Afghanian exports to decline. Exports for theperiod 1974/75 - 1979/80 are, therefore, projected to grow more slowly thanthe rates of growth experienced in the period 1972/73 - 1974/75. The mainreason is the anticipated reversil or moderation in the price trend ofAfghanistan's major export commodities. The export value of fruits and nutsare expected to remain unchanged despite increases in the export volume ofthese commodities. The main source of growth is expected to be through greaterexport diversification, a continued rising trend in cotton exports, and theincrease in the value of natural gas exports following the recent adjustmentof prices.
(b) Imports
12. Two types of imports can be distinguished in Afghanistan: commer-cial imports by private individuals or through government monopolies, e.g.sugar, tea, tires; and, commodity and project aid imports which are directlyfinanced through foreign loans or grants.
13. Table 3.5 provides a breakdown of imports into consumer, inter-mediary and capital goods. Imports under project aid can be generally as-sumed to be predominantly capital goods while commodity aid consists ex-clusively of consumer goods, e.g. wheat and sugar.
ANNEX CPage 6 of 8
14. Commercial imports, like exports, have been rising very rapidly inthe past two years. The increase between 1972/73 and 1973/74 was around 28percent and the mission estimates for 1974/75 indicate a further rise ofaround 38 percent. By historical standards these are extremely high. Forthe five-year period ending 1972/73, average annual compound rate of growthhas been 8 percent, while the 16-year trend is an average annual compoundrate of growth of 3.5 percent. However, a large part of the recent growth inimport value is due to rising world prices especially in commodities whichhave significant weight in Afghanistan's import composition. The index ofinternational prices increased by around 18 percent in 1973 and by around 22percent in 1974. On this basis only a small increase, less than 10 percentin the real volume in 1973/74 is probable. The likelihood is that with theexception of fabrics other than cotton, the import of most other commoditiesfell in real terms. For 1974/75, a significant part of the rise in the importbill is accounted for by the rising price of imports. It is estimated thatthe price index for Afghanistan's commercial imports during 1974/75 has beenup by around 24 percent so that around 14 percent increase in real volume mayhave taken place. Considering also aid-financed imports, for which no separateprice data are available, the increase in real volume could have been around2 percent.
15. Two commodities have to be singled out for special attention, namelysugar and oil. As a result of the increase in sugar prices which have tripledwithin two years the value of sugar imports, will commit one-sixth of thecountry's convertible foreign exchange earnings. The four fold rise in theworld price of oil has had little direct effect on the balance of payments.Total oil imports in 1973/74 were only $9.4 million or equal to 5 percent oftotal imports of goods and services. About 60 percent of Afghanistan'srequirements of oil and oil products were met from the U.S.S.R., and theprices remained unchanged. The bilateral agreement which included provisionsfor the sale of oil to Afghanistan by the U.S.S.R., and for the sale ofnatural gas to the U.S.S.R. by Afghanistan has now been re-negotiated. Theprices of both oil imports were adjusted upwards to reflect more closely worldprices. The price of natural gas has been raised by about 130 percent whilethe unit price for oil and oil products has increased by over 200 percent,thus implying a deterioration of the terms of trade on this account. However,the increase in receipts from natural gas exports would roughly offset theexpected sharp jump in the cost of payments for imports of oil and oil products,and Afghanistan still expects to maintain a net surplus on these transactions.(The surplus in 1972/73 was $8 million). A further 20 percent of the country'soil requirements have been supplied by Iran.
16. However, the indirect effects of the energy crises are apt to besignificant. Increased fuel costs in Pakistan have already increased trans-port costs to and from Karachi by 10 percent. Transport costs already com-prise a significant part of the cost of most traded commodities in Afghan-istan. Freight costs from Kabul to Hamburg through the U.S.S.R. or Karachivary between $70-240 per ton. More important than this will be the increased
ANNEX CPage 7 of 8
cost of fertilizers which with a current expected consumption of 55,000 tonsand expected growth rate of 10-20 percent would place a particularly heavyburden on the country's foreign exchange earnings but for domestic importsubstitution.
17. Loan and grant financed imports have been rising at an averageannual rate of 15 percent. This is much in contrast to the falling trendbetween 1966/67 - 1970/71 when such aid-related imports actually fell at asimilar rate. However, given that international prices have been increasingvery rapidly in recent years, the contrast in terms of real transfers is notas sharp.
18. The outlook for imports in the future is mixed. Fertilizer andsugar imports are likely to create the most difficulty, at least in the shortrun. Recently a plant producing urea has commenced production. Some or evenall of the country's requirements of urea may be met through this plant; how-ever DAP requirements which presently represent one-third of fertilizer con-sumption would still have to be imported. There is also the possibility thatpart of fertilizer requirements in 1975/76 would be financed as in the past byUSAID. Similarly, in the case of sugar much will depend on the extent towhich domestic production for greater self-sufficiency can be economicallyattained. For the period 1974/75-1979/80 commercial imports are expected toincrease at around 7 percent per annum in money terms and just over 3 percentin real terms. Imports of food and consumer goods are expected to remainfairly constant in real terms as a greater part of needs are supplied domes-tically. Loan and grant related imports are expected to increase rapidlyduring the period, reflecting the growing mobilization and diversification offlows.
Balance of Payments Outlook
19. The favorable trends in the balance of payments of the past fewyears are unlikely to be sustained for much longer, leading to some causefor concern in the short run, though in the longer run prospects could befairly bright.
20. For the immediate future price forecasts for Afghanistan's majorexport commodities are unfavorable and are in sharp contrast to the past twoyears when the terms of trade moved strongly in her favor. Cotton exports areexpected to be one of the major source of export growth, but despite optimisticoutput forecasts, much will depend on future weather conditions. On the im-port side both the indirect effects of the oil crisis through raising fer-tilizer prices, and sugar imports will place a heavy burden on Afghanistanforeign exchange earnings.
21. In the longer run however there is likely to be expanded productionand hence substitution for imports of sugar, fertilizer, and raw cottonfabrics. In this respect the high costs of transporting commodities inAfghanistan and the associated natural protection that the market benefits
ANNEX CPage 8 of 8
will be an important factor. Currently nearly all of Afghanistan trade ishandled through the U.S.S.R. or Pakistan; congestion and damage in Pakistan,and delays and unpredictability in the U.S.S.R. create many problems and addto costs. As an example cost of transportation currently add about $160 perton to the price of DAP fertilizer, increasing its cost to Afghanistan bynearly a third. On the export side good prospects for export diversificationexist. Afghanistan is expected to be a net exporter of cotton fabrics by1979/80, earning some $10 million of foreign exchange. Currently the pricepaid for Afghanistan's dried fruit exports are substantially below the worldprice; reflecting, mainly, poor quality and packing. There is much that canbe done to improve packing facilities and therefore increasing Afghanistanforeign exchange earnings through increases in the price paid for dried fruitas well as a general widening of its markets. Furthermore, the growing aware-ness of the mineral wealth could lead to major transformation of her exportpattern, should the economic exploitability of these resources be established.Barrite has been exported to the U.S.S.R. for the first time this year; how-ever the greatest hope lies with the copper discoveries of the Logar Valley,the iron ore deposits in Hajikak, and oil discoveries in the Sareh Pol region.In this respect an important factor determining the economic exploitabilityof these resources will be the flow of foreign assistance that might be avail-able for the provision of the necessary infrastructure. For example a raillink with Iran could be extremely important for the development of Hajikakiron ore deposits.
22. However, for Afghanistan to make the best use of her export poten-tial, the government will have to pursue a more consistent and rationalexchange rate policy as well ensuring that commercial policy as a whole doesnot conflict with domestic indust-rial and pricing policies. A striking fea-ture of the Afghan economy is the response of producers both in agricultureand industry to price changes. Rising crop prices have led to substitutionin production, e.g. wheat for cotton; domestic price controls have led to in-creased smuggling e.g. meat; while rising world prices for manufactured goodshave led to increased capacity utilization e.g. cotton rayon industries.Given this high degree of flexibility and responsiveness in the system animportant element in future government policy should be to adopt a more ra-tional exchange rate and commodity pricing policy suited to long run consider-ations. At the present the wheat: cotton price ratio is very low if judgedby historic standards, and may call for adjustment if potential illegal ex-ports and further reductions in the wheat acreage are to be avoided. This isparticularly important given the gap between local costs of production andimport costs that exists, because of the high costs of transportation. Undersuch circumstances the government must ensure that the price ratio does re-flect the true opportunity cost of producing the two commodities. In thepast, interventions in the bazaar market have been sporadic with very littleattempt to use the exchange rate as an active policy instrument. To allowshort run changes in domestic and external conditions to have large effectson the exchange rate can be disruptive, damaging and wasteful, and should beavoided.
STATI,STICAL APPENDI(
AREA, POPIUATION, EFPLOYMEINT
Table 1.1: Land AreaTable 1.2: Total Population and Rate of GrowthTable 1.3: Structural Characteristics of the Population of Workiing AgeTable 1.4: Sectoral Distribution of the Labor ForceTable 1.5: Employment in Ilajor Industrial Sub-Sectors
NATIONAL ACCOIJNTS
None Available
BALANCE OF PAYMENTS
Table 3.1: Balance of PaymentsTable 3.2: Recorded Exports by Com.moditiesTable 3.3: Export Price Behavior of Major Export CommoditiesTable 3.4: Export ProjectionsTable 3.5: Imports by CommoditiesTable 3.6: Direction of TradeTable 3.7: Bazaar Free P=.rketx chan-g B,: t
Table 3.8: Exch--' Rate in the Free "trk'etTable 3.?: International Deserves dnq Rclated ItemsTable 3.10: Net Balances under Bilateral Accounts
EXTERNAL DEBT
Table 4.1: External Public Debt Outstanding as of March 20, 1974Table 4.2: External Public Debt as of March 20, 1974Table 4.3: Debt Service Ratios and Projections
FISCAL DATA
Table 5.1: Budgetary AccountsTable 5.2: Summary of Government RevenueTable 5.3: Government ExpendituresTable 5.4: Sectoral Distribution of Third Plan, Draft Fourth Plan
and Annual Plans
MONETARY DATA
Table 6.1: Monetary Survey
AGr. CCULTURE
Table 7.1: Trends in Production of Principle CropsTable 7.2: Area of Principle CropsTable 7.3: Estimates of Livestock Numbers
I'-UTSTRY AND MINES
Table 8.1: Major Industrial and >tning ProductionTable 8.2: Gross Output in Manufacturing and MiningTable 8.3: LWfining ProductionTable 8.0: Classification of Industrial. Establishments by Nurnber
of Workers
PRICES
Table 9.1: National Price IndexTable 9.2: Kabul Price Index
SECT ION I
AREA, POPUIATION, EMPLOYM1ENT
Table 1.1: LAND AREA
TOTAL AREA 63 Million Hectaree
Of which:
1. Pasture 40 Million Ha
2. Forests 2 Million Ha
3. Arable 8 Million Ha
4. Other 13 Million Ha
AREA CROPPED 4.8 Million Ha
Of which:
1. Irrigated 2.6
2. Rain Fed 2.2
Source: Estimates made by the IBRD Agricultural Sector Survey.
Table 1 .2: TOTAL POPULATION AiTD RATE OF MOG(WTH(Millions) Average Annual
Growth RateA. Official 1960/61 1966/67 1971/72 1972/73 1973/74 1971/72 -73/74
1. Total Population 13.4 15.1 17.5 17.9 18.3 2.3of which:Nomads 2 4 2.7 2.9 3.0 3.0 1.5
2. Non-Nomadic Population 11.0 12.4 14 .6 14.9 15.3 2.lof which:
Urban 1.1 1 5 2.2 2.3 2.4 4h5Rural 9.9 10.9 12.4 12.7 12.9 2.0
3. Age Distribution (Non-Nomadic)0-7 n.a. n.a. n.a.7-12 2.5 2.5 2.5
12-15 n.a. n.a. n.a.15-601/ 7.2 7.5 7.8
60- .8 .9 1.0
B. Estimates From Other Sources:
1. Total Population for 1969 14.0Based on:
-preliminary agricultural census, 1969, estimates an agricultural populationof 10.3m.
-ratio of urban to rural is estimated at 12%
-nomadic populations estimated at 2m (1967) i/2. Total Non-Nomadic Population for 1974: 10.0
This is an unofficial figure based on discussions with members of the StateUniversity of New York group, who are at present undertaking a demographic surveyin Afghanistan.
1/ Defined as "population fit for work".
2/ Ministry of Agriculture, Department of Planning.
3/ V. Chapin, "Population and Manpower Resources in Afghanistan, 1966-1972", March 1967.
4/ K. H. Handrikson Advisory Group, "Nomad Problems of Afghanistan and Suggestions fortheir Solution", June, 1967.
Source: Central Statistics Office
Table 1.3: STRUCTURAL CUARACTERISTICS OF THE POPULATIONOF WORKLNG AGE
(1971/72-1973/7L)(Milellions )
1350 1 351 1352(1971/72) (1972/73) (1973/74)
A. Total Population of Working Age 7.22 7.47 7.79
B. Total Active Labour Force 4.51 4.75 4.77
Males (1) 3.75 3.97 3.99
Females (2) .47 .49 .50
The old and child labor .42 .42 .43
(- Students of working ageand disabled) (-13) (-13) (.14)
C. Non-Working Population 2.71 2.72 3.02
Students of working age .07 .07 .07
Disabled .06 .06 .07
Others (3) 2.58 2.59 2.88
D. Unemployment .39 .38 .37
(% of total active labor force) (9%) (8%) (8%)
Source: Central Statistics Office
Notes: (1) All males of working age.(2) All females presently active in the labor force.(3) Comprises mostly inactive female labor.
Table 1.4: SECTORAL DISTRIBUTION OFTHE LABOR FCRCE, 1971/72-1973/74
(MIillions)
SECTCR 1350 1351 1352(1971/72) (1972/73) (1973/74)
1. Agriculture 3e05 3.12 3.20
2. Handicrafts .27 28 .30
3. Construction, Mining andDevelopment Projects .11 .12 .12
4. Transport and Communications .03 .03 .03
5. Other Manufacturing o8 .08 .09
6. Services .32 .34 .35Health, Education .02 .03 .04Commerce .11 .12 .12Government Agencies .07 .07 .07Other Service e11 .11 .12
7. Unidentified .65 .66 .68
8. Total e4.51 4.64 4.77
Source: Central Statistics Office
Table 1 .5: EMPLOYMNT IN MAJOR INDUSTRIAL SUB-SECTORS(1971/72 - 1972/73)
1350 1351 1352Sub-Sector (1971/72) (1972/73) (1973/74)
Coal Mining and Briquetting 1,491 1,,406 1,670
Textiles and Cotton Ginning 11,302 12,500 12,718
Furniture and Carpentry 461 510 575
Building Construction Material 1,101 1,300 1,164
Printing and Publishing 1,187 1,371 1,359
Auto Repair; Metal Work and 2,088 2,150 1,404Transport Equipment
Non-Mevtal Products 215 270 577
Electricity 1,309 1,344 1,378
Food Processing 3,260 3,220 6,859
Other Manufactures 608 700 1,285
Total 23,022 24h771 29,019
Source: Central Statistics Office
SECTION II
NATIONAL ACCOUNTS
(None Available)
SECTION III
BAIANCE OF PAYMENTS
Table 3.1s BALANCE OF PAYMZNTS, 1969/70-1973/74(in US $ millions)
-EstimatesAfghan years 1348 1349 1350 1351 1352 1353Ending March 20 1969/70 1970/71 1971/72 1972/73 1973/7h 1971/7
A. Merchandise Trade 78.7 81.6 105.0 121.8 159.4 208.6Exports f.o.b. 1/ 124.7 110.8 167.3 157.2 192.2 241.5Imports c.i.f. 75*5 91.5 114.7 96*1 123.2 170-5Commercial 52.2 19-3 52.6 61.1 68.9 71.0Loan and Grant financed
B. ServicesTravel (Net) 2.7 5.2 6.3 6.1 6.8 9.0Interest payments abroad 2/ 8.5 9.0 9.9 8.1 9.6 10.8
C. Net Balance on Goodsand Services -51 .8 -33-0 -65.9 -36.8 -35.6 - 34h7
D. Transfers and Non-Monetary Capitalofficial Loans and grants 52.2 19.3 52.6 61 .1 68.9 71 .0Project Loans and grants I/ _ _ 23.8 29.1 27.4 2Non-project loans and grants 28.8 32.0 41 .5 _
Amortization of Official Loans 2/ 12.6 14.2 18.7 15.5 22.5 28.3
E. Net Residual Transactions(including errors and omissions) +12.0 +27.9 +50.7 -6.0 +4.1 F4
F. Changes in Reserves -. 2 - +18.7 +2.2 +1h.9 +12.1
Source: Da Afghanistan Bank, Ministry of Commerce, Ministry of Finance, Ministry of Planning andThe Central Statistics Office
NOTES: 1/ Recorded exports are adjusted for foreign exchange receipts from karakul, wool, cotton (see table 3.2)2/ Based on IBRD debt data2/ Since a consistent set of figures for the inflow of loans and grants do not exist, in drawing up the
balance of payments accounts it is assumed that the total inflow of aid capital is equiralent to thetotal value of loan and grant financed commodity imports. This is equivalent to assuming that no partof the inflow of capital is used to finance local costs or the purchase of pervices from abroad. Th sis unrealistic. The accounts do not in any case reflect the absolute values of tradedue to the large element of unrecorded trade; if the ratio between local cost financing, service andcommodity import components of aid remain unchanged over time then the balance of payments accountstrill still reflect the underlying trends in the external sector, which is the most that can be expectedfrom these accounts in Afghanistan.
Table 3.2 RE;CORDED EXPCRTS BY COMMODITIES, 1969/70-1973/74(in US $ millions)
Afghan Years 1348 197/1 1350 1351 1352 1353 b/Ending M4arch 20: 1969/70 1970/71 1971/72 1972/73 1973/714 19714/75
A. Recorded Exports 81 9 85-7 100.1 124.5 159-1 2111
1. Agriculture 188 40-3 41.0 56-3 82.3a. Fresh Fruits 89 8.14 10.7 21.9 30.8b. Dry Fruits & Nuts 19,5 20.6 17.3 31.3 ?47,1 54.0c. Raw Cotton 5,6 8.7 12.14 11,1 7.2 31.9d. Oil Seeds 2.6 1.0 .3 2.5 3,6e. Fresh & Dry Vegetebles .3 .1 1.0 - -
f. Medicinal Herbs 1,9 1.6 1.8 .8 214
2. Livestock 23c7 20 29.8 28.0 31.22. Karakul Skins 131 e6 17.7 15.7 12.2b. Hides & Skins 216 2.1 3.2 4.0 5.7c. Wool 6.7 7.1 8.0 5.9 5.8 7.2d. Casings 1e0 .5 o5 1.9 1.5e. Other Fur Skins .4 Lj3 .6 .6 1.4
3. Other Traditional Exports 703 10.4 14.8 24.2 27.7a. Carpets & Rugs ;7.2 10 80 0 14.5 20.0b. Others 1.1 3.2 6.8 13.14 13.2
4. Natural Gas 12.1 14.5 114.5 17.1 18.0 26.4
B. BOP Adjustment -3.2 -4.1 4.9 -2.7 ,3 -2.9
1. Foreign Exchange Receipts 34,3 36,8 43.0 30-0 0. Karakul 1173 17o 17-2
b. Wool 7.14 8.o 7.4 5c1 5.8c. Cotton 2.9 6.2 17.2 10.3 8.1d. Natural. Gas 12.14 11.3 - - -
2. Less: Value Above -37-5 -40.8 -38.1 -32.7 -29.8
C. Adjusted Exports (A+B) 78.7 81.6 105 0 121,8 159208
Souirce: Ministry of Commerce and Central Statistics Office. Foreign exchange receipts arebased on exchange surrender data from Da Afghanistan Bank,
NOTE: Figures may not add up exactly because of rounding.
a/ This is the discrepancy between customs and exchange surrender data on exports of karakul,wool, cotton and natural gas. For balance of payments purposes the latter are assumed tobe more reliable.
b/ Estimates
Table 3.3: EXPORT FRICE BEHAVIOR OF MAJOR EXPORT COIMDITIES1970/71 -1974/75
(in US $ millions, unless otherwise specified)Commodity 1970/71 1971/72 1972/73 1973/74 1974/751i/
1. Fresh Fruits Lk (9o 8 ) 9.1(9.1) 10.6(8.5) 21.9(13.8) 308(17-6T(i) $ per ton ill 6 -14 222 225(ii) Price Index 100 77 130 200 203(iii) Volume Index 100 126 97 130 182
2/2. Dry Fruits,-Nuts 20.6(2h) 17.8(17.9) 31i3(25.1) 47.1(29.6) 54.0(30O.)
(i: $ per ton 478 -T97 604 -14 978(ii) Price Index 100 125 126 185 205
(iii) Volume Index 100 67 121 124 128
3. Karakul 10.6(12.4) 17.8(17.9) .157(12.6) 16.8(10.6) 12.2(7.0)() $ per 1,000 skins 7,330 10,0 13,080 =17 0 013700(ii) Price Index 100 143 178 229 qi84
(iii) Volume Index 100 117 83 69 63
4. Cotton 8.8(10o3) 12.2(12.2) 11 o(8.9) 7.2(4.5) 31 9(18.2)(i) $per ton 647 389 712 730 1 'h50(ii) Price Index 100 91 110 113 224
(iii) Volume Index 100 152 146 73 102
5. Caaets, Ru s 7.2(8.0) 8.1(8.1) 10.8(8.7) 14.5(9.1) 20(11.4)(i) $ per 1,000 M2 21,330 17,230 TToo00 29,000 37,000(ii) Price Index 100 81 84 136 173
(iii) Volume Index 100 139 178 148 161
6. Natural Gas 14.5(16.9) 14 i(14. 6) 17¶(13.7) 18.o0(11 3) 26.4(15.1)(7i) per million 143 360 43 60 6e2 676 9.1(ii) Price Index 100 100 111 118 163
(iii) Volume Index 100 100 107 105 112
7. Total Major Exports 70.10 79.5 96.6 125.5 175.3
8e Total All Exports 85.7 100e1 124,5 159.1 211.5
9. Major As % of Total 81.8 79.4 77,6 79.0 83.0
Source: Ministry of Commerce.
1/ Based on 11 months receipts.2/ Export values and unit prices are believed to be overstated.
NOTE: Percentages in brackets refer to the share of the commodity in the valueof total major exports.
Table 3.4. EXPCRT PROJECTIONS(in US $ millions)
Actual1973/74 1974/75 1975/76 1976/77 1977/78 1978a/79 1979/80
Dry Fruits and Nuts 47.1 54.0 42.7 44.2 44.8 46.7 48.7
Fresh Fruit 21.9 30.8 33.8 35.0 35.4 36.9 38.6
Cotton 7.2 31.9 28.8 35.6 42.2 49.o '57.6
Carpet and Rugs 14.5 20.0 20.2 22.2 24.4 26.9 29.5
Natural Gas 18.o 26.4 45.1 45.1 45.1 45.1 45.1
Karakul Skins 16.8 12.2 13.1 13.8 14.4 15.2 16.0
Other 33.9 33.3 41.3 45.4 50.0 54.9 60.3
TOTAL 159 . 208.6 225.0 241.3 256.3 27h.7 295-.
Source: Missiorls Estimates
Table 3.5: IMPORT6 BY C09HP0DITIES, 1969/70 - 1973/74(in US $ millions)
Afghan years 1348 13L49 1350 1351 1352Ending March 20 1969/70 1970/71 1971/72 1972/73 1973/74
A. C0NMCIAL IMPORTS 72.5 91.5 114.7 96.1 123.3
1. Consumer Goods 32.8 9.3 9 ILL 5a. Food & Tobacco 12.3 20.)l 37. 21.9 27.
Wheat -1/ - 20.7 - -Supgar 1.1 5.1 4.2 9.6 13.9Tea 9.14 7.9 9.9 9.6 10.1Other Foods 1.14 1.8 2.1 2.0 2.8Tobacco .5 .5 .9 .7 1.0
b. Clothing & Footwear 212.3 17.6 12.8 12.1 19.4Cotton Fabrics 3.3 2.0Fabrics Eccluding Cotton 6.4 8.7 6.4 6.2 13.3Used Clothing 1.8 2.8 2.4 1.O4 2.2Footwear 2.2 2.2 1.6 1.7 1.9
c. Other Consumer Goods 7.1 8.4 9.0 10.1Medical & Pharmaceutical .03 7 v 5.o
Products 1 .2 3.0Automobiles and 2.2 1.6 4.2 4.L 5.0Road Motor Vehicles ,3 .3 .3 .1 .1Bicycles
2. Intermediate Goods 27.7 24.5 25.7 34X2 41.4Petroleum Products 3 9.4Other Chemical Products 2.8 2.6 3.1 3.6 5.6Rubber Tubes and Tires 3.1 2.9 4.8 8-3 11.6Other Non-metallic Manufactures 11 .2 4.1 4.2 8.7 6.3Metals & Metal Manufactures 2.9 3.6 4.5 6.3 6.8Plumbing, Heating, Lighting _
Equipment .4 .8 .7 .8 1.7Other Miscellaneous Manufactures 3.7 3,7
3. Capital Goods 6 8.1 11.0 8.6 10.4Electric Machinery 2 e 2 2.3 3.0 2.9Other Machinery 1.8 2.2 3.8 1.4 3.L4Other Transport Equipment 2.1 3.3 4.9 4.2 4.1
4. All Other Commodities 5 12.6 18.4 9.8 141..2
B. LOAN & GRAIT-FINANCED IMPORTS 2 193 5236 61 .1 68.9
1. Project - 23.8 29.1 27.4
2. Non-Project - - 28.8 32.0 41.5
C. TOTAL IMPORTS 124.7 110.8 167.3 157.2 192.2
Source Central Statistics Office and Ministry of CommerceNOTE: Commercial imports are customs data, which include loan and/or grant-financed imports,when commodity description is provided by the importing agency (Da Afghanistan Bank or the&nistry of Planning). Itetm B consists of aid-financed imports for which the reporting agencydoes not provide commodity description.1/Wheat hbs always been imported as commodity aid under concessionary terms, and thus should beincluded under non project grant and loan financed imports. However official sources haveregistered wheat-as a commercial import and this practice has been followed here.
Table 3.6: DIRECTION OF TRADE , 1969/70 - 1973/7h(in US $ millions)
1969/70 1970/71 1971/72 1972/73 1973/74
EXP0RTS 81 .9 84.4 99.2 124.5 159.1
Bilateral 54:3 53.6 51.4 76 .2 103.9USSR 30:R 32.9 39.0 36.1 48.6India 16.o 13.1 4.7 30.°4 27.2Pakistan 5.4 6.1 5.2 5*3 23,COther Barter 2.2 1.0 2.4 4.3 5.1
Multilateral 27.6 30.8 47.8 4,83 55.2United Kingdom 1239 13.8 19.8 19.9 23.3USA 2.5 2.5 2.2 2.5 2.1Germany (FRG) 1.6 4.4 8.6 7.7 6.9Other 10.7 10.0 17.3 18.3 22.9
IMPORTS 72.5 91.5 114.7 96.1 123.0
Bilateral 30.6 45.7 41.7 33.9 45.1USSR 12.5 24.5 21.5 13.5 14.0India 11.3 12.8 11.14 11.7 21 .6Pakistan 3.6 3.3 3e6 5.7 5,3Other Barter 3.2 5.0 5.2 3.0 4.2
Multilateral 41 .9 45.8 73.0 62.2 779United Kingdom 5.2 5.14 10 65.7 6.3USA 4.6 2.9 18.0 3.1 6.oGermany (FRG) 4.5 5.6 7.6 10.3 11.5Japan 14.6 19.1 17.9 23.9 31 .7Other 13.1 12.9 19.2 19.2 22.4
Source: Ministry of Commerce: Central Statistics Office
I1/Table 3.7: AFGHANISTAN: BAZAAR FREE NAIKET EXCHANGE RATE,
(In Afghanis per U.S. dollar)
Afghan Yearended March 20 1970/71 1971/72 1972/73 1973/74 1974/75
April 80o.50 91.39 84.61 69.98 59.86
May 81.81 90.89 83.40 67.16 58.91
June 82.07 90.45 83.45 63.27 56.52
July 84.23 90.57 83.74 59.16 58.69
August 83.69 88.39 82.29 6o.08 55.60
September 83.98 84.87 78.J42 58.85 53L40
October 84.75 82.50 78.69 55.29 55.69
November 85.16 81.84 77.85 53.86 56.22
December 85.69 79.77 78.44 58.90 56.20
January 89.66 78.75 78.78 60.46 57.69
February 91.17 80.15 78.63 64.08 58.35
March 90.63 83.17 71.64 60.32 55.15
Annual Average 85.28 84.73 80.00 60.98 56.86
Source: Da Afghanistan Bank
1 MDnthly average of daily selling rates.MOTE: The selling rate is the rate quoted by four bazaar dealers and the
Chamber of Commerce for drafts and checks.
Table 3,8: EXCHANGI RATE IN THE FREE MARKET(Aggnan1s per currency untt shown)
YEAR ENDINGMarch 21 U.S. Dollar Sterling Pound Indian Rupee Pakistani Rupee
1966/67 76.90 213.22 6.91 8.95
1967/68 76.88 203.29 6.75 8.70
1968/69 75.26 180.07 7.14 8.40
1969/70 75.95 181.41 6.73 7.73
1970/71 85.27 203.34 6.47 7.83
1971/72 84.73 211.09 6.75 7.69
1972/73 80.00 197.14 7.42 6.30
1973/74 60.97 149.15 6.53 5.49
1974/75
April 59.86 142.03 6.71 5.47
May 58.91 143.05 6.oo 5.66
June 56.52 137.68 6.37 5.46
July 58.69 139.98 6.09 5.42
August 55.60 134.00 5.60 5.13
September 53.40 125.143 5.43 4.96
Source: Research Development, Da Afghanistan BankNOTES: (1) All rates are selling rates
(2) The bazaar rate for the US dollar is the average of the rates quoted by four bazaar dealersand the Chamber of Commerce for drafts and checks.
(3) The bazaar rates for other currencies are the rates quoted by the Chamber of Commerce fordrafts and checks.
Table 3.9: INTERNATIONAL RESERVES AND RELATED ITEMS
(in US $ millions)
MarchAfghan year ended March 20
1971 1972 1973 1974 1975
1 Da Afghanistan Bank 30.53 49.39 49.25 61.05 70.30
A. International reserves 47.01 61.90 58.80 6o.6 4 63.69
Gold2 ! 32.63 35.42 39.35 39.35 39.35SDRs 5.86 4.96 1.36 5.09 5.52Reserve Position _- - -in the Fund
Convertible foreignexchange 8.52 21.52 18.09 16.20 18.82
B. Inconvertible exchange .84 .99 .88 1.83 2.39
C. Net balance underbilateral payments -4,79 -5.11 -3.52 6.10 7.59agreements
D. Use of Fund credit -12,53 -8.39 -6.91 -7.52 -3.35
2. Foreign exchange of other banks 4.35 4.14 6.50 9.614 12.44
A. Convertible exchange 3.02 3.05 5.91 9.31 11.59
B. Inconvertible exchange 1.33 1.09 .59 .33 .85
3, Total (1+2) 34,88 53053 55.75 70.69 82.714
Source: Da Afghanistan Bank1/ The stock of gold (in till) was reappraised by SUR 1.7 million in August 1972. This reappraisal has been
carried back to earlier dates.
Table 3.10: NET BALANCES UN0ER BILATERAL ACCOUNTS
(in Uc $ millions)
March1968 1969 1970 1971 1972 1973 1971 1977
Bulgaria -- -0.02 -0.12 -o0.12 -0.15 -0.10 -0.01 --
Czechoslovakia 0.61 043 0.72 0.35 0.75 1.91 2.20 5.63
Mainland China 0*07 -0010 0.o40 -0.12 0.23 0.08 0.13 -. 70
Poland -0.02 -0o31 -0o43 -0.51 -0.19 0044 -- --
U.S.S.R. -1.83 0.19 0.48 -4.37 -5.74 -5.43 -3.78 2.67
Yugoslavia -- -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -.01
Total 2/ -1,18 0.18 1.04 -4e79 -5,11 -3.52 6.10 7.59
Source: Research Department, Da Afghanistan Bank
1/ Dash indicates a figure of less than US$ 5,000
2/ Totals do not add due to rounding.
SECTION IV
EXTERNAL DEBT
TABLE4.1- AFGHANISTAN 06/25/75
EXTERNAL PUBLIC DEBT OUTSTANDING AS OF MARCH 20, 1974
DEBT REPAYABLE IN FOREIGN CURRENCY
IN THOUSANDS OF U.S. DOLLARS
DEBT OUTSTANDING MARCH 20p1974
CRFULITUR COUNTRY UND 1'TYPE UF CREDITOR DISBURSED 8URSLt TOTAL
1RMCE 1,59( ' 1,5?
NA w 216 - 2leKOftLA(5UUTf) 940 -,sUwA IT 3,361 - J,J61UNIILU K1NtIOUM 1,0U7 - 1,007USA 4bU 480
SUPPLIERS 9,261 , 9,261
ASJAN ULV.t:ANK 226 190fl22 2(050iDA 7.166 433,666 4i034
LOANS FROM INTL. ORGANIZATIONS 7-394 53,490 60,U84
LH]NA'PEUPLES HEe*UF 18,269 5252 23j'-21LENMAMHK 3,7?tb 4,376(EhMANY (F[-D.REPOF) 65p911 bp915 72t2?6JAF^ AN 2 U I J14 452 2,4f,5UN11EU KlNuDUM 1,795 51 1,646USA 68*545 I0,747 99J29?USSR . 533,761 1b6p213 (OU,U54
LOANS FROM GUVERNMENTS 710#314 192P966 903P280
ToTAL LXTERNAL PUBLIC DEST 1) 726#969 246,456 973,425
NOTEt UEBT WITH A MATURITY OF OVER ONE YEAR
1) EXCLUDES THE FOLLOWINGI AMOUNT
UNCOMMITTED PARTS OF FRAME AGRMTSI
CZtCHUSLUVAKIA 20OPuUuEhIIANY (FLD.REP.0k) 1 9,p1 5
LOANS FROM GOVERNMENTS 39,150
TOTAL 39s150
EXTERNAL DEBT DIVISIONECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT
JUNE 26, 1975
TABLE 4.2- AFGHANISTAN 06/25/75
EXTERNAL PUBLIC DEBT AS OF MARCH 20, 1974
DEBT REPAYABLE IN FOREIGN CURR&NCY
IN THOUSANDS OF U.S. DOLLARS
TOTAL
DEBT OUTSTANDING TRANSACTIONS DURING PERIOUBEGINNING OF PERIOD CANCEL&
LATIONS,DISBURSED INCLUDING COM4IT' DISBURSE' 6ERVICI PAYMENTS ADJUST&
YEAR ONLY UNDISBURSED MEhTS NENTS PRIhCIPAL INfEREST TOTAL MENTS(1) (2) (3) (4) k5) 46) CT) (8)
69/70 471.817 669p468 35#066 46,941 *2,573 d,461 219034 4*26070/71 509P696 696.221 167b8 34,500 A4,159 0o999 23.158 4.46871/72 533,968 703.28b 19.482 56,669 18.661 V.876 25#537 40.40872/73 608.351 744,517 155,426 45,130 j2,052/l 0,121 40,173/1 73.62673/74 679P206 c41,517 42.9t8 61,694 i2,516 9.560 32,076 11466
74/75 7260969 973,425 ' 26.540 z8,859 11,007 39,867 0159P6*475/76 730.652 784P921 * 20.*113 j3.759 1.,688 44,446 -76/77 717006 751,163 * 14,Q67 410500 11,302 42.80177/78 699P574 719.663 8.171 49.767 1W719 50.4b678/79 667.977 679.b96 ' 5.564 J 8170 9.971 48,14179/80 635,370 641,726 ' 3,694 44830 9,305 44.136 -
80/81 604,233 606.896 ' 1.628 43,161 0,724 42,40481/82 572?181 573,215 805 J2.492 0.037 40,52982/83 540,494 540,723 - 208 J1,215 (.483 38,69883/84 509.486 509,508 ' 16 I1.556 (.015 38.571 -
84/85 477.947 477.951 -- #566 6.406 36,992 -
85/86 447,360 447.J65 *J0.376 >,77V 36.156 -
86/87 416.984 416,988 - - z9p5ob >,214 34.78287/88 387.416 3H7,420 -5#260 4.0666 29.925 -88/89 362.156 362,160 3.407 '4209 27,616 -
89/90 338J749 338.753 ' 2,2507 3,t92 26.380 -
90/91 316.163 316,166 ' c2#092 4.405 25,497 -
91/92 294.071 294,074 -1#863 4,044 24,927 -
92/93 272.188 272,191 - * 21,601 2.706 24,30793/94 250587 250,590 c l1s532 i,394 23,925
Note: Projections include service on all debt listed in Table 1, prepared June 25, 1975 with the exception of $166,273 which
represents the unallocated portion of General Frame Agreement with the USSR Government. The frame agreements from USSR have beenreported as regular debt by Afghanistan and the repayment terms are provided for Disbursed Amount only.
Exchange Rates: Data on debt outstandina and transaction are converte. to US dollars at an average rate for the year. ProjectSe&-debt service are converted at end 1974 rates.
/1 Include $16,524 (RBL 13.7 m) of debt cancellation given to Afghanistan as part of USSR grant aid.
Table L4.3: DEBT SERVICE RATIOS) 1970/71-1973/7!
AND FROJECTIONS, 1974/75-1979/80(in US $ millions)
Year Debt Service Export Earniiigs Debt Service R<tic(percent)
1970/71 23.2 86.8 26.7
1971/72 28.5 t11.3 25.6
1972/73 23.7 128.5 18.4
1973/74 32.1 166.7 19.3
1974/75 39.9 220.5 18.1
1975/76 44.4 236.0 18.8
1976/77 42.8 25L.O 16.9
1977/78 50.5 270.8 18.6
1978/79 48.14 291.). 16.6
1979/80 44.1 315.1 14.0
Source: IBRD Debt Data, Central Statistics Office for Actual Export Earningsand IBRD mission estimates for export earnirngs, 1974/75 - 1979/8Oo
NOTE: The data on earnings include receipts from services.
SECTION V
FISCAL DATA
Table 5.1: BUDGETARY ACCOUNTS, 1968/69-1975/76
(In millions of Afghanis)
Year ended March 20 1268 1969/ 1970/ 1.Z 1972/ a73 1974/75 1975/69 70 7 ~ Bud-et Revised 7Estimate
BUDGETARY ACCOUNTS
A. Budgetary revenue 4.465 5,o84 5,713 5 821 6 111 7 017 8,262 9,200 12,152Direct taxes 372 L11 467 h28 573 ol8 1,257 1,092 7,687Indirect taxes 2,083 2,549 2,818 2,976 2,937 3,540 3,328 5,100 5,520Revenue from monopolies and 1,oo8 996 950 973 928 735 1,340 740 1,350
other enterprisesNatural gas revenue 429 453 720 587 727 690 900 900 2,025Revenue from other property
and services 329 392 424 481 487 597 643 680 85LOther revenue 244 283 334 375 460 637 79s 688 716
B. Ordinary expenditure 4254 14.732 5.156 5J,4 5,659 6,531 7,311 7,250 9,855Current expenditure of ministries:Administration and defense 1,946 2,045 2,141 2,121 2,251 2,425 2,465 2,479 3,003Social services 824 907 1,030 1,114 1,230 1,412 1,417 1,446 1,654Economic services 516 474 468 473 422 4L9 142 475 51L
Exchange subsidies 86 21L 240 390 360 380 550 550 633Other subsidies and grants 282 225 273 202 361 454 589 460 2,852Foreign debt service 601 867 1,004 1,150 1,035 1,411 1,849 1,840 1,200
C. Surplus in ordinary budget (A-B) 210 352 557 371 452 486 951 1,950 2,297
D. Development expenditure 4 094 3945 2,981 3 277 14287 S171 981 h 4,o60 9 321Budgetary expenditures 1, 20 1,920 1,731 , 277 2,3 a9 2, oo 2,250 4,ft5Project aid expenditures 2,274 2,025 1,250 1,560 1,900 1,585 2,184 1,810 5,176
E. Budgetary deficit (D-C) 3,884 3.593 2,424 2,906 3,835 3,085 4 2,110 7,024
F. Financing of budgetary deficit 3,884 3.593 2,4214 2 906 3,835 3085 4,o33 2 110 7 02LExternal financing 3,292 2,504 1,878 2,289 3,150 2,207 3,233 2,410 6Project aid (2,274) (2,025) (1,250) (1,360)(1,900) (1,585) (2,184) (1,810) (5,176)Commodity aid (1,018) ( 479) ( 628) ( 929)(1,250) ( 622) (1,049) ( 600) (1,0148)
Domestic financing 592 1,089 546 617 685 878 800 -300 800Borrowing from Da Afghanistan Bank ( 583) 1,171 ( 540) ( 549)( 750) ( 792) ( 800)Other 1/ ( 9) -82) ( 6) (68) (-65) (86) ( --
TOTAL PUBLIC SECTOR CONSOLIDATED ACCOUNTS
A. Domestic financing in budgetary accounts 592 1,089 546 617 685 878 800 -300
B. Extrabudgetary expenditures and financingdifferences in recording of transactionsin budgetary and monetary data (net) 2/ -385 35 389 372 -9 254 ... 80
C. Cash surplus (-) or deficit of officialentities I/ - 311 -292 -826 756 346 ... 842
Food department (-97) (-42) (-654) (227) (156) ... (-281)Monopolies (-214) (-251) (-171) (529) (190) ... (1,123)
D. Total public sector deficit subjectto domestic financing 81 64 16 43 1,0478 800 622Net borrowing from banking system 4J 6117 E 1497 1,392 ... 22Other 1/ 9 -82 6 68 -65 86 ...
Sources: Information received from the Ministry of Finance, the Ministry of Planning, and Da Afghanistan Bank
1/ This item represents mainly changes in cash balances held by local treasuries outside the banking system, butmay also reflect, to some extent, small discrepancies in budgetary data.
2/ Represents mainly extrabudgetary expenditures, revenue transferred to the general revenue account from officialentities and other sources after the end of the fiscal year and expenditures incurred early in the year butincluded in previous year's budgetary accounts.
3/ This item differs from the net borrowing shown in monetary data as adjustment has been made for transfers ofrevenue to the Government to previous years over the suspense account.
4/ Equals changes in net claims on the public sector as recorded in monetary data.
Table 5.2: SUMMARY OF GOVERNI1ENT REVENUE
(In millions of Afghanis)
Year ended Mlarch 20 1974/75 Budget1968/69 1969/70 1970/71 1971/72 1972/73 1973/7 Budget Estimate 1975/76
Direct taxes '72 1411 467 428 573 818 1,257 1 092 1 687Individual income tax 162 20 37 27 230 C 392
Corporate income tax 120 12C 139 138 165 289 275 430 b80
Tax on government enterprises __ 89 78 120 80 160Land tax 89 84 88 70 78 84 350 90 360
Livestock tax -- -- -- -- -- -- 100 -- 100
Other(motor vehicle registra- 4 11 b 20 22 35
tion fees)Indirect taxes 2 083 2,549 2 818 2 976 2 9q7 3 40 3 38 5,100 5 520
Import taxes 1,566 1,569, 3,300 35
Export taxes 183 188 182 227 250 209 180 295 300
Exchange profits and taxes 1/ 263 342 416 722 552 612 560 1,235 1,200
Other 72 151 147 150 167 214 273 240 190
Revenue from monopolies andother government enterprises 1 008 996 950 97 928 73 1,3b2 7U0 1,350
Monopolies 836 921 900 951 905 692 1,210 777 700
Sugar (213) (306) (270)Petroleum (685) (464) (630)Other (23) (131 (51)
Other government enterprises 173 75 50 22 23 4l; 132 63 650
Revenue from gas exports 429 453 720 587 727 690 900 900 2,025
Revenue from other guvernmentproperty and services 329 2 42l: 481 bY'7 597 641 680 854
Other revenue 2LL 283 3 X 460 637 7 688 716
Total revenue l5,)815 5,0 j 5J713 6,111 7,017 8,262 9,200 12,152
Scurce: lMinistry of Finance and IMinistry of Pl&nning1/ For 1974/75 and 1975/76 includes special export taxes on cotton, oilseeds, raisins, and walnuts.
Table 5.3: GOVERNMENT EXPENDITURES
(In rdillons of Afghanis)Rev-iEed 1974/75Estiirates Budget Revised
ve2r -nded 1'arch 20 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74 Estimates 1975/76
A. Ordinary expenditnlres by function 425 5 4 5 .6'; 6 725 1. General admninistration L45 4 91 10 520 357 3L 22. Defense and securit Y 1,501 1,577 1,650 1,621 1,731 1,948 2,03C 2,021 2,4613. Social services 824 907 1,030 1,114 1,230 1,413 1,417 1,L46 1,6544. Economic services 16 474 468 474 422 447 442 475 5145. Total Ministries(1+2+3+4) 3, 3,2 3,739 3,719 3,903 4,7303 4,00 5,171A, Debt service and subsidies 969 1.306 1,517 1,731 1,756 2,248 2,988 2,850 4,685
Foreign debt service (601) (867) (1,004) (1,135) (1,035) (1,410) (1,849) (1,840) (1,200)Exchange subsidies 86) (214) (240) (390) ( 360) 838) (950) (550) (633)Other subsidies and grants 1/ 2 P (225) (73 (2) ( 361) ) (589) (460) (2,852)
B. Ordinary expenditures by object 2 4.732 ,450 5,659 67311 7,250 8Wages and ^alaries 1,79 1,092 2,221 2,101 2,d54Materials and supplies 1,104 1,182 1,171 1,068 1,160 1,259 1,316 1,412 1,827Subsidies and grants 473 589 675 796 865 838 1,121 1,063 3,506Foreign debt service 601 867 1,004 1,135 1,035 1,410 1,849 1,840 1,200Other 1/ L30 303 355 359 378 629 524 425 438
C. Development expenditures 094 3L9Lh 2L9L 3,277 4,287 3 571 4 984 4 060 9,32Budgetary expenditure T 1 ,920 1,731 1,717 2,3871ProJect aid expenditure 2,274 2,n?5 1,250 1,560 1,900 1,585 2,184 1,810 5,176
D. Total expenditures 8,3iL 8 8,677 8,137 8,727 9,946 12,295 11,310 19,176
Sources: Information received frorm the 1Iinistry of Finarnce, the Ministry of Planning and Da Afghanistan Bank,1/ Inclrdes extraordinary expend4iures and reserves for unforseen expenditures in the 197L/75 budget.
Ta ble 5.4: bLUTORAL Dl.TtiEUIC.1 CF T.2JAD PLhi, DRAFT F0T2.T, PLAi'
AND ANNUAL PIANS 1972/73, 1973/78, 1974/75 und 1975/76(Mi.l1ins of afghanis)
Third Plan Fourth Plan __ov. ed c i.e 1974/75 1975/76
'9(7/60-17 7~ 1 972/73-1975/ 7 1 927 1 '71 7udpe__ Revised Estimate Budget
Amounrl. tLotal Amount, total Amourt. is totot- Amount. -tctal Amount. totil Amount % total Amount % total
ACricul.turp & Irrigatiorl 6,630 38.%'r 10,81Cl l0.2% 1,591 38.1% 1,2118 29.9% 1,681 32.9i% 1,3108 33.2% 2,291 218.6%
Mines, Industry & Ener-y 5,850 30.8' 9,800 36.5% 1,596 38.1% 1,559 37 .14 1,527 30( 7 1,338 33.0% 3,874. L1.5%
Transport & Communications 3,380 17.8% 2,0'90) 10.8% 852 10.8,% 1.36 10.5% 985 18.o 756 18.6% 1,351. 18.5%
Social Services 3,10 16.c, 3,370 12. % SLO 13.0; 928 22.2,Z 799 16.0G 618 15.2% 1, 22 15.3%
Reserve 73 1.5r - 380 L.1%
TOTAI. DFVgLOP1MIT EXPENSE 19,()20 100.0, 26,870 10G.r 4,1&1 100.0, 4,172 100.0% 8,98.L 100.0% l,o60 100.0% 9,322 100.0%
Sources: llin;stry of Planniriw, and Minis try of Finance
SECTION VI
MNETARY DATA
Table 6.1: AFGRANISTAN: MDNETARY SIIRVEY
(millions of Afghanis)
Year ending March 201969 1970V L (97 197 l973 1(41975/a
A: Foreign assets 2,218 2,238 2X413 2,886 3,081 3,606 4,461Foreign liabilities -889 -871 -892 -658 -428 L38 _1L4
NET FOREIGN ASSETS 1.329 1=367 1=521 2.228 2=653 4k u,317
B: National Government: Claims 7,180 8,771 9,478 10,671 11,106 12,057 12,442: Deposits -1 359 -1.372 -1 504 -956 -1 398 1,766 - 7
Net Claims on National Government 7,399 9,971 10,691 10,,9Official entities: ClaiuD of Food Dept. 229 168 277
:Deposits of Food Dept. -180 -104 -377 -986 -378 -222 -503Net deposits bf Monopolies: Sagar- -294 -480 -663 -199 106 1,00
: Petroleum -425 -182 -483 - 32 -147 -331: Liquidation -226 -111 - 93 -159 -159 -154
NET CLAIMS ON GOVERNMENT 6,51B 7,102 7,490 1 90 2 9 11,012
C: CLAIMS ON PRIVATE SECTOR 2,810 3 364 3 585 3,485 4,253 4,259 5.193
D: IMPORT DEPOSITS 426 317 433 519 541 951 1 839
E: SDR ALLOCATIONS 219 397 574 574 574 574
F: Inter-Da Afghanistan Bank item 232 427 374 667 788 725 1,296Other 1,271 1.376 1,45 1 181 1,643 1635 1 9LOTHER ITEMS NET 1 3 1 803 ,828 2,
G: Currency in circulation 5,321 6,007 6, 35 6,607 7,915 9,174 9,891Demand deposits 971 1 477 1432 1,616 i,2 2,216
MONEY SUPPLY 6,292 7,LB 7,767 9,53 1 11,002 12,107
H: Time and savings deposits 1,192 1,268 1,645 1,939 2,430 2,666 2,871Foreign currency deposits 154 158 38 150 348 233 241QUASI - MONEY A1,46 2,778 2,599 3,112
DOMESTIC LIQUIDITY 7,638 8,910 9,550 10,262 12,309 13,901 15,219(G+H = A+B+C-D-E-F) - - ___
Deposits as o/--domestic liquidity 30.30/o 32.6% 33.7% 35.6% 35.7% 34.00/o 35.0.0/o changes in : domestic liquidity 16.7% 7.2% 7.5% 19.9% 22.9 0 /a 9.qf
money supply 18.9% 3.8% 5.2% 16.6% 15.40/o 10.0%:claims on pvt. sector 19.7% 6.60/o -2.8u/o 22.00/o 0 21.9%
Source: Research Department, Da Afghanistan Bank
a/ Preliminary
SECTION VII
ACEICULTURE
Table 7.1: TRE.\TS IT PRODUCTIONF CF PRINCIPAL CROPS
(thousand tor.s)
Crop1348 1349 1350 1351 1352 13 53
(1969o70) (1970/71)(1971/72)(1972/73)(1973774) (1974775)
Wheat 2454 2081 1951 2500 2700 2757
Barley 365 370 355 350 360 360
Maize 785 667 670 700 770 770
Rice 407 366 3 400 420 420
Subtotal 4011 3484 3326 3950 4250 l4307Grain Crops
Cotton (unginned) 85 76 63 58 108 145
Sugar Beets 68 62 60 66 57 67
Sugarcane 60 55 50 55 58 65
Oilseeds 37 35 28 34 38 40
Fruits 842 809 650 800 840 865
Vegetables 671 626 725 658 680 700
Source: Ministry of Planning
Table 7.2 AREA OF PRl,-iCIPA1 CROPS
(thousand hectares)
Esti ri& se-1?73/'Y!, 1974/75 1974/75
Crops (1351) (1352) (1353)
Wheat 2,200 2,300 2,350
Corn L70 )484 8L1
aice 210 210 210
Barley 350 355 355
Cotton 45 71 95
Sugar beet 5.0 5 5
Oil seeds L, 12 12
Vegetables 92 92 92
Fruits 136 137 137
Total 3,590 3,666 3,740
Source: Ministry of Planning (1353 Plan)
TaUle j4: ESTIT4IkTES OF LIVESTOCK TUIERS
(I-r, i i r )
Project on1969/70 1971/72 197l/75 1979/3C
Tye of Anirmal (13L, (1350, 1353)
IMlutton Sheep 15 9 9.83 11o38
Karakuls 7 3 8 4v15 67
Cattle 3.7 3.L 3o4 3.5
Goats 3.2 3.0 3.0 3.1
Donkeys 1.3 1.3 1.3 1.2
Camels 0.3 0.3 0.3 0.2
Horses and Mules 0.4 0.4 0.4 0.3
Source: Estimrates of the Ia.D Agr-Liiltturql Sector Survey.
SECTION VIII
INDUSTRY AND MINES
Table 8.1: IkjOR IDUSTRIAL AND MITLING VRODuCT IOl'Quaritity in units as indicated)
(1967/68 - 1973/714)
Years ended Quantity 11336 1 347 15h8 49 1350 1 351 1352 t 36March 20 by unit 1967/68 19;6/69 1 MM 1971n72 197V73 1973/7T1 1974/75
Mining and Quarrying
coal 1000 tons 152.0 124.9 136.6 164.4 135.0 70.9 116.5Natural Gas billion cub.wet. 595.0 1,681.0 4)29.0 2,583.0 2,635.0 2,849.14 2,735,0Bait 1000 tons 36.0 36.9 36.6 39.0 40.0 31 .0 142.0Thipia Lazuli 100 kilos 5.2 5. 4:9 14.7 - 2.9 -Marble 1001 kilos 44 4.7 6.1 4.6 11 .0 8.2 13.8
Food Processing
1000 tons 67.0 58,5 140.3 51.2 92.3 63.0 18.0EWhkery products 1000 tons 16.o 16.2 15.3 16.5 16.7 16.2 17.0Sakery products 1000 tons 7.6 5.3 7.6 5.6 8.5 7.1 7.14 8.9Vegetable oil 1000 tons 3.2 301 2.9 39 14.0 3.9 4.5 9.8me 100 tone 4.2 14.6 5.4 2.5 2.6 3.0 104L
Textile and Leather products
Ginned cotton 1000 ton2s 18.1 13.5 27.0 29.2 16.8 15.2 25.0 47.5Cotton yarn 1000 bundles 106.7 8o.14 8L4.0 155$o 136.0 162.1 179.1Cotton textiles mill. meters 62.4 48.8 50oJ 55.0 62.0 60.2 71.8 65.7Rayon textiles mill. meters 1,3 2.82/ 2.5 8.3 10.55 14.79 16.0 6.5Woolen textiles mill. meters 0.4 00$ 0.7 0.5 .28 .27 .13 .11Shoes 1000 pairs 123.3 123.8 162.3 199.0 216.2 215.9 199.0Ganings 1000 rings 72.1 72.1 210.0 288.0 109.0 375.3 238.1
Chemicals, coal andPetroleum products
1000 tons 27.2 27.2 23.0 30.0 23.8 22.4 32.5Coal brjiquettes Tmillo cakes 3.6 3.6 3.4 6.14 4.0 14.7 3.1 4.08aical Fertilizer 1000 tons - - - - - - - 18.0OthersC:ement 1000 tons 124.7 90.6 103.5 90.3 73.0 90.6 135,0 1 L6.0Electric Power tgill. kwh 298.3 31714 358.8 395.0 1422.6 486.9 404.0 484.4
1/ Data available for selected indiistries only./ Includes Silk production of 8,867 meters
Source: Central Statistics Office
Table 8.1: IkjOR IDUSTRIAL AND MITLING VRODuCT IOl'Quaritity in units as indicated)
(1967/68 - 1973/714)
Years ended Quantity 11336 1 347 15h8 49 1350 1 351 1352 t 36March 20 by unit 1967/68 19;6/69 1 MM 1971T-72 197V73 1973/7T1 1974/75
Mining and Quarrying
coal 1000 tons 152.0 124.9 136.6 164.4 135.0 70.9 116.5Natural Gas billion cub.wet. 595.0 1,681.0 4)29.0 2,583.0 2,635.0 2,849.14 2,735,0Bait 1000 tons 36.0 36.9 36.6 39.0 40.0 31 .0 142.0Thipia Lazuli 100 kilos 5.2 5. 4:9 14.7 - 2.9 -Marble 1001 kilos 44 4.7 6.1 4.6 11 .0 8.2 13.8
Food Processing
1000 tons 67.0 58,5 140.3 51.2 92.3 63.0 18.0EWhkery products 1000 tons 16.o 16.2 15.3 16.5 16.7 16.2 17.0Sakery products 1000 tons 7.6 5.3 7.6 5.6 8.5 7.1 7.14 8.9Vegetable oil 1000 tons 3.2 301 2.9 39 14.0 3.9 4.5 9.8me 100 tone 4.2 14.6 5.4 2.5 2.6 3.0 104L
Textile and Leather products
Ginned cotton 1000 ton2s 18.1 13.5 27.0 29.2 16.8 15.2 25.0 47.5Cotton yarn 1000 bundles 106.7 80.14 8L4.0 155$o 136.0 162.1 179.1Cotton textiles mill. meters 62.4 48.8 50OJ 55.0 62.0 60.2 71.8 65.7Rayon textiles mill. meters 1,3 2.82/ 2.5 8.3 10.55 14.79 16.0 6.5Woolen textiles mill. meters 0.4 00$ 0.7 0.5 .28 .27 .13 .11Shoes 1000 pairs 123.3 123.8 162.3 199.0 216.2 215.9 199.0Ganings 1000 rings 72.1 72.1 210.0 288.0 109.0 375.3 238.1
Chemicals, coal andPetroleum products
1000 tons 27.2 27.2 23.0 30.0 23.8 22.4 32.5Coal brjiquettes Tmillo cakes 3.6 3.6 3.4 6.14 4.0 14.7 3.1 4.08aical Fertilizer 1000 tons - - - - - - - 18.0OthersC:ement 1000 tons 124.7 90.6 103.5 90.3 73.0 90.6 135,0 1 L6.0Electric Power tgill. kwh 298.3 31714 358.8 395.0 1422.6 486.9 404.0 484.4
1/ Data available for selected indiistries only./ Includes Silk production of 8,867 meters
Source: Central Statistics Office
Table 8.3: 1 ING PRODUCTION, 1971/72-1973/74
1350 1351 13521 9772 1 972/773 1 9 - b01
Natural Gas (tillion Cubic Meters) 2635.0 2849.4 2735.0
Coal (Thousand Tons) 135.0 70.9 116.5
Salt (Thousand Tons) 40.0 31.0 42.0
Lapus Iazuli (Thousand Kilos) - 2.9
Source: Central Statistics Office.
Table 8.s: CLASSIFICATION OF INDtTSTRIAL ESTABLISHME14TSBY NU?ER OF WCRKRS
(1971 /72-1.973/74)
1 350 1 351 1 3521971/72 1972/73 1973/74
Enterprises with:
5-20 25 27 53
21-99 48 51 63
100- 42 44 45
Total: 115 122 161
Source: Central Statistics Office.
SECTION IX
RICES
Table 9.1: NATIONAL PRICE IMDEX
(1961/62 - 100)
Non-Years ending General Fruits Other FoodMarch 20 Index Cereals Meat and Nuts Vegetables Food Items Items
(Weights) (100) (58.1) (10.7) (10.6) (5.7) (5-1) (9.8)Annual Averages
1962/63 98.1 95.7 97.9 100.5 lo6.6 107.4 101.61963/64 132.2 143.8 110.4 138.3 127.9 108.9 98.61964/65 138.1 173.4 145.0 149.9 138.7 129.9 99.11965/66 170.0 186.5 174.9 168.8 144.6 141.0 103.41966/67 234.2 245.0 217.1 186.8 183.6 151.5 111.01967/68 271.9 336.2 222.2 176.0 176.5 150.4 110.81968/69 208.4 233.7 191.6 199.2 173.1 146.1 105.51969/70 207.9 219.3 214.9 235.0 242.1 145.8 115.21970/71 264.6 318.3 222.6 214.6 247.6 147.0 117.21971/72 312.5 400.7 204.2 227.7 240.7 161.6 119.71972/73 267.0 307.0 244.5 260.7 218.4 202.8 123,21973/74 246.1 232.8 310.9 351.3 293.9 206.3 133.4
Quarterly Averages1-971 M72 1st quarter 331.2 424.6 222.6 226.0 309.8 148.0 118.32nd quarter 303.0 408.0 181.9 162.4 169.2 151.8 117.53rd quarter 308.4 395.0 187.5 244.o 216.2 174.7 119.54th quarter 307.3 374.6 224.6 278.3 267.7 172.0 123.51972/731st quarter 336.7 420.6 250.7 271.7 269.6 184.7 121.22nd quarter 246.2 290.9 213.7 197.2 193.5 207.0 120.23rd quarter 230.1 257.6 230.7 230.7 153.3 209.9 121.24th quarter 255.1 258.8 282.8 343.0 257.2 209.7 130.01973/741st quarter 255.1 243.4 315.2 356.0 336.2 206.1 127.72nd quarter 255.5 228.4 303.2 254.1 179.4 204.8 130.03rd quarter 232.0 223.4 288.4 321.0 237.6 206.3 135,44th quarter 271.8 235.9 336.6 474.2 422.2 208.0 140.6
Mbnthly Figures for1974/75,
April 275.4 235.7 362.6 478.5 437.1 206.2 138.3May 270.3 275.6 359.5 408.4 376.2 206.o 141.6June 256.5 243.2 359.8 349.1 277.8 205.0 136.2July 250.2 248.2 356.6 290.6 222.7 206.4 140.6August 244.8 253.7 326.6 263.3 178.4 206.6 141.3September 246.5 254.0 330.8 279.1 169.2 209.2 139.2
Source: Central Statistics Office and Da Afghanistan Bank.
Table 9.2: AFGHANISTAN: KABUL PRICE INDEX
(1968/69 - 100)
Year ended General Fruits OtherMarch 20 Index Cereals Meat and nuts Vegetables Food Non-food
(Weights) (100.0) (58.1) (10.7) (10.6) (5.7) (5.1) (9.8)
1969/70 99.9 95.2 102.9 11.3 . 1099lst quarter 1034Z 7. 151 9613 2nd quarter 96.0 96.8 101.2 93.3 67.0 95.7 112.73rd quarter 94.7 91.4 99.2 100.4 80.6 98.1 109.14th quarter 105.2 96.2 108.2 140.3 124.3 99.2 109.6
1970/71 127.1 134.6 111.7 120.1 99.9 110.5lst quarter 115.2 112.4 123.1 130.7 122.5 989 110.22nd quarter 109.3 118.6 99.6 90.3 78.0 98.1 109.03rd quarter 136.1 153.3 104.1 131.9 105.3 100.9 110.74th quarter 149.6 157.2 120.1 181.8 174.6 101.8 112.3
1971/72 1 161 107.7 1 114.7 110.4 113.7lst quarter h 178>9 15.1 1692 13.3 104.4 112.22nd quarter 138.7 168.7 97.0 85.7 84.1 105.7 112.23rd quarter 136.1 153.3 97.8 128.3 109.8 112.4 112.44th quarter 140.1 144.3 120.8 174.4 126.4 118.9 118.0
1972/73 1 124.0 124,4 0 lo6.0 139.6 113.41st quarter 1T.1 159.2 130.6 156.9 135.7 125.5 110.2nd quarter 114.9 121.6 110.5 114.4 97.4 145.7 110.33rd quarter 106.7 106.1 115.6 100.1 65.7 144.1 112.24th quarter 120.2 109.1 140.9 146.2 125.1 143.1 120.5
1973/74 115.3 954 147 60. 1436 139.4 120.41st quarter 119.3 99.6 15627 4 6 T147.9 142.4 11T.62nd quarter 108.9 94.9 144.8 122.1 117.3 139-3 117.23rd quarter 106.8 91.2 124.8 143.1 114.8 137.7 119.74th quarter 126.3 95.9 162.8 214.7 194.4 138.2 125.1
MonthlY figuresfor 19174/75~April 130.5 97.6 177.0 214.8 230.4 136.1 122.3May 130.2 102.8 173.4 214.8 181.2 136.4 121.6June 122.9 101.3 180.7 171.6 132.7 136.4 121.8July 121.0 103.7 183.7 149.0 108.9 137.6 123.1August 117.8 106.6 170.3 127.0 92.5 139.5 120.7September 119.0 107.2 165.3 137 .6 89.2 170.9 123.5
Source: Central Statistics Office
IBRD 10790
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