Afghanistan Economy

Post-war Afghan Economy
How National is the National Development Framework

By SIBA SANKAR MOHANTY

Afghanistan occupies a central significance in South Asia owing to its geo-strategic location and natural resources-but is considered as one among the poorest countries in the world. Being a small, land locked and poor country with around 85 percent of its population depending on agriculture, and its socio-economic structure being influenced in every respect by external forces for more than twenty years, Afghanistan really needs a proper policy framework- with, the authorities in Afghanistan accountable to the common people, for the policies and their implementation, more so when the government does not have a clear mandate from the common people.

Agriculture contributes around 53 percent of the country's annual GDP. Around 28 percent of the country's GDP comes from light industry, 8 percent from the trade (of which around 87 percent is unaccounted re-exports) and around 6 percent from the construction. The unaccounted and underground trade might have a much bigger share keeping in mind the high value and illegal narcotics trade and alleged trade of small arms in Afghanistan.

The devastating drought which carried on from 1999 till 2001, resulted in almost 50 percent decline of agricultural production and more than 60 percent depletion of live stock due to a change in consumption pattern and distress sale.

Post War Afghan Economy

Prolonged wars also had a substantial role in damaging the structure of the economy. The wars and war prone situations led to the destruction of infrastructure, made agriculture to become more dependent on climate, destroyed the institutions of governance and undermined the ability of the state to collect a share of surplus generated in the economy for undertaking developmental responsibilities.

In the post war Afghan economy, the government lacks any clarity as far as its capacity of internal resource mobilisation is concerned. This leads to mismatch in the planning and implementations of governments own tasks at the moment. There is no system of tax collection and revenue sharing. For example, even after an agreement between the interim government and 12 provincial governors (war lords), to part with a share of the revenue collected through taxes from border trade, and one of them delivered $ 20 million immediately, the situation is still very unclear. It is probably, on the basis of this agreement that the interim government announced, for 2003, the comprehensive recurrent budget of $550 million of which $200 million were supposed to be from these local revenues only, could not be materialised and the government had to manage with $211.2 million secured though confirmed foreign aid.

The UN-coordinated reconstruction efforts were started after the famous Bonn Agreement and the meeting of donors in Tokyo in January 2000 pledged to deliver $ 4.5 billion within a 30 month period to kick start the process of reconstruction. Since then there has been significant flow of funds in the form of foreign aid. However, the process of reconstruction has been slow.

The flow of aids takes several forms:

1. Directly to the government, through the World Bank administered Afghan Reconstruction Trust Fund, Law and Order Trust Fund, the Afghanistan Trust Fund and some other channels.

2. Indirectly to local governments, local and international NGOs, which are supported by donors for undertaking National Development Framework projects.

3. Completely outside the orbit of the government in as much as the international NGOs and US coalition forces are bringing in their own funds for activities which are not reported in any detail any where.

Under such situations, it is extremely essential to establish some mechanism which can ensure monitoring the extent, usefulness and purpose of such aids. Other than the first set of aids which are given directly to the government to incur its recurrent expenses, no other channels of aid have transparent information on their end use and purpose statement. Though some information is available on the gross figures of aid coming to Afghanistan indirectly through the local governments, and NGOs, the information on their detailed utilisation is lacking.

The National Development Framework: With the help of Foreign Aid, the international Donors in association with the interim government of Afghanistan have devised a National Development Framework (henceforth NDF) which comprises of 16 National Programmes called the Public Investment Programmes and the sub programs under each of the sixteen. NDF is based on some identified needs in three different pillars.

Pillar-1 deals with the creation of Humanitarian and Social Capital for the restoration of the economic base for development. The major issues highlighted in this pillar are rehabilitation of the refugees, education, health and assistance for women, cultural renaissance, drought relief and skill development for livelihood options. The major programme to be undertaken for progress in the above mentioned issues are planned to be of large scale and based on national level priorities such as; National Community Development Programmes (also known as National Solidarity) and some identified key areas of special attention along securing human rights and refugee development. The implementing agencies in this pillar are UN Agencies, NGOs and Local Communities; where as the Government of Afghanistan will only facilitate the process.

Pillar-2 deals with the Physical Reconstruction (Infrastructure) and Natural Resources. In this pillar however, the role of Government is very unclear. Major issues to be highlighted in this pillar are; Transport and Communication, Water and Sanitation, Energy, Mining and Telecommunications, Urban Management and Natural Resource Management. The last issue covers agriculture, forestry, pastoralism, mines and Industry. The implementing agencies to take up this pillar are again the UN agencies and NGOs and the governments at the local levels (war lords) to help the facilitation process.

Pillar-3 deals with the development of the private sector. In this pillar of the development strategy, the objectives are poverty alleviation and support to the political stability of the government. In the entire process, the role of the private sector is envisaged as a creator of output in the economy, a contractor for the public investment projects, a source of management, technical expertise as well as capital for investment and above all as a supplier of basic services.

This high sounding National Development Framework has been prepared by the donor agencies with assent from the interim government which may have some serious implications as described below.

An Appraisal:

Though the development budget related to NDF follows the OECD norms, it is only a consolidation of project account sheets and not a budget to be used as a tool of an accountable fiscal policy for the government. The question that, what will happen after completion of the project is not clear. The Ministries are only facilitating the process of direct aid flow to assigned projects from donors with donors looking to be an active part right from the filling of program sheets to the approval part. Governments' role i.e the process of Governance seems to be minimal with either the Donor/NGO or Private Sector taking complete control of implementation. The question on how the government has assessed needs (or policies framed) for the programs ir unclear as also on the criteria for selection of the projects and location /distribution - e.g. are all regions getting the necessary rehabilitation programs or is it being restricted to few provinces which are more accessible?

Issues in Governance and Economic Sectors

The interim government in Afghanistan should try to rebuild the economic system of the country in two strategic ways- by mobilising household savings and channel those to the priority areas so that an indigenous development process can be started. In this regard, revitalization of State Machinery with all administrative and financial powers of an ideal, modern and democratic Government should constitute the first priority of the interim government. Restoration of infrastructure with a focus on very quick impact projects should constitute the next priority of the present system of administration. The government should have reasonable control over the institutions of governance as well as security with all administrative and financial powers even though in the initial stages it needs external assistance to revitalize those institutions (for example, different government ministries, defence, police, judiciary etc.).

The orientation of the government towards depending heavily on the private sector at this stage of nation building may prove erroneous as the domestic capitalist class in Afghanistan is not strong enough to compete with the MNCs. Instead of relying on private sector for all economic activities, the government should also directly intervene in the process of production of basic manufacturing through public sector enterprises (i.e., a model of mixed economy). Keeping in mind the importance of Afghanistan in the overall security of South Asia it is essential that a economically sustainable and politically stable system should emerge in Afghanistan. Afghanistan should not have a free trade regime for a decade or so. Sufficient protection to the indigenous private sector should be provided and enough restrictions on the foreign private sector should be imposed in order to ensure viable competition.

Since the nation is in its building process, it is easy at the moment to ensure social and economic justice through (a) Progressive land reforms (and not arbitrary land registration and entrusting big land lords to hold as much land as they occupy, in the name of promoting private sector), (b) a Progressive Tax Structure (especially direct taxes on property and wealth), and (c)the government should nationalize all the economic activities of national and strategic significance like transport, energy and infrastructure (especially, the proposed pipe line from Middle East to South Asian countries).

Social Sector: The Government should play a key role in ensuring modern education and skill development process rather than giving it away in the hands of private motives.

The donors may enjoy better control over the economic affairs of the country in the absence of any semblance of fiscal system. But if each of the basic State activity is being done by external agencies, then the relevance of the Afghan people in the governance process is lost.

In any democratic set up the question of accountability of the budget is an important factor. In the present scenario, there is a transparent cohesion between the aid givers and the government, with the accountability factor at this level clear. But in terms of the accountability to the people the system seems to be lacking some important aspects. In the present times, the importance of the budgets can never be underestimated. It is a statement policy direction which restricts the authorities from random decision making as far as tax, borrowing, expenditure and other fiscal measures are concerned. Since all the activities of the government are inter connected, they therefore, must form a part of the overall set of the objectives which the government plans to pursue. This set of objectives should be placed before any platform of the common people or the representatives of the common people in the form of budget document in order to ensure adequate accountability in fiscal governance.

The Author is a Research Scholar at South Asian Studies Division, Jawaharlal Nehru University, New Delhi-110067

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ADDRESS

Siba Sankar Mohanty

Research Fellow,

Centre for Budget and Governance Accountability

B-64, Sarvodaya Enclave,

New Delhi-110017

Tel- 26537603