Afghanistan - Economic development program

RESTRICTED Report No. AS-121a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION ECONOMIC DEVELOPMENT PROGRAM OF AFGHANISTAN January 26, 1967 Asia Department CURRENCY EQUIVALENTS Official Rate U. S. $1.00 =Afghanis 45 Afghanis 1, 000 =U.S. $22.22 Afghanis 1,000,000=U.S. $22,222 Free Rate (Approximate) U. S. $1.00 =Afghanis 70 (Octo.-Nov. 1966) Afghanis 1, 000 =U.S. $14. 29 Afghanis 1, 000, 000 = U. S. $14, 286 This report is based on the findings of a Mission that visited Afghanistan in October and November of 1966. The Mission was composed of the following members: 0. J. McDiarmid Chief Bahman K. Abadian Chief Economist Ray S. Fox Agricultural Economist (Consultant) Helmut S. Kaden Transport Engineer Clement L. Orrben Agriculturalist (Consultant) M. S. Parthasarathi Transportation Economist George Rosen Industrial Economist (Consultant) Stig K. R. von Post Fiscal and Monetary Economist (IM) Rogelio G. David Research Assistant Phyllis Newton Secretary CONTENTS Page MAP BASIC DATA SUMMARY AND CONCLUSIONS i - viii Part I Chapter 1 The Country and Its Administration 1 Social Structure 2 History and Administration 4 Economic Progress 6 2 Progress and Problems of the Economy 8 Economic Performance in the Second Plan 8 Foreign Trade, Money and Exchange Rate Policy 11 Exchange Rate and Stabilization Program 12 Present Economic Situation 14 Foreign Debt and Creditworthiness 15 Summary Tables 1, 2 and 3 16-18 3 Financial Resources for the Third Plan 19 Fiscal Prospects 19 Balance of Payments 23 Part II MAP S Agriculture 26 5 Industry 38 6 Transportation 50 7 Education, Health and Urban Development 60 Annex I The Revenue System 64 Annex II Exports 70 Statistical Appendix 73 . . . · . . . ,- oo i z o 121 . . .......... .. . . . .. . .. MvI BASIC DATA Area: Total Arable as % of total 245,000 square miles 12 Population: (1966/67) 15.9 million'- Rate of growth 2.0% Population density per square mile 65 Population density per square mile of cultivated land 1,084 Political Status: Constitutional monarchy. Gross National Product at Market Prices: 1966/67 1962/63 - 1966/67 (Very rough estimate) $1,345 million $1,017 million Real rate of growth 1962/63 - 1966/67 = 3.3% p.a. (compound rate) Per capita GNP in 1966/67 = $85 Gross Domestic Product at Factor Cost: (1966/67) $1,309 million of which, in per cent, Agriculture 29.2 Animal products 15.6 Handicraft products 7.4 Factory industry 2.8 Services 45.0 Percent of GDP at Market Prices: 1966/67 1962/63 - 1965/66 Very rough estimate) Gross investment 9.8 13.3 Gross savings 2.1 4.4 Balance of payments current account deficit 7.7 8.9 Investment income payments 0.2 0.4 Government current revenue 6.5 6.9 Resource Gap as % of Public Sector InvestmentY: 1966/67 79 Second Plan 71 1/ No census has ever been taken and this figure is the official estimate. 2/ Fbreign assistance is treated on a net basis. Mbney and Credit: Conversion Official rate: Afs. 45 = Us $1 Free market rate (October 1966): Afs. 71.= Us $1 Per cent change (In millions of afghanis) March 1966 since March 1962 Total money supply 6,419 63.6 Time and savings deposits 1,081 358.1 Claims on private sector 2,665 25.2 Claims on public sector (net) 3,616 20.2 Rate of change in prices 10% 91% Public Sector Operations: (In millions of afghani's) 1966/67 Second Plan Govt. revenue receipts' 3,913 18,493 Govt. non-development eapenditures 3,063 12,753 Revenue surplus 850 5,740 Govt. development expenditures 5,010 23,934 External assistance to public sector of which: Commodity aid 1,000 2,865 Project assistance 3,160 15,329 External Public Debt: (In millions of US $) September 1966 Total external public debt 555.6 net of undisbursed 350.9 Total annual debt service 1967/68 - 1971/72 (average) 22.3 of which amortization 15.8 interest 6.5 Debt service ratio 23.4% Balance of Payments: (In millions of US $) Annual Average Annual Average During During 1964/65 - 1966/67 1967/68 - 1971/72 Exports 70.1 95.2 Imports -11770 -162.2 Commercial -63.0 Commodity -19.0 -13.4 Project -63.0 -82.0 Investment Income -3.0 -6.5 Other Invisibles -4.5 -6.1 Public Sector Loans and Grants (excluding technical assistance) 82.1 95.4 Debt Repayment -4.2 -15.8 Errors and Omissions Including Drawdowm on Reserves 4.5 - Exchange Reserve Position: Average ($ million) 1963/64-1965/66 1965/66 Foreign assets 48*7 46.3 Foreign liabilities 46 3.1 Net .1 IMF Position (U.S.$ million): Average September 1960/61-1965/66 1966 Quota 22.5 29.00 Drawings outstanding 5.6 (in 1963) 15.64 11.3 (in 1964) 12.9 (in 1965) 16.9 (in June 1966) 1965/66 1962/63-1965/66 Commodity concentration of exports 73.2% 66.0% (karakul, furs and skins, fruits, cotton) SUMMARY AND CONCLUSIONS i * In 1965 the Afghanistan Government asked the Bank to send a mission to review the Third Development Plan which is to start in March 1967. After a reconnaissance visit in March, an economic mission visited Afghanistan in October-November 1966. ii. The major task of preparing the Third Plan was undertaken by a Russian team, which spent about six months in Afghanistan from March to September 1966. Previously, the general guidelines and financial magni- tudes of the Plan had been suggested by a U.S. group (Robert R. Nathan Associates) and a German team. Their studies indicated that: (1) the Third Plan should place more emphasis on the commodity producing sectors and less on infra-structure than in the Second Plan; (2) that public savings might be in the order of Afs. 5 to Afs. 6 billion, suggesting an order of magnitude for the Third Plan of around Afs. 30 billion ($667 million at the official exchange rate of Afs. 45 to the dollar). However, the Russians were told by the Ministry of Finance to prepare an Afs. 33 billion program, about 38 percent larger at current prices than the de- velopment expenditures of Afs. 24-25 billion estimated for the Second Plan. Since the Russian plan had not been reviewed by the Government at the time of the Mission's visit, it decided to concentrate on an exami- nation of the economy, the domestic resource availabilities and on the programs that should be carried out during the Third Plan rather than on a detailed review of the Russian draft. The Economy and Second Plan iii. Afghanistan is a land-locked country with probably 13 to 15 million people distributed over 245,000 square miles of rugged terrain. About 10 percent of the population is urban and about 16 percent nomadic. 85 percent are engaged in agriculture. The social structure is tradi- tional, with a very small emergent professional and business class. The vertical family system is prevalent and strong hierarchical influences are generally not conducive to individual initiative. However, the social system is undergoing very rapid change. iv. Afghanistan became a constitutional monarchy in 1923 but the King retains extensive powers. The first elections were held in 1965. The Government is deeply involved in industry and closely intertwined with the private sector. There is a great scarcity of competent administrators and planners and the Government relies heavily on foreign personnel. It is of supreme importance to secure the best use of its own few competent offi- cials. v. Statistics are fragmentary and discontinuous. The best estimate of per capita GNP is about $90 per annum, assuming a population of 13 - ii - million and an exchange rate of Afs. 60 per dollar. The annual growth of GNP has been estimated at 3.3 percent during the Second Plan (1962/63- 1966/67)2 /- and of per capita income at less than 1.5 percent (annual popu- lation growth being estimated at about 2 percent). Though factory industry is the fastest growing sector, it employs less than 1 percent of the labor force. Handicrafts are much more important. Agriculture is growing very slow- ly and Afghanistan has become a food deficit country. Its principal exports are animal products (karakul pelts and wool), raw cotte, carpets and fruit. vi. During the Second Plan, investment in the monetized sector is estimated at 12.4 percent of GNP and savings at less than 4 percent. Roughly 70 percent of monetized investment was financed by net capital inflow and of the balance about 45 percent was financed by credit expan- sion. In its effort to achieve the Second Plan investment targets, the Government drew very heavily on the Central Bank until after an IMF Stand- by Agreement was negotiated in 1965. Over the first four years of the Plan money supply rose by nearly 16 percent and prices 13.4 percent ayear. However, a number of exchange rate adjustments were made and exports in- creased considerably faster than GNP. During the Plan, public revenue, accounting for 6.8 percent of GNP, increased annually at the rate of 16.8 percent in money terms and about 4 percent in real terms. Afghanistan will end the Second Plan in a reasonably good position insofar as domes- tic finance and balance of payments are concerned. vii. Roads, power and large irrigation projects absorbed all but a small portion of investment funds during the Second Plan. Hence the Government is concerned now to increase quicker yielding investments in the commodity producing sectors. Frame of the Third Plan viii. The principal objectives of the Third Plan are to achieve 4.2 percent annual rate of economic growth, to mobilize, through noninfla- tionary measures, greater domestic savings, and to increase exports at a rate faster than the increase in GNP and imports. The amount of in- vestment required to achieve these objectives cannot be calculated accurately. If success is achieved in concentrating a larger proportion of development outlays on the commodity producing sectors, a goal that will require improved relations between the public and private sectors and substantial administrative changes in the public sector, the broad objectives of the Plan may be achieved with a level of domestic and foreign investment resources of Afs. 30 to Afs. 31 billion. ix. However, on the basis of the policy guidelines under which we were told the Plan was being prepared and which include provision for no new taxes or increases in tax rates, the mission has estimated that 1/ The free market rate widely used for imports and invisibles has recently been about Afs. 70 to the U.S. dollar (October-November 1966). The official rate applicable to about half of exports is Afs. 45 to the dollar. 2/ Afghanistan's fiscal year starts March 21. - iii - afghani investment resources will be Afs. 11 billion, of which Afs. 3 billion would be foreign commodity aid and Afs. 2 billion private savings. If all the foreign exchange component of projects is obtained as foreign aid, this would permit a total program of Afs. 27.5 billion. To achieve an Afs. 31 billion program, additional public savings of at least Afs. 1.4 billion will be required. Public revenue should, therefore, increase from Afs. 28.7 billion to Afs. 30.1 billion. This does not seem too difficult a task for the Government. If achieved, it would bring public revenues to about 8 percent of GNP, considerably lower than India or Pakistan. x. From its balance of payments analysis, the mission has concluded that, to carry out a program of this magnitude, Afghanistan would require disbursements of about $477 million of foreign aid during the Third Plan compared with $405 million during the Second Plan. However, since the re- payment of foreign debt will be $58 million more in the Third than the Second Plan (if the moratorium now in effect on payments to Russia is not extended beyond 1968), the net capital inflow would be only about $14 million more for a program roughly 30 percent larger. $410 million of the Third Plan foreign aid requirement would be for projects and $67 million for commodities. xi. During the Third Plan the balance of payments will continue to be under considerable pressure. The mission's estimate of export prospects shows an increase in exports of about 6.5 percent a year compared with 5.2 percent achieved in the Second Plan. Such a level of export earnings, to- gether with suggested level of commodity assistance, would reduce the ratio of nonproject imports to GNP from 10 percent during the last 3 years to 8 percent in the Third Plan if none of Afghanistan's export earnings are used for project financing. Under the circumstances, the preservation of the free exchange rate mechanism for redressing the imbalance in her ex- ternal transactions is basic, even though the eventual stabilization of the rate may be desirable for encouraging private industrial investment. Mean- while, every effort should be made to improve Afghanistan's difficult balance of payment situation, by encouraging investment for import substitu- tion and for export production. xii. Afghanistan has been receiving foreign aid on average terms that are very liberal (1.9 percent interest, 35 years maturity and 11 years grace). However, her debt service ratio will be over 17 percent when the Russian moratorium is ended and will be in excess of 20 percent for the foreseeable future if her economic development is to proceed at a reasonable pace. For this reason, and because of the steps she has taken since 1965 to conduct her economic affairs more satisfactorily, the mission considers her eligible to receive assistance on soft terms. Sector Programs xiii. According to the sector allocations suggested by the Soviet team, agriculture and irrigation would get 24.6 percent of total development out- lays as compared to 18.7 percent in the Second Plan; industry and power 33 percent as compared to 20; transport and communications 12 percent as com- pared to 34; education and health 10 percent as compared to 23. The foreign - iv - exchange component of the total Plan measured at Afs. 45 to the dollar would be 60 percent as compared with 70 in the Second Plan. xiv. Agriculture. Although agricultural investment in the Third Plan is expected to increase by a third more than the increase in investment in the whole economy, irrigation will receive most of this relative increase. This is because implementation of the irrigation projects will encounter fewer constraints than other subsectors. The primary constraint in other agricultural investment is lack of trained technical personnel. The Third Plan investment proposals do not deal adequately with this problem. xv. The value and efficiency of the small irrigation systems through- out Afghanistan can be enhanced by relocation and better design of canals and laterals, by installing control structures for applying water and by drainage. Very little has been done by way of studies on the determination of water requirements for different crops or how best to apply it. Com- panion regional studies of soil salinity should be a part of a comprehensive water requirements study. xvi. The remaining natural forest areas are being depleted. Little effort has been expended to protect them or to reforest. The shortage of fuel and floods should serve as a warning to preserve what timber is left and to reforest areas for future use. xvii. Livestock is a vital part of the agricultural economy. The 23 percent that livestock contributes to the agriculture income could be in- creased by improving grazing areas, controlling their use, and introducing better grass species. Emphasis must be placed on control of diseases and parasites, watering facilities, winter feed supplies, selective breeding and protection of flocks from the weather. This would be a fruitful field for intensified technical assistance. xviii. During the Second Plan, the Government attempted to increase agricultural production through crop acreage controls for some of the major cash crops. This approach has not been very successful. A clear decision against mandatory acreage allotments in favor of price incentives to stimu- late production has not been made. Until this decision is taken, evaluat- ing the feasibility of Third Plan production targets is very difficult. xix. If the Plan production targets are to be achieved, production at the intensive margin must be stimulated. This would require much larger inputs mostly in the form of fertilizer. Improved varieties and other cultural practices must accompany the fertilizer application. Also, if agriculture is to move in the direction of increased inputs, it is impera- tive that more adequate remuneration be given to the producer. Prices are now depressed by government policies. - v - xx. Under the conditions now prevailing, it is unlikely that the foodgrain production target will be achieved. Large numbers of culti- vators would have to change their traditional cultural practices which appears to be impossible with the current and proposed extension staff. xxi. The entire effort to accelerate agricultural production could be enhanced by a successful program of establishing cooperatives and providing credit. The latter should be given high priority in foreign assistance programs. xxii. Industry. Afghan industry possesses the advantage of remote- ness from world markets, so that it can sell to advantage relatively bulky products which have high transport costs. The chief raw materials are agricultural; except for natural gas, there are no proven mineral deposits but hydropower potential is large. The Government is seeking to promote industry by various fiscal benefits and loans as well as technical assist- ance. The Third Plan proposes a sharp increase in the number of industrial enterprises. In contrast to the four plants completed in the Second Plan (out of 17 projected), the Third Plan lists over 80 projects. Almost all of these are intended to be taken up by private entrepreneurs. Industrial production is to double, and handicraft production increase 20 percent. xxiii. From discussions with private businessmen, it is the opinion of the mission that private Third Plan investment in manufacturing industry is unlikely to exceed Afs. 3 billion. Although this total is below the Afs. 5 billion mentioned in the Soviet draft of the Plan, it would be a major increase over the amount of private investment in manufacturing in the past ten years. xxiv. There are many problems for private industrial investment in Afghanistan; these in large part reflect the lack of experience of would-be entrepreneurs and government policies and practices. Most Afghan business- men have a mercantile background which requires different management skills and techniques than industry. They look to the Afghan Government for tech- nical advice and support. This technical assistance that the Government provides is very inadequate. Furthermore, the suspicion that exists of businessmen has led to complex approval procedures and long delays in approving projects, with consequent tying-up of capital for lengthy periods. On the other hand, some coercion has been used to persuade private in- vestors to invest in ill-considered projects which, when the enterprises failed, has had a devastating effect on the investment climate. xxV. The following suggestions are made with respect to policy reforms: (1) Implementation of existing laws to aid business, especially in the grant of exemptions on duty-free imports for new industries. (2) Examination of the present structure of tariffs and preferences on government procurement to provide protection to new indus- tries which are adapted to local conditions. - vi - (3) A clear statement defining the limits to government participa- tion in industry. xxvi. The major institutional changes recommended by the mission are: (1) A much improved organization within the country capable of carrying out feasibility studies. (2) Steps to shorten drastically the time now required to process applications for private industrial projects. This would best be done by establishing a central agency with sole licensing authority. (3) The establishment of an industrial development bank, with managers and technical staff of high quality. (4) Setting up of a management institute within the country, that would provide training for potential business executives both in the government and private sectors. (5) Improved coordination between the Ministries of Mines and Industry and of Commerce, and the Ministry of Agriculture to insure that supplies of agricultural raw materials increase as required for the factories constructed to process those materials. (6) Improvement of the present training programs for labor to ensure that they are tied in with the requirements of industrial develop- ment. This will call for collection of data on skills available and required. It should also lead to greater stress on training in nearby countries rather than in the United States or Europe as in the past, and in improved monitoring of the work of such trainees on their return. (7) Given the importance of the handicraft sector, steps are needed for the improvement of the raw materials used by such industries as carpet weaving, and for standardized and improved processing of the final output. xxvii. Apart from these policy and institutional changes which the mission believes are compatible with the general tenor of Afghan politics, the mission strongly approves the plans to continue exploration for minerals, particularly the promising iron deposits. Meanwhile, care should be taken not to deplete the existing natural gas deposits too rapidly by export. Given the need for power in the Kandahar and Herat regions, and for transport from Mazar-i-Sharif, the mission agrees with the Government's programs to complete projects now underway, in order to close gaps in the infra-structure. - vii - xxviii. Transportation. The following are the mission's principal observations on the transportation sector of the Third Plan: (1) About 80 percent of the proposed investment is on projects carried over from the First and Second Plans, and foreign exchange for all these projects has been committed. (2) Although the Third Plan transportation program is less than half that of the Second Plan, it is adequate, except more emphasis should be placed on improvement of secondary and feeder roads. (3) More even phasing of expenditures over the Plan period (rather than a sharp drop in the last year) would be advisable. (4) The requirement that truck operators pay a fee for each trip is an unnecessary burden and should be replaced by an increased annual license charge or fuel tax. (5) The fees collected by the Monopoly Bureau from importers of motor vehicles might better be paid directly to the Ministry of Finance. (6) A more adequate provision for road maintenance should be made in the ordinary budget. xxix. Education and Health. The mission could not examine the education and health programs in detail. However, it is apparent that the rapid growth of the student population at pre-senior school level has not been met by corresponding increases in qualified teachers or school facilities. At the same time, there is much underutilized staff at the senior school, vocational school and university levels. In order to effect a modest improvement in thc quality of educational standards, at least Afs. 950 million additional funds for current expenditures are required during the Third Plan. There is also need for training more teachers. A thorough review should be made and ef- fective coordination achieved of foreign assistance for education, and the planning cell in the Ministry of Education should be strengthened. xxx. As for health, the Third Plan ordinary budget makes inadequate provision for preventive medicine. The Plan target for increases in the number of semi-medical staff is lower than for physicians, and the training of semi-medical staff does not appear to have been adequately provided for in the Plan. xxxi. Administration. Despite the presence of many dedicated and compe- tent Afghan officials and foreign technicians, economic programs in general, and the development program in particular, suffer from serious administra- tive shortcomings. The Planning Ministry does not have either the personnel or the position in the governmental structure that it needs to do an adequate job of plan preparation and supervision. Also, the services of foreign ad- visers are not always used to best advantage. The mission suggests that: - viii - (1) The Planning Ministry be converted to a Planning Organization or Commission, whose full-time head would be a deputy prime minister. (2) The head of the Planning Organization should report to, and be deputy chairman of, the High Economic Council (as recently reconstituted) and the Council should hold regular monthly (or more frequent) meetings rather than as now, meeting only at the request of the Planning Minister. The Council should assume real responsibility for the development program. (3) An economic adviser to the Prime Minister should be appointed, who would be a member ex officio of the High Economic Council and part of whose responsibilities would be to maintain liaison between the Prime Minister and the foreign advisory groups concerned with economic technical assistance to the Government. (4) The presently inadequate staffing of the departments of the Planning Ministry should be remedied as quickly as possible; and (5) The planning units in the agencies involved in implementing the Plan should be placed directly under the heads of such agencies. PART I CHAPTER 1 THE COUNTRY AND ITS ADMINISTRATION Geographical Features and Population 1. A mountainous topography and a geographical location remote from world trade routes but bordering the Soviet Union have been dominant factors in Afghanistan's economic development. Of her 245,000 square miles (about the size of Texas), only about 15 percent is suitable for agriculture though this can be extended by more irrigation. Since no census has been taken, the size of the population leaves much room for speculation and estimates range from 10 to about 16 million persons. Recent evidence based largely on male registration has produced an official estimate of 15.9 million with an average density of about 65 per square mile. Probably about 10 percent of the population is urban (living in communities over 25,000) and about 16 per cent are nomads. The labor force is estimated at about 4 million with over 85 percent engaged in agriculture and less than 1 percent in factory industry. Infant and child mortality are high, so that the rate of population growth may be a little below 2 percent per annum. The ethnic structure of the popu- lation is quite heterogeneous which, combined with the nomadic influence, has presented formidable problems in welding the country into a unified national state. 2. The most prominent physical feature is the Hindu Kush range, which extends for some 450 miles diagonally from the northeast to the southwest, and has been a formidable barrier between the fertile northern agricultural plain and the center of economic and political power at Kabul. Recently, however, with the assistance of the Soviet Union, the Kunduz Basin and Mazar-i-Sharif (where substantial quantities of natural gas have been found recently and which bids fair to be an important industrial area) have been linked with Kabul by a tunnel under Hindu Kush at the Salang Pass. The Russian and American road-building programs were major accomplishments of the Second Five-Year Plan and have contributed greatly to the country's physical and economic unification. In addition to the Hindu Kush and the lesser mountain ranges which are mostly devoid of vegetation, the country consists of plains and steppes partially irrigated by rivers flowing from the mountains, and extensive deserts. 3. The northern steppes and plains which constitute the more produc- tive part of the country are drained by the Oxus River and its tributaries, the Kokcha, the Kunduz and the Hari Rud. The Oxus, rising among the glaciers of the Pamirs, marks for some 700 miles, a common boundary with the Soviet Union. About midway along the border the Oxus widens and becomes navigable. The Kokcha and the Kunduz, albeit not navigable, have great irri- gation potentials. The Hari Rud drains the plains of Herat in the northwest and, turning toward the north, is part of the Afghan-Iranian border. - 2 - 4. To the south and the west of the mountains is situated the most arid part of Afghanistan. The Registan and Dasht-i-Margo deserts front on, and extend into, Pakistan. Running through the two deserts is the Helmand, the country's longest river which is being harnessed for irrigation and power. Toward the west a vast expanse of flat spaces is dotted with salt- laden swamps and merge into the Lut desert that straddles the Iranian border. The Helmand, together with its tributaries, drains all the southwestern part of Afghanistan, an area of about 100,000 square miles. The Kabul, the other major river, drains the provinces of Kabul, Jalalabad and Dakka before join- ing the Indus. Below Jalalabad the Kabul becomes navigable for flat-bottomed barges and rafts. Agriculturally this area, like the north, is very promis- ing. 5. Apart from short borders with China and Kashmir on the remote Wakhan corridor in the northeast, the U.S.S.R., Iran, and Pakistan are thus the frontier states of Afghanistan, and each has had long historical and economic relations with that country. Her landlocked characteristic has, of course, enhanced the importance of her neighbors to Afghanistan's eco- nomic and political development. There are no insurmountable barriers to direct access by land routes to these three countries despite Afghanistan's lack of railroads. Pata Kesar, north of Mazar-i-Sharif, is near two branches of the Russian railroad system at Termez, where the Oxus River becomes navigable. Kushka is yet another Soviet railroad terminus north of Herat. The opening of the Volga-Don canal network in the Soviet Union, the Russian railroad system to the Caspian, and the use of the navigational potential of the Oxus River would provide Afghanistan with cheap land-sea transport facilities to European markets. Access can be had in the south, through the Khyber Pass to the Pakistan railway system. Kandahar is also connected by a good road to another part of Pakistan railway system near Quetta, bifurcating toward Karachi and Zahedan. By a road through Herat, Afghanistan can also join the Iranian railway network at Meshed. 6. Afghanistan is situated between 290 and 380 north latitude, about the same as Arizona and New Mexico in the U.S.A. or Algeria and Tunisia in North Africa. The climate varies greatly from alpine in the northeast and in the high mountains to continental in the plains and deserts with extremes of heat and cold. While the average annual rainfall is variously reported at between 12 and 16 inches, the extensive mountain areas have heavy snow- fall and those above 4,000 feet, which includes most of the country, get both rain and snow, but normally have adequate water supply only in the springtime. Most of the rains occur between October and April and summer rain is rare. Devastating deforestation has made water conservation well- nigh impossible. Social Structure 7. The Afghan social structure is traditional; custom-bound and hierarchical. Her social stratification is essentially dualistic, with the elite and the mass of the people at the two ends of the spectrum. A third emerging group is the business and the entrepreneurial class. - 3 - Tribalism characterizes the sedentary as well as the tribal life. Of the sedentary population, over 50 percent are under some form of tribal organization. In such a social setup the stress is on kinship and family status. While recent social change has been striking, much remains to be done before the country reaches the condition of her neighbors to the south and west. 8. The core of the "elite" includes the tribal chieftains, the landlords and the religious functionaries, Around this core and closely allied to it revolve the military, the professional and the intelligentsia, who live in Kabul and one or two other urban centers. Despite this dis- tinction between the commoner and the elite, the social system is not caste-ridden and the "link" between the two main groups may be welded by different factors. Firstly, the tribal heritage based on kinship and elective offices effected through tribal assembly (Jirgah) reinforces the unity of the tribe and imparts some degree of democratic spirit. Secondly, the village headman (Malik) selected by men of position in the village is the government contact-man and lends his support to the system. Thirdly, the religious leaders, who are among the major pillars of the system influ- ence the individual members: from the pulpit in some 15,000 mosques; from their judicial offices; and also by teaching the young in the traditional schools known as "maktab". Fourthly, the variegated and colorful cultural heritage dating back to the Graeco-Buddhistic period, enriched by Iranian, Indian, Phushtun and Central Asian influences has an adhesive effect. Moreover, the most significant tribal codes of.ethics and customs, known as Pushtunwali, that prevail among the Pushtuns, emphasize aspects such as self-respect, fortitude in war, the spirit of national pride, etc. are sanctified by the work of literary figures,such as Khushhal Khattak,who exercise a cohesive influence. Despite the ethnical heterogeneity, all these factors have contributed to the making of the nation and to ensuring a reasonably stable social equilibrium. 9. Against this background the role of the family should be viewed. The prevailing system is based on joint family structure consist- ing of several households which form the primary building block in the tribal organization. The role of women, whether veiled or, after 1959, emerging out from purdah, is very subordinate, particularly in the rural areas. The man within the family believes in his pre-ordained fate and usually submits to the decisions of his elders. Even a Khan, or the head of a minor lineage, has to consult the tribal assembly for decisions that have no precedents known to him. In fine, the prevailing joint family structure provides the individual with some security, enjoins submission to elders and inhibits initiative and the development of creative person- ality. Thus the social structure based on the extended family system has hitherto had a discouraging effect on economic development. -h 4 History and Administration 10. Afghanistan became a national state in the middle of the 18th century. Its founders were Pushtu tribesmen who still constitute the largest element in the population. The territorial limits of the country originally extended further south and west than at present, including part of Baluchistan and a portion of the Indus and Kabul river valleys around Peshawar. After a series of border clashes with the British in the 19th century, the present boundary in this area (the Durand Line) was established in 1893. The British guaranteed Afghanistan's boundaries until the end of the last Afghan war in 1919, when full national sovereignty was established. Controversy with Pakistan over the territorial question has troubled relations between the two countries and the Afghan-Pakistan border was closed for a con- siderable period in the early 1960's, the fourth such episode since 1950. These largely halted the normal flow of commerce with the West and brought about closer links with the U.S.S.R.; the first trade agreement between Afghanistan and Russia resulted from the 1950 border closing. However, present relations with Pakistan are good and joint projects between the two countries have been discussed recently. 11. Afghanistan's first constitution was adopted in 1923. It provided for a constitutional monarchy, with the king retaining exten- sive powers including that of appointing the Prime Minister and the effective control of the armed forces. Up until 1964, relatives of the king held the leading positions in the government including that of the Prime Minister. However, in that year a new constitution was approved, which inter alia barred members of the Royal Family from holding res- ponsible positions in the Government. Among the major rights recog- nized by the Constitution is that of all citizens, regardless of reli- gion and sex, to hold elective offices. In addition to various other democratic guarantees, the Constitution provides all citizens the right to a free education, to employment, and to own and dispose of private property. 12. The Parliamentary system is bicameral, with the lower house having overriding power, particularly on financial matters. This House (Wolesi Jirgah) is elected for a period of four years by adult suffrage. One-third of the members of the Upper House (Machrana Jirgah) are appointed by the king for five years, and the remainder are elected on the basis of two members from each province (as the U.S. Senate). Members of the cabinet may attend parliamentary sessions but are not voting members. The first election in the history of Afghanistan took place in September 1965. The present government under His Excellency Mohammad Hashim Maywandwal, former Afghan Ambassador to the U.S., was established in November of that year. 13. In Afghanistan the distinction between the public and private sectors is even less well-defined than in many other developing countries. For example, the Government holds shares in privately controlled enter- prises and the private sector in public enterprises. Mines and electri- city are now wholly in the public sector. Government participation in industry has been very significant, primarily in non-consumer type goods such as fertilizer, an industrial workshop, a cement plant and pre- fabricated housing. Small-scale industries, agriculture and the service sectors are predominantly in private hands. Autonomous public agencies, such as the Monopoly Bureau, handle some of Afghanistan's key imports (POL, sugar and motor vehicles) and the Da Afghanistan Bank not only is the central bank but also engages in commercial banking activities and some non-banking businesses such as the export trade. The Government owns the Pashtani Tejaraty Bank which, together with Bank Melli and the Central Bank, do the commercial banking business of the country. The Bank Melli was originally established in the 1930's as the instrument chosen by the Government for transferring economic operations from foreign to Afghan hands. Now, together with its affiliated commercial and industrial enterprises, it is the key establishment of the most important and influential private economic group in the country which controls the few important private industrial plants including the Textile Company and the Sugar Company. However, its relative position is not as important as it was a decade ago. Its power company has been nationalized and it no longer is in charge of karakul exports. 14. Like many other similarly situated countries, Afghanistan does not have nearly enough professional civil servants, particularly tech- nicians, to man the economic and planning offices of the Government. Salaries are low and many officials resort to outside jobs to make an adequate living. Although she is singularly well supplied with foreign advisers and technicians, they sometimes find it difficult to obtain satisfactory Afghan counterparts through and with whom to work. Nor are their activities well coordinated or adequately utilized in some instances. The Ministry of Planning, while staffed with a small number of competent professionals, is not now in a position, either from the standpoint of staff or its location at the same level as other ministries in the government framework, to prepare or supervise the execution of the development program. 15. Partly because of these inadequacies, the Government requested that a Russian team of experts be temporarily assigned to Kabul to pre- pare a draft of the next (Third) Five-Year Plan under general guidelines prepared by the Government, with the help of American, German and United Nations advisers. While the work done by this team (from March to September 1966) was essential to enable the Government to produce a plan on time, the remoteness, both linguistically and now geographically (since they have returned to the U.S.S.R.), of the framers of the draft Plan from those responsible for its acceptance and implementation pre- sents obvious difficulties. Although the projects incorporated into the - 6 - Plan by the Russian team were largely selected from a much larger list submitted by the executing agencies, Afghan identification with, or even knowledge of the Plan was largely lacking at the time of the Bank mission's visit to Afghanistan in October-November 1966. An Afghan plan has still to be produced. 16. Aside from improved staffing and organization of the Planning Ministry, a number of proposals have been made that would elevate the planning function within the Government. As a matter of fact, one of these proposals, namely, the establishment of a High Economic Council chaired by the Prime Minister, has already been adopted, but the Council lacks an adequate Secretariat to be effective. Husbanding and making effective the few high caliber officials available is the supreme task of Afghan public administration. Improvement of the status of the plan- ning function with the closely related problem of better employment of Afghanistan's many expatriate advisers and teams will be further con- sidered below. Mr. Albert Waterston from the Bank visited Afghanistan in February 1966 and submitted a memorandum on development planning to the Government which contains several suggestions for organizational improvements. Economic Progress 17. Afghani*tan's statistics are fragmentary and national accounts estimates are not prepi.ed on a continuing basis. Another problem in making intcrnational comparisons is what exchange rate is to be used to convert afghanis into foreign exchange equivalents, because of the sub- stantial difference between the official and the floating exchange rates. Firm demographic data are also lacking. For example, using the official estimate of the population of 15.9 million, the current bazaar exchange rate of Afs. 70 to the dollar, and the best available estimate of gross domestic product, one comes up with the per capita GDP of only $50-$60. On the other hand, using what may be a more realistic population estimate of 13 million and the official exchange rate (Afs. 45:$1.00) per capita GDP emerges as about $100 per capita. Looking at the items in common use in Afghanistan by comparison with Pakistan and Iran, one would guess that per capita income is somewhat higher than the former and considerably lower than the latter. A figure of about $90 per capita (which is about what one gets by assuming a population of 13 million and an exchange rate around Afs. 60 to the dollar) is a reasonable assumption. 18. As is often the case, while the absolute level of domestic production remains obscure, changes from year to year may be estimated with greater accuracy. Based largely on data collected by the Russian team (Appendix table 3 ), estimates are that GDP grew at about 3.3 percent per annum during the Second Plan (1962/63-1966/67) and per capita production at.about 1.4 percent annually. By reference to the data in other countries, the output of the commodity producing sectors may be estimated at 55 percent of total GDP, of which agriculture and animal - 7 - production constitute about 82 percent (about 44.8 percent of GDP), handicrafts 13 percent (7.4 percent of GDP) and the products of mechanized industry about 5 percent (2.8 percent of GDP). Agricultural output grew very little during the Second Plan (about 1.4 percent a year), and since population probably increased nearly 2 percent, the food deficit of the economy increased. Industry was, of course, the leading growth sector but remains a very small element in the economy. If the Third Plan succeeds in switching investment emphasis to the commodity producing sectors as is now proposed, one may expect to see an acceleration in economic growth towards the end of the next five-year period. CHAPTER 2 PROGRESS AND PROBLEMS OF THE ECONOMY 19. In March, 1967, Afghanistan will complete the second of her Five-Year Plans. Development expenditures at current prices increased from about Afs. 10 billion to about Afs. 24-25 billion (Appendix table 27), and in the order of 40-50 percent in real terms as between the two Plans. 20. To overcome her difficult topographrand long distances, the first priority in the First and Second Plans was the construction of a road network girdling the country. This has largely been completed (though with important gaps in the north) and absorbed about 50 percent of development outlays iphe First Plan and over one-third in the Second (Summary table 1),' Power for urban and industrial use was an obvious second priority, and two major projects (of about 120 megawatt capacity) were completed during the Second Plan and others are underway. Exploration for sources of energy other than water power were pressed, and a substantial field of natural gas was discovered and is being developed mainly for export to the Soviet Union. Considering agriculture's dominant position in Afghanistan, investment in that sector was quite small during both the First and Second Plans. It was also largely confined to certain regions, such as the Helmand Valley, a multipurpose project started with U. S. assistance nearly 20 years ago. About 80 percent of agricultural development expenditure has been for major irrigation and little has yet been done to provide the necessary commodity and service inputs needed by the farmers to enable them to break through the constrants imposed by poverty, archaic methods of cultivation, pests and disease. Therefore, while considerable emphasis has been placed on increasing the availability of water, the better use of existing land and water resources has not yet been emphasized. The important industrial projects in the Second Plan were a cement plant and a pre- fabricated housing factory in the public sector and a fruit packing plant in the private sector. Also a number of other industrial projects not included in the Plan were completed (see Chapter 5 ). 21. This strategy of development, emphasizing infra-structure, tied in well with the development assistance available to Afghanistan, both in terms of physical inputs and technical assistance. However, it has temporarily produced a considerable underutilization of capital assets in the economy. Economic Performance in the Second Plan 22. Economic Growth, Investment and Savings. Aggregated statistical data in Afghanistan are not adequate for an accurate estimate of domestic production or of savings and investment. This is particularly true of the service sectors of the economy. However, assuming that these account for about 45 percent of gross domestic product(as in Iran), the mission has made the following calculation of gross domestic product in 1966/67: 1/ See page 16. - 9 - Table 1 Amount Percent (Millions of Afs.) Crops and Forestry Products 17,310 29.2 Animal Products 9,274 15.6 Handicraft Products 4,390 7.4 Factory Industry 1,646 2.8 Services 26,680 45.0 Total 59,300 100.0 23. The predominance of handicrafts as compared with factory industry is a striking feature of the Afghan economy, as is the importance of animal products in the agricultural sector. The overall rate of economic growth during the Second Plan appears to have been about 3 to 4 percent per annum (the Russian experts estimate 3.3 percent -see Appendix table 3 ), and the per capita increase in gross domestic product 1 to 2 percent. Agri- cultural growth was low during the Second Plan, possibly about 1.4 percent a year, and since population probably increased nearly 2 percent, the food deficit of the economy increased. The performance of food grains and livestock were particularly disappointing, with the probable increase less than 1 percent annually (Appendix table 4 ). However, sugar cane and cotton production expanded by about one-third and two-thirds respectively during the first four years of the Second Plan. 24. Most of the economic growth of Afghanistan during the Second Plan was in the industrial and construction sectors. An estimate of 15 percent per annum seems reasonable for the former but of course starting from a very low base. The main growth in capacity in the factory portion of the industrial sector was in intermediate products, such as cement, other building materials and electric power. Although production of consumer goods, principally textiles, shoes, sugar, flour and household articles also increased substantially, consumer goods industries generally operated at much less than full capacity. 25. The mission has estimated (very roughly) that investment (at current prices) in the monetized sector of the economy amounted to about Afs. 28.6 billion during the Second Plan.L/ About Afs. 27 billion was gross capital formation and Afs. 1.6 billion increases in inventories. Thus,total monetized investment was about 12.4 percent and fixed capital formation 11.7 percent of GNP (at market prices). Roughly 70 percent of monetized investment was financed by net capital inflow of project and commodity aid and 30 percent from domestic resources. Calculating monetized savings as the difference between monetized investment and the current account deficit, one arrives at a magnitude for such savings of about Ms. 8.8 billion during the Second Plan or roughly 3.8 percent of GNP. In tersof voluntary savings, the record is even less impressive, 1/ This excludes foreign technical assistance. - 10 - since almost half of the domestic financial resources used for development in the publ ic sector were generated through deficit financing (Summary table 2 1 ). Of course, the conceptual basis of the Afghanistan develop- ment program needs to be taken into account. An undoubtedly large amount of agricultural investment is not reflected in the mission's estimates of monetized investment. Assuming that about 5 percent of agricultural pro- duction was saved and invested outside the monetized sector, investment during the Second Plan would be about 14.6 percent of gross national pro- duct and total savings about 6 percent. Thus about 40-50 percent of total investment during the Secon4 Plan may have been financed from domestic re- sources (Summary table 3). ./ 26. Fiscal Performance. Lack of any substantial public savings during the first three years of the Second Plan meant a large amount of deficit financing of development expenditures with resulting price and exchange rate instability. However, following an IMF Stand-by Agreement in 1965, under which the Fund has supplied Afghanistan with a substantial portion of its foreign exchange reserves, the Government has adopted a, much more conservative set of fiscal and monetary policies. In 1965/66 the budget deficit was reduced to the nominal amount of Afs. 83 million, compared to Afs. 707 million in 1964/65. An increase in commodity aid disbursements of Afs. 300 million in 1965/66 also contributed to financial stability. Revenues from government enterprises, particularly the Mono- poly, made an important contribution in 1965/66, but in addition, tax col- lection improved. The revenues from land taxes rose sharply because of the doubling of land tax rates. 27. Total government revenues increased by about 16.percent during the Second Plan. The receipts from the sale of foreign exchange by the Da Afghanistan Bank and income from the Monopoly Bureau that imports the country's needs for petroleum products, sugar and motor vehicles accounted for about 44 percent of the increase in revenues over this period. It must be noted, however, that the large increase in revenues from exchange taxes and profits on foreign exchange transactions of Da Afghanistan Bank did not represent an equivalent improvement in the budgetary position of the Government as it was largely the result of the exchange reform of March 1963 which also resulted in a large increase in government expendi- tures. It must be borne in mind, however, that there was considerable inflation during the Second Plan, which in turn resulted in increased tax revenues. In real terms, revenues probably did not increase by more than about 4 percent a year, though no reliable price indices are available. In other words, total government revenue in real terms roughly kept pace with the growth of the economy. Total revenue receipts by the Treasury as a proportion of GNP approximated 6.8 percent. This rate did not show any marked improvement over the Plan period. 28. A description of Afghanistan's public revenue system is in Annex I. 1/ See page 17. 7/ See page 18. - 11 - 29. During the Second Plan, government ordinary expenditure (in real terms) probably fluctuated at around 4.8 percent of the GNP, despite the additional development responsibility thrust on public agencies by an expanding development effort. Ordinary expenditure by the Ministries of Public Works, Education and Health probably increased in real terms, where- as those by the Ministries of Agriculture and Mines and Industry must have declined. Defense and internal security account for about 40 percent, and education and health for 20 percent of ordinary expenditures, representing 1.9 and 0.9 percent of GNP respectively. Foreign Trade, Money and Exchange Rate Policy 30. Trade. Afghanistan's export performance during the First and Second Plans has fallen considerably below expectations (Appendix table 7). Total export earnings increased by 28 percent as between the two periods and during the Second Plan (based on a three-year moving average) exports grew by 5.2 percent annually or only a little more than one and half times the increase in gross national product. An adverse factor was the decline in the export of karakul and wool, the former by 3.0 percent and the latter by 22.3 percent as between the two Plans. Exports of fresh and dried fruits, which together constitute the largest export item, increased 37 percent. The fourth major export, raw cotton, increased 46 percent in the Second Plan and exports of oil seeds more than doubled. The total value of exports in 1965/66 is estimated at about 5.2 percent of GNP and imports 9.7 percent. 31. The composition of commercial imports (Appendix table 9) has not changed appreciably over the years but, of course, aid-financed imports of capital equipment and supporting commodity aid rose rapidly. Some import substitution is evident in the declining importance of textiles in the import list. During the Second Plan imports increased by 10.6 percent a year on the basis of a three-year moving average. 32. The geographical position of Afghanistan has not only been an im- portant factor in securing external aid but obviously it also affects her foreign trade relations. Since she is land-locked and adverse political relations with Pakistan have interfered from time to time with trade with Western markets and the subcontinent, the Soviet Union now takes about a third of her exports (Appendix table 13). This trade has been facilitated by the U.S.S.R.'s road-builbing program in the north and east and will ex- pand qubstantially when the natural gas pipeline, which the Russians are building, is completed about 1968. During the period of the two Plans, the share of barter trade with Russia, East Europe and mainland China increased from 33 percent of total exports in the First Plan to 37 percent in the Second Plan and trade with the U.S.A. and India declined from 38 percent of total exports to 28 percent. Her export commodities which are fairly bulky per unit of value, such as cotton and wool, go mainly to the Soviet Union while her more expensive exports in terms of weight, such as karakul, can afford higher transport cost and are sold to Western Europe and the U.S.. The fact that these are semi-luxury items which are subject to more - 12 - volatile market forces has tended to make her exports to the convertible currency areas rather precarious as compared to her trade with either the U.S.S.R. (bilateral account) or with India and Pakistan (controlled ac- count). The Russians pay for Afghan exports in "dollars" as the unit of account. These are converted at the same rate as convertible dollars when surrendered to Da Afghanistan Bank but command a lower rate in the bazaar. Under state trading with Russia, the pricing of Afghanistan goods attracts some items such as cotton to that market. This is only partially compensated by a slightly higher export tax on cotton exported to Russia. 33. Money. ionetary data for the First Plan are very fragmentary but in the initial years of the Plan, inflation did not pose a major problem. Commencing with the fourth year of the Plan, the reliance of the Treasury on bank credit was stepped up very considerably and net advances to the public sector increased at 35.5 percent per annum, repre- senting about 15 percent of the total development outlay (see Appendix table 20) and over 30 percent of the domestic contribution to development finance. From 1960/61 to 1965/66, this produced a 15.9 percent yearly rise in money supply. As deposit banking is at its very early stages in Afghanistan, most of this credit remained as currency-in the hands of the public without much secondary expansion effect and net credit advances to the private sector showed some decline. However, with the major part of public investment pre-empted for the development of infra-structure that had little immediate neutralizing effect on the supply of goods and services, the impact of the high rate of increase in money supply on prices and the external account was severe. 34. During the Second Plan as a whole, the rise in the general level of prices will probably be around 80 to 90 percent. However, the pace is slackening quite sharply. Prices increased by 35 percent in 1963/64 but only half as much in the following year. For 1965/66 and the current year, the estimated annual rate of increase is about 9 to 10 percent. A feature of the period is the change in relative prices. The rise in the price of cereals and meat products was the sharpest, whereas prices of non-food items remained very stable (Appendix table 23). Exchange Rate and Stabilization Program 35. Afghanistan has not attempted to maintain exchange rate stability in the face of the 90 percent inflation that occurred during the Second Plan. A differential exchange rate system was used with both fixed and fluctuating rates and fairly frequent adjustments in the rates. As in many other countries with a limited number of staple export commodities which are assumed to be fairly inelastic with respect to supply and demand, Afghanistan has used the differential exchange rate system supplemented by export and exchange taxes to obtain public revenue and/or to reduce public expenditure. Thus the exchange proceeds sold to Da Afghanistan Bank are pre-empted primarily for government imports at the low official rate. Imports are not subject to any quantitative restrictions. - 13 - 36. In March 1963 Afghanistan undertook an exchange reform which simplified the complex exchange system and established a new official exchange rate of Afs. 45 per U.S. dollar, involving a considerable devalu- ation of the previously existing two official rates.Y In order to restore internal and external equilibrium, the Afghan authorities at the beginning of 1965/66 put into effect a stabilization program including a number of measures in the fiscal, monetary and exchange fields. In support of the program the Fund approved a stand-by arrangement in June 1965. One of the major aims of the program was to reduce substantially the public sector's reliance on domestic bank financing, primarily through an increase in domes- tic revenues. A new program is being implemented in the current year and a second stand-by arrangement was agreed with the Fund in August 1966. As in the previous year, bank credit to the public and private sector in 1966/67 would each be limited to about Afs. 300 million. With the implementation of the provisions in the two stand-by arrangements the number of exchange rates has been reduced to two, the official rate and the fluctuating free 1/ The December 10, 1964 IMF Article XIV Consultations Report explained the exchange system as follows: "During the years preceding the exchange reform of March 1963 Afghanistan maintained a complex multiple rate system. Immediately prior to the reform about 17 buying rates and 7 selling rates were applied, the rates ranging from two official rates of Afs. 20 and Afs. 28 per U.S. dollar to a free market rate in the bazaar in excess of Afs. 55 per U.S. dollar. Most of the buying rates were a mixture of fixed official rates and fluctuating free market rates and, there- fore, were subject to frequent fluctuations. The main purpose of this system had been to enable the Government to obtain its requirements of foreign exchange at a relatively low cost in local currency and to keep the local currency cost of imports of goods required for develop- ment purposes and of some important consumer items at a low level. The new exchange system, introduced on March 22, 1963, substanti- ally reduced the number of effective rates. A new official rate of Afs. 45 per U.S. dollar, the same as the par value of the afghani agreed with the Fund in January 1963, was established. This official buying rate applies to the proceeds of exports of karakul, wool and cotton, to foreign exchange receipts of the Government from other governments for financing of the salaries in afghanis of foreign ex- perts, and to receipts from foreign embassies, legations and other foreign official agencies for financing their requirements in afghanis. Except for proceeds of some exports to bilateral partners, foreign exchange receipts from all other sources may be sold in the free market. Exchange taxes of 15.56, 24.44, and 28.89 percent are payable on the proceeds of karakul, wool and cotton, respectively. These taxes are collected by Da Afghanistan Bank." - 14 - market rate, and increased incentives have been provided for the production and export of karakul, wool, cotton and three minor export commodities.S. 37. The Balance of Payments Position. During the two Plans, the gap in the trade balance, caused by development outlays and a rise in the imports of essential goods in short supply, was largely bridged by the in- flow of capital. Net foreign assets of Da Afghanistan Bank (including net IMF position and net position under bilateral payments agreements) increased by about $5 million in the first two years of the Plan, but declined by about $6 million in the following year to a level of $40 million in March 1965. Little change has occurred in the reserve position since that time and, in November 1966 reserves were equivalent to about two-thirds of annual commercial (non-aid financed) imports. In spite of this stability in the reserve position there were considerable pressures on the balance of payments position vis-a-vis the convertible currency area. While the position towards bilateral trading partners improved from a net liability position of $7.5 million in March 1962 to a net asset position of $3.4 million in November 1966, holdings of gold and convertible currencies (net of INF drawings) de- clined by about $11 million in the same period. The pressure on the balance of payments was also reflected in the sharp depreciation (37 percent) of the afghani in the free market in the first three years of the Plan. Present Economic Situation 38. It appears that Afghanistan will end the Second Plan in a reason- ably good position insofar as domestic finance and the balance of payments are concerned, but with a somewhat unfavorable situation in agriculture owing to severe drought conditions this year. Public development expendi- tures may be on the decline because of the completion of a number of road, power, and other infra-structural projects. 39. The Government had hoped to make up for a 10 percent shortfall in wheat production this year by PL 480 imports, but only about half the amount required seems likely to be available from U.S. sources, and this at a some- what higher price and under harder terms than heretofore. Production of another principal agricultural product, cotton, after rising sharply, has also declined (from 79,000 tons in 1964/65 to about 73,000 tons in 1965/66). This decline in production seems to be largely the fault of the Government's pricing policies which have tended to discourage cotton production in favor of wheat and rice which compete for the same land. 1/ The exchange taxes on these commodites have been eliminated, and, in the case of wool and cotton replaced by export taxes of 15.56 percent and 24.h4 percent respectively. The export tax on cotton will be reduced to 15.56 percent next year. Other important features of the stand-by arrangements were: a) Sales of exchange at the official rate were to be limited to $16 million in 1965/66 and 1966/67 (compared with $37 million in 1964/65) and were to be made only to the Treasury, b) The transactions of the Afghanistan Bank in the free exchange market were to take place within Afs. 2 per U.S. dollar of the rates ruling in the free market. - 15 - 40. The budgetary position in the current year is likely to improve mainly because of an expected increase in commodity aid dis- bursements and only a small increase in current expenditures. There is some question whether the effort to control ordinary expenditures may not result in lack of proper maintenance of public facilities. The overall financial transactions of the Government with the banking sys- tem are expected to show a small surplus in 1966/67. During the first six months (up to September 21, 1966), net credit to the public sector fell by Afs. 500 million, which was more than enough to offset the moderate expansionary effect of an increase in foreign assets and a very small expansion in net credit to the private sector. Thus, there was a small decline in money supply of about 1 percent during this period. This deflationary situation is not likely to continue in the second half of the year but there appeared to be no signs of infla- tionary pressures developing when the mission was in Afghanistan. The afghani remained strong in the free market. Foreign Debt Position and Creditworthiness 41. Afghanistan's foreign debt has been rising very rapidly in the recent past. By September 1966, the public foreign debt outstanding amounted to $555.4 million, of which $350.9 million was disbursed. In 1967/68 the service on this debt is estimated at $14.1 million or 17.6 percent of the projected export earnings for that year (see Chart). This ratio will soar when the Russian debt moratorium agreement lapses in 1968 and if it is not extended. 42. Hitherto, the external assistance requirements of Afghanistan have been provided on very soft terms. The weighted average figures of the terms of Afghan's external debt as of September 1966 were 1.9 percent for interest, 35 years maturity and 11 years grace. Terms of new loans are likely to be harder and a substantial shift from grants to loans is likely. If Afghanistan's external assistance requirements are met on slightly harder terms (2 percent, 30 years of maturity and 10 years of grace period); if the flow of foreign capital is maintained at the level required to carry out the Third Plan and is sustained at that level thereafter; and if exports increase by 6.5 percent per year up to 1980, Afghanistan will continue to have a debt service ratio in excess of 20 percent for the foreseeable future. Afghanistan does not appear to be able to service any debt on conventional terms, at least for the duration of the Third Plan. AFGHANISTAN: EXTERNAL PUBLIC DEBT PROJECTIONS (MILLIONS OF U.S. DOLLAR EQUIVALENTS) 50 I 50 40 40 010~~ -. 1 0- 30 30 20 ,-- 20 10 10 0 I I I I - I I I 0 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 DEBT SERVICE - PROJECTED FOREIGN EXCHANGE EARNINGS (FISCAL YEARS) (A): Service on existing debt as of September 1966. (B): Service on existing debt plus yearly additions of $76.3 million starting March 1967 on the following terms: (a) 2% rate of interest. (b) 30 year maturity period. (c) 10 year grace period. 12/19/66 IBRD -3249 Summary Table 1 Sector Investments and Allocations Estimated Capital Outlay Proposed Capital Outlay During the Second Plan For the Third Plan Millions Percent Share Millions Percent Share Percent Change in of of Total of of Total Relation to the Sector Afghanis Expenditure Afghanis Expenditure Second Plan Industry and Power 4,810 20.1 10,516 33.1 119 Agriculture _h,479 18.7 7,814 24.6 74.5 Of which Irrigation (3,268) (13.6) (5,632) (17.7) 72.3 01 Transport and Communication 8,220 34.3 3,883 12.2 -53 ON Health, Education and Culture 1,532 6.4 3,188 10.0 108 Rural Development 155 0.6 668 2.1 331 Urban Develapment 88 0.4 301 0.9 242 Survey and Research 4,018 16.8 3,038 9.6 -24 Other 632 2.6 2,390 7.5 Total 23,934 100.0 31,798 100.0 33 Source: Tables 8 and 9 of the Statistical Appendix. - 17 - Summary Table 2 Financial Resource Projections (Millions of afghanis) Second Plan Third Plan Government Government Mission Estimate Estimate Estimate Domestic Revenue (Existing Legislation) 15,763 24,800 24,165 Additional Domestic Revenues - 1,700 1,500 Revenues from Gas Exports - 3,150 3,o0 Sub-total: 15,763 29,650 28,665 Ordinary Expenditurel 12,753 21,807 23,331 Available for Development 3,010 7,843 5,334 Private Savings2/ 300 1,213 2,000 Deficit Financing 2,730 700 700 Total Domestic Resources 6,oo 9,756 8,034 Commodity Aid 2,865 h,000 3,000 Additional Taxes for Bridging Local Resource Gap - 61 1,400 Total Local Resources 8,905 13,817 12)434 Project Aid 15,329 17,981 18,5732/ Development Expenditures 24,234 31,798 31,007 1/ Includes debt servicing. 2/ National savings for private industrial investment. 3/ Based on absorptive capacity. - 18 - Summary Table 3 Magnitudes of Production, Investment and Savings in The Second Plan (Billions of Afs.) GNP 230,12 Investment 28,610 (Excludes technical assistance) Public 23,923 Private 4,687 Current Account Deficit 19,821 (70 per cent of total investment) Total Resources 250,233 Savings (monetized) 8,798 Public 5,625 Private 3,173 Investment of GNP (monetized) 12.4 per cent Investment of Resources 1.4 per cent Savings of GNP (monetized) 3.8 per cent Public 2.4 per cent Private 1.4 per cent Including non-monetized(part of theaeconorss Investment 33,771 (10.6 per cent of GNP) Savings 13,959 (5.9 per cent of GNP) CHAPTER 3 FINANCIAL RESOURCES FOR THE THIRD PLAN Fiscal. Prospects 43. The Government, the Russian Planning Tegm, and the Bank Mission have made estimates of public revenues for the Th:rd Plan (1967/68-1971/72). A descxiption of the mission's estimante is in Annizx I. These estimates all fall in the range of Afs. 24 to Afs. 25 billion, though with considerable differences in respect of the returns expeoted from individual sources. Afs. 15-16 billion would be tax revenues and the rest income from public enterprises, foreign exchange operations and the sale of government assets. These estimates are all based on the policy assumption of no new taxes or increases in rates during the Third Plan period.17 As is indicated below, there are some indications that this policy (contained in the guidelines originally adopted by the Government) may not be maintained. The Govern- ment's estimate of public revenues during the Third Plan is about Afs. 24.8 billion and that of the mission about Afs. 24.2 billion. The Government forecasts an 8.4 percent annual rate of increase compared with about 4 per- cent a year in real terms (over 16 percent in money terms) during the Second Plan. A summary of the official and mission estimates is presented below: Table 1 Public Revenue Estimates for the Second and the Third Plans (In Billions of Afghanis) Second Plan Third Plan Government Estimate Mission Receipts from: Composition Amount Composition Estimate Amount (In Percent) (In Percent) Direct Taxes 2.2 14 4.0 16 3.2 Indirect Taxes 8.8 56 11.9 48 11.6 Government Enterprises 2.2 .14 5.4 22 5.5 Sale of Government Property and 1.0 6 1.7 7 2.1 Services Other 1.6 10 1.8 7 1.8 Total 15.8 100 24.8 100 24.2 Source: Table 20 of the Statistical Appendix. If these estimates are realized, government revenues will amount to about 7.2 percent of the GNP in the Third, compared with 6.9 percent in the Second Plan. 1/ The income tax, the land tax rates and import duties have been raised recently (see Annex 1). - 20 - 44* An important addition to public revenues, not shown in the table above, is expected when the export of natural gas to the Soviet Union gets underway, perhaps in 1968. About 10 billion cubic meters of gas may be exported during the Third Plan which the mission expects to yield about Afs. 3 billion of revenue for the Treasury. This is likely to be used largely for service on Afghanistan's debts to Russia. Also, Afs. 1.5 billion receipts may be obtained from the sale of state lands in the Helmand and Nangarhar areas ardfrom the sale of power. Thus revenues that seem within reach for the Third Plan period with the present tax structure but assuming a badly needed overhaul of the accounting and business practices of government enterprises, total about Afs. 28.7 billion as compared with the Government's estimate of Afs. 29.6 billion. 45. Ordinary Expenditures. Only very tentative official estimates have been made of ordinary expenditures during the Third Plan. Including debt service of Afs. 5.0 billion, they total Afs. 22.1 billion. Using the mission's revenue estimates, this would leave Afs. 6.6 billion for develop- ment expenditures before any deficit financing or utilization of private savings. However, we think that the provision for ordinary expenditures is too low by about Afs. 1.3 billion. The official estimate assumes an annual rise of 6.9 percent, compared with a 14.7 percent yearly increase in the Second Plan. No increase in government salaries is assumed., which seems unrealistic. The expenditure of the ainistry of Defense is projected to rise by about 7.4 percent per annum but that of other administrative agencies not directly involved in development work, by less than 3 per- cent. Furthermore, the maintenance cost of new projects in the Third Plan is estimated to total Afs. 1.3 billion, which is only about 4.5 percent of the size of public sector plan. 46. The analysis made by the mission shows that for the duration of the Third Plan, at least Afs. 4.5 billion additional resources would be required for meeting current outlays over the level prevailing in 1966/67. Broadly, the distribution of these expenditures may be as follows: Table 2 Over 1966/67 Level (In Billion Af s.) inistry of Education 0.9 Mnistry of Public Works 0.3 Maintenance and Operation 2.5 of Third Plan Projects Other 0.8 Total 4.5 - 21 - 47. If some economies can be made in defense expenditures, the mission feels that total nondevelopment expenditure (including debt service) in the Third Plan can be held to Afs. 23.4 billion, reflecting a rise of between 9 to 10 percent per year. Thus the size of public savings available for development will be Afs. 5.3 billion. 48. Credit Expansion. The two-fold requirements of economic growth and of monetization of the economy might justify a rate of expansion in money supply of about 5.2 percent per year. This would total about Afs. 2.0 billion of credit expansion during the Third Plan period. In conformity with the objective of stimulating the activities of the private sector in the Third Plan, of the Afs. 2 billion increase in bank credit Afs, 1.3 bil- lion is pre-empted for the use of that sector. The available credit for the public sector will thus be of the order of Afs. 0.7 billion. Therefore, total domestic resources for public sector development would be about Afs. 6 billion. This compares with about Afs. 4.8 billion of domestic resources generated in the public sector in the Second Plan. However, all but about Afs. 3 billion of the latter was deficit financing so the increase in non- inflationary public savings would be fairly substantial. 49. Additional afghani financial resources may be obtained from pri- vate savings invested in Plan projects and from commodity assistance. There is no real basis for estimating the amount of either of these components except the judgment of business and financial leaders and of suppliers of foreign aid. The projects in the Plan requiring private investment are in the industrial sector and amount to about Afs. 3.7 billion. If Afs. 3 bil- lion of these are taken up by the private sector, it will be a good achieve- ment. The largest industrial complex in the country, the Bank Melli group, has estimated its possible investments at about Afs. 1 billion. An equal amount may be forthcoming from other sources. Therefore, Afs. 2 billion of private sector savings may be included in Plan resources. 50. The official forecast of foreign commodity aid during the Third Plan is Afs. 4.0 billion, compared with Afs. 2.9 billion in the Second Plan, an increase of about 40 percent. In recent years commodity assistance sup- plied by the U.S.S.R. has been on the rise, and for the Third Plan period it may amount to $20 to $25 million, or say Afs. 1 billion. These imports have been primarily sugar, petroleum products and vehicles. In recent years, PL 480 imports approximated $12 to $16 million per annum. With the recent change in U.S. policy, there may be some decline in these imports. A number of other countries and agencies have promised to finance part of the local currency expenditure of their projects. Considering, inter alia, the rise in prices that has occurred between the two Plans, it seems possible that about Afs. 3 billion may be generated during the Third Plan from commodity assistance. Thus total local currency resources would be as follows: - 22 - Table 3 (Billions of Afs.) Public Savings (including deficit 6 financing) Private Savings 2 Commodity Aid 3 Total: 11 51. The Gap. The afghani component of the costs of projects in- cluded in the project list prepared by the U.S.S.R. team was 40 percent of the total cost. If the availability of afghani financing were to be the limiting factor on the size of the Plan, this would imply a program of Afs. 27.5 billion and 4 foreign exchange requirement of Afs. 16.5 billion or $370 million.1 This compares with $410 million which the U.S.S.R. team has estimated would be the foreign exchange component of an Afs. 31 billion program. Assuming as the mission was told, that an Afs. 31 billion program is the Government's objective, we conclude that at least Afs. 1.4 billion of additional domestic savings will be re- quired. In terms of public revenues this would mean an increase over the mission's estimate from Afs. 28.7 billion to Afs. 30.1 billion or less than 6 percent for revenues other than the sale of gas. Although such a task should not be taken lightly since it wuld involve a con- siderably higher rate of savings than in the past-' from the fiscal point of view it does not seem to be too difficult atask. The reimposition of the livestock tax and a revision of the customs tariff (see paragraph 6, page 66) would account for a good portion of it and even a partial reform of the land tax should account for the remainder. The Government is well supplied with advisers on fiscal matters and it is sufficient for the mission to point out that even with a revenue goal of this magnitude for the Third Plan, Afghanistan would still be collecting only about 8 percent of its G.TP as public revenue, considerably lower than countries such as India and Pakistan with even lower per capita incomes. 1/ If the bazaar exchange rate is used for converting the foreign exchange component, a Plan of this size becomes Afs. 36.9 billion. 2/ Assuming no change in the rate of savings and investment outside the Plan, the mission has calculated that the marginal rate of savings at the end of the Plan period would have to be about 17 percent to achieve this program. This compares with an average rate of 6 percent for the Second Plan. - 23 - Balance of Payments 52. As noted above, the foreign exchange component of an Afs. 31 billion program would be $410 million. If all this is financed from abroad, in addition to about $67 million (Afs. 3 billion) of commodity aid, gross capital inflow would total $477 million. This would be jtvt under $400 million net since debt repayment is estimated at about $79 million. The two questions that arise are: (a) do Afghanistan's balance of payments prospects indicate that such a level of capital inflow will be necessary and sufficient (i.e. are the external and internal gaps reconcilable with each other; and (b) is such a level of assistance likely to be forthcoming? 53. The mission is, of course, able to express a useful opinion only on point (a). On point (b) we can only say that on a net basis this is about the same as Afghanistan apparently recieved during the Second Plan. Also, over 40 percent of the project aid would be for projects which are continuations or extensions of undertakings for which aid has already been furnished and therefore, new project financing would be limited to about $250 million. 54. In tackling point (a) it seems sensible to look first at ex- ports and then nonproject import requirements including those we expect will be financed with commodity aid. 55. The mission's appraisal of export prospects by commodities is in Annex II We estimate that exports (other than gas) will increase by 6.5 percenti/ a year in the Third Plan, compared with 5.2 percent growth rate in the Second Plan. This will provide about $406 million of export proceeds. In addition, about $70 million may be obtained from the export of gas. Thus total foreign exchange earnings should amount to about $476 million. Adding to this the $67 million that may be received as commodity aid, the total availability for meeting net invisible outlays, repayment of debt plus nonproject imports would be $543 million. Net in- visible payments (including interest on foreign debt) are estimated at about $63 million. The projection of foreign debt repayments during the Third Plan is difficult because an assumption has to be made as to whether or not the moratorium on the debt to the Soviet U on will be extended beyond 1968. If this moratorium is not extended,-- the repayment of foreign debt will amount to about $79 million during the Third Plan (about $28 million if the Russian moratorium is extended through the Plan period). Thus it seems safe to assume that Afghanistan would have only about $400 million for nonproject imports or $80 million a year even if all project imports are financed from foreign aid. 1/ The Russian team has estimated an 8.8 percent annual increase in exports. However, this is based on improvements in the processing of certain items, particularly karakul and wool which the mission doubts will be accomplished during the Third Plan. 2/ It may be assumed that the moratorium will end when gas exports to the Soviet Union begin. - 24 - During the last three years of the Second Plan (the only portion for which balance of payments data are available), such imports averaged $82 million annually and the ratio of nonproject imports to GNP averaged about 10 per- cent during that period. This would have to fall to 8 percent during the Third Plan even if none of Afghanistan's import earnings are used for project financing. 56. The following table summarizes these balance of payment praspects on an average yearly basis. Table 4 Balance of Payments Position (In millions of dollars) Annual Average Annual Average During During 1964/65-1966/67 1967/68-1971/72 Exports 70.1 95.2 Imports/ 145.0 162.2 Commercial (from export earnings) 63.0 66.8 Commodity aid 19.0 13.4 Subtotal (nonproject imports) (82.0) (80.2) Project 63.0 82.0 Investment Income Payments 3.0 6.5 Other Invisibles (net payments) 4.5 6.1 Current Account Deficit 82.4 79.6 Public Sector Loans and Grants 82.1 95.4 Debt Repayment 4.2 15.8 Net Capital Inflow 77.9 79.6 Errors and Omissions Including Drawdoun on Reserves 4.5 2/ Technical assistance is excluded. Source: Appendix table 10. - 25 - 57. Thus, under the assumption that $410 million of project and $67 million of commodity aid will be received during the Third Plan, and assuming that the demand (in relation to income) for goods of the kind imported during the Second Plan will not change appreciably as compared with the last three years (income elasticity for such goods will be unityl/) Afghanistan would require about $10 million a year of import substitution or additional export earnings during the Third Plan. 58. Part of this potential import demand will, of course, be met from import substitution. However, probably not very much can be ex- pected from this source until the later years of the Third Plan. There- fore, it may be concluded that not only will Afghanistan have to get all her project imports in the form of foreign aid but will have to adopt policies and programs both to encourage more exports and contain import demand. This is why the mission has counselled a conservative monetary policy and a revision of the customs tariff. However, even more basic is the preservation of the free exchange rate mechanism even though, in the longer run, stabilization of the rate may be desirable from the standpoint of encouraging private industrial investment. For the time being, it provides a very effective equilibrating device for the balance of payments. M,11eanwhile, every effort should be made to improve Afghanistan's difficult balance of payments situation, both by encourag- ing investments for import substitution and for export production.2/ Sector Allocations 59. The tentative proposed allocation of development expenditures by principal sectors in the Second and Third Plans with associated re- quirements for project aid are shown in Appendix table 28. We will review these programs in the following chapters of this report. 1/ The income elasticity of imports has been close to unity during the Second Plan. 2/ Based on the assumption of no additional taxes, the residual "internal" gap projected by the mission was Afs. 1.4 billion (see paragraph 51) whereas, after receiving the foreign assistance projected above, the residual "external" gap would be about Afs. 3.5 billion. This indicates that even stronger efforts should be made to improve the balance of payments position than to increase public savings though, of course, the two sets of measures required are closely inter-related. 介： PART II CHAPTER 4 AGRICULTM 6o. Agriculture generates about 45 percent of the Gross National Productp and from 75 to 85 percent of the population is directly engaged in agricultural pursuits. This includes one to one-and-a-half million nomads who migrate season- ally with their livestock in search of pasture. The latter are the main suppliers of livestock products. Wheat I corn, barley, rice, cotton, fruits and vegetables are the main crops. The country was self-sufficient in the production of food- stuffs excepting sugar, until 1957/58. However, during the First and Second Plans., annual foodgrain imports averaged 50,000 tons and 97,000 tons respectively. 61. Crop production in Afghanistan has been historically subsistence farming. Only recently has there been limited market-oriented production in foodgrains and this confined to areas adjoining urban centers. Cotton, sugar beets, fruits and vegetables, the cash crops, take up only about 6 percent of the total crop area. However, production of these crops has been increasing considerably more rapidly than the production of foodgrains (Appendix table 33). As between the First and Second Plans, foodgrains increased only 0.6 percent and cash crops 20 percent. 62. Thus agricultural production during the Second Plan was in most cases disappointing. The production targets of the Second Plan were realized or ex- cepded in only two cases. Sugar beet and wool were 6 and 15 percent respectively greater than their targets* Foodgrains was only 90 percent of the target and raw cotton 53 percent. 63. Of the total land area of about 63 million hectares, 22 percent is arable, of which 5.3 million hectares or 38 percent is under irrigation. However, the lack of adequate supplies of irrigation water means that only about 2 5 mil- lion crop hectares are effectively irrigated in any given year. Another 1.3 million hectares of wheat and barley are dry-farmed. In many areas the shortage of irrigation water is due to the inefficiency of irrigation systems and prac- tices* Many of the diversion structures are unable to withstand high water level flow and must be repaired or rebuilt annually. 64. Methods of cultivation are primitive, and the implements used are hand tools or crude animal-drawn equipment. The irrigated plots are generally too snall to accommodate mechanized equipment. The average farm size of irrigated land is about 3 hectares with about one-half irrigated at a time, the rest being idle in any given year. Farm labor productivity is relatively low because of the small amounts of inputs used in the agricultural sector. The use of chemical fertilizers is just beginning. Prerequisites for Better Production 65, Inputs were far short of the planned targets in the Second Plan. Irri- gated lands increased 31,000 hectares, only 27 percent of the 115,000 hectare target. Two fertilizer plants projected in the Plan were not built, though one is now being started. As a result, 37.8 thousand tons of fertilizer were imported. Only 74 percent of the planned expenditure of Afs. 5,239 million was actually made. ' 6. In a labor intensive agricultural economy where output can be signif-1, cantly increased only by improving yields per hectare., the necessary inputs to be - 27 - applied to existing areas are of prime importance. Afghanistan has v-ry low yields and preliminary investigations indicate a considerablo potential for improvement. The major input needed is fertilizer in conjunction with other yield-increasing inputs such as improved varieties, plant protection and im- proved cultural techniques. To realize their full potential, it is mandatory that they be adopted simultaneously. 67. Although the full benefits to be expected from applications of ferti- lizer have not been established, technicians, through observation, experience and demonstration, have noted that response is variable and depends to a large extent on the ability of the particular variety of the crop to utilize the added plant food nutrients. The high yielding, newly introduced variety of Mexican wheat and the U. S. Sharecropper corn can utilize heavy applications of nitrogen and phosphate fertilizer efficiently. On the other hand, fertilizer has been reported to depress yields of some local varieties of wheat. Wheat grown under dry land farming methods shows little response to fertilizer treatment. 68. Since research data on benefits to be derived by the adoption of each of the better farming practices are not available, various agricultural workers were asked to make estimates of the effect that each practice may have on pro-- duction of wheat and corn. Their estimates which follow are considered conser- vative: Increases to be Expected from Wheat Corn 1. Better land preparation 3-7% 3-7% 2. Water management 5-20% 1020% 3. Use of good seed 15-25% 25-30% 4. Control of weeds 15% 15% 5. Control of insects and diseases 10% 10% 6. Fertilizer in combination with 1 - 5 50% 50% Agricultural Constraints (9. In the long run, the main constraint on increasing agricultural production i: Afghanistan is the availability of water and suitable land for cultivation. However, large amounts of capital investment and time are required to increase arable land. A far greater, quick return can be achieved if improved cultural techniques are applied to the existing arable land area. To receive optimum re- turns on inputs, it is imperative that a balanced and integrated program be adopted. 70. The major constraint to agricultural development during the next five years,and also the most difficult to overcome, is the extreme lack of quantity and quality of personnel engaged in transmitting the results of research to the farmer. The agricultural extension staff now numbers 206, many of whom have very little training. It can aid only a fraction of the farmers. The proposed staff of 1700 will not be realized for several years. There are currently very meager provisions being made to deal with this problem during the next five years. A questionable attempt will be made to alleviate the extension problem during the Third Plan with the expenditure of Afs. 57 million on a part of the military known as the Green Forces. An activity of this nature may be self-defeating - 28 - because an extension program depends on the rapport between agent and farmer, and this relationship can only develop over time as an agent proves his competence. 71. A method of increasing the usefulness of the extension service without further diluting the quality through too rapid expansion is to concentrate on those areas which have the greatest potential for development. In the case of cash crops, the producers are already market-oriented both in inputs and the products produced. The area occupied by these crops is only seven per cent of that used for foodgrains. 72. The Ministry of Agriculture and Irrigation is also sorely in need of trained technicians in the research field. The number of agriculture students graduated from the University of Kabul is hardly enough to meet the needs of the University for qualified research and teaching faculty. Qualified students should be encouraged to accept the agricultural sciences as a profession. The Kabul University must graduate several times the present number of 25 each year to meet the demand in government and private enterprise for trained personnel. Afghanistan cannot continue to rely on information from other sources on which to plan a national agricultural development program. 73. Agricultural technicians must have some means of travel to the field if they are to be effective and efficient in helping farmers. There must be facilities for carrying supplies and equipment for demonstrations and vitual aids for meetings where new methods are explained. Jeeps, motor bikes and even bicycles would make wider coverage of an area possible. 74. Increased production credit is another major constraint in Afghanistan. Apart from the marketing of karakul pelta, there are no cooperatives and the Agricultural Bank is small and in need of reorganization. The Bank/IDA and FAO are assisting in this task. 75. In conjunction with the above, it is extremely important that marketing methods and channels develop and improve as an agricultural area shifts from subsistence agriculture to market-oriented production. It is important that marketing channels develop in both directions to insure the timely local availa- bility of supplies and equipment that will be demanded as agricultural development takes place. It is not only what a region can grow that determines its agri- cultural potential, but it is what can be grown and profitably marketed. 76. The delivery of supplies and equipment needed to implement the expanded food production program to locations easily accessible to farmers requires a large fleet of trucks. Fertilizer, for instance, must be available to the farmer at a specified time if his crop is to be benefited by its application. Since all commercial fertilizer used must be imported, the trucking of the material to distribution points within the country becomes a tremendous task. The 15,280 M.T. of plant food nutrients needed during the first year of the Third Plan represents the equivalent of 2,500 ten-ton truck loads of high analysis (6h per cent nutrient content) fertilizer or 6,100 truck loads of low analysis (25 per cent) brands. It is estimated that the last year of the Third Plan, 76,400 M.T. of plant nutrients will be needed to meet production goals. This is equivalent to 12,490 ten-ton truck loads if high analysis brands are procured or 36,000 truck loads of low analysis brands to be transported an average of 125 kilometers to main distribution centers. - 29 - 77. The livestock industry provides 16 per cent of agriculture's contribu- tion to the national income. Revenue thus derived comes from animals that have been raised wholly or in part on public lands for which the Government has made no assessment for use. The botanist assigned to the Wyoming University team on contract to assist Kabul University improve its educational system made a study of range lands. He notes in his report the heavily grazed and depleted condition of vast areas, the need for protection and reestablishment of native species, for the introduction of new species, for the relocation or development of watering places to better utilize grazing areasp and for regulations that would make possiblE the adoption of good management practice. To date little or no action has been taken to correct any of these deficiencies. The proposed increases in livestock numbers would place an additional strain on the already overgrazed public lands. 78. It is not possible to bring about the improvement of grazing lands in a short period. It will require years, but a start can be made by demonstrating the value of following good management practices, of strategically locating watering places, and determining animal preference for introduced grass species on carefully selected and controllable areas. The application of the findings from these demonstrations to large grazing areas will be slow, and it is doubtful that it will cover even a small percentage of the grazed area within the planned period. 79. Funds to expand grazing areas could be raised by reimposing the tax on livestock. Livestock producers should be required to contribute to projects from which they would be certain to benefit. A small head tax on every animal regardless of size of the herd would produce sufficient revenue to employ a technical force and purchase whatever supplies and equipment were needed to conduct demonstrations and expand the work to outlying areas. 80. Only two sectors of the livestock industry are considered in this analysis These are ordinary and karakul sheep, which are primary sources of meat and also supply wool and pelts for the domestic processing and exporting industries. Since most of the remaining types of livestock are beasts of burden, it is assumed here that they will increase or decrease in numbers in response to needs for animal power. Because of the precarious nature of the weather in Afghanistan, both in respect to the variation in precipitation from year to year and the severity of winters, sheep numbers fluctuate widely. The sheep are reared on natural, public grazing lands located at the lower elevations of the mountains. Because of the unavailability of livestock drinking water strategically located, many areas are undergrazed while others closer to water sources are overgrazed. This situation is further aggravated by the loss of the better grasslands located in the plains to wheat production. C2. Finally we come to the two constraints most expensive to cope with, fertilizerand water. Afghanistan does not have any known significant deposits of phosphate rock or potash, principal raw materials used in the manufacture of fertilizers. Internal production of nitrogen from natural gas deposits is not expected to commence until 1970. Although the urea plant located at Wazirabad ill have an eventual annual capacity of 144,000 tons of plant nutrients, its contribution to increasing agricultural production can be expected to be negligible during the Third Plan period. - 30 - 83. What will the fertilizer requirements be to achieve the production targets of the Third Plan? Accepting the proposed production targets for 1971/72 (Appendix table 33 ) and assuming a fertilizer application of 85 kilograms of plant nutrients per hectare and a resultant 100 per cent increase in yields (50 per cent attributed to fertilizer application and the remaining 50 per cent attributed to related inputs), fertilizer requirements will be in the neighbor- hood of 76,000 tons of plant nutrients for the last year of the Third Plan. Assuming that fertilizer requirements will increase by equal increments each year, the total requirement for the Third Plan would be 229,000 tons of plant nutrients. Assuming a prtcl/of $200 per ton, the foreign exchange requirements would be about $46 million.- Fertilizer consumption of these magnitudes will require a large, competent staff of extension personnel. 84. Historically, the wheat crop has not received significant amounts of fertilizer; however, if the 1971 wheat production target is to be achieved, about 80 per cent of the estimated fertilizer needs must be applied to wheat. This would require the application of fertilizer to an additional 180,000 hectares a year, reaching a total of about 900,000 hectares by 1971. Assuming two hectares of wheat per cultivator (irrigated areas), this would necessitate the adoption of the use of fertilizer and related technology by 90,000 additional-farmers each year. This is an impossible task for an extension staff of ill-equipped personnel numbering 206 at the end of the Second Plan and projected to increase by only 94,to a total of 300, by the end of 1971. 85. In an area of low rainfall where desert-like conditions prevail, the value of water increases as its need to sustain agricultural production increases. The farmers of Afghanistan have been irrigating lands for centuries. They have constructed thousands of small systems wherever conditions were favorable. Many systems were simply constructed, diversions often temporary and destroyed during each flood stage of the stream. Water control measures are usually lacking. 86. The present status of irrigation can best be considered by describing the major agricultural regions of the country namely, the Helmand Valley, the Kunduz River Basin, the Paktia area and the Nangrbar Valley. The Helmand Valley Authority (HVA) 87. This has been the principal area of U. S. assistance in Afghanistan. Farming within the Helmand Valley has been mainly on a family subsistence basis. Irrigation has been practiced for centuries by diverting water from the rivers into hand-dug canals and laterals. Water supplies were uncertain. The brush and stone diversion dams were subject to damage and required repair following flood flows of the river. 88. The construction of the Kajakai and Arghandab Dams has created a storage capacity sufficient to provide a firm supply of water for an estimated one million acres of cropland. About 300,000 acres are now under water command, which means that canals and main laterals have been constructed but drainage has not been provided. All irrigation facilities have been installed, land leveled and drainage established on about 73,000 acres. All facilities are planned for an additional 86,000 acres during the Third Plan period. 1 Complete coverage of all irrigated and unirrigated land would cost about $43 million a year. - 31 - 89. Plans call for completing the installation of all irrigation facili- ties, including land leveling for the entire 300,000 acres. The additional cost has been estimated at $50 million. This area under intensive cultivation should be capable of supplying the industrial needs of the area for agricul- tural products. The total investment in HVA to date includes $70 million as capital and $30 million for operation and management expenditures. 90. The recent changes in administration of HVA has revitalized interest in development plans. The new organization provides for a President, Vice- President, and a Planning and Statistical Director-General, three Area Super- intendents and five departments: (1) Power, Industry and Commerce; (2) Agri- culture and Rural Development; (3) Administrative; (4) Engineering and Tech- nical; and (5) Social Services. 91. During the Third Plan period, a larger staff of better trained extension workers will assist farmers with the adoption of new practices. A research staff will be given the task of discovering or developing better varieties, test new techniques, equipment and tools and pass on its discover- ies to the extension workers. 92. The HVA has been beset with problems since its inception. The selec- tion of Marja and especially the Nadi-i-Ali area as pilot areas for complete development and settlement has served as a deterrent to progress. The low inherent fertility of the soil, its impervious subsoil at shallow depths, com- bined with inexperience of many of the new settlers in farming irrigated land, were hindrances difficult to overcome. The reclamation of these water-logged and saline areas is not recommended. A study to find and establish pasture grasses adapted to the area and the promotion of a livestock industry is suggested. 93. The HVA experience emphasizes the importance of carefully examining an area before allocations for development are authorized. Selection should be made only after detailed soil investigations have been made and the areas with highest potentials outlined. 94. The subdivision of land into farm units should be based on its quality and capability for use. Soils are variable and large areas of the same type and quality are uncommon, which in itself precludes dividing an area into equal size farms if each settler is to be treated fairly. Farmers located on lands best suited for pasture use and livestock production require much larger acreages as a.farm unit than the owner who practices intensive cultivation. 95. A farm unit should be of sufficient size to provide an income over and above family needs. With extra. cash, the farmer becomes a potential consumer able to purchase better farm tools, equipment, supplies and manufactured goods. 96. As noted above, some of the most valuable lands in the Valley have been under cultivation for centuries, irrigated by antiquated systems from which farmers use water at their own discretion. The fruit-producing area near Kandahar and the city itself receive their water supply from canals fed from the Arghandab River through a new elaborate permanent diversion system. This area produces a large share of the fruit consumed domestically and that exported in both the fresh and dried state. This area has the potential for greatly increasing fairm - 32 - Incomes by renovating and redesigning irrigation facilities, by adopting improved farming practices and most importantly, adjusting fruit production by gradually changing to varieties better adapted to market and processing requirements. 97. Although the progress has been slow, the HVA has a great potential for developing into an agricultural production area from which a large part of the nation's food supply and raw materials for industry will come. Kunduz River Basin 98. The Bank has assisted in the study of this area. The Kunduz River Basin, in which five per cent of the total population resides, is located north of Kabul on the northern slope of the Hindu Kush. This is the richest agricultural area in Afghanistan. The agricultural area is about 350,000 hectares (five per cent of the country), 190,000 hectares-are irrigated and the remaining dry-farmed. lost of the country's sugar beets, one-quarter of the cotton, 18 per cent of the rice and five per cent of the wheat are produced in this area. Much of the industrial activity is also located in the Kunduz Basin and is primarily engaged in processing agricultural raw materials. Since agricultural development has already begun in this area and some farmers are responding to market conditions, the potential for accelerating the production growth rate is favorable, and significant results should be achieved during the Third Plan if properly stimulated, Paktia 99. German assistance is to be concentrated on extension and demonstration farms and plots in an effort to stimulate intensified farming. Paktia is a some- what isolated area in southeast Afghanistan and has been basically self-sufficient in agricultural production. If development efforts are seccessful and it becomes a surplus agricultural production area, the need for improved roads will be of major importance. The only major remaining forest reserves in Afghanistan are located in Paktia. During the Third Plan, Afs. 92 million are to be allocated to the protection of forests and the production of seeds for forest expansion efforts. Nangarhar Valley Authority 100. The U.S.S.R. is developing two large demonstration irrigated farms (1,600 hectares) near Jalalabad. The total cost is estimated to be Afs. 3.8 billion, of which Afs. 2.0 billion was spent prior to the Third Plan. Third Plan Program 101. The Second Plan assigned the following basic tasks to agriculture: (a) Increased food production to meet the requirements of a growing population and rising per capita income; (b) Larger supplies of raw materials, particularly of cotton and sugar beets, for domestic industry; and (c) Greater export surpluses to meet the growing demand of a developing economy for foreign exchange. - 33 - 102. We have noted that more success was achieved in meeting the second and third than the first objective. The tasks for the Third Plan are still the same, but the need for accomplishing them has become more critical because aggre- gate agricultural production has hardly kept pace with population increases; and in the case of foodgrains, per capita production has actually declined. The most important aspect of the pending plan is the change in strategy which emphasizes increasing yields on presently irrigated areas in preference to bringing new lands under cultivation. 103. Investment proposals in the agricultural sector for the Third Plan are Afs. 7.8 billion, 87 per cent greater than the expenditures of the Second Plan (Appendix table 32 ). 104. Irrigation projects are to maintain their relative position at about 73 per cent of the total. More emphasis during this period will be on small rather- than large systems. It is hoped that greater benefit will come to small farmers, and through better management water will be available for additional acreages. Work will include diversion dam construction, survey and relocation or renovation of systems, installation of control structures and other devices. Much work also needs to be done in areas served by the newly constructed large systems. Preference should be given to areas where the greater number of farmers would be benefited. 105. Since the farmer is the ultimate beneficiary, he should be expected to make the most efficient use of the water resource and in some manner, through tax or otherwise, help pay for the cost of maintenance and operation of the facility from which he receives benefit. Farmers now make but a token payment for water rights, and this is mainly in labor for maintenance of the facilities. 106. It will be difficult to employ a competent staff of engineers and agricultural extension workers to help reach goals set. A large part of the work will involve bringing water to the farm, redesigning distribution and drainage systems and teaching better management of water. 107. Animal husbandry has the largest increase of any category of expend- iture, 94 per cent greater than during the Second Plan. These funds will be used primarily for disease control and breed improvement. Although expenditures on crop production projects will be the second largest at Afs. 1.1 billion, the relative emphasis during the Third Plan has decreased. These activities will be directed toward disease and weed control and a variety of other improvements. Agricultural credit is projected to increase by 54 per cent but only to a total of Afs. 0.5 billion. 108. Off-farm storage and processing facilities for agricultural products are not included in the proposed investments for the agricultural sector during the Third Plan. However, these investments will have a profound effect on the rapid- ity and direction in which agriculture will develop. Investment in these facilities should be about Afs. 1.2 billion greater than the Afs. 0.4 billion provided during the Second Plan. 109. Seventy-three per cent of the foreign exchange of $78.5 million provided for the agriculture sector during the Third Plan period will be allocated to irrigation projects. In principle, it would seem advisable to reduce the funds - 34 - al.ocated to irrigation since about 87 percent of the Afs. 5,631 million will bo used on large irrigation projects that will bring about 90,000 hectares under cultivation. Although the costs per hectare are within reason (Afs. 52,000 per hectare), it may be more economical to allocate less to irrigation, especially that requiring foreign exchange, and use some of the resources -to purchase fertilizer if it is physically feasible to get the purchases of fertilizer on the land currently irrigated. On the other hand, if it is impossible for the agricultural sector to absorb these additional quantities of fertilizer, large- scale investment on irrigation projects should continue until a trained staff of agricultural technicians has been developed and farmers are accepting new technology procedures. Under present conditions in Afghanistan, the procurement and distribution of equipment and supplies to locations where farmers can readi- ly obtain them will require careful planning, efficient use of transport equip- ment and timing to have supplies available when needed. Therefore, since the Third Plan has allocated sufficient funds to other purposes within the agri- cultural sector, it will be desirable to go ahead with irrigation investments until the necessary preparatin has been made for more intensive development. Production Targets 110. In general, the crop production targets proposed for the Third Plan appear to be optimistic. ill. Foodgrains is estimated to increase around 3 percent per annum, reach- ing a total of 4,450 thousand tons by 1971. In light of performance during the last five-year period, it is doubtful if a growth rate of 3.0 percent can be achieved because of the large number of people and land area that must be mobil- ized. Achieving a growth rate of 2.0 percent per annum would be a significant improvement and a seemingly feasible one if the current emphasis on increasing wheat production continues into succeeding crop years. This would result in an annual foodgrain output for 1971/72 of 4,100 thousand tons. 112. During the First and Second Plans wheat imports were 248,000 and 394,000 tons respectively. Assuming that foodgrain production in 1971/72 is 4,100 thousand tons, that per capita availability remains the same as it was during the Second Plan,and that the population growth rate is 1.9 percent qrnually, the 1971/72 import requirement would be 60,000 tons and a total of 370,000 tons for the entire Third Plan. If the foodgrain production target of 4,450 thousand metric tons is achieved by 1971/72, wheat import requirements for the Third Plan would be about 220,000 tons, which would be imported during the first two years and none for the final three years. 113. Cotton is one of the major cash crops. The acreage devoted to it has varied and has been influenced largely by the prices farmers receive. Since much labor and other inputs are required in growing the crop, preference is given to other crops unless cotton prices are right. Even under the compulsory acreage allotment plan that was policed and enforced by the field extension staff, production fell below normal until prices were increased following the adjustment in the exchange rate. The field extension staff, although released from these police-like duties, have suffered a loss in effectiveness in dealing with farmers in other matters. 114. Much work needs to be done on cotton. A broad-scale research pro- gram should be initiated at once to discover varieties having better lint - 35 - characteristics, higher yielding qualities and adapted to specific areas. A companion study of cultural methods is recommended. 115. When a suitable variety is found, all farmers within a prescribed area served by one gin should use the same variety. This will prevent mixing of seed and help to maintain a uniform product for marketing. Farmers in such an area should consider the organiation of a cooperative to gin and market their crop and stock the necessary supplies and equipment. 116. Valuable by-products of cotton are lost when cotton seed is exported. Oil for human consumption and cake for animal feed have a definite place in the food program. 117. The raw cotton production target assumes an annual average growth rate, of 11.5 per cent from the average of the Second Plan of 84,000 tons. By 1971/72, raw cotton production is estimated to be 180,000 tons. At first this target-seems extremely high. However, in 1963/64 cotton production reached a peak of 110,000 tons mostly from increased yield per hectare, due to better cultural practices as farmers responded to a 25 per cent price increase. As the economic incentive for raising cotton disappeared, due to a general price rise of other agricultural products, cotton production fell to the 1962/63 level of about 70,000 tons. Preliminary cotton production projections made by the Ministry of Agriculture and Irrigation for 1971/72 is 140,000 tons, which appears to be a feasible estimate assuming the exchange rate policy is favorable for increasing exports. 118. The historical performance of sugar beet production is similar to that of cotton and governmental policy again is a prime determinant of the level of production. The Plan assumes an annual growth rate of 19.4 per cent, which results in a sugar beet production target of 190,000 tons. This would be a 145,000 ton increase above the Second Plan annual average production of 55,000 tons. A more likely estimate for 1971/72 sugar beet production would be around 110,000 tons, slightly above recent trends. 119. To meet the sugar cane production target by 1971/72, the annual growth rate would have to be 14.8 per cent. This would increase production from 51,000 tons in 1966/67 to 100,000 tons by 1971/72. Since sugar cane is local3y processed to be consumed in the form of gur, the demand and the production have been relatively constant over the past five years. This trend is likely to continue unless the sugar cane processing plant in Jalalabad is rejuvenated and a major effort is made to increase production. 120. The average annual sheep population of the Second Plan was 1.1 million greater than the average of 19.0 million for the First Plan. Karakul sheep increased by 1.6 million while ordinary sheep decreased by 0.5 million head. The Third Plan target projects sheep to increase by 3.4 million to a total of 23.5 million head by 1971/72. Because of the current condition of the range lands, a significant improvement in yields is hardly to be expected during the next five years; sheep will probably be no more than 21.5 million by 1971/72. 121. Since sheep producers have several different forms in which to market their product, the relative price relationships of meat, wool and pelts must be considered when projecting the quantity of each product and by-product that will be marketed. In the case of a karakul sheep enterprise, for instance, only about 20 per cent of total receipts come from pelts. Vith the recent doubling of meat prices during the last five years and an expected continued strong demand - 36 - for 'meat, the sales of sheep for the production of meat will probably increase more rapidly than will the production of other sheep products. Considering this, annual wool production in 1971/72 has been revised downward from 27.4 thousand tons to 24.5 thousand tons and the production of karakul pelts down to 2,700 thousand from 3 million. 122. The fruit production target would require an annual growth rate of 3.4 percent and result in a 1971/72 production of 470,000 tons. This would be an increase of 120,000 tons and is in line with recent trends and appears to be a feasible estimate. Governmental Policy and Agricultural Development 123. In the process of national planning, the Government must decide what policies are to be adopted that will stimulate the various sectors of the eco- nomy to develop in a desired direction. With a limited stock of resources, priorities must be established in such a manner that the basic essentials are given major consideration. In agriculture these would include production incentives, new technology, markets for farm products, farm supplies and equipment, and transportation facilities. 124. As a producer moves from subsistence farming into a market-oriented enterprise, he becomes aware of, and responsive to the price relationships of potential products he can produce and the costs of the required inputs. Farmers in Afghanistan are sensitive to price changes as evidenced by the rise in cotton production when price to the farmer increased 25 percent. Pro- duction again dropped when prices of other crops requiring less labor and other inputs rose. Producers should receive prices for their produce that allow for reasonable compensation for effort expended over and above other costs. However, in Afghanistan the Government's vested interests seem too much involved in maintaining low urban prices for basic foodstuffs. 125. The reliability of farm prices is as important as their level. As a farmer adopts new techniques, especially those requiring greater capital in- puts, he must be fairly confident that he will at least be able to cover these added costs. Because of the biological nature of agricultural production, prices fluctuate considerably during the year and from year to year. Many farmers do not possess storage facilities and must market their product at harvest time. In an area where agricultural production is increasing more rapidly than local demand, marketing facilities needed for transportation, storing and processing of the increased supplies are slower in developing. This tends to depress prices in local markets at harvest time. In the absence of efficient marketing facilities, an effective price program cannot be established. 126. Annual fluctuations in producer prices are likely to be particularly great at the early stages of agricultural development when farmers are begin- ning to enter the market economy. Where most of the population is still in- volved in agricultural production, the domestic off-farm demand for agricul- tural products will be relatively small and modest increases in production can have a severe depressing effect on farm prices. 127. Thus a desirable price policy is one that will stimulate capital investment by establishing fairly stable prices and maintaining produner prices at sufficiently high levels to cover producer coots. - 37 - 128. Underemployed or unemployed resources provide a source by which capital formation can be accomplished without reducing output and consumption in other areas. Because of the seasonal variation in labor requirements for agricultural production in Afghanistan, labor is underemployed during off-season periods and could be used for rural development projects, minor irrigation construction work and other infra-structural development projects. 129. The bulk of the nation's wealth is located in the agricultural sector and as such should be a main supplier of governmental revenue. Although exports of agricultural products currently generate about 90 per cent of the foreign ex- change earnings, the agricultural sector has used very little foreign exchange earnings for capital input imports. Intensive farming provides the greatest potential for increasing agricultural production. However, for the time being, fertilizer and other yield-increasing inputs must be imported. The foreign exchange required for the purchase of smaller quantities of fertilizer would be considerably less if the expansion of cash crop production rather than cereals were stimulated to a greater extent by a more favorable price policy. CHAPTER 5 INDUSTRY Factors in Industrial Growth 130. The most important factors in determining the industrial growth of a country are the size of the market, the availability of raw materials and infra-structure inputs, and the supply of savings, potential entre- preneurs, managers and technical skills. 131. Since Afghanistan's 13 million people are widely dispersed over a large territory still with major gaps in its transport system, the country consists of several smaller markets rather than a single larger one. This, combined with a low per capita income, makes it difficult for Afghan industzies to achieve economies of scale. 132. This disadvantage is in part overcome by the natural protection provided by its remote landlocked and mountainous geography which makes transport cost of imports high (but, of course, raises the transport cost of exports also). Thus, Afghan industries have an advantage in selling relatively bulky low value products within the country, while in exports its role is in increasing the value per unit of weight. 133. At present Afghanistan's major raw materials are agricultural products. The chief items of industrial significance are cotton, sugar beets, karakul skins, and wool. Except natural gas no large mineral de- posits have been definitely proven, but exploration is underway. At least 70 billion cubic meters of natural gas is available and a pipeline to trans- port annually up to 4 billion cubic meters to the Soviet Union will be completed shortly. The fact that so much energy is scheduled for export indicates the lack of industrialization in the country. A natural gas- based urea fertilizer plant in the Mazar-i-Sharif area (northern Afghanistan) which was originally proposed for the Second Plan, has been postponed till the Third Plan, but its capacity has been enlarged to 105,000 tons. As yet, no commercial deposits of petroleum have been discovered. Perhaps a poten- tially important mineral is the high grade (up to 63 percent iron content) iron ore deposit in the rugged Hajigak area northwest of Kabul. As yet, little is known of the size of the deposit, or of the economic feasibility of processing it internally or of its use for export. Several small coal mines are in operation, but the quality of the coal is poor, and as yet no coking coal has been discovered. 134. The hydroelectric power potential is large. As a result of the construction of the Naghlu and Mahipar projects, with a combined capacity of 120,000 kw., the Kabul area will have sufficient power to meet its pro- jected needs for the next five years. The Pulekhumri region north of the Hindu Kush also has abundant hydropower except during the dry seasons. A suggestion has heen made to construct a stand-by thermal plant there, using - 39 - nearby coal. In the Mazar-i-Sharif region the nearby natural gas is to be used for power. Two areas where increases in the supply of power are necessary for further industrial development are in the Kandahar and Herat regions. Surveys have been conducted in those areas and several projects are under discussion. 135. Industrial entrepreneurship and skills are scarce resources in Afghanistan. While many have trading and mercantile experience, this is not directly transferable to industry. As compared with trade, industrial entrepreneurship requires a longer-term outlook. Raw materials, markets, and technology must be studied prior to launching a project, major invest- ment must be made in fixed plant and machinery, and labor may have to be trained over a lengthy period. A pre-condition is a sense of security both in the narrow police sense and in the much broader economic sense. The government must not consider a new industry as a signal for imposing high taxation and successful projects must be free from the threat of national- ization of the plant. Once the factory is established, the entrepreneur must set aside resources to cover maintenance and depreciation, and for the longer-term expansion of the plant. In other words, it should not be milked for maximum short-term returns. In a competitive market cost and quality are of great importance. 136. In Afghanistan the Bank Melli group has some industrial experience. Also, various other individuals and groups have become interested in industry but face the problem of transferring their trading experience to the new field. These potential private industrialists tend to look to the Government as a source for technical and market advice, and for both general support and specific concessions. But the feeling has been mixed, since there has also been a fear of Government. On the part of the State there has been both a paternalistic tradition which requires that it grant per- mission for all major activities whether economic or otherwise, coupled with a distrust of private traders. Until recently both the demand for, and supply of technical or management training has been very low. The traditiona2 system of management in both the public and private sector has laid stress on seniority in staffing, while incentives to stimulate efficiency have been lacking. The general low level of literacy has made it difficult to train a factory labor force. Present Status of Industry 137. These problems of course reflect, and in turn are reflected in, the fact that today the Afghan economy, in its non-agricultural sectors, is primarily a handicraft-trading economy. Factory industry plays only a minor role. While all such figures have a wide margin of error, an indi- cation of the size of the factory sector is shown by the fact that, of an estimated total employment of approximately 4 million workers in 1966/67, only about 30,000 are employed in factory enterprises--or less than 1 per- cent. In 1962 the "value added" from factory enterprises was estimated at Afs. 740 million--or approximately 3 percent of GNP. The importance of the handicraft industries--which include among others, carpet weaving, leather tanning, shoe-making, textile production, metal work, baking and sweets--is currently far greater. Employment in these is estimated at - 40 - abut 2C0,000 workers, and the value added at Afs. 4 bil-ion--or about 5 percent of total employment and 10-15 percent of GNP. lY 138. While some scattered government efforts were made to set up industries in Afghanistan before 1930, it was only after the government sponsored the establishment of the Bank Melli in the 1930's that any organized development occurred. This bank sponsored the growing of cotton in the north, set up a cotton ginning and oilseed processing industry, and a cotton textile plant in Pulekhumri before World War II. In the earlier postwar years it set up a sugar beet factory and a cement factory. 2/ After 1955 the government began to play a more direct industrial role with the introduction of economic planning about 1955. At that time the founder of the Bank Melli left the country for an extended period of time. His return, several years later, was associated with greater interest by the government in promoting private industry. Second Plan Industrial Achievements and Problems 139. During the first two Five-Year Plans there was a striking in- crease in the production of cotton and rayon textiles, cement, coal and power, which is shown in Appendix table 5. One or two enterprises in each of these industries entered production during the past ten years. The Second Plan listed 17 manufacturing projects. Of these four were completed-the expansion of the Ghori Cement Plant to 400 tons/day capacity; the Pul-e-Charkhi workshop; the prefabricated housing plant; and the raisin factory. Of the four completed only the last was in the private sector, and only the first and the last have begun making a profit. However, this underestimates the number of factories that have come into operation in recent years: the Gulbahar Textile Plant of the Bank Melli- sponsored Afghan Textile Company began operation in 1960; the Omeed Rayon Company began production in 1958; the Afghan Wool Industry factory, a German investment, was completed in 1965; the Kandahar Fruit Preservation factory was completed in the early 1960's; the Jangallak Machine and Auto Repair factory was also completed in the early 1960's; and a unit of the Bost cotton ginning and oilseed processing plant was completed about 1965. Of these factories not listed in the Plan, only the first two have gone through the "teething" period to full capacity operation. The Kandahar Fruit Plant is an example of government-guided, or rather misguided private investment, with heavy Industrial Development Fand (see below) support. It has failed badly thus far. It was constructed on the basis / Sources of figures: The Russian Proposals for the Third Five-Year Plan (typed English translation), pp. VI, 18-20; IV, 96-101; E. Eskilsson - Report on Coordinating the Development of Afghanistan's Energy Resources (mimeo), p. 34 and Table 15; Ministry of Planning - Survey of Progress, 1964-65. (Kabul, 1965) (mimeo); Material on Factories in Afghanistan given to IFC Mission to Afghanistan in 1966. 2/ Appendix table 37 for the participation of the Bank Melli in various economic enterprises. - 41 - of a promise of an export market in Czechoslovakia and the U.S.S.R. that has not materialized and no substitute market has been found. There were also technical difficulties that could have been avoided by preparatory studies. The Bost Plant has been operating well below capacity because the cotton that was to be forthcoiT&ng from the Helmand Valley and was to provide the raw material, has not been supplied. The Jangallak Factory has yet to operate at more than about 25 percent capacity since the demand for the original type of product this plant was to produce is very small in the Kabul area; while other types of metal products, such as furniture and agricultural tools, have begun to be produced, the market for these must be built up. 14o. Factories that have been successful in Afghanistan turn out a standardized product, and for which new raw materials or new markets did not have to be developed. The market for the cement industry has been the government's public works program; the army supplies a market for the wool and shoe factories; there is a well established demand for cotton and rayon textiles with developed trade channels. But the other factories producing for export or for a domestic market of a less well-defined and established type have had difficulties. Those problems are not peculiar to either the public or private sector. Individual plants in each sector appear to be well run, with competent and aggressive management, but in several plants the management looks for the solution to its problems from others, such as the supervising authority or the parent company. In the government sector also a major problem is the long lags in the financial reporting of government enterprises to the responsible ministry. This means that the government lacks control over its enterprises, and re- sources may continue to be invested in uneconomic activities. Legal Framework 141. In 1949 a revised Code for the Encouragement of Industries was passed, and subsequently other laws were enacted affecting both domestic and foreign investors. This legislation provides certain assistance and exemptions to private industrial investors. Some provisions are general-- for example the duty-free import of equipment, machinery and raw materials for three years, and the exemption from corporate income taxes and from personal income taxes by shareholders for a period of three years after commencement of production. Other privileges are negotiated on an ad hoc basis. Among these are government orders; provision of government land on favorable terms; assistance in the supply of public utilities; prefer- ential tariffs and exemptions from import duties, and limited long-term finance of up to ten years at interest rates of 8-12 percent. The Ministry of Mines and Industry administers most of the laws but the Ministry of Commerce must approve foreign investment applications and license export-oriented industries. Irrespective of size, type of venture, or whether the business is to be qualified under the privileges of the in- vestment laws, some agency at some level of government must register its approval. For the larger investments this approval is in essence a kind of contract between the government and the private investor, and each of these contracts must be negotiated individually. In the process of the negotiations, many ministries as well as the Da Afghanistan Bank may - 42 - become separately involved, and in fact the final decision may require cabinet approval. 1/ Part of the reason for this elaborate procedure reflects the basic policy decision of the first two Plans that the government "guide and regulate" economic activities. Z/ This in turn reflects the past traditions, attitudes and experience--or its lack-- on the part of both the government and private businessmen. 142. Apart from these laws and procedures, certain institutions were set up by the government to encourage industry during the first two Plans. The most important of these was the Industrial Development Fund, which was established with some private participation in 1956. This fund lent approximately Afs. 215 million to private investors during the past ten years. This must have been a significant proportion of the total private investment in manufacturing industry during that period, since private investment in industry during the Second Five-Year Plan has been very roughly estimated at about Afs. 300 million. 143. There is a staff in the Ministries of Mines and Industry and Commerce to provide technical assistance to potential investors, make feasibility studies, advise on types and sources of equipment, and approve projects. The small size of these staffs result in long waits before the advice can be provided or decisions made. The Third Five-Year Plan 3 144. The draft of the Plan projects a doubling of the output of factory industry, and a 20 percent increase in the output of the handi- craft sector. This increase is to be achieved by stepping up total in- vestment in the industry, minerals and power sector by almost 50 percent in the Third Plan compared to the Second Plan--that is from Afs. 8.6 billion to Afs. 12.1 billion. Direct investment in manufacturing industry is projected at Afs. 5.8 billion. V This investment is apparently to 1/ For the discussion of the present laws.and procedures see H. Nyberg - Analysis of Private Investment; Afghanistan (mimeo, Jan. 27, 1966), Section I; and p. 13 for quotation. 2/ Second Five Year Plan p.4 2/ As of the time of this writing, this mission had not seen a complete draft of the industrial section of the Third Plan, or a definitive list of projects to be included. There may thus be changes in detail between what is described in this section, and what is actually included in the Third Plan. 4/ The foreign exchange component has been converted at the official ex- change rate of 4.51. - 43 - be left initially to the private sector. Under the heads of the Ministries of Mines and Industry and of Commerce the draft the Third Plan contains a list of 67 different industrial projects. -- (See Appendix table 35 for the complete list.) 145. What is the rationale for this proposed major expansion in industrial activity? Investment in industrial activities must increase if the proposed decline in public works expenditures during the Third Plan is to be compensated and the economy maintained. But apart from this balancing function there are some more substantial, and longer range considerations that argue strongly in favor of more rapid industrialization. As a result of the past investment in infra-structure, largely financed by foreign credits, the Afghan Government will be faced during this Plan period both with larger operating expenses in its ordinary budget, and with rapidly increasing debt service charges which can lead to balance of payments difficulties. Therefore, it is important to develop new productive activities. 146. It is also becoming increasingly important to develop employment Lpportunities other than the traditional ones. Apart frcm the short-term need to find other jobs for people now employed on public works, in the longer run it is possible that Afghanistan may be faced with problems of urban under-employment. Although ostensibly there is apparently little unemployment at present, there is a major inflow of population into the city of Kabul which has been growing at a rate of 5 percent per year, of which 3 percent per year is due to rural to urban migration. This indicates that there is a strong demand for work outside of agriculture; this demand will probably increase in time as population in rural areas grow and as education increases. 147. What are the opportunities and problems of expanding industry in Afghanistan? Cement is an example of a product with heavy transport costs, and in the past the government's public works and irrigation programs have provided a guaranteed market for the output of the two large plants. Other plants may be feasible in other areas where public works are to be built. 148. A second type of opportunity is one where the internal private demand is sufficiently large to warrant the setting up of factories of a size sufficient to compete with potential foreign suppliers. The cotton and rayon textile plants meet these requirements, and their product is now competitive with imports both in terms of price and quality. At present, the factory output of both cotton textile and rayon meets less than 50 percent of the total Afghan demand for these products, which would warrant a presumption that expansion of these industries is feasible. There may well be other opportunities for development or expansion of import-saving industries, or other industries catering to internal demand and using domestic raw materials. For example, cotton seed and vegetable 1/ About twenty other industrial projects have been proposed under various regional programs. - 44 - oil industries, the sugar industry, food processing industries such as slaughterhouses, bakeries and sugar factories, leather and shoemaking industries, and a cigarette factory. Wines and cognacs and canned or dried fruits are other possibilities if well studied in advance of investment. Proper location may be crucial to their success as witness the Kandahar Fruit Plant. 149. Other products are those which embody further processing of Afghanistan's present exports in order to increase Afghanistan's foreign exchange earnings. Several of these are forward linked with handicraft industries, such as carpet weaving, karakul and wool. Cleaning and standardizing the wool for both of these products, and cleaning the output, would make possible higher earnings from their export. Preliminary processing of the animal casings now exported to standardize and raise their quality can also earn significantly more foreign exchange than at present. 150. Next there are industries which would process new raw materials for export or domestic use. The mission is concerned thatthe 4 billion cubic meters a year of gas exports may jeopardize potential future domestic industries. Finally, mention should be made of the tourist industry for which there appear to be opportunities for expansion during the Third Plan and subsequently. 151. Care must be taken in the specific import substitution projects to avoid worsening rather than relieving foreign exchange difficulties. In the present stage of Afghanistan's industrialization all initial capital equipment for the manufacturing industry, and various recurring operating items such as spare parts, and many raw materials, such as the chemicals for textile dyeing, spun rayon and others, will have to be imported. Thus, foreign exchange expenditures for such import saving projects will rise initially, and may in fact increase for a specific product over the longer run if internal demand for the product and its imported raw materials also increases. This will, in turn, require continued steps to expand foreign exchange earnings from both traditional and new exports, as well as care in choosing those fields in which import substitution is to be carried out. 152. Until proper studies are made of the economics of specific supposed import-saving projects, it is not possible to say which should or should not be embarked upon--but past experience elsewhere testifies to the problems that arise when such studies have not been made. 153. On the positive side, the free market foreign exchange rate system should put a realistic evaluation on the value- added component of goods produced in Afghanistan. It is to be hoped that there will continue to be sufficient monetary and price stability so that before too long a stable rate can be established and thus eliminate an element of uncertainty in making industrial investments. As of this date only twelve of the forty-one projects listed under the Ministry of Mines and Industry for the Third Plan draft have undergone the detailed feasibility studies that are a necessary preliminary to any investment decision. Mbst of the projects are still simply ideas and it may be assumed that some at least will be eliminated in the final version of the Third Plan. Supply of Private Investment Resources 154. The Chairman of the Bank Melli has indicated to the government that the Bank expects to mobilize for industrial investment Afs. 1 billion during the Third Plan. Apparently this is a total investment figure including hoped for financing from other possible sources so the Bank Nelli's own direct investment would be less. I*5. The willingness of smaller potential investors to invest has not been quantified. Undoubtedly financial resources are available in private hands but the decision to invest in one field or the other depends upon the expected rates of return among the possible alternatives, and upon the expected security of the investment. There has apparently been a very large volume of investment in houses, hotels, and real estate in Kabul in recent years. The return on real estate investment in Kabul is such that it has been possible to recover one's investment in housing in two or three years. Another alternative area of investment is moneylending on which the rate of interest varies from about 25 percent to possibly as high as 100 percent-- but with the high risks the effective rate of return may be far less. Finally, some businessmen speculate in foreign exchange. The fact that the two latter types of investment do not yield tangible evidences of wealth which could attract government attention also has made them attractive. It seems likely that the opportunity cost of attracting capital to industry is at least 20-25 percent. 156. Afghan businessmen may be more receptive to industrial opportunities at this time than earlier. Some of the Afghan industrial firms which have been successful are now earning rates of return in excess of 30 percent. The heavy past concentration of investment in housing may now be reducing the marginal return expected on additional investment in that field; moneylending is risky and the gains from foreign exchange speculation have lessened as the rate has stabilized. Investment in the traditional export commodities has been risky in recent years because of erratic weather, and consequent fluctuating supplies. On the basis of such impressions, and the opinions of knowledgeable businessmen and government officials, it is estimated that the total volume of investment that might be forthcoming from private groups might be on the order of Afs. 2 billion at the current free-market exchange rate over the Third Five-Year Plan period. Including loans by the proposed Industrial Development Bank, a reasonable figure over that period is an investment of approximately Afs. 3 billion (or about $43 million, at the free-market exchange rate of Afs. 70 to - 46 - $1). 1/ While this figure is well below the sum of the investment in projects listed in the draft Third Plan, it would be far higher than the volume of direct industrial investment achieved in the previous ten years. It is possible, too, that this figure might be increased signi- ficantly by appropriate government policies as indicated below. Government Policies and the Investment Climate 157. The traditional close relationship between the government and private businessmen has already been indicated. This relationship is not likely to change during the period of the Plan. What can be improved is the efficiency with which the government performs its guidance and ap- proval function. Businessmen who were asked by the mission what their problems and desires were with respect to improved government procedures or assistance stressed the following points, more or less in order of importance: a. Improved and speedier guidance with respect to the technical and economic feasibility of projects; b. More rapid handling of project applications through the government machinery, especially concentrating the approvals in a single agency; c. A financial institution to provide industrial financing; d. Improved implementation of the present incentives law, for example, insuring that factories receive the tax exemptions to which they are entitled. 158. There was a mixed opinion with respect to the threat of nation- alization; some businessmen stating they did fear nationalization if an industry became successful, others were clearly not worried by the supposed threat. Several government officials mentioned that the failure to en- force the law respecting the protection of investors against company fraud discouraged investment by small investors. It would be very desirable that both the capability to perform this function be enlarged, and that the function be set up in an independent organization. If the creation of an independent organization is not possible then the new Industrial Development Bank should include a strong capability to perform this function for the private sector. 159. The new Industrial Development Bank is clearly required, even if its initial operations turn out to be limited. The success of such a 1/ If it is assumed that two-thirds of this investment is in the form of foreign exchange expenditures, then the total volume of investment is Afs. 2.3 billion at a 45:1 exchange rate (of which Afs. 1 billion would be for domestic expenditures and Afs. 1.3 billion for foreign exchange). - 247 - 6aril depends upon its maintaining its independence from the government. Only then can it escape the unfortunate fate of the Industrial Develop- ment Fund which was ordered to make certain investments and which ended up with a record of failure in many of its ventures. Also, the licensing agencies of the government should be villing to accept the economic con- clusions of project appraisals of the Bank, rather than requiring repeti- tion of such appraisals by its own officials. 160. With respect to speeding up the decision-making process, the Ministry of Mines and Industry may take up,to a year to make up its mind after the feasibility studr has been madeM--the proposed new Incentives to Industry Law has as one of its major provisions the creation of an interministerial investment committee in which would be concentrated all contacts with investors and full power to grant approvals. This would eliminate the shuttling back and forth among various ministries that is now required of would-be industrialists--and could thus shorten the entire waiting period considerably. Because of its importance, consideration might well be given to introducing this reform as soon as possible rather than waiting for general agreement on all the provisions of a new law. 161. The existing investment law with respect to exemption from duties on inputs to manufacturing industries should be implemented, and the ex- tension of the period from 3 to 5 years is desirable as provided in the proposed new law. However, the mission has doubts as to the desirability of extending the exemption from personal or corporate income taxes from 3 to 5 years, since there is little reason to grant such income tax exemptions at all. If the new firms make no profits, they would, of course, not pay income taxes anyway, or declare dividends that can be taxed as personal income. Rather, the mission recommends as preferable incentives the proposed exemptions from duties on machinery and current inputs, as well as a more general provision for carrying forward losses as deductions from otherwise taxable profits. 162. Until now the Government has apparently given little thought to a general policy of tariff protection for new industries. The fear of monopoly by a single enterprise in an industry, the desire to keep prices low to the consumer, the fear of a loss of customs revenues, as well as the difficulty of controlling smuggling, have all discouraged the enact- ment of protective tariffs. However, the Government has provided protec- tion to specific factories on an ad hoc basis. The general climate for industry would be improved by a more general and public policy of protec- tion which took it out of the area of bargaining over a specific plant. At present the Government gives a general preference to domestic goods of up to 10 percent in purchasing goods for its own use. Such a general price preference is too low initially; both the protection and the price preference combined might be set at 25 percent for the first five years, and then reduced, 1/ The time taken for such approvals was often as much as two years until recently. - 48 - 163. There would be some advantage in issuing a public industrial policy statement listing industries reserved for private investment and thus freeing those industries of any fear of nationalization or Govern- nent competition. Some of this fear, to the extent it exists: may be relieved by the fact that in the Third Plan almost all manufacturing in- dustrial investment at this stage is the responsibility of the private sector. 164. The development of tourism in Afghanistan is a potential large earner of foreign exchange. The Government effort in this area in the past has been very small, in terms of resources, administrative effort, and training of personnel. If tourism is to develop, much larger programs may be necessary in all of these fields and they would yield their results after some time. If such a program is found economically feasible it might best be handled by foreign organizations with experience in attract- ing and handling tourists, with only very general supervision by the sup- porting government agency. Unquestionably, also, certain administrative reforms to eliminate hurdles for tourists, such as the elimination of the residence and exit visa requirement, would prove helpful in attracting additional tourists. Improved Supply of Raw Materials and Infra-Structure Inputs 165. Agricultural Products. While agricultural products are Afghanistan's major raw materials, the failure of agricultural output to expand in conjunction with the setting up of factories to process that output, has hampered industrialization. Earlier mention was made of the Bost cotton ginning plant in the Helmand Valley area, and the fact that this plant has been operating well below capacity because cotton output has not increased as hoped. A similar problem may arise in the near future in the Kunduz Valley, since the Spinzar Cotton Gin- ning Company has increased its cotton ginning capacity from 45,000 tons to 90,000 tons of raw cotton. However, in discussions with various officials, there was a great deal of uncertainty as to whether that amount of additional cotton would, in fact, be forthcoming. 166. Minerals. The Third Plan envisions the continued exploration for additional gas and oil deposits. Russian advisers are now engaged in a study of the extent and size of the potentially important Hajigak iron ore deposit. Once this is completed, if the deposit appears physically promising, an economic analysis is the next step. Such an analysis should examine alternative techniques of processing the ore, alternative potential markets, and transportation requirements. The results of these will de- termine the price at which the ore will become available to potential users, either within the country or for export. 167. Infra-structure Inputs - Power and Transportation. While stress is rightly placed in the Third Plan on a shift from infra-structure projects to projects yielding a more rapid return, there is a need for additional power and transport facilities. The Kajakai Hydroelectric Power project in Kandahar-Girishk has been examined and would appear to be an im- portant prerequisite for further industrial growth in that area. It is - 49 - important to examine the economic feasibility of alternative sources of power supply in the Herat region, since industrial development in that area also will be strongly influenced by the availability of power. 168. With respect to transportation, it is quite clear that the in- dustrial development of the Nazar-i-Sharif area will be strongly influenced by the creation of improved transportation connections with other sections of the country. 169. Management Training. In the short run Afghanistan will have to continue to rely upon foreign managers and technical personnel for many top-level executive positions in new plants. But simultaneously, it will be necessary to accelerate and improve the training of Afghan personnel for such top-level posts, as well as for middle-level positions. A high level review of the problem of management and technical training is quite urgent. Little systematic analysis of the requirements for such skills arising from industrial growth has been undertaken. Data available on technical and management skills that are now present in Afghanistan are limited, and no effort has yet been made to collect such data. The on- going management training programs on both the top and middle levels, as well as the more general education program, have not been related to the requirements of more rapid industrialization. While local "on-the-job" training programs have been quite successful for training factory labor, little appears to be knoin of such programs of management training. Over- seas training is frequently regarded as a "plum" for services already rendered rather than training for a specific assignment; when the trainee returns he may find that the position offered him has little if any relation to the training. Much of the management training is carried on in highly developed Western or East European countries. The relevance of this train- ing to the Afghan scene is often questionable. Consideration should be given to the provision of such training in other countries of Asia, preferably those only somewhat more developed than Afghanistan, such as Iran or Pakistan. This would also reduce training costs. Of course some technical training may have to be carried on in the country from which the machinery is imported. Urgent consideration should also be given to the establishment of a management training institute within Afghanistan itself which would be able to use Afghan training materials and problems; that might cooperate in on-the-job training program; and which might also perform some management advisory services for Afghan industries. CHAPTER 6 TRANSPORTATION GENERAL Introduction 170. Afghanistan has no railways. Highways provide the basis of Afghanistan's transportation system, with air transport playing a comple- mentary but subsidiary role, for both internal and international traffic. The emphasis on highways rather than railroads appears reasonable in view of the mountainous terrain of large parts of the country, the limited traffic in the present and foreseeable future, and the absence of large- volume bulk products requiring haulage over long distances. A consider- able amount of traffic appears to be carried by animals, mostly camels, especially over short distances and on routes not yet covered by the road system. 171. The past efforts of the Government have been concentrated on developing a network of primary highways. Most sections of this network either have been completed by now or are under construction, except for a gap in the northwest. The secondary and tertiary (feeder) roads, how- ever, require considerable improvement. 172. The country has seven principal airports, of which two--Kabul and Kandahar--are international airports, built respectively by the U.S.S.R. and the U.S.A. Air services appear to be adequate in terms of the demand for them. In fact, the new Kandahar airport has much excess capacity. Administrative Arrangements 173. The Ministry of Public Works is primarily responsible for the planning, design, construction and maintenance of primary and secondary highways. The tertiary or feeder roads are under the jurisdiction of the provinces, which, however, receive technical and financial help from the Ministry. The Helmand Valley Authority is responsible for some secondary and tertiary roads in its area. 174. The General Transportation Department of the Home Ministry is responsible for the regulation of highway transportation, the Civil Avi- ation Department (Air Authority) for airports and air transportation and the Ministry of Mines and Industries for pipelines. Past Investment Program 175. In the Second Plan (1962-67), transportation was accorded high priority, and about 25 percent of overall Plan investment was assigned to this sector. Out of a total transport investment of Afs. 7.4 billion - 51 - (U.S.$ 165 million at Afs. 45 to the dollar) about Afs. 6.2 billion (U.S.$ 140 million), or approximately 85 percent, was allotted to highways, almost the whole of it going to primary roads. Except for two new high- way projects, accounting for under 10 percent of proposed investments, all the other highway projects were carried over from the First Plan (1957-62). The Second Plan mentioned that it was planned to undertake surveys for the construction of additional roads, but it made no financial provision for such surveys, which do not appear in fact to have been undertaken. No pro- vision for investment in vehicles was made, as this was left to the private sector. Proposed Investment Program 176. The transportation investment program proposed for the Third Plan marks the next stage in the development of highways in Afghanistan. Although the emphasis continues to be on completing the primary highway system, es- pecially those parts on which work had already begun, some secondary roads and bridges have been included in the Plan, presumably on the basis of their economic priority. However, about 80 percent of the investments will be on projects carried over from the Second Plan. 177. As can be seen from Table 1, the proposed Third Plan allocation for transportation is smaller than in the Second Plan--both absolutely and as a proportion of the total planned investment--Afs. 3.4 billion or U.S. $75 million (12 percent of total), compared with Afs. 7.4 billion (25 per- cent). The decline is largely explained by the fact that the more expensive primary highway system is nearing completion, and the tapering off of in- vestment on this account has not been offset to any significant extent by new investments in secondary and feeder roads. 178. The foreign exchange cost of the Second Plan program was about U.S.$ 90 million (55 percent of total cost), compared with about U.S.$ 46 million (60 percent of total cost) in the Third Plan. About U.S.$ 35 million equivalent in foreign aid has already been committed, covering the foreign cost of all carryover projects. Table 1 Transportation Sector (Millions of Afghanis) 1962-67 1967-72 Highways and Road Bridges 6,227 2,929 River Transport 36 2 Railway Transport -4- 0 Air Transport 1,172 418 Total: 7,435 3,389 - 52 - HIGHWAYS Highway Network 179. For an area of about 650,000 square Ks., Afghanistan has altogether about 13,500 Kms. of highways, of which roughly 2,000 Kms. are paved primary highways, 5,500 Kms. are secondary roads, mostly earth roads partially improved by locally available uncrushed gravel, and 6,000 Kms. -of tertiary (feeder) roads, mostly tracks and trails not always passable throughout the year. Although the density of roads is hardly 21 Kms. for 1,000 square Kms. of area, compared with 62 Kms. for Pakistan and 103 Kms. for India, the present highway system reflects more the distribution and low density of population than the lack of access. 180. Ten years ago no modern paved roads existed in the country and the total length of unpaved roads was only about 6,200 KMs., of which only 3,700 Kms. constituted unpaved all-weather roads. The First Plan provided for the paving of three main highways for a total length of 1,254 Kms.; about 40% of the work was completed during the five-year period. In addi- tion, 660 Kms. were taken up for paving in 1960. 181. The Second Plan envisaged a network of highways to link up the principal producing areas with one another and with the main consuming centers. Special attention was to be given to the requirements of foreign trade and to border areas. In addition to completing the projects taken up in the First Plan, the Second Plan provided for the paving of two other highways totaling 544 Kms. When all these projects are completed, the primary highway network of Afghanistan will be largely complete, except for a gap in the northwest where foreseeable traffic needs do not call for an asphalt or concrete road in the near future, but may justify improvement to a gravelled surface. 182. As can be seen from the maps, the primary highway system consists of a circular highway connecting Mazar-e-Sharif, Kunduz, Kabul, Kandahar and Herat, with branch roads to neighboring countries and to the principal provincial capitals. Third Plan Program 183. The selection of projects in the Third Plan is determined to a large extent by the fact that about 80% of the total investment is on pro- jects carried over from the Second Plan and by the fact that the more obvious projects relating to the primary highway system have mostly been taken up. Further foreign aid (mostly in the form of- grants from the Soviet Union and the USA) which was readily forthcoming for the construction of the primary highways, is not forthcoming to any comparable extent for secondary and feeder roads, and the Afghan Governemnt, having to carry out such projects with its own resources, both fiscal and technical problems appear to be slowing down the pace of transportation investment. - 53 - 184. The method of selection of even the primary highway projects in the past, and their design and execution, have not significantly added to the experience and knowledge of local technical personnel to equip them for such work in the future. Projects were selected in the past, and have been selected for the Third Plan, not on the basis of technical and economic studies but on the basis of the knowledge and judgement of some individuals (Government officials and foreign advisors). Planned Investments and Expenditures 185. Details of the proposed provision for investment and maintenance expenditures of the Ministry of Public Works for highways is given below. Surveys and studies included cover three more primary highways, but no provision for their construction is included. Table 2 Planned Highway Expenditures (1illions of Afghanis) Construction 1967 1968 1969 1970 1971 Total Carryover Projects 581 499 476 472 323 2,351 New Projects 60 55 139 130 - 384 Sub-total: Construction 641 554 615 602 323 2,735 Surveys and Studies 15 66 47 61 5 194 Maintenance and Administration 105 110 116 122 128 581 Total 761 730 778 785 456 3,510 186. A more adequate provision should be made for road maintenance and this will be elaborated in a study being financed by the Bank. 7ehicle Fleet 187. The total number of registered motor vehicles in Afghanistan in 1965 was about 16,500 divided into 8,100 cars, 7,150 trucks and 1,250 buses, as against a total estimated vehicle fleet of 13,800 in 1961 or a growth of about 5% a year, while GNP grew a little more than 310. This represents a ratio of about one vehicle for every 800 persons compared with 940 persons in Pakistan and 600 in India. About 50% of the vehicles are registered in Kabul province and another 20% in Kandahar. In addition, there were almost 3,000 vehicles imported for specific development projects and belonging to international organizations and diplomatic missions not registered with the Traffic Department. Trucks operating in the country range in capacity from [1 to 12 tons, with an average capacity of 6 tons. Although a number of very old vehicles continue to operate the average age of the fleet is probably under 8 years. - 5~4 - 188. The General Transport Department, attached to the Home Ministry, is responsible for the regulation of truck and bus transportation. It has recently initiated a countrywide vehicle survey to determine the exact number of motor vehicles by class operating in the various provinces. This is expected to be completed by the end of 1967. The Department has also begun to compile data on the movement of buses and trucks having the national and provincial capitals as the destinations. Regulation of Transport 189. The General Transportation Department requires truck operators to obtain permits for each trip, charging a fee for such permits amounting to 5% of the freight charges. This appears to be an unnecessary burden on operators and the expense of collection is unjustified. The Department also fixes the rates for both passengers and freight on the basis of estimates of operating costs plus a margin for profit. In general, operators appear satisfied with the rates so fixed. The Department is also responsible for issuing the initial permits for operating truck and bus services. It regu- lates the import of trucks, with a view to reducing the number of makes and models operating in the country. 190. The Traffic Department, also under the Home Ministry, is respon- sible for issuing licenses, framing and enforcing traffic regulations, putting up traffic signs, and preventing the overloading of trucks and buses. Only recently, it has begun to take seriously the last three functions. 191. The Monopoly Bureau, which is an independent agency of the Govern- ment, handles the import of trucks and buses. It charges a monopoly fee of 12% plus 2% for administrative expenses on the cost of trucks and buses (purchase price, insurance, freight and customs duty of 10%). In addition to cash sales, it provides hire-purchase facilities over a 3-year period, charging 4% interest per year. Cars and spare parts for all motor vehicles can be imported by anyone by paying the Bureau a monopoly fee of $% in foreign exchange. This is not a good method of handling foreign trade since the Bureau in effect acts only as a commission agent and its use as a taxing device has not been successful since it does not submit up-to-date accounts to the Government. User Contributions 192. The important classes of highway user contributions in Afghanistan are customs duties on motor vehicles and spare partss monopoly fees on all these items and on gasoline, license and permit feess and special tolls on the primary highwayso Tolls have been introduced only in the past year or- so, although the cost of collection may not justify their impositione Esti- mated receipts which could be considered as user charges including only half the receipts from relevant taxess and highway expenditures during cur- rent and subsequent Plan periods are shom below, Fuel levies are primarily the fee charged by the Monopoly Bureau. Table 3 Estimated User Contributions and Highway Expenditures (Millions of Afghan Total Total User Contributions 1962-66 1967 1968 1969 1970 1971 1967-71 Taxes on motor vehicles 20 5o 50 5o 50 50 250 Taxes on spare parts etc. 40 15 15 20 20 25 95 Fuel levies 500 130 140 150 160 180 760 Tolls 20 h0 45 55 60 80 280 Total - Receipts 800 235 250 275 290 335 1,385 Highway Expenditures New construction and 6,061 555 628 675 728 343 2,929 studies Admini Administration and maintenance 131 105 110 116 122 128 581 Total - Expenditures 6,102 660 738 791 850 h71 3,510 193. Although user contributions appear to have covered less than one- eighth of highway expenditures during 1962-66, it should be pointed out that the high level of outlays during that period was occasioned by the emphasis on the construction of expensive primary highways, and almost 80o of these was financed from foreign grants. During 1967-71 user contributions are expected to cover h0o of highway expenditures and the gap is expected to narrow further as the primary highway system nears completion and outlays decline, while user contributions should show a steady rise. Nevertheless the present sale price of gasoline appears to contain an element of subsidy, which is not justified. Traffic Volumes 194. There have been no traffic counts in the past even on the primary highways. However, with the imposition of tolls on completion of each paved highway, traffic estimates could be made from toll collection data. The draft Third Plan estimates that daily traffic volume on the primary highways will range from 100 to 600 vehicles in 1967, rising to 175 to 750 vehicles by 1971. About 70% of the traffic is expected to be heavy vehicles (trucks and buses) and the rest light vehicles (cars and jeeps). - 56 - OTHER TRANSPORTATION MODES Air Transport 195. The government-owned Ariana Afghan Airlines operates 26 flights a week between Kabul and the other six airports on its domestic services. On its international services, Ariana operates a further 14 flights weekly connecting Afghanistan writh Pakistan, India, Iran, Syria, Lebanon and the Soviet Union. (Aeroflot, Iran Airlines, Pakistan International Airlines, and Indian Airlines also provide services to Kabul.) 196. Ariana now operates five aircraft - 2 DC-6's, one Convair bo and 2 DC-3's - compared with only 2 DC-31s in 1956. The number of passengers flown has grown from 29,000 in 1962 to 49,000 in 1965, during which period seat occupancy has improved from 30% to hb which is still unsatisfactory. The amount of cargo flown has, however, not recorded much change, with utilization of cargo space falling from 62o to 1$. Although Ariana's financial situation is not known, it is stated that internal fares cover only a part of the costs. 197. In view of the importance of air transport in a land-locked and mountainous country, the Second Five-Year Plan provided for the moderniza- tion of Kabul and Kandahar airports (with Soviet and American technical and financial aid respectively) and improvement of five other airports. Pro- vision was also made for the purchase of additional planes for Ariana Airline. Almost all of the planned work is expected to be completed by the end of the Plan. Altogether an investment of Afs. 1,172 million was provided for, which included Afs. 171 million for new planes for Ariana. 198. The Third Plan provision is only Afs. 418 million, but this in- cludes nothing for improving Ariana's services. M,1ore than half the outlay is for a program to build 20 air strips and purchase 4 "short take-off and landing" aircraft as a pilot project run by the Government to provide service to areas presently inaccessible by any other means. The ultimate aim is to have 100 landing strips and 15 "STOL" planes. The traffic potential and economics of the project need further investigation, but the Afghan Government appears to consider it of even greater importance from the social, political and administrative angles. River Transport 199. The Second Five-Year Plan made a provision of 36 million Afghanis for completing improvement of the ports of Qizil Qala, Tashguzar and Kelif on the Amu (Oxus) river on the Soviet border through which trade with the Soviet Union passes. A substantial portion of the work had already been done in the First Plan with Soviet technical and financial assistance. There is little traffic among these ports themselves. All ships operating in the Amu river are Soviet ships of up to 1,000 tons capacity, and the present port facilities on the Afghan side are considered adequate to handle trade with the Soviet Union. Present traffic through them is roughly 200,000 tons per year, of which half is petroleum products. -57 - 200. In the Third Plan, a small allotment of Afs. 2 million is proposed for survey of the possibility of water transport on the Helmand river. Rail Transport 201. The Third Plan has a provision of Afs. 40 million for construct- ing a railway spur of about 10 Kms. from Chaman in Pakistan to Spinbaldak in southwest Afghanistan. The project had been studied as early as 1957 by consultants who estimated that it would cost about US$ 1.2 million. If and when constructed, railway services on the connection would be operated by the Pakistan Western Railway. 202. Afghanistan's traffic through Chaman is presently about 40,000 tons a year and through Peshawar further north about 140,000 tons. The Afghan Government expects that with the elimination of customs formalities at both Karachi Port and the Afghan-Pakistan border and the consequent delays, a greater portion of the overseas trade going through Pakistan would use the proposed railway spur. In any event, the immediately avail- able traffic would be less than even 100,000 tons, which would not justify a railway line from the traffic viewpoint alone. The more important ques- tion is whether the customs formalities at Karachi could be simplified. The main problem holding up the project appears to be lack of agreement on the location of the border between Afghanistan and Pakistan. Pipelines 203. Two pipeline projects in northern Afghanistan - one for transfer- ring gas from the gasfields to the Soviet Union and the other to transfer gas to a proposed fertilizer factory - are included in the Third Plan in- volving a total outlay of Afs. 152 million of which Afs. 90 million will be foreign exchange. The economics of the projects do not appear to have been analyzed carefully by Afghanistan and no agreement has been reached on the price to be paid by the Soveit Union for the gas. The projects are being carried out with Soviet technical and financial assistance. PROJECTS REQUIRING FOREIGN FINANCING 204. In view of the fact that foreign aid is already committed for most projects, only projects involving a foreign exchange cost of about US$ 11.0 million require foreign financing according to the Third Plan. However, of these projects, U.S. AID is reported willing to consider financing the foreign exchange cost of the railway spur, estimated to re- quire US$ 0.6 million. The remaining projects, a list of which is in Appendix table 38, can be divided into the following categories: - 58 - 205. Highway Construction. There are 5 highway construction projects involving a outlay of Afs. 342 million, of which Afs. 169 million (US$ 3.8 million) will be foreign exchange. All these would presumably be eligible for foreign financing, provided adequate technical and economic justifica- tion can be shown to exist. The consultants who undertake the surveys and studies (paragraph 207) could be asked, at no significant extra cost, to look at these projects to find out if feasibility studies should be under- taken. 206. Bridge Construction. Eleven bridge construction projects are also included in the Third Plan, involving a total cost of Afs. 80 million. The Afghan Government proposes to build them with departmental labor forces and materials already in stock left over from other projects. 207. Surveys and Studies. Three studies for primary road projects are included, of which one is expected to be financed by the U.N. Development Fund which has already financed a preliminary reconnaissance study on the road concerned. The other surveys are expected to involve US$ 2.8 million in foreign exchange, besides US$ 1.0 million equivalent in afghanis. 208. Air Transportation Projects. The Afghan Government will have to find foreign financing for its project to lay local airstrips and operate "STOL" aircraft, involving US$ 3.3 million in foreign exchange. The eco- nomics of the project, however, need further study. EVALUATION OF PROGRAM 209. In spite of the sharp reduction in the size of the transport in- vestment program from the Second to the Third Plan, the overall program is considered adequate for the foreseeable needs of Afghanistan and economical- ly and technically justified. However, the following points need to be made: (a) The absence of any provision for studies relating to the improve- ment of secondary and feeder roads is a noticeable omission, Also some secondary and feeder roads might have been included in the Third Plan, had feasibility studies for them been initiated earli- er. Studies should be initiated for such projects and priorities established as soon as possible. Without studies to determine priorities in these areas, where the number of possible projects will tend to be large and foreign aid for construction not so readily forthcoming, the choice of priority projects for execu- tion will be difficult. The Afghan Government may need some foreign help in the beginning for organizing and conducting such studies, including problems of regional planning so as to derive the maximum benefit from secondary and tertiary roads. (b) The Plan provides for further studies on the direct Kabul-Herat road, which presumably will relate to the detailed engineering of 2 sections at either end which have been recommended by the con- sultants who undertook a reconnaissance study. Further work should be undertaken only after the economic justification for the 2 sec- tions is established. If the detailed engineering is in fact under- taken, the Plan should include some provision for their construction. - 59 - (c) A transport study dealing with the utilization of the iron ore that is found northwest of Kabul should be included, to be undertaken simultaneously with or soon after the results of the current geological studies are known, if the latter are positive. (d) The cost estimates of the roads and bridge projects included in the Plan will need revision since the estimates are not based on detailed engineering. 210. The proposed phasing of the transport investment program, shown in the table below, implies a sharp reduction in investments in the last year of the Plan, partly resulting from the fact that most of the new projects are scheduled to be taken up and completed within the first three years. The overall investment, as well as the execution of the projects included in the program, should be so phased over the five years that the workload on the Ministry of Public Works is more even. This would also eliminate the need to increase outlays in some other sector or sectors to absorb the labor force rendered surplus by the decline in transportation investment in the last year of the Plan. Table 4 Phasing of Investment Program: 1967-1971 (Millions of Afghanis) 1967 1968 1969 1970 1971 Total Ministry of Public Works Highways 5h9 620 662 715 329 2,875 Other 88 34 - - - 122 Department of Civil Aviation 44 21 33 102 136 336 Helmand Valley Authority 6 9 l 13 l 56 Total: 687 684 709 830 479 3,389 CHAPTER 7 EDUCATION, HEALTH AND URBAN DEVELOPMENT 211. In the Second Plan, expenditure on social services, including urban development, housing and public building, accounted for 10.2 percent of total development outlay. This proportion is to be increased to 15.5 percent in the Third Plan. Table 1 Social Services in the Second and the Third Plan (Amounts in Millions of Afs.) Second Plan Third Plan Percent Fercent of Plan of Plan Amount Total Amount Total Education 1,176 4.9 2,117.1 6.7 Health 312 1.3 1,025.8 3.2 Housing 599 2.5 665.9 2.1 Public Buildings 266 1.1 779.2 2.5 Urban development 88 0.4 300.5 1.0 Total 2,441 10.2 4,888.8 15.5 Source: Table 27 in the Statistical Appendix. 212. The objective of the education part of the Plan is to increase the number of students attending pre-senior school by 8.3 percent,vocational and technical school pupils by 14.3 percent, and those in higher education by 6.7 percent annually. In the health sector, hospital beds are to increase 6 per- cent, doctors at 18.1 percent and semi-medical personnel 3.5 percent per annum. Education 213. Present System. There are two types of primary schools in Afghanis- tan. The traditional primary village schools are mostly held in mosques. There schools provide education only up to the third grade. The level of the trainin of the teachers is up to the sixth grade though often below it. In addition, elementary schools in towns and the larger villages provide training up to sixth grade. Teachers' schooling is a little better than in the rural school.s being from ninth to twelfth grade. The objectives of these schools are to train students for admission to senior high schools, vocational schools and government jobs. 214. There are two types of senior high schools, academic and vocatiorl, Teaching programs are based on French and German systems. Vocational schoc)ds - 61 - cater to a variety of technical needs and some are assisted by industrial and commercial concerns. There are also teacher training schools and an experimen- tal school designed to provide teachers for the pre-senior school level. At the apex of the education system stands the University of Kabul, the only uni- versity in the country. Established in 1946, the University of Kabul has at present twelve faculties. It enjoys a degree of independence from the Ministry of Education. U.S. technical assistance in education is focused on this University. 215. Foreign assistance has made a considerable contribution to the rapid growth of education. For over a decade, teams from Teachers' College of Colum- bia University and Wyoming University have been associated with efforts to raise the standard of primary, secondary and vocational training. German assis- tance dates back to the 'thirties and is focused on engineering, vocational and commercial education. A significant part of the teaching staff at the univer- sity and in the technical schools consists of American, English, German and French instructors. Russians have also entered the arena and are planning to provide six professors for Kabul to establish a technical institute at Kabul and to construct a technical workshop at Herat. 216. The existing system is characterized by the rapid growth of student population which has increased the Dressure on school facilities. The total number of students increased by 103 percent from 1956/57 to 1961/62 and by 148 percent from 1961/62 to 1964/65. The increase in the number of schools proceeded at a much slower pace, 79 percent and 30 percent for these periods. Great pressure is placed on the teaching staff at pre-senior school levels, combined with under-utilization of staff at senior high schools, vocational schools and at the University. Table 2 A Survey of Educational System Number of Students Number of Schools Student (In '000s) Ann ua1 Annual Teacher Rate of Rate of Rates Types of 1956/ 1961/ 1964/ Change 1956/ 1961/ 1964/ Change 1961/ 196/ Schools 1957 1962 1965 (In %) 1957 1962 1965 (In %) 1962 1965 Village 16.4 44.1 69.2 19.7 384 790 1,037 13.2 56 64 Primary 89.7 168.0 239.0 13.0 402 533 627 5.7 52 53 Secondary 4.6 12.2 21.9 21.6 27 52 111 19.3 35 59 Senior High 1.1 2.9 4.5 19.3 16 22 28 7.3 4 5 Vocational 3.4 6.1 10.3 14.8 21 31 27 3.2 14 14 University Faculty 0.8 2.0 3.1 18.4 8 9 12 5.2 7 6 Source: Based on data from Survey of Progress Reports. - 62 - 217. At the primary and university levels, the number of drop-outs and failures is large but may be diminishing. At present about 60 percent of primary school graduates enter the secondary schools, compared to 30 percent in 1959/60. 218. The basic strategy of the education plan should entail: (1) em- phasis on the training of teachers to remove shortages that impede the flow of graduates from the primary to the secondary schools and from the secondary to vocational and other high schools; (2) a thorough review and effective coordination of external assistance provided by UNESCO, UNICEF,IDA, Wyoming University, Teachers' College of Columbia University and by the German, British, French, Russian and American governments. For this purpose, the planning cell in the Ministry of Education should be greatly strengthened. 219. Third Plan. The target set for education in the Third Plan reduces markedly the yearly rate of increase in student population to be taken care of at the pre-senior school level. 220, In the Second Plan student population at the pre-senior school level increased by 220 thousand and the number of schools rose by over one thousand. The objectives of the Third Plan call for increasing the number of pre-senior school student population by 233 thousand and the number of schools by 380, thus reducing the prevailing low school-student ratio. 221, The rationale for a modest education plan can be found if it aims at improving the quality of education. This is not, however, reflected in the ordinary budget forecasts. In 1966/67 under the stress of the stabilization policy, the ordinary expenditure of the Ministry of Education was curtailed by 5.3 percent. In the Third Plan government spending per student is expected to rise from Afs. 748 in 1966/67 to Afs. 925 in 1971/72, i.e. by about 24 percent. This increase does not, however, reflect any real improvement. In 1964/65 public spending per student was in the order of Afs. 910 which in real terms is at least 10 to 15 percent higher than the projected level in 1971/72. A 10 to 15 percent real improvement (25 percent in terms of money) in the quality of educational standards over 1964/65 would mean that about Afs. 950 million additional funds are required during the Third Plan for the existing student population. Further, in order to preserve even the prevailing standards in terms of school facilities, the target for establishing new schools in the Third Plan will have to be more than tripled. Public Health 222. With the limited number of qualified physicians and medical facilitie: the focus of the public health program in the Third Plan is on preventive medicine, the training of health personnel, and the raising of overall hygienic standards. Medical facilities are also to be better distributed on the basis of geography, sex and the mobility of the tribes. The very sparse medical services are to be slowly improved. 223. Medical Facilities and Trainings. During the Third Plan, the availability of hospital beds is to improve from one bed for 11.1 thousanO - 63 - of population in 1966/67 to one bed for 7.6 thousand of population in 1971/72 and that of doctors from one physician for 42.7 thousand of population in 1966/67 to one doctor for 20.7 thousand in 1971/72. Presently, of less than 400 doctors and 1.5 thousand hospital beds, about 80 percent and 60 percent respectively are in the Kabul area. There are very few lady doctors in Afghan- istan, a predominantly orthodox Muslim country where the need for them appears to be great. The concentration of medical institutions in Kabul is not likely to promote better distribution of health services and personnel. Further, the Plan target for increases in the number of semi-medical staff such as nurses, inocculators, pharmacists, midwives, etc. is lower than the rate of rise in the number of physicians. Whereas at the end of the Second Plan it is esti- mated that there would be 5.2 semi-medical persons per physician, this propor- tion declines to 2.7 per doctor in 1971/72. As the emphasis of the Third Plan is to be on preventive medicine, the relative need for such medical staff does not appear to have been adequately provided for in the Plan. 224. Preventive Medicine. Hitherto, there has been preventive work against malaria, smallpox and tuberculosis. Notwithstanding the considerable progress achieved in the Second Plan, the coverage, in terms of the number of persons and the type of diseases included in the program, does not appear to be very comprehensive. The Third Plan ordinary health budget allows a much slower pace of expansion for preventive medicine than 25 percent yearly in- creases in the curative health program. Urban Development 225. The development of municipal services depends on the administrative and technical cadres as well as on the position of municipal finances. In all these respects, municipalities are badly off in Afghanistan and so services are rudimentary or non-existent. 226. There are about 27 towns, each having an estimated population of over 25,000,that contain 12 percent of the total Afghan population. Kabul City, with 440,000 population, accounts for 23 percent of the urban population and the City is growing at a yearly rate of at least 5 percent. In the wake of industrialization, the size of other cities is also likely to increase. 227. In the Second Plan, the projects for improving urban services in- cluded electricity for Kabul, Jalalabad and Pul-i-Khumri; telephone services for Kabul, Mezar and Herat; the asphalting of Kabul's streets by the Russians, and the installation of water pipes for part of the capital city. A pre- fabricated housing factory, sponsored by the Russians, is currently engaged in the construction of over 800 pre-fabricated apartments for middle class families. 228. The Third Plan envisages the continuation of these programs. There are also limited provisions for the sinking of deep wells for water supply to cities and for electric supply to some six towns. A UN project for a housing and town planning authority is in its early stages. 229. Clearly at this stage urban development deserves attention thcuigh .,ts claim on investment resources will have to remain modest for some t tr c,na ANNEX I THE REVENUE SYSTEM AND ESTIMATES FOR THE THIRD PLAN Present Tax System 1. Direct taxes constitute about 20 percent of current revenues. Major direct taxes in Afghanistan are the individual and company income taxes and the land and livestock taxes. The livestock tax was suspended last year apparently for political-administrative reasons. The mission was told that a revised version of this tax may be imposed during the Third Plan. In the Second Plan, receipts from the personal income tax accounted for about 50 percent, from the company income tax 20 percent, and from the land tax and livestock taxes 14 and 16 percent respectively of the total direct tax revenues. 2. Income and Company Taxes. The income tax dates back to 1943. The law was revised in 1956 ad again substantially modified in 1966. The 1966 changes in the income tax law will be operative toward the end of 1967. Its main features are summarized below: (a) The income tax no longer has,as heretofore,different rates of taxation according to source of income. However income from agriculture and animal husbandry is not taxable. The rates are progressive, rising from 4 percent to 40 percent, on incomes ranging from Afs. 10 thousand to Afs. 2.5 million and above. All companies and agencies that employ more than ten people are required to withhold the income tax liabilities of their employees. The reason for income tax reform was stated to be the need for simplification of the law so that taxpayers would be able to determine their oun tax liabili- ties without resort to government officials. This is an ambitious objective for Afghanistan and accounts for the taxes described in subparagraph (c) below. It is also claimed that the reform would raise the revenue yield from this source by about 20-25 percent. (b) Corporations and limited liability companies pay a flat rate of 20 percent on their net incomes.,/ In addition, they pay a business receipts tax. This tax is paid on the following basis: (i) five percent on receipts from commissions, fees, interest, dividends, and rent; (ii) two percent on receipts from the sale of goods, equipment, services, transportation, from premiums for insurance, and sales of tickets for public entertainment. Losses are not reckoned when this tax is levied. Moreover, the tax is a cost item and is hence de- ductable from a company's income for income tax purposes. 1/ It is sometimes hard to determine the number of livestock per taxpayer. 2/ Taxable income excludes income from agriculture. - 65 - (c) Fixed taxes on individuals and small businesses are levied either in lieu of the income tax or in addition to it. There are about 160 groups that pay fixed taxes in lieu of the income tax. The base of this tax is usually the rental value of the premises, and the amount of the tax varies from 2 to 2 and 3 percent of such rental value. It is estimated that there are about 25 thousand shops in Afghanistan subject to this tax. These enterprises do not keep records and thus cannot be brought under the regular income tax. All contractors who are individuals have to pay one to five percent on their total receipts. This payment is also in lieu of income tax. (d) Capital gains from sale or exchange of assets other than land and real estate are subject to the income tax rates, but the gain is assumed to have accrued over the period the property was owned and is prorated accordingly. Capital gains can be offset by losses from similar transactions. (e) Under the new income tax law import and export businesses have to pay a four percent tax on the total cost of imported goods and a two percent tax on the total cost of exported goods. These payments are treated as costs for income tax purposes. 3. Indirect Taxes. Custom levies are the single most important source of public revenue, and in the Second Plan, they constituted one-third of the total treasury receipts. They now amount to about 30 to 35 percent of duti- able imports. The objective of tariff policy has been to tax lightly essential consumption items, levy relatively high duties on goods in which Afghanistan has a certain degree of self-sufficiency and tax raw-material and machinery imports at a low rate. Custom duties are both specific and ad valorem, with the former type being more in vogue. In form, specific duties are expressed as a percentage of "unit prices". These prices are fixed by the administra- tion and can be altered without prior parliamentary sanction. In 1965 the tariff rates and the "unit prices" were revised but without changing the ad valorem specific composition of the levy. In many cases, however, the unit values were revised upward and duties on non-essential commodities were raised. 4. With the substantial rise in the price of more essential items, the spread between the market and the unit prices has widened sharply; in some cases the market price being in excess of 15 times and in most cases at least twice the unit price. The 1965 revision did not affect markedly the ad valorem duties. 1/ 5. A score of items are banned, but they do not appear to have great economic significance. 2/ 1/ Ad valorem duties cover items such as machinery, petroleum products, pharmaceuticals, electrical appliances, cotton textile fabrics, transport vehicles, jewelry, etc. 2/ Prohibited imports include canned fruits, silk, fox skins and furs, porcelain wares and turbans. - 66 - 6. There appears to be much scope for increasing the yield from customs, primarily by raising unit prices and rates and gradually shifting to an ad valorem base. Also, there is a need for administrative improvements to reduce smuggling. In the Third Plan custom duties may be revised for protective reasons, although there appears to be great reluctance to do so. 7. There are also taxes on exports mainly wool and cotton which account for about five percent of indirect taxes and three to five percent of the total value of exports. 8. Another major source of public revenue originates from the foreign exchange transactions of Da Afghanistan Bank. During the First and the Second Plans, these profits were derived primarily from the export proceeds of karakul, cotton and wool, which have to be surrendered at the official rate. A significant part of the increase in public revenue in the Second Plan is attributable to this exchange differential. Revenues would be considerably largeexcept that (under agreement with the INF) $16 million is sold to government agencies at the official rate. This is a little more than a third of the export proceeds from the major export commodities. 9. Another important source of public revenue stems from the operation of state trading organization known as the Monopoly Bureau. A major portion of indirect taxes is collected by the Monopoly. These levies comprise a twelve percent monopoly charge, supplemented by a complex of taxes that depend on the type of commodity and by a monopoly profit (or loss) which varies with the level of the selling price which is fixed by the Government. Tax Policy and Revenue Estimates 10. Agriculture will have to carry a larger portion of the tax burden if the Third Plan revenue goals are to be achieved. At present, this sector is tapped primarily through indirect taxes. The land tax is based on the assessment of the productivity of land made about 40 years ago. The deprecia- tion of money has, of course, seriously eroded receipts from the tax. How- ever, there are areas that have retained payment in kind or have had land assessment in more recent years. In 1966/67 the revenue from this source was slightly more than 0.5 percent of income originating from agriculture and forestry, despite the fact that the land tax rates were doubled last year by agreement with the landowners. A major problem is the unification of rate structure and reassessment of the yield of land based on the result of cadastral surveys. Administratively, Afghanistan is not presently able to carry out a modern system of land taxes or to impose taxes based on the potential use value of land. 11. The livestock tax, which was suspended in 1966/67, has its rationale in the fact that herds are income generating assets, and the herders have derived benefits from grazing their stock on public land as well as from better marketing facilities provided to them by large-scale public investment in roads. The yield of the tax in 1965/66 was slightly less than one percent of the income originating from the livestock sector. - 67 - 12. Receipts from direct taxes in the Third Plan are estimated by the- Government to rise at the yearly rate of 18.1 percent, compared to 11.0 per- cent in the Second Plan. As the contribution of the company income tax is not expected to rise significantly and the livestock tax is assumed to remain suspended over the Plan period, receipts from individual income tax and land tax are projected to increase at the yearly rate of 22 and 29 percent respectively. 13. The recent revision of income tax law should increase the yield from this tax in the initial years of the Plan by about 20 to 25 percent. Thereafter, the yield, in real terms, is not likely to rise faster than 10 to 12 percent per annum and a 15 percent annual increase over the Plan period may be the maximum attainable. As for the land tax, if the effect of doubling the rates in 1965/66 is excluded, the yield of the tax has not risen by more than 2 percent per annum. More rapid reassessment of land values through cadastral surveys may improve the performance of the tax to a 7 percent yearly rate of increase. A sizeable part of the increase in yield from the land tax is already included in the supplementary source of revenue for the Third Plan referred to at the end of this Annex. 14. The mission believes that, without some new direct taxes or increase in rates revenue yield from this source may fall short of government estimates of Afs. L billion by Afs. 700-800 million. 15. As for indirect taxes, income from import levies are expected to increase at the rate of 7.8 percent per year, compared with an 8.0 percent annual increase in the Second Plan. In the Second Plan there was a 1.5 to 1 ratio between the annual rate of increase in yields from the customs and in the value of commercial imports. If in the Third Plan, the rate of increase in commercial imports is limited to 3.5 percent per year, which is one of the implications of the balance of payments forecast in Chapter 3, and if no major shift in the composition of commercial imports takes place, the yield from import taxes can rise by about 5.3 percent per year. However, the revision of unit prices and rates in 1965/66 and improvement in tax administration may bring receipts from this source about up to the official estimates. In 1965/66, custom receipts per dollar of commercial imports was in the neigh- borhood of Afs. 19.5. On this reckoning, a total of $354 million commercial imports in the Third Plan is expected to yield Afs. 6.9 million of revenue. Therefore, with some improvement in the administration ok custom offices, Afs. 7.6 billion estimated revenue receipts from this source should be possible. Income from export duties is also estimated to rise at the yearly rate of 14.3 percent, compared with an annual increase of 7.6 percent in the Second Plan. In the Second Plan, there was a 1 to 1 ratio 'between the rates of increase in income from export taxes and in the value of'exports. The mission's forecast of exports prospects in the Third Plan shows that exports, other than gas, are likely to increase at a yearly rate of about 6.5 percent. Therefore, the yield from the export tax is likely to be of the same order. Moreover, it should be an important policy objective of the Third Plan to reduce gradually taxes from this source as well as from exchange profits. On balance the mission has concluded that the Government's estimate. of indirect taxes(including export taxes) may be too high by about Afs. 300 million. - 68 - 16. Revenue receipts from the Mbnopoly Bureau is estimated by the Government to total Afs. 4.0 billion in the Third Plan. This estimate is based on the projected sale of commodities in the Third Plan. The revenue forecasts from taxes and profits on the sale of these commodities appear fairly realistic. There is, however, a question regarding the sale price of gasoline which was reduced from Afs. 11,066 per ton in 1962/63, giving rise to a certain amount of subsidy. In order to realize the revenue targets and augment public resources, the subsidy on gasoline sale should be reduced.1/ Receipts from other state enterprises are ex- pected to rise at an annual rate of 5.9 percent. In the Second Plan, income from this source increased at a much faster rate but was rather volatile. Since little is known about the actual operations of these agencies, not much can be said about the revenue prospects from this source. Certainly their pricing policies and accounting and reporting procedures require closer control and administrative reforms, This is particularly true of the Monopoly Administration which is the exclusive importer and distributor of petroleum products, vehicles, spare parts, sugar and tobacco. This agency also issues licenses for the import of vehicles from the West ang imports and sells goods in competition with the local business community../ In the past several years, almost all public enterprises have failed to submit their balance sheets and profit and loss statements to the Ministry of Finance. However, the German technical assistance team in Afghanistan is now engaged in streamlining the accounting procedures of these agencies and in training the requisite staff for the purpose. Therefore, in the expectation of some administrative improvement, the mission accepts the Government's estimate of income from this source. 17. Revenue from sale of property and services, including the post, telegraph, telephone and health services, is expected to rise by 6.7 percent per year. In the Second Plan, the real rate of growth of income from this source was much higher. With the expansion of various public services in the Third Plan and the avowed policy of Government to sell some of its assets, a 12 percent yearly rate of growth in revenue from this source appears to be more realistic. 18. In recapitulation of the foregoing survey, mission's estimate of total revenue resources of the Third Plan at present tax rates is about Afs. 650 million less than the official estimates of Afs. 24.8 billion. Table 1 Mission's Estimates (BillionAf) 1. Direct Taxes 3,235 2. Indirect Taxes 11,600 3. Government Enterprises 5,400 4. Sales of Property and Services 2,120 5. Other 1,800 Total 2,1 1/ Estimated consumption of gasoline in the Third Plan is in the neighborhuod of 530 thousand tons, the estimated subsidy per ton of gasoline sold.i, )ri 600, and the estimated total loss of revenue is about Afs. 318 million. 2/ Such as radios, watches, cosmetics, textiles. 69 - 19. The estimate of "additional" resources at present tax rates amounts to Afs. 4.5 billion. The export of 10.5 billion cubic meters of gas to the Soviet Union at the rate of 6.0 roubles per thousand cubic meters is expected to yield Afs. 3.0 billion. The balance of Afs. 1.5 billion may be realized from higher land tax revenues and from the sale of the recently developed state lands in the Helmand and Nangahar areas and of electricity from Nangahar and Mahipar power stations and of agri- cultural products from the state farms. ANNEX II EXPORTS 1. The SDviet team has made an estimate of exports for the Third Plan. The following is a summary of its projections with the mission's comments. Of the total export earnings in the Plan, 47.9 percent are expected to originate from agriculture, 29.2 percent from the livestock sector, 20.1 percent from the handicraft and mining sector, and 2.8 percent unclassified. A major strategy is to achieve higher unit prices for exports by up-grading quality. Considering the importance of transportation cost to Afghan's external trade, such a policy is sound since it is likely to make Afghan goods more competitive in international markets. 2. Agricultural Exports. The main elements in this category are fruit (21.3 percent of total exports); cotton (21.0 percent); oilseed (3.8 percent); and vegetable and medicinal herbs (1.8 percent). 3. The quantity of fresh and dry fruit exports, in the Third Plan is expected to rise at the yearly rate of 5.5 percent and 3.0 percent respectively,compared with 13.2 percent and 2.3 percent achieved in the Second Plan. These estimates seem reasonable. Prices obtained for fresh fruits are expected to be 20 percent higher than in the Second Plan and prices of dried fruits 13 percent higher. Hitherto, in handling fruit by ordinary trucks from Kabul to Peshawar or New Delhi, 20 to 40 percent losses were incurred which were reflected in the lower prices that exporters received from the middlemen. Introduction of refrigerated trucks and the extension of the marketing period by establishing cold storage facilities at critical points are expected to improve prices by 25 to 30 percent. Plans are also worked out to set up nut-shelling plants for almonds, walnuts, and pistachios, and fruit canning and raisin cleaning plants at Kabul and Kandahar. As a result of these measures an' increase of 9.3 percent for fresh. fruit exports (14.8 percent in the Second Plan) and 6.0 percent for dry fruit exports (9.8 percent in the Second Plan) are contemplated. While the price increases reflected in these estimates may well be obtained eventually, the mission doubts whether the necessary facilities will be installed fast enough to achieve them during the Third Plan. 4. The increase in the volume of cotton exports is estimated at 14.2 percent per year, compared with 12.5 percent in the Second Plan. A limiting factor on the rate of increase in cotton exports in the Second Plan was a shortage of ginning capacity. This is now being remedied. Over the Third Plan the decline in the price of raw cotton exports is estimated at 4.1 percent compared with a 2.7 percent decline in the Second Plan. Exchange earnings from cotton are anticipated to show an annual rate of increase of 13.9 percent a year in the Third Plan compared with 12.1 percent in the Second Plan. The realization of this target depends on the economic incentives for raising cotton as against wheat and rice. Another aspect of the incentive problem is to make the export of cotton more profitable particularly to multilateral markets. The achewment of the export target for cotton seems quite speculative under present circumstances. - 71 - 5* With the expected rise in domestic demand for vegetable oil and in spite of fairly rapid rate of increase implicit in the Plan projection of oilseed output, it is anticipated that the volume of oilseed exports in the Third Plan will rise only by about 1.6 percent per year, compared with an annual rate of 16.2 percent in the Second Plan. Third Plan export prices for oilseeds are also expected to be lower than those prevailing in 1966/67. 6. Livestock Products. Major exports originating from the livestock sector are karakul (anticipated to account for 16.5 percent of total Third Plan exports); wool (7.7 percent) and casings and skins (5.0 percent). 7. In terms of number, export of Karakul skins in the Second Plan declined by 4.2 percent per year compared with an increase at an annual rate of about 6.3 percent in the Third Plan. This is in part a reflection of the relatively more favorable effective exchange rate because of the removal of the exchange tax. The price of karakul is expected to rise by 7.4 percent in the Third Plan compared to 3.8 percent increase in the Second Plan. With the doubling of meat prices in recent years and the diversion of livestock to meat production,as well as the slow increase in the number of sheepthese objectives seem hard to achieve. However, schemes for raising the quality of exports by establishing breeding and slaughtering stations, curing and sorting units, etc. may help to raise the price although it is very much at the mercy of changes in fashion in the U.S. market. The European market is said to be expanding. 8. Domestic demand from carpets and the woolen textile sector is likely to absorb most of the increase in raw wool output. Wool export tonnage is anticipated to rise by 2.1 percent per year in the Third Plan and wool prices to improve by 5.4 percent owing to the upgrading of the product through the establishment of wool washing and scouring facilities. Total export value is, therefore, expected to rise annually by 3.4 percent. This seems reasonable. 9. In terms of volume, exports of casings and unprocessed skins are expected to rise in the Third Plan at the yearly rate of 3.5 percent and 6.5 percent, respectively; comparable figures for the Second Plan are 15.6 percent and 10.6 percent. With the installation of properly equipped slaughterhouses and processing plants, an effort is to be made to upgrade these products. Considerable improvement in prices is thus anticipated. Prices of unprocessed skins are expected to rise by 10.2 percent during the Third Plan compared with the 18.1 percent increase that occurred in the Second Plan. Improvement in the price of casings is estimated at 15.9 percent compared witha38.7 percent increase that took place in the Second Plan. 10. Handicrafts. In the Third Plan exports of carpets and rugs are expected to constitute 10.9 percent of total Third Plan exports. Carpet prices are estimated to rise by 13.3 percent over the Plan compared with - 72 - a fall of 11 percent that occurred in the Second Plan. This rise in the price is based on the plan to establish a yarn spinning plant at Kandahar, a dye preparation unit at Herat, carpet washing facilities at Herat and design centers at Kabul and Herat. When established these facilities should produce much better quality rugs. 11. Prospects for the production of gas are good (the pipeline to Russia is nearing completion). However, its price is not yet finally negotiated. We expect about 10 million cubic meters will be exported during the Third Plan. 12. Overall Export Prospects. The export potential of the economy is good. but total exports will depend greatly on the speed and success of up-grading of export products. A review of export performance in the First and Second Plans point to major administrative and policy con- straints that are likely to apply also in the Third Plan. The Russians forecast an 8.8 percent yearly increase of exports (other than gas). The mission has discussed this on an item by item basis with qualified persons in Afghanistan and we feel that a rise of 6.5 percent per year (compared with 5.2 percent rate actually achieved in the Second Plan)1/ may be a more likely outcome, assuming no change in present effective export exchange rates. 1/ Russian estimate gives a higher rate of growth. - 73 - STATISTICAL APPENDIX Table 1 External Medium and Long-Term Public Debt. 2 Estimated Contractual Service Payments on External Public Debt. 3 Consumption, Investment and Savings. Production 4 Agricultural Production. 5 Major Industrial Products. Foreign Trade and Balance of Payments 6 Commodity Composition of Exports. 7 Value of Exports. 8 Value of Imports. 9 Composition of Imports. 10 Balance of Payments Position and Prospects. 11 Third Plan Projection of Exports. 12 Net Balance Under Bilateral Accounts. 13 Direction of Trade. 14 Forecast of Average Prices of Main Exports. 15 Bazaar Free Market Exchange Rates. Fiscal and Monetary 16 Actual and Projected Estimate of Government Revenue. 17 Annual Rate of Increase in Government Revenue. 18 Actual and Projected Estimate of Ordinary Expenditures. 19 Annual Rate of Increase in Ordinary Expenditures. 20 Financial Resources of the Second Plan and Projections for the Third Plan. 21 Monetary Survey. 22 Money and Credit in 1961-1966. 23 National Price Index. Foreign Aid and Debt 24 Terms of External Public Debt. 25 Foreign Project Aid. 26 Commodity Aid. Development Program 27 Development Expenditures by Sectors. 28 Third Plan Sectoral Allocation. 29 Development Expenditures by Ministries in Second Plan. 30 Development Expenditures by Ministries in Third Plan. - 74 - Table 31 Third Plan Targets. 32 Agricultural--Proposed and Actual Expenditures. 33 Second Plan Agricultural Production--Targets a d Achievements. 34 Fertilizer Requirements for 1971. 35 List of Industrial Projects Proposed--Third Plan. 36 Balance Sheet and Income Statement--State Enterprises. 37 Economic Holdings of the Bank Melli in 1964. 38 Transportation Projects. Table 1: AFGHIANISTAN - EXTERNAL MEDIU1M- AND LONG-TERM /1 PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF SEPTE!BER 30, 1966 Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) Debt outstanding Item September 30,1966 Net of Including undisbursed undisbursed TOTAL EXTERNAL PUBLIC DEBT 350,855 555417 IDA credit - 3,500 U.S. Government loan 15 720 56 ,03 Export-Import Bank 30,038 AID 15,682 26,365 Loans from Western Governments 33,884 57,415 Germany 31,331 54,419 United Kingdom 2,554 2,996 Loans from "Eastern" countries 271f251 438,099 Mainland China 647 27,998 Czechoslovakia 3,159 3,159 U.S.S.R. 267,b45 406,942 l Debt with an original or extended maturity of one year or more. Statistics Division IBRD-Economics Department December 13, 1966 Table 2: AFGHANISTAN - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- AND f1IG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF SEPTEMBER 30, 1966 /1 Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) PAGE 1 RANTOTAL---------------- DFPT.PilTST__ YEAR (BEGIN OF PERIOD) PAYMENTS CURING PERIOP/1 APRIL 1) UNDISBURSED ZATION INTEREST TOTAL 1 966 530-53 2_ 5245 ?96. A ,04 0 1967 527,867 8,076 3,648 11,724 1968_ 9---------s5 92 .6 A-------- 21 , 184- 1969 505,011 21,437 6,218 27,655 1_9D4B3_9---------5 05--A 5,-630 156 --------23s3.86 - 1971 467,943 16,583 7,647 24,229 L972___2A51v3 dL 11x.8A 1s9 - 2-439.8 2..-- 1973 433,577 19,405 6,731 26,136 _197_4 --------AIA 172 2 5.,51 -.6.229 --------2j.,380-- 1975 394,020 20,384 5,713 26,097 916 --------373_,636 _20_, 23-352-6 --------26,069 1977 352,813 19,940 4,856 24,796 19 2q,7 19.-96-9 ,4A52 24,421 1979 312,904 16,888 3,878 20,767 _9S8D --------29-6 915 1,231- 3-,563 --------19795-. --------------------------------------- YEAR (BEGIN OF PERIOD) PAYMENTS DURING PERIOD (BEGIlNG INCLUDING____AYDRT1=------------------------- APRIL 1) UNDISBURSED ZATION INTEREST TOTAL 1967 3,500 4 4 -196.8 ----------3.50D- -9_ 9------------- -- 1969 3,500 14 14 9D35- 2 --------20 1971 3,500 - 25 25 197 a3 5. - 76 2 676 1973 3,500 - 26 26 1 9 -- 3t500 --------1B -------26 --------- 1975 3,483 35 26 61 1976335------------- 61. 1977 3,413 35 26 61 1978 3.78 95 75 b _ 1979 3,343 35 25 60 ----------3 3------- 2------------ 60-- Table 2: AFGHANISTAN - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF SEPTEMBER 30, 1966 / (CONT.) Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) PAGE 2 --------------------US .GDOVT.- LOANS- -TOTAL-- YFAR (BEGIN CF PERIOD) PAYMENTS DURING PERIOD (BEGIkN NGGINCLUNG---A.DRIl= --------------------------- APRIL 1) UNDIS8URSED ZATION INTEREST TOTAL -96 . 56,A032 2 5.51 184 3.,-6.4-0- 1967 55,321 2,217 1,546 3,763 1968------53,10 2,299 1,512------3,811.. 1969 50,805 2,381 1,447 3,828 -1-970 B2---------A451424-------6 ,354 ---------3.,20. 1971 45,958 2,552 1,259 3,811 197-2 - 43,4.6- 2., 641 -1,160 .3, 01. - 1973 40,765 2,853 1,057 3,910 1-974 ---------37912-----2-,45 ------9A9 ----------3., 894. 1975 34,967 3,142 840 3,982 --19-76 ---------31 -25 ,393-71-3----------4,164-- 1977 28,432 3,613 692 4,305 1974,81 2,7'5 5 i60L 4,315- 1979 21,064 784 453 1,237 -980 22--------- 8D .801-----36---------- 11,?36-. --------------------------US I. EXI----------------- D.ET0 U TS T YEAR (BEGIN OF PERIOD) PAYMENTS CURING PERIOD B N G - INCLUDING 1------------------- APRIL 1) UNDISBURSED ZATION INTEREST TOTAL 196 -aL . 1.3.O3.2 8JJ ..,209 ,0 8 6 O 1967 29,C86 1,950 1,136 3,085 1968 ---------27,137 2-024058---------3,82- 1969 25,113 2,098 . 977 3,075 197D- -23 .015 2,1174 ------.893 ---------3.1.0,67- 1971 20,841 2,252 806 3,C59 1973 16,256 2,449 623 3,072 1974-13,807 -2,532 -.524 ---------3,056 1975 11,275 2,652 423 3,075 1926 ----------,623 7 3 16 ----------34090- 1977 5,849 2,861 205 3,C66 1q78 77 9gmn 390-7-7-- Table 2: AFGHANISTAN - ESTIMATED CONTRACTUAL SERVICE PAYMTS ON EXTERNAL MEDIUM- AND LONG-TER1 PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF SEPTEM,4BER 30, 1966 /1 (CONT.) Debt Repayable in Foreign Currency (In thousands of .U.S. dollar equivalents) PAGE 3 -------------_US-C-VT- -ID- - YEAR (BEGIN OF PERIOD) PAYMENTS DURING PERICD (BEGIINING -CLUDNG AMOR.T- --------------- --- APRIL 1) UNDISBURSED ZATION INTEREST TOTAL 1 66- - - - ?6,3.65 -9 15 55 '_ 1967 26,234 267 410 677 1968-_--_...25, 961- 2715 454 ------------729- 1969 25,692 283 470 753 1970___-...25.,.409 -------291 -------61 -----------53 1971 25,118 300 453 753 19712 ---2.4, aslR.- 39. 444 753 1973 24,509 404 434 838 197 -----24 ,.105 - -413 4 2 ------------838~ 1975 23,691 489 418 907 1 9723,202_ 6 2 -------2--A55 ---------- 1,0.73 1977 22,503 752 488 1,240 1 9_1a ?1,,811 7 68_ _ _47U _ _,2.38- 1979 21,064 784 453 1,237 920,.280-8 - 36--------- 1-t 236~ ---------------TEER -G0VT.- L CANS ---------------- __ _ DEET-OU-UST- YEAR (BEGIN OF PERIOD) PAYMENTS DURING PERIOD (BEGINNG 'CLUDI1NG-__MRT- ..----- -------- APRIL 1) UNDISBURSED ZATION INTEREST TOTAL 19L6.- 31,Å15 /2.--.3-13L 1 i043_ 2.1135 6.. 1967 56,633 1,564 1,364 2,928 9.8 ---------5-5,069- -1645---1,5633,208 1969 53,424 3,278 1,625 4,903 1970 -------5D. ,4.6 - 0.6__ 561 5-------- 2- 1971 46,440 3,714 1,5C0 5,214 197? 4?,7?-5 3,t_.60.6- 1,3L51 1973 -38,920 3,897 1,232 5,129 _94_ 35, 023--_3, 85Y_~~1,.09.2.---- -----%9 - 1975 31,126 3,897 952 4,849 - 9-6 - -21,229----_-3-,147.-_-__-8 2-1--------- -3 ,968 - 1977 24,082 3,147 71.5 3,862 1978 ?0,.235 ?,7= 613 3,3-43 1979 18,205 2,737 527 3,315 _._19.80_. __--- Å5.,.1. -.-_-.2,11 --- A38----------24552-. Table 2: AFGHANISTAN - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTAUDING INCLUDING UNDISBURSED AS OF SEPTEMBER 30, 1966 /l (CONT.) Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) PAGE h ------------- LOAXSfROt-GERAqY-- .E&T--CUT YEAR (BEGIN OF PERIOD) PAYM-iENTS DURING PERIOD (BEGNING-1 LLUDING -AMDRTI- APRIL 1) UNDISSURSED ZATION INTEREST TOTAL L96 6 54.,AL9 1 ,313 879. 2, 19.2 1967 53,637 1,564 1,230 2,794 1i96B------52,D13I,.639 LA223.-----3, 062~ 1969 50,434 3,157 1,484 4,642 S191.0-------1.,216. 3,.4)0 1.A30-----A, 9.00 1971 43,806 3,470 1,382 4,852 1912 9..0Aa, 336 - 3,55 6.. ,.265 4.,821.-- 1973 36,781 3,641 1,139 4,781 1399743-139 --3,641 1,012 ---------- 4,.654.- 1975 29,498 3,641 885 4,526 1976 -25 .85 2, 896--------- 3.,657. 1977 22,965 2,891 672 3,564 191B _2c9sf73.. 2,ATA7 _- 3 ______-3 05.7. 1979 17,599 2,398 510 2,908 1-8 4158, 2,03----------,516- -----------------------------------S -O--.---------------------- ---- --- --- --- --- ---.-LOANS---FRO L-U. K K - -- -- - - -- - - RET-CUTST.--- -__________ YEAR (BEGIN CF PERIOD) PAYMENTS DURING PERIOD BEGINNING----- - INCLUD-ING- --.AR-RTI --------------------------- APRIL 1) UNDISSURSED ZATION INTEREST TOTAL 1966 ,996164 164 1967- 2,996 134 134 -1968 ----------2-9.96 A--------- -----------_46. 1969 2,990 121 140 261 .02.,81.0 -------23j6 1,31 -------367.- 1971 2,634 244 118 362 ' 1977 ?-,) ,3 11q05 35.5 1973 2,139 255 93 348 19-14------ 255------------ 336 1975 1,628 255 68 323 3--------- 1e373 - 255 55 31.0----------310 . - 1977 1,117 255 42 298 1978 862 25RA ?n . A5- 1979 606 369 17 406 18------------21_ 3 _-36 Table 2: AFGHANISTAN - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIU4- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF SEPTEMBER 30, 1966 / (CONT.) Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) PAGE 5 -------LE-------O. EASTER COUNTRIES_~ 11-ELCUTS-T1. YEAR (BEGIN CF PERIOD) PAYMENTS CURING PERIOD (BEGINNING ICLUDI1NG ~A!'l3.11-. -- APRIL-1) UNDISBURSED ZATIOf, INTEREST TOTAL 1966 413.5 1,E76 16A 2 -04 1967 412,414 4,295 735 5,029 1968AD------ 8.sil9 10831 ,31 9 14,157 1969 397,282 15,777 3,133 18,910 11-------381.5DA 9 421-------- 14.* 28 0. 1971 372,045 10,316 4,863 15,179 1973 350,392 12,655 4,415 17,070 19A337131 13.,292 ~- A,-61---_ --11sb53 1975 324,445 13,310 3,894 17,205 1976-----311 sl35_1A.,28 ,628-.11---1 1977 296,886 13,145 3,423 16,569 197A _2a9741U. 11 .9.4 1_ 3 9253_16,703 1979 270,292 13,282 2,873 16,155 98 212 E2--2-Y 6.65 --------- .15.,9AL L Includes service on all debt listed on Table 1 prepared December 13, 1966 except for the equivalent of $24,824,000 from the U.S.S.R. the repayment of which is dependent on disbursements which are not known. / Amounts outstanding are as of September 30, 1966; payments are for the entire fiscal year. 1 According to Afghan-Soviet Agreement dated July 28, 1965, repayment of principal and interest on all long-term Soviet loans was deferred for 1965, 1966 and 1967. Payment of the deferred amounts will be made in the three years following the contractual maturity date. Statistics Division IBRD-Economics Department December 13, 1966 Table 3 Consumption, Investment and Savings in the Second and the Third Plans (In millions of afghanis) 1962/ 1963/ 1964/ 1965/ 1966/ 1967/ 1968/ 1969/ 1970/ 1971/ 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1. Gross Domestic product at market price 28,304 39,559 48,110 514,238 61,034 63,465 66,284 69,106 72,117 75,200 2. Factor Payments (net) -200 -220 -222 -91 -100 -195 -290 -299 -349 -340 3. Gross national product at market price 28,104 39,339 47,888 514,147 60,934 63,270 65,994 68,807 71,768 714,860 4. Consumptionl/ 25,515 37,198 47,121 52,151 59,629 60,280 62,802 65,353 68,033 70,840 5. Investment 5,589 5,141 5,546 6,363 5,980 6,732 6,362 6,507 7,654 8,165 6. Balance of payment on current account -3,000 -3,000 -4,779 -14,367 -4,675 -3,742 -3,170 -3,053 -3,919 -4,145 7. Domestic Savings 2,589 2,111 767 1,996 1,305 2,990 3,192 3,454 3,735 4,020 As per cent of GNP 8. Consumption 90.8 94.6 98.4 96.3 97.9 95.3 95.2 95.0 94.8 94.6 9. Investment 19.9 13.1 11.6 11.8 9.8 10.6 9.6 9.5 10.7 10.9 10. Ibmestic Savings 9.2 5.4 1.6 3.7 2.1 4.7 4.8 5.0 5.2 5.4 1/ Includes foreign technical assistance. Source: Based on the Russian Plan and on the data provided to the mission by the Planning Ministry. Table 4 Average Agricultural Production During The First and Second Plan And Third Plan Projections to 1971 Second Plan Third Plan Third Plan Revised (by Mission= Average Annual Average Annual Projected Annual Projected Production Growth Production Growth Production Growth Production 1952-61 Rate 1962-66 Rate 1971 Rate 1971 1,000 MT Per Cent 1,000 MT Per Cent 1,000 MT Food Grains 3,544 0.1 3,577 3.2 4,44b9 2.0 4,100 Wheat 2,203 -0.5 2,156 3.7 2,784 - - Corn 674 1.2 715 2.5 850 - - Barley 364 0.8 378 1.9 430 - - Rice (Milled) 313 0.9 328 2.3 385 - - Cotton (Raw) 50 10.9 84 .1 180 7.5 140 Sugarbeets 41 6.1 55 19.4 190 10.4 110 Sugar cane 41 2.7 48 1.1 100 2.0 55 Oil Seeds 48 1.2 51 2.8 62 - - Fruits 276 4.8 349 3.4 470 Vegetables 00 2.0 552 5.1 780 2.6 660 Sheep (Million) 19.0 1.1 20.1 2.3 23.5 1.0 21.5 Ordinary Sheep 14.9 -0.7 14.4 2.4 17.0 1.1 15.5 Karakul Sheep 4.1 5.6 5.7 1.9 6.5 0.7 6.0 Wool 20.911 2. 23.0/ 3.0 27.4 1.1 2.5 Karakul Pelts 2,500oW 0.6 2,560/ 2.7 3,000 0.7 2,700 (1,000 units) 1/ 1961 7/ 1965 Table 5 Major Industrial Production Year Ended March 20th 1957/8 1958/9 1959/60 1960/1 1961/2 1962/3 1963/4 1964/5 1965/6 Product Unit Cotton Textiles mill. meters 19.8 21.9 16.4 23.5 27.2 36.8 47.0 47.0 55.2 Cotton Yarn 000 bundles - - - 28.6 102.6 163.3 208.6 177.8 245.4 Rayon Textiles mill. meters - - - 0.3 0.2 0.2 0.3 0.7 1.0 Woolen Textiles mill. meters 0.2 0.2 0.3 0.3 0.3 0.2 0.2 0.2 0.1 Cement 000 m. tons - 21.0 34.1 36.6 40.0 59.5 103.0 12.2 143.2 Sugar 000 m. tons 4.7 4.7 4.4 4*5 4.9 8.0 7.0 3.9 7.5 Salt 000 m. tons 22.1 25.6 27.5 25.8 21.9 21.9 31.6 29.5 38.9 Coal 000 m. tons 19.7 34.1 41.0 h5.7 68.5 84.h 99.2 112.7 147.0 Electric Power mill.,kwh. 47.1 53.1 83.6 118.6 125.9 158.1 181.7 203.7 184.3 - means data not available Source: From data supplied by the Ministry of Planning to the mission, also from the Progress Report for Industry in Operation, 1341 (1962-63) op. cit., and from Ministry of Planning, Survey of Progress, 1962-64 and Survey of Progress, 1964-65. Where there were discrepancies in the figures,the ones chosen were those agreed to by most sources. Table 6 Commodity Composition of Ekports During the First and the Second Plans (In Per Cent) 1956/57 - 1960/61 1961/62 - 1965/66 Karakul Skins 28 21 Fruits and Nuts 26 28 (i) Dried Fruits 17 22 (ii) Fresh Fruits 9 6 Raw Cotton 14 17 Wool 14 9 Carpets and Rugs 10 12 Oil seeds 2 5 Skins and Hides 2 3 Casing 1 2 Other 3 3' Total 100 100 Source: Survey of Progress Reports. Table 7 Value of Exports, Classified by Commodity, 1958/59-1965/66 (In Millions of U.S. Dollars) Year ending 1958/ 1959/ 1960/ 1961/ 1962/ 1963/ 1964/ 1965/ March 20 59 60 61 62 63 64 65 66 1 Casings 0.6 0.8 0.6 0.8 1.3 1.7 1.6 1.2 Fresh Fruit 5.1 4.7 5.2 2.2 1.7 2.9 5.7 6.1 Dried fruits and nuts 9.7 11.0 7.5 8.7 14.9 11.5 13.5 17.9 Oil seeds 1.1 0.9 1.3 1.3 2.2 3.5 3.5 4.5 H:des and skins 0.8 1.4 1.0 1.1 1.4 2.2 2.0 1.4 Karakil skins 12.5 17.4 13.9 15.3 11.9 16.8 L2.5 J6.1 Other fur skins 0.2 0.3 0.2 0.3 0.3 0.5 0.3 0.1 Wool 7.1 9.7 7.0 6.1 7.6 7.4 6.2 2.0 Raw cotton 5.8 7.7 4.8 8.3 8.4 12.6 14.9 11.1 Medicinal ;erbs 0.7 0.8 0.5 0.2 0.8 1.0 1.0 0.1 Carpets and rugs 2.7 5.5 7.2 8.6 7.6 6.4 8.7 8.9 All other co:modities 0.1 0.3 0.6 0.5 0.8 2.5 0.8 0.6 Total value 46.4 60.4 49.9 53.4 58.9 69.0 70.7 70.0 1/ Preliminary. Soures Afghanistan's Foreign Trade, 1335-1342 (1956/57-1963/64) (revised data); and information received from the Ministry of Commerce. Due to rounding totals do not always add up. Table 8 Value of Importa, 198/59-1965/66 (In Millions of U.S. Dollars) 1958/ 1959/ 1960/ 1961/ 1962/ 1963/ 1964/ 1965/ Year ended March 20 59 60 61 62 63 64 65 66 1/ Cor e-cial IM-ports Suar 1.7 3.2 2.4 3.8 2.4 1.2 5.7 3.0 2.8 3.2 3.3 2.9 3.7 3.7 4.2 2.9 ehrfoods 0.5 0.. , . 0.5 0. 05 09 0.5 0.7 0.5 0.9 To.acco zand tobacco manufactures 0.3 0.5 0.4 0.5 0.3 0.3 0.3 0.2 Petroleum products 2.3 4.8 5.5 6.6 5.7 6.5 7.5 4.3 Xedicinal, pharmaceutical and other chemical products 1.8 1.4 1.7 1.5 1.9 4.9 3.9 3.1 Fibber tires and tubes 1.9 1.2 2.1 0.3 2.5 2.9 1.1 2.1 cotton fabrics 7.4 5.3 4.9 5.1 5.0 .7 3.9 4.0 Fabrics excluding cotton 10.4 7.1 3.9 3.9 6.1 5.6 5.8 4.3 Other nonmetallic mineral manf"actures 3.5 2.8 2.6 3.1 1.3 5.2 4.4 3.5 Metals and metal maiz,.nufac- tures - n.e.s. 1.5 1.3 2.5 1.9 1.4 2.2 2.2 1.9 N:achinery 5.2 1.7 3.7 1.3 1.7 2.0 3.3 2.7 Motor vehic1s6 4.0 1.5 2.3 1.7 2.1 3.9 3.4 4.1 Bicycles 0.2 0.3 0.5 0.3 0. 0.3 0.5 0.2 Other transnort equipment 1.2 0.8 2.0 1.4 1.2 1.2 1.0 1.0 Plubing, Ueating and Us hi aquipment 0.6 0.2 0.5 0.3 0.7 0.8 3.1 1.1 Used clothing 0.6 0.7 1.5 1.1 1.1 1.5 2.1 1.4 Foouear 0.5 1.2 1.3 1.2 1.4 1.5 1.8 1.6 Ow., ,miscellaneous ma::factured articles 2.2 2.1 2.1 2.9 3.3 3.7 4.1 3.9 All other commodities and uanknown 3.5 51 -5.4 8.7 17.1 11.1 8.1 10-3[ Total commercial imports 52.1 45.0 49.2 49.1 59.4 61.9 66.9 56.5 Aid-7inanced Imoorts Non-project loan and grant imports 5.6 11.4 6.1 6.5 4.9 12.3 15.4 18.1 Project loan and grant im7ports 15.1 24-.5 5 1 5 435 51.6 51.5 59.1 56 3 Total imports 72.8 80.9 86.8 99.1 115.9 125.7 141.4 131.0 1/ Preliminary. Source: Afghanistan's Foreign Trade 1335-1342 (1956/57-1963/64) (revised data); and information received from the Ministry of Commerce. Due to rounding, totals do not always add up. Table 9 Composition of Imports During the First and the Second Plan (In Millions of Dollars) First Plan Second Plan 1956/ 1957/ 1958/ 1959/ 1960/ 1961/ 1962/ 1963/ 1964/ 1965/ Commercial Imports 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 A. Consumer Goods 21.2 24.6 26.0 23.4 20.1 20.6 22.4 22.1 28.2 21.4 Food & Tobacco -.- 7 -. 7.7 -6.7 7-7 79 .7 10.7 7.0 Textile, Clothing & Footwear 14.3 18.0 18.9 14.3 11.6 11.3 13.6 11.3 13.6 11.3 Pharmaceuticals & Other Chemicals 0.4 1.0 1.8 1.4 1.7 1.5 1.9 4.9 3.9 3.1 B. Producers' Goods 13.3 15.6 16.7 11.5 18.6 13.8 15.3 19.8 6 21.0 Petroleum Products 1.2 2.7 2.3 7.T .7 7 .7 6.7 7. _7_ Rubber Tyres & Tubes -- 1.2 1.9 1.2 2.1 0.3 2.4 2.9 1.1 2.1 Machinery 6.5 2.8 5.2 1.7 3.7 1.3 1.7 2.0 3.3 2.7 Transport Vehicles 4.7 7.2 5.2 2.3 4.3 3.4 3.4 5.4 4.9 5.4 Metals, Building Fixtures 0.9 1.8 2.1 1.5 3.0 2.2 2.1 3.0 9.7 6.5 C. Others 1.7 7.0 9.14 101 10. 14.7 21.7 20.0 12.1 1.2 Aid-Financed Imports A. Non-project loan and grant imports -- 3.8 5.6 11.4 6.1 6.5 4.9 12.3 15.4 18.1 B. Project loan and grant imports - 6.5 15.1 24.5 31.5 43.5 51.6 51.5 59.2 56.3 Total Imports 46.2 57.5 72.8 80.9 86.8 99.1 115.9 125.7 141.4 131.0 Source: Afghanistan's Foreign Trade 1335-1342 (1956/57-1963/64) and information received from the Ministry of Commerce. Table 10 Balance of PaNments Position and Prospect During the Third Plan (In Millions of Dollars) Third Plan 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 Total Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit 1. Exports- (f.o.b.) 70.7 69.9 69.6 80.0 83.0 97.0 103.0 113.0 476.0 2. Imports (c.i.f.) 145.7 140.0 149.5 160.7 149.3 160.3 178.6 192.1 841.0 a) Commercial importsM 35_ _6140 T83 72.9 762 367.0 b) Commodity imports 16.1 17.8 23.2 13.4 13.4 13.4 13.4 13.4 67.0 c) Project imports 62.7 64.2 62.3 79.0 73.0 74.0 89.0 95.0 110.0 Trade Balance 75.0 70.1 79.9 80.7 66.3 63.3 75.6 79.1 365.0 3. Travel 0.4 2.8 0.8 3.6 1.4 3.8 2.1 4.0 3.5 4.4 4.0 5.0 4.5 5.0 5.0 5.0 19.1 23.-4 4. Investment Income -- 4.9 -- 2.0 - 2.2 -- 4.3 -- 6.4 -- 6.6 -- 7.7 -- 7.5 -- 32.5 5. Government not included elsewhere 8.6 32.4 7.4 29.6 7.5 26.8 7.5 21.8 7.5 21.5 7.5 21.1 7.5 25.8 75 26.3 37.5 116.5 a) Service component of foreign assistance 2/ -- 31.1 -- 28.2 - 25.3 -- 20.2 -- 19.8 -- 19.4 -- 24.1 -- 24.6 -- 108.1 b) Embassy expenditure 8.6 1.3 7.4 1.4 7.5 1.5 7.5 1.6 7.5 1.7 7.5 1.7 7.5 1.7 7.5 1.7 37.5 8.4 6. Transfer payments 66.0 -- 50.9 -- 49.4 -- 18.6 -- 17.6 -- 17.1 -- 15.6 - 13.9 -- 82.8 -- a) Private sector -- 0.7 -- -- -- 7-- 7-- 77 -- 3.0 -- b) Central Government 65.4 - 50.2 -- 48.8 -- 18.0 -- 17.0 -- 16.5 -- 15.0 -- 13.3 -- 79.8 -- Balance on Current Account 40.1 46.2 5h.4 82.6 70.0 67.4 86.5 91.5 398.0 7. Loans received--Central Government, non-oonetary a) Commodity -- -- -- -- -- -- 13.4 -- 13.4 -- 13.4 -- 13.4 -- 13.4 -- 67.0 -- b) Other 44.0 -- 59.1 -- 61.0 -- 79.0 -- 73.0 -- 74.0 -- 89.0 -- 95.0 -- 410.0 -- 8. Loan repayment--Central Government, non-monetary -- 4 -- . -- 4.4 -- 9.8 -- 16.4 -- 20.0 -- 15.9 -- 16.9 -- 79.0 9. Monetary sector4/ 5.9 5.3 2.0 11.1 -- 2.2 -- -- -- -- -- -- -- -- -- -- -- -- 1/ Non-gas exports in the Third Plan are projected at the rate of about 6.5 percent increase per year and exchange earnings from gas exports are calculated on the basis of $6.6 per thousand cubic meters of gas. 2/ Third Plan projections are based on the assumption that the prevailing free market exchange transactions will continue in the Third Plan. / At the initial year, this item accounted for 50 percent of foreign assistance. Later, the proportion declines to 33 percent. For projecting the Third Plan totals, it is assumed that payments under this heading would be close to 32 percent of the total foreign assistance. 1/ Including errors and omissions. Source: Mission's estimates. Data for 1964/65 to 1966/67 were supplied to the mission and they vary slightly from the official estimates. Table 11 Third Plan Projections of Exports (Millions of Dollars) Increase 3rd Plan Increase Total Total from 1st Total Composition from 2nd 1st 1961/62 2nd to 2nd 1966/67 3rd (In percent) to 3rd 1967/6B 1968/69 1969/70 1970/71 1971/72 Plan Plan Plan Plan Plan (%) 1. Exports (Million dollars) 268.90 53.39 344.13 28.0 73.59 527.10 100.0 53.2 87.30 9h.16 107.91 114.08 123.65 a) Karakul i) volume ('000 pelts) 9,959 2,089 8,778 11.9 1,700 10,500 19.6 1,900 2,000 2,100 2,200 2,300 ii) value ('000 dollars) 74,310 15,259 67,944 8.6 13,770 87,250 16.5 28.4 15,390 16,400 17,430 18,48o 19,550 b) Sheep skin i) volume (1000 skins) 2,547 580 2,860 12.3 500 2,500 -12.6 5oo 500 500 500 500 ii) value ('000 dollars) 1,140 291 1,698 48.9 310 1,550 0.3 -7.7 310 310 310 310 310 c) Raw skin i) volume ('000 skins) 6,318 1,020 9,723 5h.0 2,100 11,900 22.3 2,200 2,300 2,4oo 2,500 2,500 ii) value ('000 dollars) 5,266 1,080 9,570 81,7 2,062 12,745 2.4 33.2 2,158 2,255 2,670 2,782 2,880 d) Wool i) volume (ton) 30,756 5,394 27,157 -11.7 5,500 30,000 10.4 6,000 6,000 6,000 6,000 6,000 ii) value ('000 dollars) 37,324 6,111 34,652 -7.2 7,050 40,346 7.7 16.4 7,850 7,960 8,060 8,136 8,340 e) Casings i) volume ('000 coils) 8,603 1,724 13,079 52.0 2,850 16,675 27.5 2,900 3,125 3,250 3,500 3,900 ii) value ('000 dollars) 3,890 764 8,202 110.8 1,822 12,120 2.3 47.4 1,865 2,010 2,342 2,739 3,16h f) Cotton i) volume ('000 tons) 53.3 115.5 91.5 71.7 21.0 161.2 76.2 24.7 28.1 32.5 35.0 40.9 ii) value ('000 dollars) 39,226 8,318 65,519 67.0 14,760 110,688 21.0 68.9 16,913 19,136 22,295 24,028 28,316 g) Oil seeds i) volume ('000 tons) 45.3 9.9 98.0 116.3 21.0 114 16.3 23 23 23 22.5 22.5 ii) value ('000 dollars) 6,076 1,310 16,ho90 171.4 13,747 19,984 3.8 21.2 4,077 h,077 4,030 3,900 3,900 h) Fruits (Fresh) i)volume ('000 tons) 140.3 15.3 132.2 -5.8 28.5 167.7 26.9 30.2 31.9 33.5 35.0 37.1 ii) value ('000 dollers) 22,143 2,197 18,642 -15.8 4,275 28,360 5.4 52.1 4,530 5,292 5,720 6,14o 6,678 i) Fruits (Dry) i) volum ( '000 tons) 144.3 27.7 156.8 8.7 31.0 173.0 10.3 33.0 314.0 34.5 35.5 36.0 ii) value ('000 dollars) 46,27h 8,733 67,453 45.7 13,915 84,035 15.9 24.6 14,950 15,945 16,800 17,745 18,595 j) Fresh and dried vegetables i) volums (000 tmns) 2,178 68 6,993 221.1 1,600 11,220 60.4 1,600 2,220 2,220 2,340 2,840 ii) value ('000 dollars) 279 11 841 201.4 200 3,244 0.6 285.7 200 632 632 716 1,064 k) Medicinal herbs i) volume (tons) 2,090 599 10,066 381.6 2,500 12,500 24.2 2,500 2,500 2,500 2,500 2,500 ii) value ('000 dollars) 2,694 192 5,266 95.5 1,250 6,250 1.2 18.7 1,250 1,250 1,250 1,250 1,250 1) Carpets and rugs i) volume ('000 sq.metrs) 1,A75 444 2,438 65.2 535 2,950 21.0 550 550 600 600 650 ii) value ('000 dollars) 28,462 8,603 41,929 47.3 9,095 57,500 10.9 37.1 9,350 9,900 12,000 12,600 13,650 m) Gas (billions of cubic mtrs) i) volume - - - - - 10.5 - 1.5 1.5 2.5 2.5 2.5 ii) value ('000 dollars) - - - *- - 46,620 8.8 - 6,660 6,660 11,100 11,100 11,100 n) Ores i) volume ('000 tons) - - - - - 24 - - 2 4 8 10 ii) value ('000 dollars) - - - - - 1,872 0.4 - - 156 312 624 780 o) Others value ('000 dollars) 1,816 521 5,924 226.2 1,330 14,540 2.8 145.6 1,800 2,180 2,960 3,525 4,075 Source: Russian Plan Table 12 Afghanistan: Net Balances Under BLlateral Accountsi/ (In millions of US Dolars) As at 1960 1961 1962 1963 1964 1965 1966 20th of: March March March March Sept. March Sept. March Sept. March Sept. U.S.S.R. -0.07 -3.53 -4.26 -4.92 -6.83 -1.90 -3.75 -2.34 3.23 1.88 2.80 Czechoslovakia -2.35 -3.11 -3.58 -3.05 -2.41 -0.86 1.22 1.25 0.34 -- -1.28 Poland 0.16 0.04 0.10 0.02 -- 0.59 0.34 0.62 0.52 0.50 0.42 Mainland China 0.14 0.07 0.20 0.12 0.35 0.13 0.15 0.05 -0.16 -0.05 0.39 Yugoslavia -- -- -- -- -- -- -- 0.01 0.01 Total -2.12 -6.53 -7.54 -7.83 -8.89 -2.04 -2.04 -0.42 3.93 2.34 2.34 1/ Dashes indicate that figure is less than $5,000. Source: Da Afghanistan Bank. Table 13 Direction of Trade, 1958/59-1965/66 (In Millions of U.S. Dollars) YeFr ending 1958/59 1959/60 1960/61 1961/62 1962/63 1963/64 1964/65 1965/66-11 46.4 60.4 49.9 5.4 58.9 69.0 70.7 70.0 11.2 10.8 6.9 5.2 8.0 9.1 11.8 4.9 2.6 3.0 4.? 1. - 3.9 5.9 9.7 -t... 12.5 16.1 10.9 16.7 23.0 21.3 22.5 17.5 Other bilateral 0.8 2.0 3.1 2.6 3.1 6.9 4.3 1.7 United States 9.5 12.8 10.3 10.1 9.0 11.2 8.8 11.0 United Kingdom 6.0 9.2 7.7 8.7 7.6 9.4 6.3 12.3 Germany,Fed.Rep. of 2.7 3.9 5.2 5.6 4.3 2.8 5.9 5.5 Other 1.0 1.7 1.2 3.2 3.9 4.4 5.2 7.4 - norts 72.8 80.9 86.8 2j 115,9 125.7 141.1 131.0 Lndia 6.8 8.0 9.3 7.9 8.8 10.5 8.0 5.0 Pakistan 3.8 2.4 2.5 2.3 0.2 1.9 4.9 4.0 U.S.S.R. 30.3 37.4 44.4 5.6 72.5 63.8 65.2 61.0 Other bilateral 3.7 3.8 3.1 3.5 6.0 5.8 6.0 5.6 United States 11.0 13.6 12.7 18.9 10.9 22.4 21.9 20.0 United Kingdom 1.7 1.4 1.8 1.0 1.4 2.0 2.1 4.7 G-ermany,Fed.Rep.of 2.4 2.3 3.2 3.6 4.0 3.8 14.1 17.3 Japan 11.2 7.4 5.6 5.0 7.4 8.6 9.2 8.0 Other ~.9 4.6 4.3 4.3 4.7 6.9 9.9 5.4 1/ Prellminary. Source: Afghanistan's Foreign Trade, 1335-1342 (1956/57-1963/64) (revised data); and information received from the Ministry of Commerce. Due to rounding, totals do not always add ap. Table 14 Forecast of Average Prices of Afghanistan's Main Exports .(1967/60-1971/72) (Prices in dollars) Rate of Increase in First Second Third The Second Plan The Third Plan Ministry of Unit of Plan Plan Plan over the over the Commerce Estimate Item Measurement 1961/62 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 Average Average Average Pirat Plan Second Plan for T.F.Y. Plan In percent) (In percent) Karakul Unit 7.30 8.10 8.10 8.20 8.30 8.40 8.40 7.46 7.74 8.31 3.8 7.4 8.00 Sheep Skin Unit 0.59 0.62 0.62 0.62 0.62 0.62 0.62 0.50 0.62 0.62 1.2 - 0.60 Unprocessed Skin Unit 1.06 0.98 0.98 0.98 11.10 11.10 1.10 0.83 0.98 1.00 18.1 10.2 1.47 Wool Unit 1132.90 1281.80 1308.30 1326.70 1343.30 1356.00 13190.00 1213.60 1276.00 13h.90 5.1 5.4 1323.90 Casings 000 Unit h3.00 62.80 643.10 643.20 720.60 782.60 811.30 452.20 433.00 726.80 38.7 15.9 816.10 Ginned Cotton Ton 724.30 7A2.80 684.70 681.00 686.00 686.00 686.50 735.h0 715.80 686.60 -2.7 -4.1 683.60 Oil Seeds Ton 131.80 178.40 177.30 171.30 175.20 173.30 173.30 13L.20 168.20 175.30 25.3 4.2 186.10 Fresh Fruits Ton 143.50 150.50 150.00 165.90 170.70 175.40 180.00 157.80 141.00 169.10 -10.6 19.9 168.50 Dried Fruit & Walnuts Ton 315.50 448.90 453.00 469.00 487.00 499.80 516.60 320.60 430.20 485.70 3h.2 12.9 h3l.90 Fresh & Dried Vegetables Ton 160.30 125.00 125.00 284.70 284.70 306.00 374.60 128.00 120.20 289.10 -6.1 1h0.5 288.00 Medicinal Herbs Ton 320.10 500.00 500.00 500.00 500.00 500.00 500.00 380.00 523.20 500.00 37.7 -4.4 532.00 Carpets & Rugs Meter 19.39 17.00 17.00 18.00 20.00 21.00 21.00 19.30 17.20 19.49 -10.9 13.3 19.59 Natural Gas 000 Meter - - 4.Lh 4.hh 4.h4 4.44 .44 - - 4.44 - - - Ores Ton - - - 78.00 78.00 78.00 78,00 - - 78.00 - Source: Russian Plan. Table 15 Bazaar Free Market Exchange Rates for U. S. Dollar 1959/60 - 1966/67 1/ (In afghanis per U.S. dollar) Year Ending 1959/ 1960/ 1961/ 1962/ 1963/ 196V/ 1965/ 1966/2/ March 20: 60 61 62 63 64 65 66 67 Hamal (April) 51.1 43.4 43.1 47.7 50.5 56.0 76.2 81.6 Sawar (May) 50.6 43.3 42.2 51.8 51.6 57.2 76.0 80.9 Jawza (June) 53.9 40.1 42.0 51.8 50.6 59.0 74.1 78.4 Saratan (July) 46.0 38.6 42.3 53.6 50.1 61.7 73.3 77.7 Asad (August) 44.6 40.0 42.0 53.3 50.0 61.2 74.9 76.2 Sunbula (September) 43.7 40.1 41.5 53.9 50.0 62.2 74.3 75.3 Mizan (October) 43.2 38.2 41.9 53.1 49.6 63.3 74.2 71.4 Aqrab (November) 43.1 38.6 41.8 54.1 49.6 66.4 74.1 Qaus (December) 46.7 39.7 45.1 55.7 50.6 65.8 73.9 Jaddi (January) 49.2 43.5 46.6 55.2 52.2 68.1 76.1 Dalwa (February) 45.1 41.3 45.9 53.1 55.2 70.5 77.1 Hoot (March) 41.9 42.5 47.2 50.2 55.5 72.2 79.8 Annual Average 46.6 40.8 43.5 52.8 51.3 63.6 75.3 1/ Monthly averages for drafts and checks. 2/ Estimate. Source: Da Afghanistan Bank. Table 16 Actual and Projected Estimate of Government Revenues During the Second and the Third Plan (In millions of afghanis) 1966/67 Total Total (Budget Second Third 1962/63 1963/64 1964/65 1965/66 Estimate) Plan 1967/68 1968/69 1969/70 1970/71 1971/72 Plan (Actua17 (Actual) (ActualT (Actual) Projections Direct taxes 320.0 375.1 h7.8 574.9 485.0 2 202.8 5h9.0 6h6.0 777.0 934.0 1 114.0 4,020.0 Individual income tax -IT3 1 1 238. 7 2M 1!0. 359.0 1,31 -7517.0 6 '744.0 ,61 Company income tax 77.1 78.7 80.6 81.1 120.0 437.5 100.0 105.0 110.0 114.0 120.0 50'.0 Land tax 46.4 49.0 h.3 81.9 90.0 311.6 90.0 110.0 150.0 200.0 250.0 800.0 Livestock tax 82.9 90.3 84.5 87.6 - 365.3 - - - - - - Indirect taxes 1 127.1 1,712.3 1 917.5 2,175.5 1,874.0 8,806.4 2,040.0 2 190.0 2,335.0 2,555.0 2 730.0 11,850.0 Import dutes 3.6 9 E 11,095.1 . 1;0.0 I 1,300.0 1,4 T,-55.0 7,600.0 Export duties 74.7 76.5 80.1 139.3 100.0 470.6 1145.0 155.0 170.0 185.0 195.0 850.0 Tax on sale of consumer goods 71.6 90.3 197.6 92.3 67.0 518.3 70.0 75.0 80.0 100.0 125.0 b50.0 Tax on commercial transactions (Includes exchange profit) 89.0 592.4 529.5 804.3 497.0 2,512.2 515.0 550.0 575.0 610.0 650.0 2,900.0 Monopoly duties 8.2 8.5 15.2 10.4 10.0 52.3 10.0 10.0 10.0 10.0 10.0 50.0 Revenue from sale of Property and Services 115.6 150.6 197.2 24h.5 298.0 1,005.9 283.0 313.0 36.0 377.0 412.0 1,730.0 Sale of natural resources and other property 79.2 104.0 148.4 162.2 218.0 711.8 195.0 215.0 238.0 261.0 285.0 1,194.0 Other 36.4 46.6 48.8 82.3 80.0 294.1 88.0 98.0 107.0 116.0 127.0 536.0 Revenues from license fees and fines 76.7 90.1 110.8 114.1 94.0 485.7 114.0 121.0 130.0 138.0 147.0 650.0 Income from use of property and money 29.7 79.5 86.1 50.1 167.0 1?4.4 114.0 122.0 130.0 137.0 147.0 650.0 Income from government enterprises 388.8 570.0 347.2 767.7 947.0 3,020.7 928.6 988.0 1,09.1 1,158.6 1,236.9 5,361.2 Income from government monopoly 367.3 393.7 156.3 609.3 775.0 2,301.6 719.1 762.2 805.2 866.6 929.9 4,083.0 Income from other government enterprises 21.5 176.3 190.9 158.4 172.0 719.1 209.5 225.9 243.9 292.0 307.0 1,273.2 Other Revenues 93.2 75.1 64.7 67.7 55.0 355.7 60.0 65.0 70.0 75.0 80.0 350.0 Nonrevenue income 29.9 56.2 59.9 151.0 30.0 327.0 40.0 40.0 40.0 40.0 40.0 200.0 Subtotal 2,181.0 3,108.9 3,231.2 4,145.5 3,950.0 16,616.6 1,128.6 L,485.0 4,876.1 5,414.6 5,906.9 24,811.2 Less Commodity assistance included above -61.0 -122.2 -131.h -21t0.0 - -854.6 - - - - - - Total domestic revenue 2,120.0 2,686.7 3,099.8 3,905.5 3,950.0 15,762.0 4,128.6 4,485.0 4,876.1 5,414.6 5,906.9 24,811.2 Total commodity aid 112.4 615.2 411.2 727.0 1,000.0 2,865.8 800.0 800.0 800.0 800.0 800.0 j,0 Total government revenue 2,232. 3,301.9 3,511.0 4,632.5 4,950.0 18,627.8 4,928.6 5,285.0 5,676.1 6,214.6 6,706.9 28,811.2 Source; Planning Ministry. Table 17 Annual Rate of Increase in Public Revenues During the Third Plan (In percent) Second Plan Third Plan Average Average Annual Compound Annual Compound 1963/64 1964/65 1965/66 1966/67 Rate Rate 1967/68 1968/69 1969/70 1970/71 1971/72 Rate Rate TActVuaU) T-Ual) TActU57) Tbdgt -F-F- i -e -c 7 on--T Estimate) Direct taxes 17.2 19.4 28.4 -15.7 12.3 11.0 13.1 17.6 20.2 20.2 19.2 18.1 18.1 Individual income tax 7 MT 767 5 73. :9 T Mli 7b IT. 1" =1 =1 Company income tax 2.1 2.4 0.6 47.9 13.7 11.7 -16.7 5.0 4.8 3.6 5.3 o.4 0.0 Land tax 5.6 -9.6 84.9 9.9 22.7 18.0 0.0 22.2 36.4 33.3 25.0 23.4 29.0 Livestock tax 8.9 -7.4 3.7 - 1.7 ! 1.9 1 - - - - - - - Indirect taxes 51.9 12.0 13.5 -13.9 15.9 13.6 8.9 7.4 7.5 9.4 6.8 9.6 7.8 Import duties 67 3 7 _77 _FT _-T 5 7.7 7.1 ro TI 77 =7 Export duties 2.4 4.7 73.9 -28.2 13.2 7.6 45.0 6.9 9.7 8.8 5.4 15.2 14.3 Tax on sale of consumer goods 26.1 118.8 -53.3 -27.4 16.1 -1.7 4.5 7.1 6.7 25.0 25.0 13.7 13.3 Tax on commercial transactions 565.6 -10.6 51.9 -38.2 142.2 53.0 3.6 6.8 4.5 6.1 6.6 5.5 5.5 Monoply duties 3.7 78.8 -31.6 -3.8 17.8 5.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Revenue from sale of property and services 30.3 30.9 214.0 21.9 26.8 26.8 -5.0 10.6 10.2 9.3 9.3 6.9 6.7 le of natural resources and other property 31.3 42.7 9.3 34.4 29.4 29.0 -10.6 10.3 10.7 9.7 9.2 5.9 5.5 Other 28.0 4.7 68.6 -2.8 24.6 22.0 10.0 11.6 9.1 8.b 9.5 9.7 9.7 Revenues from license fees and fines 17.5 22.9 3.0 -17.6 6.5 5.2 21.2 6.1 7.4 6.2 6.5 9.5 9.4 Income from use of property and money 67.7 8.3 -29.8 233.3 90.7 55.0 -31.7 7.0 6.6 5.4 7.3 -1.1 -2.6 Income from government enterprises 46.6 -39.1 121.1 23.4 38.0 25.0 -2.0 6.4 6.2 4.4 6.7 4.3 5.5 Income from governmet-meaply 7.2 -60.3 289.8 27.2 66.0 20.5 -7.2 6.0 5.6 7.6 7.3 5.6 3.7 Income from other government enterprises 720.0 8.3 -17.0 8.6 180.0 67.5 21.8 7.8 8.0 19.7 5.1 19.0 12.3 Other Revenues -19.L, -13.8 4.6 -18.2 -11.7 -14.0 9.1 8.3 7.7 7.1 6.7 7.8 7.8 Nonrevenue income 88.0 6.6 152.0 -80.1 141.6 0.0 33.3 0.0 0.0 0.0 0.0 6.7 5.9 Total domestic revenue 26.7 15.4 30.0 1.2 18.3 16.8 4.5 8.6 8.7 11.0 9.1 8.11 8.4 1/ Cover three-year period. Source: Planning Ministry. Table 18 Actual and Projected Estimate of Ordinary 3overnment Expenditure During the Second and the Third Plans (In Million Afghanis) 1962/63 1963/64 1964/65 1965/66 1966/67 Total 1967/68 1968/69 1969/70 1970/71 1971/72 Total (Actual) (Actual) (Actual) (Actual) (Budget Second (Projections) Third Est.) Plan Plan Ministry of Court 20.9 24.0 27.0 31.6 34.1 137.6 42 43 45 50 55 235 National Assembly 14.0 14.4 8.8 18.0 32.6 87.8 30 31 32 33 34 160 Senate .6 .5 1.2 4.2 10.0 16.5 5 5 5 5 5 25 Prime Minister 19.5 23.4 24.0 26.3 2L.3 117.5 30 31 32 33 34 160 Ministry of Defense 593.6 646.0 778.0 886.1 800.0 3,703.7 1,060 1,080 1,100 1,120 1,10 5,500 Ministry of Foreign Affairs 84.6 66.0 70.2 77.0 79.2 377.0 80 80 85 90 95 430 Ministry of Interior (Civil) 31.0 37.0 50.6 55.4 60.1 234.1 45 47 49 51 55 247 Ministry of Interior (Police) 99.5 112.8 16.5 157.3 147.5 663.6 140 150 160 170 180 800 Ministry of Justice 13.1 20.0 37.8 48.3 63.5 182.7 50 50 50 50 50 250 Ministry of Finance- 126.8 155.6 155.1 356.0 95.0 888.5 94 96 100 105 110 505 Ministry of Education 167.1 232.9 300.4 352.3 340.0 1,392.7 440 L88 532 585 6h4 2,689 Ministry of Public Health 47.7 62.2 75.7 84.3 78.6 348.5 88 97 106 117 129 537 Ministry of Communications 33.1 41.6 47.7 48.0 45.1 215.5 45 L8 50 53 55 251 Ministry of Commerce 8.0 14.4 11.8 13.7 Th.1 62.0 13 13.5 lh 14.5 15 70 Ministry of Public Works 53.1 57.9 75.6 123.3 121.0 430.9 105 110 116 122 128 581 Ministry of Agriculture 4L.6 50.2 48.9 45.6 58.4 247.7 52 S4 56 58 60 280 Ministry of Mines and Industries l1.5 50.1 45.1 56.1 57.6 250.4 50 52 54 56 60 272 Ministry of Planning 10.0 20.2 22.0 22.5 23.7 98.4 25 26 27 28 29 135 Ministry of Press and Infornation 26.8 39.7 33.4 28.0 28.0 155.9 36 38 40 42 44 200 Tribal Affairs 20.8 24.8 26.3 26.7 28.0 126.6 25 25 25 25 25 125 Kabul University 39.1 59.0 67.0 59.6 61.4 286.1 80 85 95 105 120 L85 Health Institutes 24.8 27.7 30.9 32.1 28.8 Th.3 33 34 35 36 37 175 Faculty of Medicine 9.3 10.6 11.7 11.6 13.6 56.8 1l 15 16 17 18 80 Department of Olympics 2.1 2.7 2.9 1.8 2.4 11.9 3.0 3.5 4 4.5 5 20 Civil Aviation Authority 16.0 2L.1 33.2 35.5 34.4 l3.2 5 50 50 50 55 250 '3eneral Transportation Department 3.7 13.7 6.6 7.5 6.2 37.7 7 7 8 8 9 39 Helmand Valley Authority 36.8 33.6 34.5 29.3 37.5 171.7 35 35 35 35 35 175 Soil and Water Survey - 0.5 3.7 2.3 - 6.5 - - - - - - Cartography 6.3 5.9 6.7 6.1 - 25.0 7 - 7 7 7 7 35 Helmand Valley Agency of Kabul 0.5 0.5 0.6 0.5 2.1 - - - - - Subsidies - - - - Th0.02/ Th0.0 160.0 180.0 200.0 220.0 240.0 1,000.0 Other Expenditures - - - - 35.02/ 35.0 10.0 200.0 260.0 320.0 380.0 1,300.03 Contingency Fund - - - - 258.5 258.5 - - - - - - Total Domestic Expenditures 1,594.9 1,872.0 2,183.9 2,6L7.0 2, 58.6 11,056.4 2,9-9.0 3,181.0 3,388.0 3,610.0 3,853.0 17,011.0 Foreign Debt Servicing 215.6 543.4 378.7 255.1 30L.0 1,696.3 Total Expenditures 1 2,562.6 2,902.1 062.6 12 32 1/ Excluding external and internal debt service. 2/ Compoarable actual data for 1962/63-1965/66 are urrier the Ministry of Finance. 5/ Maintenance cost of new prcjects. Source: Planning Ministry Table 19 Annual Rate of Increase in Ordinary Expenditures During the Third Plan (In Percent) 1963/64 1964/65 1965/66 1966/67 Average Compound 1967/68 1968/69 1969/70 1970/71 1971/72 Average Compound (Actual) (Actual) (Actual) (Budget Annual Rate ( P r o j e c t i o n s ) Annual Rate Estimate) Rate Rate Ministry of Court 14.3 12.5 18.5 6.3 12.9 12.8 23.5 2.4 4.7 11.1 10.0 10.3 10.1 National Assembly -- -35.7 100.0 83.3 36.9 24.0 -9.1 3.3 3.2 3.1 3.0 0.7 0.6 Senate -16.7 100.0 300.0 150.0 133.3 79.0 -50.0 -- -- -- -- -10.0 -13.0 Prime Minister's Office 15.0 4.3 8.3 -7.7 4.9 4.7 25.0 3.3 3.2 3.1 3.0 7.5 7.2 Ministry of Defense 8.8 20.4 13.9 -9.7 8.3 7.7 32.5 1.9 1.9 1.8 1.8 7.9 7.3 Ministry of Foreign Affairs -22.4 6.1 10.0 2.6 -0.9 -8.5 1.3 -- 6.3 5.9 5.6 3.8 3.8 Ministry of Interior 14.5 32.0 16.2 -18.9 10.9 12.3 -11.1 6.5 6.1 5.7 6.3 2.7 2.5 Ministry of Justice 53.8 90.0 26.3 33.3 50.8 49.o -21.9 -- -- -- -- -h.3 -4.9 Ministry of Tribal Affairs 19.0 4.0 3.8 3.7 7.6 7.5 -10.7 -- -- -- -- -2.1 -2.2 Department of Olympics 50.0 -- -33.3 -- 4.1 -- 50.0 33.3 -- 25.0 -- 21.6 20.0 Ministry of General Transport 250.0 -50.0 14.3 -25.0 47.3 10.7 16.7 -- 14.3 -- 12.5 8.7 8.5 Ministry of Finance 22.8 -0.01 129.7 -73.3 19.8 -7.0 1/ -1.1 2.1 4.1 5.0 4.8 2.9 3.0 Ministry of Education 2/ 41.7 25.7 12.3 -2.7 19.2 18.1 29.7 10.2 9.4 10.0 10.7 14.0 13.8 Ministry of Public Health 3/ 23.2 17.8 7.6 -h.7 10.9 10.5 10.7 8.1 7.5 8.3 8.2 8.5 8.6 Ministry of Communications 27.3 14.3 -- -6.3 8.8 8.1 -- 6.7 4.2 6.0 3.8 4.1 4.1 Ministry of Commerce 75.0 -14.3 16.7 -- 19.3 15.0 -7.2 7.7 -- 7.1 -- 1.5 1.4 Ministry of Public Works 9.4 31.0 61.8 -1.6 25.1 23.0 -13.2 h.8 5.5 5.2 4.9 1.h 1.1 Ministry of Agriculture 4/ 2.4 4.7 -12.4 23.1 4.4 3.7 -9.4 2.3 2.2 2.2 2.2 -0.1 -0.2 Ministry of Mines and Industris 19.0 -10.0 24.4 3.6 9.2 8.4 -13.8 4.0 3.8 3.7 7.1 0.9 0.7 Ministry of Planning 100.0 10.0 h.5 4.3 29.7 25.0 4.2 4.0 3.8 3.7 3.6 3.8 3.9 Ministry of Press and 48.1 -17.5 -15.2 -- 3.8 0.9 28.6 5.6 5.3 5.0 4.8 9.8 9.5 Information Ministry of Cartography -- 16.7 -11.3 -- 0.6 -- -- -- -- -- -- -- -- Ministry of Civil Aviation 50.0 37.5 -9.1 -5.6 18.2 21.0 32.4 11.1 -- -- 10.0 10.7 10.1 Total Domestic Expenditures 17.4 16.7 21.2 4.2 11.9 14.7 8.0 6.8 6.5 6.6 6.7 6.9 6.9 1/ This fall is due to the reclassification of expenditure items and it does not reflect the result of a retrenchment policy. 7/ Includes Kabul University. * 1/ Includes Faculty of Medicine and Health Institutes. T/ Includes Soil and Water Survey and Helmand Valley Authority. Source: Planning Ministry. Table 20 Financial Resources of the Second Plan and Projections of Government Finances During the Third Plan (In Afs. million). 1962/63 1963/64 1964/65 1965/66 1966/67 Total Sec- Total (actual) (actual) (actual) (actual) (budget est) ond Plan 1967/68 1968/69 1969/70 1970/71 1971/72 Third Plan Domestic Revenue 2,120 3,100 3,906 3,950 IL,73 4,105 4,430 4,760 5,225 5,645 Ordinary Expenditures 1,595 1,872 2,184 2,647 2,759 11,056 2,995 3,295 3,620 3,985 L,385 18,280 Foreign Debt Servicing 216 543 379 255 304 1,697 639 1,033 1,204 1,069 1,106 5,051 Total Current 1 811 tures 2,563 29230 Expenditures 2 S 263 202,631272 3,634 4,328 4,824 5,054 5,h9l 23,331 Current Surplus 310 272 537 1,004 887 3,010 471 102 -64 171 154 834 Foreign Comnodity Aid 112 615 411 727 1,000 2,865 600 600 600 600 600 3,000 Net Revenue Available for Development 422 887 948 1,731 1,887 5,875 1,071 702 536 771 754 3 83h New Resources - - - - - 700 - 900 1,000 1,100 _tt6 Deficit Spending 1,024 953 707 83 -37 2,730 100 120 1k0 160 180 700 Additional Taxes Needed for the Plan - - - - - - 373 403 433 463 49h 1,400 Total Afghani Resources Available for Devel- opment 1,446 1,840 1,655 1,814 1,850 8,605 2,071 1,862 1,856 2,251 2,394 LL Foreign Project Aid 1/ 3,06 2,397 2,781 3,585 3,160 15,39 3,106 2,793 2,784 3,377 3,591 156 Public Sector Devel- opment Expenditures 4,852 4,237 4,436 5,399 5,010 2L4 5,177 4,65 4,640 5,628 5,985 2 V Converted at the rate of Afs. k5.3 per U. S. dollar. Source: Planning Ministry for the Second Plan and Mission's estimate for the Third Plan. Table 21 Mcnetary Survey (In millions of afghanis) 1951 1962 1963 1964 1965 1986 , March March March Sept. March Sept. March Sept. March SePt.2! Assets Foreign Assets 1/ /.. 1,007 1,101 2,34 2,279 2,059 2,026 2,008 2,036 2,214 Claims on National Government 2 1,729 2,581 3,926 4,287 4,839 5,643 5,494 5,923 5,596 6,094 Claims on official entities (Govt. enterprises and municipalities) 352 481 458 404 478 470 503 47$ 474 473 Claims on private sector 2,244 2,162 2,113 2,10$ 2,154 2,177 2,402 2,519 2,645 2,673 Liabilities Currency cutside banks and demand deposits 2,550 2,920 3,689 4,118 4,537 4,862 5,301 5,331 5,339 5,255 Time and savings deposits 138 213 171 133 175 322 481 698 772 774 Fireign currency deposits 3/ 66 72 65 144 173 81 119 213 309 237 National Government deposits 403 $28 640 911 662 1,027 370 787 440 1,017 Official entities deposits 611 504 736 1,014 763 857 783 768 737 1,090 Counterpart funds - 104 81 98 242 327 102 182 43 98 Foreign liabilities ... 190 233 506 235 269 225 10$ 139 186 Capital accounts 1,19 1,717 1,832 1,628 1,687 1,708 1,776 1,835 l,865 1,936 Revaluation profits (net) 4/ - - - 1,200 1,200 1,200 1,200 1,200 1,200 1,200 Other items (net) -962 -16 151 -612 76 -304 68 -194 -93 -339 1/ Comprises gold and foreign exchange assets of Da Afghanistan Bank and private banks, converted at the official rate of Afs. 20 per US$1 through March 1963 and thereafter at the official rate of Afs. 14 per US$1. Because foreigh exchange transactions were also carried out at rates other than the official rate, the data do not measure the true monetary impact of foreign transactions. 2/ Credits to National Government plus adjustment due to inclusion of Treasury coins as a liability of the banking system less adjustment due to inclusion of Treasury IMF accounts as an asset of the banking system. 3/ Comprises demand deposits of foreign banks, embassies and other foreign official institutions with Da Afghanistan Bank and liabilities of Da Afghanistan Bank under bilateral payments agreements. / Comprises net profit arising from the devaluation in April 1963 of holdings r)f gold and foreign exchange assets and liabilities of Da Afghanistan Bank and commercial banks from the rate of Afs. 20 per U.S.$1 to the new rate of Afs. 15 per U.S.$1. 5/ Preliminary. Sourcesi International Financial Statistics and Da Afghanistan Bank. Table 22 M,oney and Credit in 1961-66 (Figures in Million Afghanis) Annual Increase March 1961 March 1966 (Percent) Foreign Assets 1,00oL/ 8002/ -4.6 Claims on Public Sctor (Net) 1,067 4,9032/ 35.5 Claims on Private Sector (Net) 2,040 1,564 -5.5 Total Assets-Liabilities 4,107 7,267 12.1 of which Currency Outside Bank and Demand Deposits 2,550 5,338 15.9 1/ Estimate 2/ In order to present a more accurate comparative picture of the foreign asset position and of government borrowings from the banking system revaluation profits resulting from exchange rate adjustment of March 1963 are not credited to government deposit account. Similarly, the value of foreign assets is reduced by the same amount. Source: I.F.S. Table 23 National Price Index Series (1961/62 = 100) 1962/63 1963/64 1964/65 1965/66 1966/67 All Items 98.1 132.2 156.1 170.5 187.51 Cereals 95.7 143.5 173.4 186.5 Meats 97.9 110.4 145.0 174.9 Fruits and Nuts 100.5 138.3 147.0 168.0 Vegetables 103.6 127.9 138.7 144.6 Other Foods 107.4 106.9 129.9 141.0 Non-Fbods 101.6 98.6 99.1 103.4 Fbr the year ending September, 1966 the rise in prices ranged between 10 to 15 per cent for commodities that account for an aggregate weight of 73 per cent. On this reckoning, the price rise in 1966/67 is expected to be not less than 10 per cent. Source: da Afghanistan Bank Table 24 Terms of External Public Debt of Afghanistan as of September, 1966 Original Weighted Averages of: Amounts Interest Rate Maturity Grace Period Category (In US$ thousand) (In percent) (In yrs) (In yrs) IDA Loans 3,500 0.750 49.5 10.0 US Government-Exim 39,300 3.966 26.9 9.4 US Govt. Loans Other 26,809 2.157 38.1 8.1 Loans from U. K. 2,996 4.675 15.9 4.5 Loans from Germany 55,250 3.351 20.3 4.3 Loans from U.S.S.R. 382,175 1.520 38.2 12.9 Loans from Czechoslovakia 8,923 3.000 9.1 2.8 china (Mainland) 27,997 0.000 35.1 11.1 Total: 546,950 1.871 34.9 11.2 Source: Statistics Division, IBRD Economics Department. Table 25 Foreign Project Aid During the Second Plan 2/ (In Milliongsof U. S. Dollars) 1962/63 1963/64 1964/65 1965166 1967 Total Second Plan A c t u a 1 s Estimated Composition (In Percent) Sectoral Distribution Industry, YLnes and Power 20.2 20.8 20.3 32.3 28.0 121.7 34.6 Agriculture and Irrigation 9.0 7.5 12.7 9.7 11.9 50.8- 14.5 Transport and Comnnications 39.7 32.7 34.7 27.7 20.6 155.3 hbd2 Education 0.8 1.5 2.6 5.0 6.5 16.4 4.6 Health 0.1 - - 0.1 0.1 0.5 0.1 Other 0.4 0.9 2.2 3.5 7.0 2.0 Total 70.0 62.9 71.2 77.0 70.7 352.0 100.0 Country Distribution U.S.S.R. 52.5 34.9 45.1 54.3 42.8 229.7 65.2 U.S.A. 14.6 20.1 16.8 12.8 17.8 82.1 23.3 Federal Republic 1.8 6.7 7.0 8.3 7.7 31.5 8.9 of Germany Czechoslovakia 0.2 0.3 1.0 1.6 2.0 5.1 1.5 U.N. 0.9 1.1 1.5 0.3 3.8 1.1 Total 70.0 63.1 71.4 77.3 70.3 352.2 100.0 1/ Preliminary. Source: Planning Ministry. Table 26 Commodity Aid During the Second Five-Year Plan (In Millions of Afghanis) Country 1962/63 1963/64- 196/65 1965/66 1967 Tota Actua 1 s Budget U.S.S.R. 61 422 131 240 250 1,104 U.S.A. 51 183 242 369 528 1,373 Federal Republic of Germany - 10 38 118 222 388 Total commodity aid included in Government budget 112 615 411 727 1,000 2,865 Commodity aid from U.N. agencies not included in the budget - 30 21 10 61 Total commodity aid 112 615 441 748 1,010 2,926 Source: Planning Ministry. Table 27 Development Expenditures By Sectors in the Second Plan (In Millions of Afghanis)* 1962/63" 1963/64 1964/65 1965/66 1966/67 Total Composition Actuals Est1mafe (Per Cent) Agriculture 73.98 144.07 3.36 143.95 142.11 5d7-47 2.5 Irrigation 527.11 1,021.28 879.60 640.13 200-39 3,268.50 13.6 Indistrial Productivn 749.78 132.15 112.85 351.78 219.71 1,566.27 Mineral Production 27.82 32.97 53.28 108.62 187.23 409.92 1.7 Power Production 327.70 144.-1 482.149 863.31 788.21 2,60632 10.9 Pvwer Transmission 6 - 6.80 47.75 173.68 228.23 1.0 Forestry .23 1.62 3.19 -4.148 19,30 28.82 01 Transport 2,039.41 1,836.70 1,748.33 1,378.99 746.95 7,750.38 32.4 Communication 8.83- 47.50 141.66 168.50 103.77 40,26 2.0 Education 42.68 128.14 159.71 289.98 555-43 1,175.94 4.9 Ffealth 29.88 25.34 32.58 187.23 37:06 312.09 1.3 Information and Culture .73 1.08 4.78 9.67 27.42 43.68 0.2 Housing - - 21.38 144.56 433.31 599.25 2.5 Public Buildings 43.04 119.41 50.21 46.71 6.50 265087 1.1 Rural Development 19.60 29.62 27.44 21.86 56.64 155.16 0.6 Urban Development 10.89 17.77 16.67 21.08 21.87 88.28 V.4 Surveys & Research 949.75 554.99 608.68 969.85 934.36 4,017.63 16.8 Tourism - - 3.40 .50 30 4.20 - Others/1 - 135619 356.19 1.5 4,8351.42 4,237.25 14, 436.41 5,398.95 5,010.143 23.934.V0b * All dollar components were converted at Afs 45.3 1 U.S. $ /1 Includes Monopoly, Kandahar University, House Construction No. 2, 2nd Ministry of Commerce projects not given in the project list. So9arce: Planning Ministry Table 28 Third Plan Sectoral Allocation Foreign Exchange Foreign Exchange Local Currency Total Expenditure Expenditure Expenditure Expenditure Composition (In US$ million) (In Afs. million)l/ (In Afs. million) (In Afs. million) (In Percent) Agriculture 2/ 22.1 1,002.9 1,178.9 2,181.8 6.9 Irrigation 57.9 2,623.8 3,509.2 6,133.0 19.3 Industrial Production 3/ 95.5 4,324.8 1,852.2 6,177.0 19.4 Mineral Production 5.6 252.8 126.9 379.7 1.1 Power Production 52.4 2,373.3 716.4 3,089.7 9.7 Power Transmission 14.8 668.2 200.7 868.9 2.7 Forestry 1.5 66.1 56.3 122.4 0.4 Transport 47.1 2,131.8 1,308.2 3,440.0 10.8 Communication 6.2 282.7 160.1 442.8 1.3 Education 4/ 14.6 663.2 1,453.9 2,117.1 6.7 Health 10.2 462.1 563.7 1,025.8 3.2 Information & Culture 0.9 39.4 6.7 46.1 0.2 Housing 5.4 244.6 421.3 665.9 2.1 Public Buildings 2.9 133.2 646.0 779.2 2.5 Rural Development 3.6 164.9 503.1 668.0 2.1 Urban Development 4.7 212.9 87*9 300.8 1.0 Survey & Research 45.6 2,064.8 973.5 3,038.3 9.6 Tourism 5.9 266.8 55.0 321.8 1.0 Total 396.9 17,978.3 13,820.0 31,798.3 100.0 1/ Converted at the rate of Afs. 45.3 per US$1. 2/ Includes Afs. 500 million ear-marked for Agricultural Bank. 3/ Includes Afs. 500 million for the proposed Industrial Development Bank. 1i/ Includes Ministry of Education and Kabul University projects. Source: Planning Ministry. Table 29 Development Expenditures by Ministries in the Second Plan (Amounts in millions of afghanis)l/ 1962/63 1963/64 1964/65 1965/66 1966/67 Total Ministry (Actual) (Actual) (Actual) (Actual) Budget Second Composition Estimates Plan (Per Cent) Mines and Industries 2,040.87 845.07 1,211.40 2,366.21 1,968.00 8,431.55 35.2 Agriculture 49.83 63.10 1J43.56 207.37 243.44 707.30 3.0 Public Works 1,806.28 2,200.22 2,089.14 1,569.94 1,034.16 8,699.74 36.3 Health 34.90 26.14 27.00 185.82 29.06 302.92 1.3 Communication --- 1.97 115.90 152.54 118.97 389.38 1.6 Education 37.35 80.88 54.48 75.35 263.49 511.55 2.1 Information and Culture 9.56 138.05 65.14 37.14 15.86 265.75 1.1 Silos 1.90 .22 27.29 24.51 38.37 92.29 0.4 Kabul Medical Faculty -- 2.23 2.19 1.17 2.00 7.59 0.0 Rural Development 14.35 20.00 21.49 21.20 30.00 107.04 0.5 Polytechnic Institute -- -- -- 47.43 117.95 165.38 0.7 Cadastral Survey -- 9.11 7.16 23.54 35.56 75.37 0.3 Kabul University -- 35.51 18.63 33.08 22.53 109.75 0.5 Health Institute -- -- 5.58 2.21 3.00 10.79 - Kabul Municipality 10.89 17.77 16.67 21.08 15.50 81.91 0.3 Civil Aviation Authority 211.71 68.97 90.21 57.53 4.80 433.22 1.8 House Construction Agency -- -- 21.38 144.56 205.90 371.84 1.6 Cartographic Organiation 10.96 12.57 13.07 5.65 4.78 47.03 0.2 Paktia Developme rity 508.85 549.23 4 0 316 11 148 83 2,g6j.06 9.5 Helmand Valley Authority 113.97 166.21 bb.Qlj 106.51 3ti3.40 t33t.17 3.5 Others -- -- - - 24.83 24.83 0.1 Total 4,951.62 4,237.25 4,436.71 5,398.95 5,010.3 23,934.76 100.0 1/ All dollar components were converted at Afs. 45.3 = 1 U.S. dollar. 2/ Includes Nangarhar Projects. 3/ Includes Monopoly Bureau, Kandahar University, House Construction No. 2, and Ministry of Commerce. Source: Planning Ministry. Table 30 Development Expenlitures by Ministries in the Third Plan Foreign Exchange Expenditure h4uiv.Iin Local Currency Expenditure Grand Total (In million dollars) Millions of In millions of afghanis) (In millions of afghanis) Ministry/Department Private Public Afghanis Private Pubc Private Public Composition Sector Sector Total Sector Sector Total Sector Sector Total (In Percent) Mines and Industries 51.3 97.5 148.8 6,741.0 1,114.9 1,699.4 2,814.3 3,440.6 6,117.9 10,058.5 31.6 Agriculture and Irrigation -- 71.4 71.4 3,234.4 -- 2,062.1 2,062.1 -- 5,298.7 5,798.7 18.2 Public Works -- 41.8 41.8 1,893.5 -- 1,111.7 1,111.7 -- 3,004.8 3,004.8 9.4 Communication -- 6.1 6.1 276.4 -- 158.9 158.9 -- 435.2 435.2 1.3 Public Health -- 5.3 5.3 240.2 -- 292.3 292.3 -- 531.1 531.1 1.7 Information and Culture -- 7.0 7.0 317.1 -- 274.7 274.7 -- 590.9 590.9 1.9 Commerce 3.7 0.1 3.8 172.1 98.8 1.7 100.5 266.9 4.4 271.3 0.9 Justice -- -- -- -- -- 99.1 99.1 -- 100.0 100.0 0.3 Interior -- -- -- -- -- 135.0 135.0 -- 135.0 135.0 0.4 National Defense -- 3.0 3.0 136.0 -- 70.0 70.0 -- 206.0 206.0 0.7 Rural Development -- 3.6 3.6 163.1 -- 466.0 466.0 -- 630.9 630.9 1.9 Helmand Valley Authority -- 51.0 51.0 2,310.3 -- 1,483.9 1,483.9 -- 3,793.3 3,793.3 11.9 Paktia Development Unit -- 9.8 9.8 444.0 -- 137.3 137.3 -- 582.6 582.6 1.8 Kabul Municipality -- 3.8 3.8 172.1 -- 121.4 121.4 -- 293.6 293.6 0.9 General Transport -- -- -- - - 17.2 17.2 -- 17.1 17.1 0.1 MNangahar Development Unit -- 13.3 13.3 602.5 -- 1,200.0 1,200.0 -- 1,802.5 1,802.5 5.7 Civil Aviation -- A. .1 199.3 -- 138.4 138.4 -- 337.6 337.6 1.1 Faculty of Medicine -- 0.5 0.5 23.0 -- 144.4 14. -- 65.7 65.7 0.2 Nadir Shat Hospital -- 0.8 0.8 36.2 -- 34.2 34.2 -- 72.3 72.3 0.2 Silos -- 4.1 4.1 186.0 -- 152.6 152.6 -- 338.4 338.4 1.0 House Construction Units -- 5.9 5.9 267.3 -- 514.5 514.5 -- 781.8 781.8 2.5 Cadaster -- 0.1 0.1 4.5 -- 1.5 1.5 -- 6.0 6.0 ng. Population Census - 0.5 0.5 23.0 -- 87.2 87.2 -- 111.2 111.2 0.4 Polytechnics -- 2.6 2.6 118.0 -- 123.0 123.0 -- 240.8 240.8 0.8 Cartography -- 0.5 0.5 22.7 -- 60.7 60.7 -- 81.1 81.1 0.3 Kabul University -- 1.9 1.9 86.1 -- 125.0 125.0 -- 209.7 209.7 0.7 Education -- 6.9 6.9 312.6 -- 991.0 991.0 -- 1,302.2 1,302.2 4.1 Total: 55.0 341.9 396.9 17,981.4 1,213.7 11,603.2 12,816.9 3,707.5 27,090.8 31,798.3 100.0 1/ Grand total includes Afs. 500 million earmarked for Agricultural Bank. 7/ Includes Afs. 500 million for the proposed Industrial Development Bank. (Figures may not add up due to rounding). Source: Planning Ministry. Table 31 Third PlaL, Targets Second Third Plan Plan annual annual 1967/72 1971/72 rate of rate of as percent of as percent of increase increane 1961/62 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1962/67 1966/67 In Percent In Percent Industry j,l. Industrial Production (in millions of afs.) at 1966/67 prices 1,731 3,567 6,265 6,690 6,252 7,866 10,339 206.9 191.5 15.6 23.9 2. Major Industrial Production: i) Gas industry (million cubic meters) - - 1,500 1,500 2,500 2,500 2,900 - 193.3* - 17.9'' ii) Coal (in t000 tons) 66.3 152 180 200 200 230 310 229.3 203.9 16.0 15.3 sii) Electricity (in mn kwh) 125.8 262.8 270 600 360 390 600 193.0 267.1 16.1 19.8 iv) Cement (in -000 tons) 60.6 177 177 177 178 179 180 660 101.7 36 0.3 v) Cotton (in '000 tons) 15.7 32.2 36.9 61.5 68.6 52.0 59.9 205.1 186.0 15.- 13.2 vt) Cotton textile (in mn meters) 27.2 56 60 68 75 88 105 205.9 187.5 15.6 13- vii) Woolen fabrics (in '000 meters) 157 665 650 650 850 900 100 610 155.0 32 9.2 viii) Silk fabrics (in '000 meters) 267 1,000 1,000 1,080 1,660 1,700 3,000 370 300 30 26.6 ix) Leather shoes (in '000 pairs) 25.2 90 150 150 300 360 650 360 5oo 29 38 x) Sugar (in '000 tons) 6.5 7.5 9.0 9.5 19.5 33.1 53.6 166.7 710 10.8 h8 xi) Wheat flour - In State owned departments (in '000 tons) 32.1 56 70 72 130 160 150 176.6 267.8 11.8 21.8 xii) Vegetable oil (in '000 tons) 1.5 3.35 3.5 5.0 6.0 7.5 10.2 223.3 300 17.6 26.9 3. Production of Handicraft Industries at 1966/67 prices (in millions of afs.) 7,502 9,131 9,535 9,932 10,356 10,811 11,276 121.7 123.6 6.0 6.3 6. Agricultural Production at 1966/67 prices (in millions of afs.) 36,888 37,367 38,527 39,768 61,201 62,670 66,252 107.0 118.5 1.4 3.6 5. Area under major agri- cultural crops: i) Grain and cereals (in '000 hectares): 3,390 3,515 3,526 3,533 3,567 3,561 3,575 103.7 101.7 0.7 0.3 a) Wheat (in '000 hectares) 2,230 2,365 2,353 2,361 2,376 2,387 2,600 105.1 102.3 1.0 0.6 b) Rice (in '000 hectares) 210 220 221 222 223 226 225 106.8 16.5 1.0 0.9 c) Taw cotton (in '000 hectares) 65.0 75.8 79.8 86.0 90.0 96.2 100.0 116.6 131.9 3.1 5.7 d) Oil seeds (in '000 hectares) 150 150 150 150 151 153 155 100 103.3 - 0.7 6. Livestock Population: i) Cow and buffalo (in '000) 3,600 3,780 3,860 3,960 6,020 6,100 6,200 105.0 11.1 1.0 2.2 ii) Sheep (in '000) of which 13,800 15,300 15,660 15,970 16,300 16,660 17,000 110.9 111.1 2.1 2.2 Karakul ((in '000) 5,600 5,710 5,830 5,990 6,150 6,320 6,500 102 113.8 0.6 2.6 7. Production of major agri- cultural crops: i) Wheat (in '000 tons) 2,279 2,330 2,605 2,679 2,574 2,682 2,786 102.2 119.5 0.6 3.6 it) ice 0315 335 35 350 360 370 385 105.0 114.9 1.0 2.8 iii) B.rley "378 387 39h 402 411 4,20 430 102.6 112.1 0.5 2.1 iv) Jawar 700 760 760 780 805 825 850 105.7 114.9 1.1 2.8 v) a. cotton n5 101 12 126 165 158 180 187.0 178.2 13.3 12.2 vi) Sugar beot 446 7h 91 112 138 165 190 168.2 256.8 11.0 20.8 vii) Vegetables 500 596 622 661 698 737 780 119.2 130.9 3.6 5.5 viii) Froits i365 385 00 617 434 650 70 105.5 122.1 1.1 6.1 ii) Ol seeds 50 51 52 5 56 60 62 102.0 121.6 0.6 6.0 i) Sheep wool 20.9 23.6 2.3 2 25.8 26.5 27.6 112.9 116.1 2.5 3.0 bi) earaksl (in '000 units) 2,500 2,610 2,670 2,725 2,800 2,900 3,000 166.6 110.9 0.9 2.6 xii) Beef end mutton (not) 1. Beef (in n000 tons) 53.1 55.3 56.2 57.2 58.2 59.2 6D.0 166.1 108.7 0.8 1.7 2. Mutton 103.0 117.0 121.0 125.1 1296 133.8 138.6 113.6 118.3 2.6 3. trwa31mo.0emninUtort 8. Transport and Commsunications v) Length of motorable roads (in 000D of kilometers) 613 6.7 6.7 6.7 6.8 6.8 6.9 106.3 103.0 1.2 0.6 ii) Goods transportation (in o am) o38 728 797 870 90. 1,029 1,125 166.2 156.5 10.7 9.1 iii) Number of inter and city buses (in '000 units) 0.6 1.0 1.1 1.2 1.3 1.6 1.5 166.6 150.0 10.7 8.6 iv) Passenger transport a) In cities (in mm persons) 1.6 2.1 2.3 2.5 2.7 2.9 3.2 131.2 152.6 5.6 8.8 b) Inter-city (in en passenger koss) 2.6 6.0 8.5 5.0 5.5 6.0 6.6 166.7 165.0 10.7 10.5 v) Passenger transport by air (in 0000 persons) 61.2 60.0 60.0 65.0 65.0 50.0 60.0 97.1 150.0 0.6 8.6 vi) Cargo transport by air (in en tens kn) 35.7 65.0 66.0 50.0 50.0 57.0 69.0 126,). 153.3 6.7 8.9 vii) Cargo transport by air- Ariana Co. (in en tons kilometer) 9.5 8.0 8.0 9.0 9.0 9.5 10.0 84.2 125.0 3.5 4.6 viii) Goods transport from sea ports (in '000 tons) 250 350 365 380 400 425 650 160.0 128.6 7.0 5.2 ix) Postal letters (in mm) 6.6 7.5 8.0 8.5 9.0 9.5 10.0 163.0 133.3 10.3 5.9 x) Num,ber of installed telephones (in '000) 6.0 7.5 15.5 18.5 18.5 18.5 20.5 125.0 273.3 6.6 22.3 Setond Third Plan Plan annual annual 1967/72 1971/72 rate of rate of as percent of as percent of increase increase 1961/62 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1962/67 1966/67 In Percent In Percent Manpower and Population 9. Manpower end Employment i) Population (in mn) 16.0h 15. 15.7 16.0 16.3 16.6 16.9 109.7 109.8 1.75 1.9 ii) Labor force (in mn) 3 3.77 1.13 - - - 4.54 109.5 109.9 1.8 1.9 iii) Labor force engaged in economic activities (in mn) 3.55 3.86 - - - - 4.305 108.7 111.5 1.7 2.2 10. Iducation i) Village, primary and ;z secondary schools a) Humber of schools 1,373 2,410 2,57 2,691 2,728 2,757 2,789 175.5 115.7 11.9 3.0 b) Number of ntudents (in 000) 225.28 L45.L2 538.0 62b.5 663.0 659.7 678.1 202.2 168.9 15.1 8.3 ii) Tocational and Technical Schools a) Humber of schools - 27 31 34 34 3 36 - 133.3 - 5.9 b) lumber of students - 9,280 12,659 15,292 15,995 16,575 18,080 - 194.8 - .14.3 c) 'umber of graduates - 1,662 1,476 2,107 5,093 4,702 6,119 - 370 - 9.8 ii) High Education a) Number of schools 1 1 1 1 2 2 2 100 200 - - b) Number of students 1,987 2,905 2,955 3,010 3,4b5 3,66 4,018 16.2 138.3 7.9 6.7 c) flumber of graduatea 229 510 513 569 654 622 637 222.7 124.9 17.). h.5 Health 11. Public Health i) Number of hospitals 49 61 68 80 82 82 83 124.5 136.1 h.5 6.b ii) Jumber of hospital beds 1,165 1,38h 1,594 1,834 1,98 1,98h 2,01h 118.8 145.5 3.5 7.8 iii) Number of laboratories, etc. 27 35 39 13 7 49 51 129.6 145.7 5.3 7.8 iv) Number of doctors 293 361 430 485 580 720 830 123.2 229.9 h.3 18.1 v) Number of semi-medical personnel 866 1,861 1,895 1,960 2,035 2,120 2,215 21h.9 119.0 16.5 3.5 Rural Development 12. -ural Development i) Number of rural development projects under implemen- tation 8 47 19 50 59 67 79 590 168 4.3 10.9 Foreign Trade 13 Foreign Trade i) Turnover of foreign trade (in me of af..) 4,612 6,615 7,280 7,517 8,645 9,200 9,973 1W3.4 155.0 7.5 9.2 a) Exports (in mns of afs) 2,402 3,312 3,929 4,237 4,856 5,134 5,566 137.8 168.0 6.6 10.9 b) Imports " 2,210 3,303 - - - - - - - - - c) Difference o +193 +9 +578 +957 +1,067 *1,068 +1,155 - - - - National Income - 11. Increase in national income a) Total national income (percent) - 117.5 123.1 3.3 h.2 b) Per capita national income (percent) - - 107.1 112.2 1.h 2.3 Source: ussian Plan - As percent of 1967/68 During 1966/67-1971/72 Table 32 Agricultural Proposed and Actual Expenditures Second Plan and Proposed Third Plan (In million afghanis) Percent Change From Third Second Second Plan Percent Plan Percent Plan Proposed Actual Actual Proposed Proposed Actual Irrigation 3,863 3,268 72.9 5,632 72.1 72.3 Animal Husbandry 130 701/ 1.5 229 2.9 227.1 Forestry 13 29 0.6 122 1.6 320.7 Agricultural Extension 30 151 0.3 99 1.3 560.0 Mechanization 774 692/ 1.5 162 2.1 134.8 Sericulture 9 141/ 0.3 44 0.5 214.3 Beekeeping 4 21/ -4 0.1 100.0 Fisheries 3 1/ -- 28 0.3 2,700.0 Plant Protection 8 111/ 0.2 45 0.6 309.1 Plant Improvement - and Soil Research -- -- - 853 10.9 -- Agricultural - -- Research 73 251 0.6 -- -- Agricultural Statistics 3 21/ 0.1 39 0.5 1,850.0 Agricultural - Credit 324 -- -- 500 6.4 - Other 5 98h./ 22.0 57L/ 0.7 -94.2 Total 5,239 14,479 100.0 7,814 100.0 1/ First four years of Plan. 2/ Includes unallocated expenditures incurred in last year of Plan. 3/ Included in related field. I/ Green Forces. Source: Second Plan - Ministry of Planning; Third Plan - Russian draft plan. Table 33 Second Plan Agricultural Production And Input Targets and Achievement Actual as Plan Per Cent Item Unit Target Actual- of Target Production Food grains 1,000 MT 3,964 3,591 90.1 Wheat 1,000 MT 2,449 2,156 88.0 Corn 1,000 MT 755 720 95.4 Barley 1,000 MT 405 380 93.8 Rice 1,000 MT 357 335 93.8 Cotton (Raw) 1,000 MT 159 84 52.8 Sugar beets 1,000 MT 66 70 106.1 Oil seeds (Exc. cotton seed) 1,000 MT 57 55 96.5 Wool 1,000 MT 20 23 115.0 Karakul pelts 1,000 2,800 2,610 93.2 Sheep and goat skins 1,000 7,500 7,230 96.4 Inputs Irri gation New lands Hectares 115,000 31,000 27.0 Improved Water dupply Hectares 96,000 n.a. Agriculture credit Million Afs. 324 Fertilizer production MT 50,000 - - inports MT - 37,387 - 1/ Preliminary Source: Second Plan Targets - Second Five-Year Plan, 1962-1966, Ministry of Planning, Kabul, Afghanistan, pp. 15-30. Table 34 Fertilizer Requirements for 19711/ Revised 1962-1966 1971 Increase 50 Percent Fertilizer 1971 1971 Average Production Due to of Yield Response Fertilizer Fertilizer Production Projectixns Yield Increasel/ Coefficient?. Requirements Requirements 1,000 MT 1,000 MT3/ Wheat 2,156 2,784 576 288 5.3 54.3 21.7 Corn 715 850 135 68 8.3 8.2 8.2 Barley 378 430 52 26 6.3 4.1 4.1 Rice (Milled) 328 385 40 20 8.9 2.2 2.2 Cotton (Raw) 84 180 63 32 14.6 2.2 1.6 Sugar Beets 55 190 41 20 86.4 0,2 0.2 Sugar Cane 48 100 17 8 146.8 0.1 0.1 Oil Seeds 51 62 9 4 2.0 2.0 2.0 Fruit 349 470 53 26 30.3 0.8 0.8 Vegetables 552 780 143 72 30.9 2.3 0.7 Total 76.4 41.6 1/ Assumed 50 percent of the yield increase due to fertilizer application; remaining increase due to other yield-increasing inputs and interaction. 2/ Response coefficient assumptions: Nitrate was applied to all crops at the rate of 40 kilograms per hectare. Phosphate was applied at the rate of 46 kilograms per hectare excepting cotton which received no phosphate. It was assumed that these rates of application would increase yialds by50 percent. 3/ Plant,nutrients. Table 35 List of Industrial Projects Proposed for Investment in a Draft of the Third Five-Year Plan Foreign Exchange (Million Afghani Name of Project Dollars) (Million) 1. Paints and varnish for factory in Kabul 0.10 1.00 2. Completion of match factory in Kabul 1.00 5.00 3. Caustic soda plant 1.00 23.00 4. Washing powder factory 0.90 40.00 5. Glass factory 1.30 39.00 6. Cement factory in Herat 3.00 82.00 7. Completion of shaker ceramic factory 0.40 2.00 8. Bricks and lime factory in Sulton Kat 1.10 10.00 9. Carbide factory in Kabul 0.40 J.00 10. Paper manufacturing in Emam Saheb 1.50 30.00 11. Factory to manufacture wood plates 0.50 10.00 12. Factory for manufacturing agricultural machinery and bicycles 1.00 1.00 13. Sugar factory in Jalalabad 3.50 50.00 14. Slaughterhouse in Pule-Kumri 1.30 36.00 15. Slaughterhouse in Herat 0.80 20.00 16. Equipping existing slaughterhouse in Kabul 0.20 0.50 17. Vegetable oil factory in Mazar Sharif 0.70 25.00 18. Vegetable oil factory in Emam Saheb 0.50 20.00 19. Vegetable oil factory in Herat 0.70 25.00 20. Beer and fruit juice factory in Gul Bahar 0.50 18.00 21. Spirit distillery (cognac) 1.00 40.00 22. Reconstruction of cotton cleaning factory in Kunduz 0.10 4.50 23. Cotton cleaning factory in Balkh 0.40 18.00 24. Reconstruction of Gul Bahar textile factory 2.00 - 25. No. 1 Textile factory in Bagram 4.60 88.00 26. No. 2 Textile factory in Kandahar 4.20 80.00 27. No. 3 Textile factory in Nazar Sharif 4.20 80.00 28. No. 4 Textile factory 4.20 80.00 29. Cotton textile factory 0.10 2.00 30. Rayon manufacturing factory in Kabul 1.20 22.00 31. Rayon production factory in Kandahar 1.20 22.00 32. Expansion and reconstruction of Kandahar wool textile factory 0.90 -4.50 33. Shoemaking factory, Kabul 0.90 31.50 34. Fertilizer factory in Nazar Sharif 24.20 380.00 35. Production workshop 0.14 50.00 36. Leather factory in Mazar Sharif 0.60 25.00 37. Skin improvement plants in Mazar, Kandahar, Herat 0.10 4.50 Ebreign Exchange (Million Afghani Name of Project Dollars) (Villion) 38. New slaughterhouse in Kabul 0.80 20.00 39. Sugar factory in Herat 3.50 100.00 40. Gin and press plants in Mazar and Herat 0.20 0.90 4l. Linters in Khwajaghar 0.80 - 42. No. 1 wool washing and cleaning plant in Kandahar 0.45 12.00 43. No. 2 wool washing and cleaning plant in Herat 0.30 20.00 44. Dairy in Kabul 0.28 30.00 45. Wool yarning plant for carpet weaving in Herat 0.30 8.00 46. Wool yarning plant for carpet weaving in Mazar Sharif 0.30 8.00 47. Wool yarn dyeing plant for carpet weaving and dyes in Herat 0.05 1.00 48. Carpet washing plant 0.10 4.50 49. Carpet design center in Kabul 0.05 3.00 50. Sheep wool cutting plant and skin tailoring plant 0.43 10.50 51. Skin tanning factory in Mazar Sharif 0.03 2.16 52. Skin tanning factory in Maimana 0.01 2.16 53. Godown for .skin sorting in Kabul 0.05 2.50 Sh. Fruit conserving plant in Kandahar 0.09 1.00 55. Raisin cleaning factory (Kabul) 0.11 2.00 56. Raisin cleaning factory (Kandahar) 0.11 2.00 57. Walnut peeling and packaging plant in Kabul 0.4 8.00 58. Expansion of dairy plant (HVA) 0.03 1.50 59. Sash Kargah silo and mills 3.65 15.00 60. Purchase of moving cold storage trucks 0.74 - 61. Plant for production of medicaments for natural herbs in Herat 0.15 10.00 62. Casing, cleaning and sorting plant 0.01 2.00 63. Rokham stone factory in Helmand Valley 0.04 - 64. Sugar factory in Helmand Valley 4.50 20.00 65. Flax factory in Bost 1.29 9.00 66. Provision of wood and wood plates, sawing machine, wood stores 0.15 - 67. Sawing machine wood stores 0.15 2.00 68. Wood factory, tool manufacturing and metal works 0.30 13.00 69. Wood box factory 0.40 8.00 70. Carpentry and stone works factory 0.45 10.00 71. Plant to produce coal from wood 0.11 15.00 72. Woolen handicrafts 0.38 15.50 73. Ceramic works in Paktia 0.19 9.00 7h. Second mill in Kabul 0.75 20.90 Foreign Ecchange (Million Afghani Name of Project Dollars) (Million) 75. Construction of mill in Pule Khumri Silo - 1.00 76. Silo and mill in Herat 2.70 72.04 77. Macaroni and biscuit manufacturing in Kabul 0.65 16.00 Total 95.h4 1,852.16 The distribution of these projects by Ministry is shown below: Project Nos. Ministry Fbreign Ecchange Afghani (million $) (millions) 1-41 Mines and Industry 75.7 1,495.4 42-62 Commerce 7.7 145.3 63-77 Helmand Valley and Pakhtia Projects, and Miscellaneous Agencies 12.1 211.5 Total 95.5 1,852.2 Source: Planning Ministry Table 36 Status of the Balance Sheet and Income Statement of 6ome of the State-Owned Enterprises as of October 196 Capital Date of Last (In millions Submission of of afghanis) Balance Sheet I. Commercial Enterprises: 1. Monopoly Bureau ... 1959 2. Ghouri Power and Cement Company 227.6 1964 3. Government printing press b4.9 1960 4. Transport and Communication Bureau 39.4 1963 5. Pharmaceutical depots 31.0 1963 6. Slaughterhouses 11.9 1962 7. Kabul Hotel ... 1962 8. Kabul Airport Restaurant ... 1963 9. Construction unit for the repair ... 1963 of ditches and canals 10. Port Trust Authority ... 1959 11. House construction factory ... 1964 12. Handicrafts, Ministry of Education 8.8 1965 II. Noncommercial Enterprises: 1. Health Insurance Agency ... 1963 2. Child Care Administration ... 1948 3. Bureau for anti-malarial campaign 32.7 1963 III. Enterprises No Longer Under Government Administration: 1. Central Silo Administration 131.2 1964 2. Transport management for 30.1 1959 mines and industry 3. Handicraft Administration (Women's) ... 1963 IV. Enterprises under Liquidation: 1. Printing Press, Ministry ... 1959 of Education 2. Cooperative Depot Administration 242.2 1961 3. Cooperative Bureau 13.8 1963 Source: Finance Ministry, October 1966. Table 37 The Most Important Economic Holdings of the Bank MNelli in 1964 Total Capital Holding of Bank Melli (In mi I ion (In nillion (As percent Activity afghanis) afghanis) of total) 1. Industry Textiles Company 635.0 276.7 43.6 Electric Power Co. 504.4 4.7 0.9 Sugar Company 43.0 37.1 86.1 Cement Company 41.6 10.4 24.9 Wool Company 26.9 7.8 28.9 2. Trade Karakul Company 167.1 105.4 63.0 Wool Export Company 54.6 27.8 50.9 Carpet Export Company 21.3 8.9 41.7 3. Banks Da Afghanistan Bank 240.0 9.0 3.7 Industrial Development 109.0 9.0 8.2 Fund Agricultural Bank 85.0 2.0 2.3 Construction Bank 60.0 3.6 6.0 4. Miscellaneous Transportation Company 21.2 8.9 42.0 Source: Eberhard Rhein and A. G. Ghaussy - Die Wirtschaftliche Entwicklung Afghanistan's 1880-1965. (C. W. Leske Verlag, 1966). Table VII, 2s p. 148. (Translation by Mission member.) Table 38 List of Projects in Transportation Sector Open for Foreign Financing Project Total Cost Foreign Exchange (Million Afs.) Cost (Million US$) 1. Ministry of Public Works (1) Road Construction: Mazar-Tashguzar Road 268.0 3.50 Jabaluseraj-Gulbahar Road 19.0 0.26 Surkhakan-Lagham Road 25.0 -- Farahrod-Chakhansur Road 10.0 -- Gardandewar-Panjab Road 20.0 -- (2) Bridges: Abdullah Bridge and Connecting Road 30.0 -- Abdara Bridge, Pangshir 6.0 -- Guzarga Bridge, Kabul 8.0 -- Chandera Bridge, Kunduz 5.0 -- Abchang Bridge, Parwan 0.5 -- Emam Bakri Bridge 5.5 -- Tirin Bridge 2.4 -- Jagori Bridge 1.2 -- Do Ab Bridge 1.5 -- Taluqan Bridge 20.0 -- (3) Surveys and Studies: Kabul-Herat Road 28.0 0.50 Shibergan-Herat Road 130.0 2.30 Kunduz-Faizabad Road o.o 0.50 Sub-total: 620.1 7.06 2. Helmand Valley Authority (1) Road Construction: Darweshan-Reeshow Road 56.0 0.37 (2) Surveys and Studies: Survey of Possibility of Water Transport on Helmand River 1.5 0.01 Sub-total: 57.5 0.38 3. Department of Civil Aviation Local Airstrips 222.0 3.30 Sub-total: 222.0 3.30 Total: 899.6 10.74