RESTRICTED

ttL , t r it . 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 maynot 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

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CURRENCY EQUIVALENTS

Official Rate

U.S. $1.00 =Afghanis 45Afghanis 1, 000 =U.S. $22.22Afghanis 1, 000, 000= U.S. $22,222

Free Rate (Approximate)

U.S. $1.00 =Afghanis 70 (0cto.Nov. 1966)Afghanis 1, 000 = U.S. $14.29Afghanis 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. Je McDiarmid ChiefBahman K. Abadian Chief EconomistRay S. Fox Agricultural Economist

(Consultant)Helmut S. Kaden Transport EngineerClement L. Orrben Agriculturalist

(Consultant)M. S. Parthasarathi Transportation EconomistGeorge Rosen Industrial Economist

(Consultant)Stig K. R. von Post Fiscal and M4onetary

Economist (IMT)Rogelio G. David Research AssistantPhyllis Newton Secretary

CONTENTS

Page

MAP

BASIC DATA

SUMMARY AND CONCLUSIONS i - viii

Part I

Chapter

1 The Country and Its Administration 1

Social Structure 2History and Administration 4Economic Progress 6

2 Progress and Problems of the Economy 8

Economic Performance in the Second Plan 8Foreign Trade, Noney and Exchange Rate Policy 11Exchange Rate and Stabilization Program 12Present Economic Situation 14Foreign Debt and Creditworthiness 15Summary Tables 1, 2 and 3 16-18

3 Financial Resources for the Third Plan 19

Fiscal Prospects 19Balance of Payments 23

Part II

MAP

4 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

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BASIC DATA

Area: Tbtal Arable as % of total245,ooo square miles 12

Population: (1966/67) 15.9 millioni/

Rate of growth 2.0%Population density per square mile 65Population 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 millionof which, in per cent,

Agriculture 29.2Animal products 15.6Handicraft products 7.4Factory industry 2.8Services 45.0

Percent of GDP at Market Prices: 1966/67 1962/63 - 1965/66Pery rough estimate)

Gross investment 9.8 13.3Gross savings 2.1 4.4Balance of paynents current

account deficit 7.7 8.9Investment income payments 0.2 0.4Government current revenue 6.5 6.9

Resource Gap as % of Public Sector Investment2/:

1966/67 79Second Plan 71

1/ No census has ever been taken and this figure is the officialestimate.

2/ Fbreign assistance is treated on a net basi s.

Mbney and Credit:

Conversion Official rate: Afs. 45 = US $1Free market rate (October 1966): Afs. 71.4 US $L

Per cent change(In millions of afghanis) March 1966 since March 1962

Total money supply 6,419 63.6Time and savings deposits 1,081 358.1Claims on private sector 2,645 25.2Claims on public sector (net) 3,616 20.2Rate of change in prices 10% 91%

Public Sector Operations: (In millions of afghani's)1966/67 Second Plan

Govt. revenue receipts 3,913 18,493Govt. non-development expenditures 3,063 12, 753Revenue surplus 850 5,740Govt. development expenditures 5,010 23,934External assistance to public

sector of which:Commodity aid 1,000 2,865Project assistance 3,160 15,329

External Public Debt: (In millions of US $)September 1966

Total external public debt 555.4net of undisbursed 350.9

Total annual debt service 1967/68 - 1971/72 (average) 22.3of which amortization 15.8interest 6.5

Debt service ratio 23.4%

Balance of Payments: (In millions of US $)

Annual Average Annual AverageDuring During

1964/65 - 1966/67 1967/68 - 1971/72

Exports 70.1 95.2Imports -llwU -162.2

Commercial -63.0Commodity -19.0 -13.4Project -63.0 -82.0

Investment Income -3.0 -6.5Other Invisibles -4.5 -6.1Public Sector Loans and Grants

(excluding teclnical assistance) 82.1. 95.4Debt Repayment -4.2 -15.8Errors and Omissions Including

Drawdowm on Reserves 4.5

Exchange Reserve Position: Average( million) 1963/64-1965/66 1965/66

Foreign assets 48.7 46.3Foreign liabilities 4!6 3.1Net 11

IMF Position (U.S.$ million): Average September1960/61-1965/66 1966

Quota 22.5 29.00Drawings 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 amission to review the Third Development Plan which is to start in March1967. After a reconnaissance visit in March, an economic mission visitedAfghanistan in October-November 1966.

ii. The major task of preparing the Third Plan was undertaken by aRussian team, which spent about six months in Afghanistan from March toSeptember 1966. Previously, the general guidelines and financial magni-tudes of the Plan had been suggested by a U.S. group (Robert R. NathanAssociates) and a German team. Their studies indicated that: (1) theThird Plan should place more emphasis on the commodity producing sectorsand less on infra-structure than in the Second Plan; (2) that publicsavings might be in the order of Afs. 5 to Afs. 6 billion, suggesting anorder of magnitude for the Third Plan of around Afs. 30 billion ($667million 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. 33billion program, about 38 percent larger at current prices than the de-velopment expenditures of Afs. 24-25 billion estimated for the SecondPlan. Since the Russian plan had not been reviewed by the Government atthe time of the Mission's visit, it decided to concentrate on an exami-nation of the economy, the domestic resource availabilities and on theprograms that should be carried out during the Third Plan rather than ona detailed review of the Russian draft.

The Economy and Second Plan

iii. Afghanistan is a land-locked country with probably 13 to 15million 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. Thevertical family system is prevalent and strong hierarchical influencesare generally not conducive to individual initiative. However, the socialsystem is undergoing very rapid change.

iv. Afghanistan became a constitutional monarchy in 1923 but theKing retains extensive powers. The first elections were held in 1965. TheGovernment is deeply involved in industry and closely intertwined with theprivate sector. There is a great scarcity of competent administrators andplanners and the Government relies heavily on foreign personnel. It is ofsupreme importance to secure the best use of its own few competent offi-cials.

v. Statistics are fragmentary and discontinuous. The best estimateof per capita GNP is about $90 per annum, assuming a population of 13

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million and an exchange rate of Afs. 60 per dollar.- The annual growthof GNP has been estimated at 3.3 percent during the Second Plan (1962/63-1966/67)Y/ and of per capita income at less than 1.5 percent (annual popu-lation growth being estimated at about 2 percent). Though factory industryis the fastest growing sector, it employs less than 1 percent of the laborforce. Handicrafts are much more important. Agriculture is growing very slow-ly and Afghanistan has become a food deficit country. Its principal exportsare animal products (karakul pelts and wool), raw cottE, carpets and fruit.

vi. During the Second Plan, investment in the monetized sector isestimated at 12.4 percent of GNP and savings at less than 4 percent.Roughly 70 percent of monetized investment was financed by net capitalinflow and of the balance about 45 percent was financed by credit expan-sion. In its effort to achieve the Second Plan investment targets, theGovernment drew very heavily on the Central Bank until after an IMF Stand-by Agreement was negotiated in 1965. Over the first four years of thePlan money supply rose by nearly 16 percent and prices 13.4 percent a year.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 16.8percent in money terms and about 4 percent in real terms. Afghanistanwill 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 asmall portion of investment funds during the Second Plan. Hence theGovernment is concerned now to increase quicker yielding investments inthe commodity producing sectors.

Frame of the Third Plan

viii. The principal objectives of the Third Plan are to achieve 4.2percent annual rate of economic growth, to mobilize, through noninfla-tionary measures, greater domestic savings, and to increase exports ata rate faster than the increase in GNP and imports. The amount of in-vestment required to achieve these objectives cannot be calculatedaccurately. If success is achieved in concentrating a larger proportionof development outlays on the commodity producing sectors, a goal thatwill require improved relations between the public and private sectorsand substantial administrative changes in the public sector, the broadobjectives of the Plan may be achieved with a level of domestic andforeign investment resources of Afs. 30 to Afs. 31 billion.

ix. However, on the basis of the policy guidelines under which wewere told the Plan was being prepared and which include provision for nonew taxes or increases in tax rates, the mission has estimated that

1/ The free market rate widely used for imports and invisibles hasrecently been about Afs. 70 to the U.S. dollar (October-November1966). The official rate applicable to about half of exports isAfs. 45 to the dollar.

2/ Afghanistan's fiscal year starts March 21.

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afghani investment resources will be Afs. 11 billion, of which Afs. 3billion would be foreign commodity aid and Afs. 2 billion private savings.If all the foreign exchange component of projects is obtained as foreignaid, this would permit a total program of Afs. 27.5 billion. To achievean Afs. 31 billion program, additional public savings of at least Afs. 1.4billion will be required. Public revenue should, therefore, increase fromAfs. 28.7 billion to Afs. 30.1 billion. This does not seem too difficulta task for the Government. If achieved, it would bring public revenues toabout 8 percent of GNP, considerably lower than India or Pakistan.

x. From its balance of payments analysis, the mission has concludedthat, to carry out a program of this magnitude, Afghanistan would requiredisbursements of about $477 million of foreign aid during the Third Plancompared with $405 million during the Second Plan. However, since the re-payment of foreign debt will be $58 million more in the Third than theSecond Plan (if the moratorium now in effect on payments to Russia is notextended beyond 1968), the net capital inflow would be only about $14million more for a program roughly 30 percent larger. $410 million of theThird Plan foreign aid requirement would be for projects and $67 millionfor commodities.

xi. During the Third Plan the balance of payments will continue to beunder considerable pressure. The mission's estimate of export prospectsshows an increase in exports of about 6.5 percent a year compared with 5.2percent achieved in the Second Plan. Such a level of export earnings, to-gether with suggested level of commodity assistance, would reduce the ratioof nonproject imports to GNP from 10 percent during the last 3 years to8 percent in the Third Plan if none of Afghanistan's export earnings areused for project financing. Under the circumstances, the preservation ofthe free exchange rate mechanism for redressing the imbalance in her ex-ternal transactions is basic, even though the eventual stabilization of therate may be desirable for encouraging private industrial investment. Mean-while, every effort should be made to improve Afghanistan's difficultbalance of payment situation, by encouraging investment for import substitu-tion and for export production.

xii. Afghanistan has been receiving foreign aid on average terms thatare very liberal (1.9 percent interest, 35 years maturity and 11 yearsgrace). However, her debt service ratio will be over 17 percent when theRussian moratorium is ended and will be in excess of 20 percent for theforeseeable future if her economic development is to proceed at a reasonablepace. For this reason, and because of the steps she has taken since 1965 toconduct her economic affairs more satisfactorily, the mission considers hereligible 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 33percent 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

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exchange component of the total Plan measured at Afs. 45 to the dollarwould be 60 percent as compared with 70 in the Second Plan.

xiv. Agriculture. Although agricultural investment in the Third Planis expected to increase by a third more than the increase in investment inthe whole economy, irrigation will receive most of this relative increase.This is because implementation of the irrigation projects will encounterfewer constraints than other subsectors. The primary constraint in otheragricultural investment is lack of trained technical personnel. The ThirdPlan 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 canalsand laterals, by installing control structures for applying water and bydrainage, Very little has been done by way of studies on the determinationof water requirements for different crops or how best to apply it. Com-panion regional studies of soil salinity should be a part of a comprehensivewater requirements study.

xvi. The remaining natural forest areas are being depleted. Littleeffort has been expended to protect them or to reforest. The shortage offuel and floods should serve as a warning to preserve what timber is leftand to reforest areas for future use.

xvii. Livestock is a vital part of the agricultural economy. The 23percent that livestock contributes to the agriculture income could be in-creased by improving grazing areas, controlling their use, and introducingbetter grass species. Emphasis must be placed on control of diseases andparasites, watering facilities, winter feed supplies, selective breedingand protection of flocks from the weather. This would be a fruitful fieldfor intensified technical assistance.

xviii. During the Second Plan, the Government attempted to increaseagricultural production through crop acreage controls for some of the majorcash crops. This approach has not been very successful. A clear decisionagainst 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 atthe intensive margin must be stimulated. This would require much largerinputs mostly in the form of fertilizer. Improved varieties and othercultural practices must accompany the fertilizer application. Also, ifagriculture is to move in the direction of increased inputs, it is impera-tive that more adequate remuneration be given to the producer. Prices arenow depressed by government policies.

xx. Under the conditions now prevailing, it is unlikely that thefoodgrain production target will be achieved. Large numbers of culti-vators would have to change their traditional cultural practices whichappears to be impossible with the current and proposed extension staff.

xxi. The entire effort to accelerate agricultural production couldbe enhanced by a successful program of establishing cooperatives andproviding credit. The latter should be given high priority in foreignassistance programs.

xxii. Industry. Afghan industry possesses the advantage of remote-ness from world markets, so that it can sell to advantage relatively bulkyproducts which have high transport costs. The chief raw materials areagricultural; except for natural gas, there are no proven mineral depositsbut hydropower potential is large. The Government is seeking to promoteindustry by various fiscal benefits and loans as well as technical assist-ance. The Third Plan proposes a sharp increase in the number of industrialenterprises. In contrast to the four plants completed in the Second Plan(out of 17 projected), the Third Plan lists over 80 projects. Almost allof these are intended to be taken up by private entrepreneurs. Industrialproduction is to double, and handicraft production increase 20 percent.

xxiii. From discussions with private businessmen, it is the opinion ofthe mission that private Third Plan investment in manufacturing industryis unlikely to exceed Afs. 3 billion. Although this total is below theAfs. 5 billion mentioned in the Soviet draft of the Plan, it would be amajor increase over the amount of private investment in manufacturing inthe past ten years.

xxiv. There are many problems for private industrial investment inAfghanistan; these in large part reflect the lack of experience of would-beentrepreneurs and government policies and practices. Most Afghan business-men have a mercantile background which requires different management skillsand techniques than industry. They look to the Afghan Government for tech-nical advice and support. This technical assistance that the Governmentprovides is very inadequate. Furthermore, the suspicion that exists ofbusinessmen has led to complex approval procedures and long delays inapproving 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 enterprisesfailed, 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 inthe grant of exemptions on duty-free imports for new industries.

(2) Examination of the present structure of tariffs and preferenceson government procurement to provide protection to new indus-tries which are adapted to local conditions.

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(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 ofcarrying out feasibility studies.

(2) Steps to shorten drastically the time now required to processapplications for private industrial projects. This would bestbe done by establishing a central agency with sole licensingauthority.

(3) The establishment of an industrial development bank, withmanagers and technical staff of high quality.

(4) Setting up of a management institute within the country,that would provide training for potential business executivesboth in the government and private sectors.

(5) Improved coordination between the Ministries of Nines andIndustry and of Commerce, and the Ministry of Agriculture toinsure that supplies of agricultural raw materials increaseas required for the factories constructed to process thosematerials.

(6) Improvement of the present training programs for labor to ensurethat they are tied in with the requirements of industrial develop-ment. This will call for collection of data on skills availableand required. It should also lead to greater stress on trainingin nearby countries rather than in the United States or Europeas in the past, and in improved monitoring of the work of suchtrainees on their return.

(7) Given the importance of the handicraft sector, steps are neededfor the improvement of the raw materials used by such industriesas carpet weaving, and for standardized and improved processingof the final output.

xxvii. Apart from these policy and institutional changes which themission believes are compatible with the general tenor of Afghan politics,the mission strongly approves the plans to continue exploration forminerals, particularly the promising iron deposits. Meanwhile, care shouldbe taken not to deplete the existing natural gas deposits too rapidly byexport. Given the need for power in the Kandahar and Herat regions, andfor transport from Mazar-i-Sharif, the mission agrees with the Government'sprograms to complete projects now underway, in order to close gaps in theinfra-structure.

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xxviii. Transportation. The following are the mission's principalobservations on the transportation sector of the Third Plan:

(1) About 80 percent of the proposed investment is on projectscarried over from the First and Second Plans, and foreignexchange for all these projects has been committed.

(2) Although the Third Plan transportation program is less thanhalf that of the Second Plan, it is adequate, except moreemphasis should be placed on improvement of secondary andfeeder roads.

(3) More even phasing of expenditures over the Plan period (ratherthan a sharp drop in the last year) would be advisable.

(4) The requirement that truck operators pay a fee for each tripis an unnecessary burden and should be replaced by an increasedannual license charge or fuel tax.

(5) The fees collected by the Monopoly Bureau from importers ofmotor vehicles might better be paid directly to the Ministryof Finance.

(6) A more adequate provision for road maintenance should be madein the ordinary budget.

xxix. Education and Health. The mission could not examine the educationand health programs in detail. However, it is apparent that the rapid growthof the student population at pre-senior school level has not been met bycorresponding increases in qualified teachers or school facilities. At thesame time, there is much underutilized staff at the senior school, vocationalschool and university levels. In order to effect a modest improvement in thcquality of educational standards, at least Afs. 950 million additional fundsfor current expenditures are required during the Third Plan. There is alsoneed for training more teachers. A thorough review should be made and ef-fective coordination achieved of foreign assistance for education, and theplanning cell in the Ministry of Education should be strengthened.

xxx. As for health, the Third Plan ordinary budget makes inadequateprovision for preventive medicine. The Plan target for increases in thenumber of semi-medical staff is lower than for physicians, and the trainingof semi-medical staff does not appear to have been adequately provided forin 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 personnelor the position in the governmental structure that it needs to do an adequatejob of plan preparation and supervision. Also, the services of foreign ad-visers are not always used to best advantage. The mission suggests that:

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(1) The Planning Ministry be converted to a Planning Organizationor Commission, whose full-time head would be a deputy primeminister.

(2) The head of the Planning Organization should report to, andbe deputy chairman of, the High Economic Council (as recentlyreconstituted) and the Council should hold regular monthly(or more frequent) meetings rather than as now, meeting only atthe request of the Planning Minister. The Council should assumereal 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 Counciland part of whose responsibilities would be to maintain liaisonbetween the Prime Minister and the foreign advisory groupsconcerned with economic technical assistance to the Government.

(4) The presently inadequate staffing of the departments of thePlanning Ministry should be remedied as quickly as possible;and

(5) The planning units in the agencies involved in implementing thePlan 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 fromworld trade routes but bordering the Soviet Union have been dominant factorsin Afghanistan's economic development. Of her 245,000 square .niles (aboutthe size of Texas), only about 15 percent is suitable for agriculture thoughthis can be extended by more irrigation. Since no census has been taken,the size of the population leaves much room for speculation and estimatesrange from 10 to about 16 million persons. Recent evidence based largely onmale registration has produced an official estimate of 15.9 million with anaverage density of about 65 per square mile. Probably about 10 percent ofthe population is urban (living in communities over 25,000) and about 16 percent are nomads. The labor force is estimated at about 4 million with over85 percent engaged in agriculture and less than 1 percent in factory industry.Infant and child mortality are high, so that the rate of population growthmay be a little below 2 percent per annum. The ethnic structure of the popu-lation is quite heterogeneous which, combined with the nomadic influence, haspresented formidable problems in welding the country into a unified nationalstate.

2. The most prominent physical feature is the Hindu Kush range, whichextends for some 450 miles diagonally from the northeast to the southwest,and has been a formidable barrier between the fertile northern agriculturalplain and the center of economic and political power at Kabul. Recently,however, with the assistance of the Soviet Union, the Kunduz Basin andMazar-i-Sharif (where substantial quantities of natural gas have been foundrecently and which bids fair to be an important industrial area) have beenlinked with Kabul by a tunnel under Hindu Kush at the Salang Pass. TheRussian and American road-building programs were major accomplishments ofthe Second Five-Year Plan and have contributed greatly to the country'sphysical and economic unification. In addition to the Hindu Kush and thelesser mountain ranges which are mostly devoid of vegetation, the countryconsists of plains and steppes partially irrigated by rivers flowing fromthe 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 theglaciers of the Pamirs, marks for some 700 miles, a common boundary withthe Soviet Union. About midway along the border the Oxus widens and becomesnavigable. The Kokcha and the Kunduz, albeit not navigable, have great irri-gation potentials. The Hari Rud drains the plains of Herat in the northwestand, turning toward the north, is part of the Afghan-Iranian border.

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4. To the south and the west of the mountains is situated the mostarid 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 andpower. 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 partof Afghanistan, an area of about 100,000 square miles. The Kabul, the othermajor river, drains the provinces of Kabul, Jalalabad and Dakka before join-ing the Indus. Below Jalalabad the Kabul becomes navigable for flat-bottomedbarges and rafts. Agriculturally this area, like the north, is very promis-ing.

5. Apart from short borders with China and Kashmir on the remoteWakhan corridor in the northeast, the U.S.S.R., Iran, and Pakistan are thusthe frontier states of Afghanistan, and each has had long historical andeconomic 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 todirect access by land routes to these three countries despite Afghanistan'slack of railroads. Pata Kesar, north of Mazar-i-Sharif, is near twobranches of the Russian railroad system at Termez, where the Oxus Riverbecomes navigable. Kushka is yet another Soviet railroad terminus north ofHerat. The opening of the Volga-Don canal network in the Soviet Union, theRussian railroad system to the Caspian, and the use of the navigationalpotential of the Oxus River would provide Afghanistan with cheap land-seatransport facilities to European markets. Access can be had in the south,through the Khyber Pass to the Pakistan railway system. Kandahar is alsoconnected by a good road to another part of Pakistan railway system nearQuetta, 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, aboutthe same as Arizona and New Mexico in the U.S.A. or Algeria and Tunisia inNorth Africa. The climate varies greatly from alpine in the northeast andin the high mountains to continental in the plains and deserts with extremesof heat and cold. While the average annual rainfall is variously reportedat between 12 and 16 inches, the extensive mountain areas have heavy snow-fall and those above 4,O0 feet, which includes most of the country, getboth rain and snow, but normally have adequate water supply only in thespringtime. Yost of the rains occur between October and April and summerrain is rare. Devastating deforestation has made water conservation well-nigh impossible.

Social Structure

7. The Afghan social structure is traditional; custom-bound andhierarchical. Her social stratification is essentially dualistic, withthe elite and the mass of the people at the two ends of the spectrum. Athird emerging group is the business and the entrepreneurial class.

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Tribalism characterizes the sedentary as well as the tribal life. Ofthe sedentary population, over 50 percent are under some form of tribalorganization. In such a social setup the stress is on kinship and familystatus. VJhile recent social change has been striking, much remains to bedone before the country reaches the condition of her neighbors to thesouth and west.

8. The core of the "elite" includes the tribal chieftains, thelandlords and the religious functionaries, Around this core and closelyallied 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 notcaste-ridden and the "link" between the txo main groups may be welded bydifferent factors. Firstly, the tribal heritage based on kinship andelective offices effected through tribal assembly (Jirgah) reinforces theunity of the tribe and imparts some degree of democratic spirit. Secondly,the village headman (Malik) selected by men of position in the village isthe 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; fromtheir judicial offices; and also by teaching the young in the traditionalschools known as "maktab". Fourthly, the variegated and colorful culturalheritage 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, knownas Pushtunwali, that prevail among the Pushtuns, emphasize aspects such asself-respect, fortitude in war, the spirit of national pride, etc. aresanctified by the work of literary figures,such as Khushhal Khattak, whoexercise a cohesive influence. Despite the ethnical heterogeneity, allthese factors have contributed to the making of the nation and to ensuringa reasonably stable social equilibrium.

9. Against this background the role of the family should beviewed. The prevailing system is based on joint family structure consist-ing of several households which form the primary building block in thetribal organization. The role of women, whether veiled or, after 1959,emerging out from purdah, is very subordinate, particularly in the ruralareas. The man within the family believes in his pre-ordained fate andusually submits to the decisions of his elders. Even a Khan, or the headof a minor lineage, has to consult the tribal assembly for decisions thathave no precedents knowm to him. In fine, the prevailing joint familystructure provides the individual with some security, enjoins submissionto elders and inhibits initiative and the development of creative person-ality. Thus the social structure based on the extended family system hashitherto had a discouraging effect on economic development.

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History and Administration

10. Afghanistan became a national state in the middle of the 18thcentury. Its founders were Pushtu tribesmen who still constitute thelargest element in the population. The territorial limits of thecountry originally extended further south and west than at present,including part of Baluchistan and a portion of the Indus and Kabulriver valleys around Peshawar. After a series of border clashes withthe British in the 19th century, the present boundary in this area(the Durand Line) was established in 1893. The British guaranteedAfghanistan's boundaries until the end of the last Afghan war in 1919,when full national sovereignty was established. Controversy withPakistan over the territorial question has troubled relations betweenthe 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 notmal flow of commerce with the West andbrought about closer links with the U.S.S.R.; the first trade agreementbetween Afghanistan and Russia resulted from the 1950 border closing.However, present relations with Pakistan are good and joint projectsbetween the two countries have been discussed recently.

11. Afghanistants first constitution was adopted in 1923. Itprovided for a constitutional monarchy, with the king retaining exten-sive powers including that of appointing the Prime Minister and theeffective control of the armed forces. Up until 1964, relatives of theking held the leading positions in the government including that of thePrime 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 otherdemocratic guarantees, the Constitution provides all citizens the rightto a free education, to employment, and to own and dispose of privateproperty.

12. The Parliamentary system is bicameral, with the lower househaving 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) areappointed by the king for five years, and the remainder are elected onthe basis of two members from each province (as the U.S. Senate).Members of the cabinet may attend parliamentary sessions but are notvoting members. The first election in the history of Afghanistan tookplace in September 1965. The present government under His ExcellencyMohammad Hashim Maywandwal, former Afghan Ambassador to the U.S., wasestablished in November of that year.

13. In Afghanistan the distinction between the public and privatesectors 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 inindustry has been very significant, primarily in non-consumer type goodssuch as fertilizer, an industrial workshop, a cement plant and pre-fabricated housing. Small-scale industries, agriculture and the servicesectors 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 isthe central bank but also engages in commercial banking activities andsome non-banking businesses such as the export trade. The Governmentowns the Pashtani Tejaraty Bank which, together with Bank Melli and theCentral Bank, do the commercial banking business of the country. TheBank Melli was originally established in the 1930's as the instrumentchosen by the Government for transferring economic operations fromforeign to Afghan hands. Now, together with its affiliated commercialand industrial enterprises, it is the key establishment of the mostimportant and influential private economic group in the country whichcontrols the few important private industrial plants including theTextile Company and the Sugar Company. However, its relative positionis not as important as it was a decade ago. Its power company has beennationalized and it no longer is in charge of karakul exports.

14. Like many other similarly situated countries, Afghanistan doesnot 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 anadequate living. Although she is singularly well supplied with foreignadvisers and technicians, they sometimes find it difficult to obtainsatisfactory Afghan counterparts through and with whom to work. Norare their activities well coordinated or adequately utilized in someinstances. The Ministry of Planning, while staffed with a small numberof competent professionals, is not now in a position, either from thestandpoint of staff or its location at the same level as other ministriesin the government framework, to prepare or supervise the execution of thedevelopment program.

15. Partly because of these inadequacies, the Government requestedthat a Russian team of experts be temporarily assigned to Kabul to pre-pare a draft of the next (Third) Five-Year Plan under general guidelinesprepared by the Government, with the help of American, German and UnitedNations advisers. While the work done by this team (from March toSeptember 1966) was essential to enable the Government to produce a planon time, the remoteness, both linguistically and now geographically(since they have returned to the U.S.S.R.), of the framers of the draftPlan from those responsible for its acceptance and implementation pre-sents obvious difficulties. Although the projects incorporated into the

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Plan by the Russian team were largely selected from a much larger listsubmitted by the executing agencies, Afghan identification with, or evenknowledge of the Plan was largely lacking at the time of the Bankmission's visit to Afghanistan in October-November 1966. An Afghan planhas still to be produced.

16. Aside from improved staffing and organization of the PlanningMinistry, a number of proposals have been made that would elevate theplanning function within the Government. As a matter of fact, one ofthese proposals, namely, the establishment of a High Economic Councilchaired by the Prime Minister, has already been adopted, but the Councillacks an adequate Secretariat to be effective. Husbanding and makingeffective the few high caliber officials available is the supreme taskof Afghan public administration. Improvement of the status of the plan-ning function with the closely related problem of better employment ofAfghanistan's many expatriate advisers and teams will be further con-sidered below. Mr. Albert Waterston from the Bank visited Afghanistanin February 1966 and submitted a memorandum on development planning tothe Government which contains several suggestions for organizationalimprovements.

Economic Progress

17. fifghanii3tan's statistics are fragmentary and national accountsestimates P.e not prep;-red on a continuing basis. Another problem inmaking int-rnational coml2parisons is what exchange rate is to be used toconvert af ghanis into foreign exch&nge 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 officialestimate of the population of 15.9 million, the current bazaar exchangerate of Afs. 70 to the dollar, and the best available estimate of grossdomestic product, one comes up with the per capita GDP of only $50-$60.On the other hand, using wyhat may be a more realistic population estimateof 13 million and the official exchange rate (Afs. 45:$1.OO) per capitaGDP emerges as about $100 per capita. Looking at the items in common usein Afghanistan by comparison with Pakistan and Iran, one would guess thatper capita income is somewhat higher than the former and considerablylower than the latter. A figure of about $90 per capita (which is aboutwhat one gets by assuming a population of 13 million ard an exchange ratearound Afs. 60 to the dollar) is a reasonable assumption.

18. As is often the case, while the absolute level of domesticproduction remains obscure, changes from year to year may be estimatedwith greater accuracy. Based largely on data collected by the Russianteam (Appendix table 3 ), estimates are that GDP grew at about 323percent per annum during the Second Plan (1962/63-1966/67) and per capitaproduction at about 1.4 percent annually. By reference to the data inother countries, the output of the commodity producing sectors may beestimated at 55 percent of total GDP, of which agriculture and animal

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production constitute about 82 percent (about 44.8 percent of GDP),handicrafts 13 percent (7.4 percent of GDP) and the products of mechanizedindustry about 5 percent (2.8 percent of GDP). Agricultural output grewvery little during the Second Plan (about 1i4 percent a year), and sincepopulation probably increased nearly 2 percent, the food deficit of theeconomy increased. Industry was, of course, the leading growth sector butremains a very small element in the economy. If the Third Plan succeedsin switching investment emphasis to the commodity producing sectors as isnow proposed, one may expect to see an acceleration in economic growthtowards the end of the next five-year period.

CHAPTER 2

PROGRESS AND PROBLEMS OF TIE ECONOMY

19. In March, 1967, Afghanistan will complete the second of herFive-Year Plans. Development expenditures at current prices increasedfrom about Afs. 10 billion to about Afs. 2h-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 topographyand long distances, thefirst priority in the First and Second Plans was the construction of aroad network girdling the country. This has largely been completed(though with important gaps in the north) and absorbed about 50 percentof development outlays inphe First Plan and over one-third in theSecond (Summary table 1)., Power for urban and industrial use was anobvious second priority, and two major projects (of about 120 megawattcapacity) 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 beingdeveloped mainly for export to the Soviet Union. Considering agriculture'sdominant position in Afghanistan, investment in that sector was quitesmall during both the First and Second Plans. It was also largelyconfined to certain regions, such as the Helmand Valley, a multipurposeproject started with U. S. assistance nearly 20 years ago. About 80percent of agricultural development expenditure has been for majorirrigation and little has yet been done to provide the necessary commodityand service inputs needed by the farmers to enable them to break throughthe constradnts imposed by poverty, archaic methods of cultivation, pestsand disease. Therefore, while considerable emphasis has been placedon increasing the availability of water, the better use of existingland and water resources has not yet been emphasized. The importantindustrial projects in the Second Plan were a cement plant and a pre-fabricated housing factory in the public sector and a fruit packingplant in the private sector. Also a number of other industrial projectsnot included in the Plan were completed (see Chapter 5 ).

210 This strategy of development, emphasizing infra-structure, tiedin well with the development assistance available to Afghanistan, bothin terms of physical inputs and technical assistance. However, it hastemporarily produced a considerable underutilization of capital assetsin the economy.

Economic Performance in the Second Plan

22. Economic Growth, Investment and Savings. Aggregated statisticaldata in Afghanistan are not adequate for an accurate estimate of domesticproduction or of savings and investment. 'This is particularly true ofthe service sectors of the economy. However, assuming that these accountfor about 45 percent of gross domestic product(as in Iran), the missionhas made the following calculation of gross domestic product in 1966/67:

l/ See page 16.

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Table 1

Amount Percent(Millions of Afs.)

Crops and Forestry Products 17,310 29.2Animal Products 9,274 15.6Handicraft Products 4,390 7.4Factory Industry 1,646 2.8Services 26,680 45.0

Total 59,300 100.0

23. The predominance of handicrafts as compared with factory industryis a striking feature of the Afghan economy, as is the importance of animalproducts in the agricultural sector. The overall rate of economic growthduring 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 ), andthe per capita increase in gross domestic product 1 to 2 percent. Agri-cultural growth was low during the Second Plan, possibly about 1.4 percenta year, and since population probably increased nearly 2 percent, thefood deficit of the economy increased. The performance of food grainsand livestock were particularly disappointing, with the probable increaseless than 1 percent annually (Appendix table 4 ). However, sugar caneand cotton production expanded by about one-third and two-thirds respectivelyduring the first four years of the Second Plan.

24. Most of the economic growth of Afghanistan during the SecondPlan was in the industrial and construction sectors. An estimate of 15percent per annum seems reasonable for the former but of course startingfrom a very low base. The main growth in capacity in the factory portionof the industrial sector was in intermediate products, such as cement,other building materials and electric power. Although production ofconsumer goods, principally textiles, shoes, sugar, flour and householdarticles also increased substantially, consumer goods industries generallyoperated at much less than full capacity.

25. The mission has estimated (very roughly) that investment (atcurrent prices) in the monetized sector of the economy amounted to aboutAfs. 28.6 billion during the Second Plan.L] About Afs. 27 billion wasgross capital formation and Afs. 1.6 billion increases in inventories.Thus,total monetized investment was about 12.4 percent and fixed capitalformation 11.7 percent of GNP (at market prices). Roughly 70 percentof monetized investment was financed by net capital inflow of projectand commodity aid and 30 percent from domestic resources. Calculatingmonetized savings as the difference between monetized investment andthe current account deficit, one arrives at a magnitude for such savingsof about Afs. 8.8 billion during the Second Plan or roughly 3.8 percentof GNP. In termsof voluntary savings, the record is even less impressive,

1/ This excludes foreign technical assistance.

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since almost half of the domestic financial resources used for developmentin the pub, ic sector were generated through deficit financing (Summarytable 2 21). Of course, the conceptual basis of the Afghanistan develop-ment program needs to be taken into account. An undoubtedly large amountof agricultural investment is not reflected in the mission's estimates ofmonetized investment. Assuming that about 5 percent of agricultural pro-duction was saved and invested outside the monetized sector, investmentduring 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 totalinvestment during the Second Plan may have been financed from domestic re-sources (Summary table 3)2/.

26. Fiscal Performance. Lack of any substantial public savingsduring the first three years of the Second Plan meant a large amount ofdeficit financing of development expenditures with resulting price andexchange rate instability. However, following an IMF Stand-by Agreementin 1965, under which the Fund has supplied Afghanistan with a substantialportion of its foreign exchange reserves, the Government has adopted amuch more conservative set of fiscal and monetary policies. In 1965/66the budget deficit was reduced to the nominal amount of Afs. 83 million,compared to Afs. 707 million in 1964/65. An increase in commodity aiddisbursements of Afs. 300 million in 1965/66 also contributed to financialstability. 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 ofthe doubling of land tax rates.

27. Total government revenues increased by about 16.percent duringthe Second Plan. The receipts from the sale of foreign exchange by theDa Afghanistan Bank and income from the Monopoly Bureau that imports thecountry's needs for petroleum products, sugar and motor vehicles accountedfor about 44 percent of the increase in revenues over this period. Itmust be noted, however, that the large increase in revenues from exchangetaxes and profits on foreign exchange transactions of Da Afghanistan Bankdid not represent an equivalent improvement in the budgetary position ofthe Government as it was largely the result of the exchange reform ofMarch 1963 which also resulted in a large increase in government expendi-tures. It must be borne in mind, however, that there was considerableinflation during the Second Plan, which in turn resulted in increased taxrevenues. In real terms, revenues probably did not increase by more thanabout 4 percent a year, though no reliable price indices are available.In other words, total government revenue in real terms roughly kept pacewith the growth of the economy. Total revenue receipts by the Treasuryas a proportion of GNP approximated 6.8 percent. This rate did not showany marked improvement over the Plan period.

28. A description of Afghanistan's miblia revenue system is inAnnex I.

1/ See page 17.1/ See page 18.

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29. During the Second Plan, government ordinary expenditure (inreal terms) probably fluctuated at around 4,8 percent of the GNP, despitethe additional development responsibility thrust on public agencies by anexpanding development effort. Ordinary expenditure by the Ministries ofPublic Works, Education and Health probably increased in real terms, where-as those by the Ministries of Agriculture and Mines and Industry must havedeclined. Defense and internal security account for about 40 percent, andeducation and health for 20 percent of ordinary expenditures, representing1.9 and 0.9 percent of GNP respectively.

Foreign Trade, Money and Exchange Rate Policy

30. Trade. Afghanistan's export performance during the First andSecond Plans has fallen considerably below expectations (Appendix table 7).Total export earnings increased by 28 percent as between the two periodsand during the Second Plan (based on a three-year moving average) exportsgrew by 5.2 percent annually or only a little more than one and half timesthe increase in gross national product. An adverse factor was the declinein the export of karakul and wool, the former by 3.0 percent and the latterby 22.3 percent as between the two Plans. Exports of fresh and driedfruits, which together constitute the largest export item, increased 37percent. The fourth major export, raw cotton, increased 46 percent in theSecond Plan and exports of oil seeds more than doubled. The total valueof exports in 1965/66 is estimated at about 5.2 percent of GNP and imports9.7 percent.

31. The composition of commercial imports (Appendix table 9) has notchanged appreciably over the years but, of course, aid-financed imports ofcapital equipment and supporting commodity aid rose rapidly. Some importsubstitution is evident in the declining importance of textiles in theimport list. During the Second Plan imports increased by 10.6 percent ayear 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 herforeign trade relations. Since she is land-locked and adverse politicalrelations with Pakistan have interfered from time to time with trade withWestern markets and the subcontinent, the Soviet Union now takes about athird of her exports (Appendix table 13). This trade has been facilitatedby 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 arebuilding, is completed about 1968. During the period of the two Plans, theshare of barter trade with Russia, East Europe and mainland China increasedfrom 33 percent of total exports in the First Plan to 37 percent in theSecond Plan and trade with the U.S.A. and India declined from 38 percent oftotal exports to 28 percent. Her export commodities which are fairly bulkyper unit of value, such as cotton and wool, go mainly to the Soviet Unionwhile her more expensive exports in terms of weight, such as karakul, canafford 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 convertiblecurrency areas rather precarious as compared to her trade with either theU.S.S.R. (bilateral account) or with India and Pakistan (controlled ac-count). The Russians pay for Afghan exports in "dollars" as the unit ofaccount. These are converted at the same rate as convertible dollars whensurrendered to Da Afghanistan Bank but command a lower rate in the bazaar.Under state trading with Russia, the pricing of Afghanistan goodsattracts some items such as cotton to that market. This is only partiallycompensated by a slightly higher export tax on cotton exported to Russia.

33. Money. Iionetary data for the First Plan are very fragmentarybut in the initial years of the Plan, inflation did not pose a majorproblem. Commencing with the fourth year of the Plan, the reliance ofthe Treasury on bank credit was stepped up very considerably and netadvances to the public sector increased at 355 percent per annum, repre-senting about 15 percent of the total development outlay (see Appendixtable 20) and over 30 percent of the domestic contribution to developmentfinance. From 1960/61 to 1965/66, this produced a 15.9 percent yearlyrise in money supply. As deposit banking is at its very early stages inAfghanistan, most of this credit remained as currency- in the hands of thepublic without much secondary expansion effect and net credit advances tothe private sector showed some decline. However, with the major part ofpublic investment pre-empted for the development of infra-structure thathad little immediate neutralizing effect on the supply of goods andservices, the impact of the high rate of increase in money supply onprices and the external account was severe.

34. During the Second Plan as a whole, the rise in the general levelof prices will probably be around 80 to 90 percent. However, the pace isslackening quite sharply. Prices increased by 35 percent in 1963/64 butonly 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 featureof the period is the change in relative prices. The rise in the price ofcereals and meat products was the sharpest, whereas prices of non-fooditems remained very stable (Appendix table 23).

Exchange Rate and Stabilization Program

35. Afghanistan has not attempted to maintain exchange rate stabilityin the face of the 90 percent inflation that occurred during the SecondPlan. A differential exchange rate system was used with both fixed andfluctuating rates and fairly frequent adjustments in the rates. As in manyother countries with a limited number of staple export commodities whichare assumed to be fairly inelastic with respect to supply and demand,Afghanistan has used the differential exchange rate system supplemented byexport and exchange taxes to obtain public revenue and/or to reduce publicexpenditure. Thus the exchange proceeds sold to Da Afghanistan Bank arepre-empted primarily for government imports at the low official rate.Imports are not subject to any quantitative restrictions.

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36. In March 1963 Afghanistan undertook an exchange reform whichsimplified the complex exchange system and established a new officialexchange rate of Afs. 45 per U.S. dollar, involving a considerable devalu-ation of the previously existing two official rates*_/ In order to restoreinternal and external equilibrium, the Afghan authiorities at the beginningof 1965/66 put into effect a stabilization program including a number ofmeasures in the fiscal, monetary and exchange fields. In support of theprogram the Fund approved a stand-by arrangement in June 1965. One of themajor aims of the program was to reduce substantially the public sector'sreliance on domestic bank financing, primarily through an increase in domes-tic revenues. A new program is being implemented in the current year and asecond stand-by arrangement was agreed with the Fund in August 1966. As inthe previous year, bank credit to the public and private sector in 1966/67would each be limited to about Afs. 300 million. With the implementationof the provisions in the two stand-by arrangements the number of exchangerates has been reduced to two, the official rate and the fluctuating free

1/ The December 10, 1964 IMF Article XIV Consultations Report explainedthe exchange system as follows:

"During the years preceding the exchange reform of March 1963Afghanistan maintained a complex multiple rate system. Immediatelyprior to the reform about 17 buying rates and 7 selling rates wereapplied, the rates ranging from two official rates of Afs. 20 andAfs. 28 per U.S. dollar to a free market rate in the bazaar in excessof Afs. 55 per U.S. dollar. Most of the buying rates were a mixtureof fixed official rates and fluctuating free market rates and, there-fore, were subject to frequent fluctuations. The main purpose of thissystem had been to enable the Government to obtain its requirements offoreign exchange at a relatively low cost in local currency and tokeep 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 ofAfs. 45 per U.S, dollar, the same as the par value of the afghaniagreed with the Fund in January 1963, was established. This officialbuying rate applies to the proceeds of exports of karakul, wool andcotton, to foreign exchange receipts of the Government from othergovernments for financing of the salaries in afghanis of foreign ex-perts, and to receipts from foreign embassies, legations and otherforeign official agencies for financing their requirements in afghanis.Except for proceeds of some exports to bilateral partners, foreignexchange receipts from all other sources may be sold in the freemarket. Exchange taxes of 15.56, 24.44, and 28.89 percent are payableon the proceeds of karakul, wool and cotton, respectively. These taxesare collected by Da Afghanistan Bank."

market rate, and increased incentives have been provided for the productionand export of karakul, wool, cotton and three minor export commodities5i/

37. The Balance of Payments Position. During the two Plans, the gapin the trade balance, caused by developraent outlays and a rise in theimports of essential goods in short supply, was largely bridged by the in-flow of capital. Net foreign assets of Da Afghanistan Bank (including netIITF position and net position under bilateral payments agreements) increasedby about $5 million in the first two years of the Plan, but declined byabout $6 million in the following year to a level of $h0 million in March1965. Little change has occurred in the reserve position since that timeand, in November 1966 reserves were equivalent to about two-thirds of annualcommercial (non-aid financed) imports. In spite of this stability in thereserve position there were considerable pressures on the balance of paymentsposition vis-a-vis the convertible currency area. Wihile the position towardsbilateral trading partners improved from a net liability position of $7.5million in March 1962 to a net asset position of $3.4 million in November1966, holdings of gold and convertible currencies (net of IDF drawings) de-clined by about $11 million in the same period. The pressure on the balanceof payments was also reflected in the sharp depreciation (37 percent) of theafghani 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 paymentsare concerned, but with a somewhat unfavorable situation in agricultureowing 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 inwheat production this year by PL 480 imports, but only about half the amountrequired seems likely to be available from U.S. sources, and this at a some-what higher price and under harder terms than heretofore. Production ofanother principal agricultural product, cotton, after rising sharply, hasalso 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'spricing policies which have tended to discourage cotton production in favorof wheat and rice which compete for the same land.

1/ The exchange taxes on these commodites have been eliminated, and, in thecase of wool and cotton replaced by export taxes of 15.56 percent and24.h4 percent respectively. The export tax on cotton will be reduced to15.56 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 $16million in 1965/66 and 1966/67 (compared with $37 million in 196h/65)and were to be made only to the Treasury.

b) The transactions of the Afghanistan Bank in the free exchange marketwere to take place within Afs. 2 per U.S. dollar of the rates rulingin the free market.

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40. The budgetary position in the current year is likely toimprove mainly because of an expected increase in commodity aid dis-bursements and only a small increase in current expenditures. Thereis some question whether the effort to control ordinary expendituresmay not result in lack of proper maintenance of public facilities. Theoverall financial transactions of the Government with the banking sys-tem are expected to show a small surplus in 1966/67. During the firstsix months (up to September 21, 1966), net credit to the public sectorfell by Afs. 500 million, which was more than enough to offset themoderate expansionary effect of an increase in foreign assets and avery small expansion in net credit to the private sector. Thus, therewas a small decline in money supply of about 1 percent during thisperiod. This deflationary situation is not likely to continue in thesecond half of the year but there appeared to be no signs of infla-tionary pressures developing when the mission was in Afghanistan. Theafghani remained strong in the free market.

Foreign Debt Position and Creditworthiness

41. Afghanistan's foreign debt has been rising very rapidly inthe recent past. By September 1966, the public foreign debt outstandingamounted to $555.4 million, of which $350.9 million was disbursed. In1967/68 the service on this debt is estimated at $14.1 million or 17.6percent of the projected export earnings for that year (see Chart).This ratio will soar when the Russian debt moratorium agreement lapsesin 1968 and if it is not extended.

42. Hitherto, the external assistance requirements of Afghanistanhave been provided on very soft terms. The weighted average figures ofthe terms of Afghan's external debt as of September 1966 were 1.9 percentfor interest, 35 years maturity and 11 years grace. Terms of new loansare likely to be harder and a substantial shift from grants to loans islikely. If Afghanistan's external assistance requirements are met onslightly harder terms (2 percent, 30 years of maturity and 10 years ofgrace period); if the flow of foreign capital is maintained at the levelrequired to carry out the Third Plan and is sustained at that levelthereafter; 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 20percent for the foreseeable future. Afghanistan does not appear to beable to service any debt on conventional terms, at least for the durationof the Third Plan.

AFGHANISTAN: EXTERNAL PUBLIC DEBT PROJECTIONS(MILLIONS OF U.S. DOLLAR EQUIVALENTS)

50 I I 50

40 (-- 40

30 ZOOIO 30

20 f-- 0

10 / 10

0 I I I I I I I I 01966 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 OutlayDuring the Second Plan For the Third Plan

Millions Percent Share Millions Percent Share Percent Change inof 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 4h,479 18.7 7,814 24.6 74.5

Of which Irrigation (3,268) (13.6) (5,632) (17.7) 72.3

Transport and Communication 8,220 34.3 3,883 12.2 -53

Health, Education andCulture 1,532 6.4 3,188 10.0 108

Rural Development 155 0.6 668 201 331

Urban Development 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

Souirce: Tables 8 and 9 of the Statistical Appendix.

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Summary Table 2

Financial Resource Projections(M4illions of afghanis)

Second Plan Third PlanGovernment Government MissionEstimate Estimate Estimate

Domestic Revenue(Existing Legislation) 15,763 24,800 2h,165

Additional Domestic Revenues - 1,700 1,500

Revenues from Gas Exports - 3,150 3,000

Sub-total: 15,763 29,650 28,665

Ordinary Expenditurel/ 12,753 21,807 23,331

Available for Development 3,010 7,843 5,33

Private Savings2/ 300 1,213 2,000

Deficit Financing 2,730 700 700

Total Domestic Resources 6,o4o 9,756 8,034

Commodity Aid 2,865 h,000 3,000

Additional Taxes for BridgingLocal Resource Gap - 61 1,400

Total Local Resources 8,905 13,817 12,43

Project Aid 15,329 17,981 18,5733/

Development Expenditures 24,234 31,798 31,007

1/ Includes debt servicing.2/ National savings for private industrial investment.3/ Based on absorptive capacity.

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Summary Table 3

Magnitudes of Production, Investment and Savings inThe Second Plan

(Billions of Afs.)

GNP 230,A12

Investment 28,610 (Excludes technical assistance)Public 23,923

Private 4,687

Current Account Deficit 19,821 (70 per cent of totalinvestment)

Total Resources 250,233

Savings (monetized) 8,798Public 5,625Private 3,173

Investment of GNP (monetized) 12.4 per centInvestment of Resources 11.4 per cent

Savings of GNP (monetized) 3.8 per centPublic 2.4 per centPrivate 1.4 per cent

Including non-monetized part of the economy

Investment 33,771 (14.6 per cent of GNP)

Savings 13,959 (5.9 per cent of GNP)

CHAPTER 3

FINANCIAL RESOURCES FOR THE THIRD PLAN

FYscal. ,Prospects

43. The Government, the Russian Planning Teem, and the Bank MEssionhave made estimates of public revenues for the Th:,rd Plan (1967/68&-L971/72).A descxiptix'n of the missLonts estinma,e is in Amiizx I. These estimates allfall in the range of Afse 24 to Afs. 25 billion, though with considerabledifferences in respect of the returns expeoted from individual sources.AfS. 15-16 billion would be tax revenues and the rest income from publicenterprises, foreign exchange operations and the sale of goverrnment assets.These estimates are all based on the policy assumption of no new taxes orincreases in rates during the Third Plan period.1/ As is indicated below,there are some indications that this policy (contained in the guidelinesoriginally adopted by the Government) may not be maintained. The Govern-ment's estimate of public revenues during the Third Plan is about Afs. 24.8billion and that of the mission about Afs. 24.2 billion. The Governmentforecasts an 8.4 percent annual rate of increase compared with about 4 per-cent a year in real terms (over 16 percent in money te.rms) during theSecond Plan. A summary of the official and mission estimates is presentedbelow:

Table 1

Public Revenue Estimates for the Second and the Third Plans(In Billions of Afghanis)

Second Plan Third PlanGovernment Estimate Mission

Receipts from: Composition Amount Composition EstimateAmount (In Percent) (In Percent)

Direct Taxes 2.2 14 4.0 16 3.2Indirect Taxes 8.8 56 11.9 48 11.6GovernmentEnterprises 2.2 .14 5.4 22 5.5

Sale of GovernmentProperty and 1.0 6 1.7 7 2.1Services

Other 1.6 10 1.8 7 1.8

Total 15.8 100 24.8 100 24.2Source: Table 20 of the Statistical Appendix.

If these estimates are realized, government revenues will amount to about7.2 percent of the GNP in the Third, compared with 6.9 percent in theSecond Plan.

1/ The income tax, the land tax rates anzd import duties have been raisedrecently (see Annex 1).

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44. An important addition to public revenues, not shown in the tableabove, is expected when the export of natural gas to the Soviet Union getsunderway, perhaps in 1968. About 10 billion cubic meters of gas may beexported during the Third Plan which the mission expects to yield aboutAfs. 3 billion of revenue for the Treasury. This is likely to be usedlargely for service on Afghanistants debts to Russia. Also, Afs. 1.5billion recelpts may be obtained from the sale of state lands in theHelmand and Nangarhar areas andfrom the sale of power. Thus revenues thatseem within reach for the Third Plan period with the present tax structurebut assuming a badly needed overhaul of the accounting and businesspractices of government enterprises, total about Afs. 28.7 billion ascompared with the Government's estimate of Afs. 29.6 billion.

45. Ordinary Expenditures. Only very tentative official estimateshave been made of ordinary expenditures during the Third Plan. Includingdebt service of Afs. 5.0 billion, they total Afs. 22.1 billion. Using themission's revenue estimates, this would leave Afs. 6.6 billion for develop-ment expenditures before any deficit financing or utilization of privatesavings. However, we think that the provision for ordinary expendituresis too low by about Afs. 1.3 billion. The official estimate assumes anannual rise of 6.9 percent, compared with a 14.7 percent yearly increasein the Second Plan. No increase in government salaries is assumed, whichseems unrealistic. The expenditure of the Ministry of Defense is projectedto rise by about 7.4 percent per amnum but that of other administrativeagencies not directly involved in development work, by less than 3 per-cent. Furthermore, the maintenance cost of new projects in the Third Planis estimated to total Afs. 1.3 billion, which is only about 4.5 percent ofthe size of public sector plan.

46. The analysis made by the mission shows that for the duration ofthe Third Plan, at least Afs. 4.5 billion additional resources would berequired 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 Afs.)

Yinistry of Education 0.9

Ministry of Public Works 0.3

Maintenance and Operation 2.5of Third Plan Projects

Other 0.8

Total 4.5

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47. If some economies can be made in defense expenditures, themission feels that total nondevelopment expenditure (including debt service)in the Third Plan can be held to Afs. 23.4 billion, reflecting a rise ofbetween 9 to 10 percent per year. Thus the size of public savings availablefor development will be Afs. 5.3 billion.

48. Credit Expansion. The two-fold requirements of economic growthand of monetization of the economy might justify a rate of expansion inmoney supply of about 5.2 percent per year. This would total about Afs. 2.0billion of credit expansion during the Third Plan period. In conformitywith the objective of stimulating the activities of the private sector inthe 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 thepublic sector will thus be of the order of Afs. 0.7 billion. Therefore,total domestic resources for public sector development would be about Afs. 6billion. This compares with about Afs. 4.8 billion of domestic resourcesgenerated in the public sector in the Second Plan. However, all but aboutAfs. 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. Thereis no real basis for estimating the amount of either of these componentsexcept the judgment of business and financial leaders and of suppliers offoreign aid. The projects in the Plan requiring private investment are inthe 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 i4elli group,has estimated its possible investments at about Afs. 1 billion. An equalamount may be forthcoming from other sources. Therefore, Afs. 2 billion ofprivate sector savings may be included in Plan resources.

50. The official forecast of foreign commodity aid during the ThirdPlan 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 itmay amount to $20 to $25 million, or say Afs. 1 billion. These imports havebeen primarily sugar, petroleum products and vehicles. In recent years,PL 480 imports approximated $12 to $16 million per annum. With the recentchange in U.S. policy, there may be some decline in these imports. A numberof other countries and agencies have promised to finance part of the localcurrency expenditure of their projects0 Considering, inter alia, the risein prices that has occurred between the two Plans, it seems possible thatabout Afs. 3 billion may be generated during the Third Plan from commodityassistance. Thus total local currency resources would be as follows:

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Table 3

(Billions of Afs.)

Public Savings (including deficit 6financing)

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 percentof the total cost. If the availability of afghani financing were to bethe limiting factor on the size of the Plan, this would imply a programof Afs. 27.5 billion and a foreign exchange requirement of Afs. 16.5billion or $370 million ./ This compares with $410 million which theU.S.S.R. team has estimated would be the foreign exchange component ofan Afs. 31 billion program. Assuming as the mission was told, that anAfs. 31 billion program is the Government's objective, we conclude thatat least Afs. 1.4 billion of additional domestic savings will be re-quired. In terms of public revenues this would mean an increase overthe mission's estimate from Afs. 28.7 billion to Afs. 30.1 billion orless than 6 percent for revenues other than the sale of gas. Althoughsuch a task should not be taken lightly since it puld involve a con-siderably higher rate of savings than in the past2, from the fiscal pointof view it does not seem to be too difficult a task. The reimposition ofthe 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 reformof the land tax should account for the remainder. The Government is wellsupplied with advisers on fiscal matters and it is sufficient for themission to point out that even with a revenue goal of this magnitude forthe Third Plan, Afghanistan would still be collecting only about 8 percentof its GiTP as public revenue, considerably lowJer than countries such asIndia and Pakistan with even lower per capita incomes.

1/ If the bazaar exchange rate is used for converting the foreignexchange component, a Plan of this size becomes Afs. 36.9 billion.

2/ Assuming no change in the rate of savings and investment outsidethe Plan, the mission has calculated that the marginal rate ofsavings at the end of the Plan period would have to be about 17percent to achieve this program. This compares with an averagerate of 6 percent for the Second Plan.

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Balance of Payments

52. As noted above, the foreign exchange component of an Afs. 31billion program would be $410 million. If all this is financed fromabroad, in addition to about $67 million (Afs. 3 billion) of commodityaid, gross capital inflow would total $477 million. This would be jt tunder $400 million net since debt repayment is estimated at about $79million. The two questions that arise are: (a) do Afghanistan's balanceof payments prospects indicate that such a level of capital inflow willbe necessary and sufficient (i.e. are the external and internal gapsreconcilable with each other; and (b) is such a level of assistancelikely to be forthcoming?

53. The mission is, of course, able to express a useful opiniononly on point (a). On point (b) we can only say that on a net basisthis is about the same as Afghanistan apparently recieved during theSecond Plan. Also, over 40 percent of the project aid would be forprojects which are continuations or extensions of undertakings for whichaid has already been furnished and therefore, new project financingwould 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 expectwill be financed with commodity aid.

55. The mission's appraisal of export prospects by commodities isin Annex II We estimate that exports (other than gas) will increase by6.5 percenti/ a year in the Third Plan, compared iwith 5.2 percent growthrate in the Second Plan. This will provide about $4o6 million of exportproceeds. In addition, about $70 million may be obtained from the exportof gas. Thus total foreign exchange earnings should amount to about$476 million. Adding to this the $67 million that may be received ascommodity 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 atabout $63 million. The projection of foreign debt repayments during theThird Plan is difficult because an assumption has to be made as to whetheror not the moratorium on the debt to the Soviet U! on will be extendedbeyond 1968. If this moratorium is not extended,- the repayment offoreign 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 $400million for nonproject imports or $80 million a year even if all projectimports are financed from foreign aid.

1/ The Russian team has estimated an 8.8 percent annual increase inexports. However, this is based on improvements in the processingof certain items, particularly karakul and wool which the missiondoubts will be accomplished during the Third Plan.

2/ It may be assumed that the moratorium will end when gas exports tothe Soviet Union begin.

During the last three years of the Second Plan (the only portion for whichbalance of payments data are available), such imports averaged $82 millionannually 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 theThird Plan even if none of Afghanistan's import earnings are used forproject financing.

56. The following table summaarizas these balance of payment praspectson an average yearly basis.

Table 4

Balance of Payments Position(n millions of dollars)

Annual Average Annual AverageDuring During

1964/65-1966/67 1967/68-1971/72

Exports 70.1 95.2

ImportsV/ 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 6.5Other Invisibles (net payments) h.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 IncludingDrawdown on Reserves 4.5

2/ Technical assistance is excluded.

Source: Appendix table 10.

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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 thekind imported during the Second Plan will not change appreciably ascompared with the last three years (income elasticity for such goodswill be unityi/) Afghanistan would require about $10 million a year ofimport substitution or additional export earnings during the Third Plan.

58. Part of this potential import demand will, of course, be metfrom 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 allher project imports in the form of foreign aid but will have to adoptpolicies and programs both to encourage more exports and contain importdemand. This is why the mission has counselled a conservative monetarypolicy and a revision of the customs tariff. However, even more basicis the preservation of the free exchange rate mechanism even though, inthe longer run, stabilization of the rate may be desirable from thestandpoint of encouraging private industrial investment. For the timebeing, it provides a very effective equilibrating device for the balanceof payments. M,1ieanwhile, every effort should be made to improveAfghanistants 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 expendituresby principal sectors in the Second and Third Plans with associated re-quirements for project aid are shown in Appendix table 28. We willreview these programs in the following chapters of this report.

1/ The income elasticity of imports has been close to unity during theSecond Plan.

2/ Based on the assumption of no additional taxes, the residual"internal" gap projected by the mission was Afs. 1.4 billion (seeparagraph 51) whereas, after receiving the foreign assistanceprojected above, the residual "external" gap would be about Afs. 3.5billion. This indicates that even stronger efforts should be madeto improve the balance of payments position than to increase publicsavings though, of course, the two sets of measures required areclosely inter-related.

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A GHANISTAN

PART II

CHAPTER 4

AGRICULTURE

60. Agriculture generates about 45 percent of the Gross National Product,and from 75 to 85 percent of the population is directly engaged in agriculturalpursuits. 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 suppliersof livestock products. Wheat, corn, barley, rice, cotton, fruits and vegetablesare 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 andthis confined to areas adjoining urban centers. Cotton, sugar beets, fruits andvegetables, the cash crops, take up only about 6 percent of the total crop area.However, production of these crops has been increasing considerably more rapidlythan the production of foodgrains (Appendix table 33). As between the First andSecond Plans, foodgrains increased only 0.6 percent and cash crops 20 percent.

62. Thus agricultural production during the Second Plan was in most casesdisappointing. The production targets of the Second Plan were realized or ex-ceeded in only two cases. Sugar beet and wool were 6 and 15 percent respectivelytreater than their targets. Foodgrains was only 90 percent of the target and rawcotton 53 percent.

63. Of the total land area of about 63 million hectares, 22 percent isarable, 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 2o5 mil-lion crop hectares are effectively irrigated in any given year. Another 1.3million hectares of wheat and barley are dry-farmed. In many areas the shortageof irrigation water is due to the inefficiency of irrigation systems and prac-tices. Many of the diversion structures are unable to withstand high water levelflow and must be repaired or rebuilt annually.

64. Methods of cultivation are primitive, and the implements used are handtools or crude animal-drawn equipment. The irrigated plots are generally toosn.all to accommodate mechanized equipment. The average farm size of irrigatedland is about 3 hectares with about one-half irrigated at a time, the rest beingidle in any given year. Farm labor productivity is relatively low because ofthe small amounts of inputs used in the agricultural sector. The use of chemicalfertilizers 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 hectaretarget. Two fertilizer plants projected in the Plan were not built, though oneis 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.

66. In a labor intensive agricultural economy where output can be signif--cantly increased only by improving yields per hectare, the necessary inputs to be

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applied to existing areas are of prime importance. Afghanistan has v.ry lowyields and preliminary investigations indicate a considerablo potential forimprovement. The major input needed is fertilizer in conjunction wjith otheryield-increasing inputs such as improved varieties, plant protection and im-proved cultural techniques. TD realize their full potential, it is mandatorythat 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 anddemonstration, have noted that response is variable and depends to a large extenton the ability of the particular variety of the crop to utilize the added plantfood nutrients. The high yielding, newly introduced variety of Mexican wheatand the U. S. Sharecropper corn can utilize heavy applications of nitrogen andphosphate fertilizer efficiently. On the other hand, fertilizer has been reportedto depress yields of some local varieties of wheat. Wiheat grown under dry landfarming methods shows little response to fertilizer treatment.

68. Since research data on benefits to be derived by the adoption of eachof the better farming practices are not available, various agricultural workerswere 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% 10-20%3. Use of good seed 15-25% 25-30%4. Control of weeds 15% 15%5. Control of insects and diseases 10% 10%60 Fertilizer in combination with

1 - 5 50% 50%

Agricultural Constraints

(9. In the long run. the main constraint on increasing agricultural production1: Afghanistan is the availability of water and suitable land for cultivation.However, large amounts of capital investment and time are required to increasearable land. A far greater, quick return can be achieved if improved culturaltechniques 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 fiveyears, and also the most difficult to overcome, is the extreme lack of quantityand quality of personnel engaged in transmitting the results of research to thefarmer. The agricultural extension staff now numbers 206, many of whom have verylittle training. It can aid only a fraction of the farmers. The proposed staffof 1700 will not be realized for several years. There are currently very meagerprovisions being made to deal with this problem during the next five years. Aqjuestionable attempt will be made to alleviate the extension problem during the2'hird Plan with the expenditure of Afs. 57 million on a part of the militaryknown 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 competences

71. A method of increasing the usefulness of the extension service withoutfurther diluting the quality through too rapid expansion is to concentrate onthose areas which have the greatest potential for development. In the case ofcash crops, the producers are already market-oriented both in inputs and theproducts produced. The area occupied by these crops is only seven per cent ofthat used for foodgrains.

72. The Ministry of Agriculture and Irrigation is also sorely in need oftrained technicians in the research field. The number of agriculture studentsgraduated from the University of Kabul is hardly enough to meet the needs of theUniversity for qualified research and teaching faculty. Qualified students shouldbe encouraged to accept the agricultural sciences as a profession. The KabulUniversity must graduate several times the present number of 25 each year to meetthe demand in government and private enterprise for trained personnel. Afghanistancannot continue to rely on information from other sources on which to plan anational agricultural development program.

73. Agricultural technicians must have some means of travel to the fieldif they are to be effective and efficient in helping farmers. There must befacilities for carrying supplies and equipment for demonstrations and vitual aidsfor meetings where new methods are explained. Jeeps, motor bikes and evenbicycles would make wider coverage of an area possible.

74. Increased production credit is another major constraint in Afghanistan.Apart from the marketing of karalml pelts, there are no cooperatives and theAgricultural Bank is small and in need of reorganization. The Bank/IDA and FAOare assisting in this task.

75. In conjunction with the above, it is extremely important that marketingmethods and channels develop and improve as an agricultural area shifts fromsubsistence agriculture to market-oriented production. It is important thatmarketing channels develop in both directions to insure the timely local availa-bility of supplies and equipment that will be demanded as agricultural developmenttakes 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 expandedfood production program to locations easily accessible to farmers requires a largefleet of trucks. Fertilizer, for instance, must be available to the farmerat a specified time if his crop is to be benefited by its application. Since allcommercial fertilizer used must be imported, the trucking of the material todistribution points within the country becomes a tremendous task. The 15$280M.T. of plant food nutrients needed during the first year of the Third Planrepresents the equivalent of 2,500 ten-ton truck loads of high analysis (6h percent nutrient content) fertilizer or 6,100 truck loads of low analysis (25 percent) brands. It is estimated that the last year of the Third Plan, 76,1400 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 36,000truck loads of low analysis brands to be transported an average of 125 kilometersto main distribution centers.

- 29 -

77. The livestock industry provides 16 per cent of agriculturets contribu-tion to the national income. Revenue thus derived comes from animals that havebeen raised wholly or in part on public lands for which the Government has madeno assessment for use. The botanist assigned to the Wyoming University teamon contract to assist Kabul University improve its educational system made a studyof range lands. He notes in his report the heavily grazed and depleted conditionof vast areas, the need for protection and reestablishment of native species,for the introduction of new species, for the relocation or development of wateringplaces to better utilize grazing areas, and for regulations that would make possiblEthe adoption of good management practice. To date little or no action has beentaken to correct any of these deficiencies. The proposed increases in livestocknumbers would place an additional strain on the already overgrazed public lands.

78. It is not possible to bring about the improvement of grazing lands ina short period. It will require years, but a start can be made by demonstratingthe value of following good management practices, of strategically locatingwatering places, and determining animal preference for introduced grass specieson carefully selected and controllable areas. The application of the findingsfrom these demonstrations to large grazing areas will be slow, and it is doubtfulthat it will cover even a small percentage of the grazed area within the plannedperiod.

79. Funds to expand grazing areas could be raised by reimposing the taxon livestock. Livestock producers should be required to contribute to projectsfrom which they would be certain to benefit. A small head tax on every animalregardless of size of the herd would produce sufficient revenue to employ atechnical force and purchase whatever supplies and equipment were needed toconduct demonstrations and expand the work to outlying areas.

80. Only two sectors of the livestock industry are considered in this analysisThese are ordinary and karakul sheep, which are primary sources of meat and alsosupply wool and pelts for the domestic processing and exporting industries.Since most of tile remaining types of livestock are beasts of burden, it is assumedhere that they will increase or decrease in numbers in response to needs for animalpower,

Because of the precarious nature of the weather in Afghanistan, bothin respect to the variation in precipitation from year to year and the severityof winters, sheep numbers fluctuate widely. The sheep are reared on natural,public grazing lands located at the lower elevations of the mountains. Becauseof the unavailability of livestock drinking water strategically located, manyareas are undergrazed while others closer to water sources are overgrazed. Thissituation is further aggravated by the loss of the better grasslands located inthe plains to wheat production.

C2. Finally we come to the two constraints moat expensive to cope with,fertilizerand water. Afghanistan does not have any known significant deposits ofphosphate rock or potash, principal raw materials used in the manufacture offertilizers. Internal production of nitrogen from natural gas deposits is note.pected to commence until 1970. Although the urea plant located at Wazirabad4i2J have an eventual annual capacity of 44, 000 tons of plant nutrients, itscontribution to increasing agricultural production can be expected to benegligible during the Third Plan period.

- 30 -

83. What will the fertilizer requirements be to achieve the productiontargets of the Third Plan? Accepting the proposed production targets for 197V/72(Appendix table 33 ) and assuning a fertilizer application of 85 kilograms ofplant nutrients per hectare and a resultant 100 per cent increase in yields(50 per cent attributed to fertilizer application and the remaining 50 per centattributed 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 eachyear, the total requirement for the Third Plan would be 229,000 tons of plantnutrients. Assuming a pricl,of $200 per ton, the foreign exchange requirementswould be about $46 million. Fertilizer consumption of these magnitudes willrequire a large, competent staff of extension personnel.

84. Historically, the wheat crop has not received significant amounts offertilizer; 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 hectaresa year, reaching a total of about 900,000 hectares by 19713 Assuming two hectaresof wheat per cultivator (irrigated areas), this would necessitate the adoptionof the use of fertilizer and related technology by 90,000 additional farmerseach year. This is an impossible task for an extension staff of ill-equippedpersonnel numbering 206 at the end of the Second Plan and projected to increaseby only 94 to a total of 300, by the end of 1971.

85. In an area of low rainfall where desert-like conditions prevail, thevalue of water increases as its need to sustain agricultural production increases.The farmers of Afghanistan have been irrigating lands for centuries. They haveconstructed thousands of small systems wherever conditions were favorable. Manysystems were simply constructed, diversions often temporary and destroyed duringeach flood stage of the stream. Water control measures are usually lacking.

86. The present status of irrigation can best be considered by describingthe major agricultural regions of the country- namely, the Helmand Valley, theKunduz 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 riversinto hand-dug canals and laterals. Water supplies were uncertain. The brush andstone diversion dams were subject to damage and required repair following floodflows of the river.

88. The construction of the Kajakai and Arghandab Dams has created astorage capacity sufficient to provide a firm supply of water for an estimatedone million acres of cropland. About 300,000 acres are now under water command,which means that canals and main laterals have been constructed but drainagehas not been provided. All irrigation facilities have been installed, landleveled and drainage established on about 73,000 acres. All facilities areplanned for an additional 86,000 acres during the Third Plan period.

1 Ccmplete coverage of all irrigated and unirrigated land would cost about$43 million a year.

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89. Plans call for completing the installation of all irrigation facili-ties, including land leveling for the entire 300,000 acres. The additionalcost has been estimated at $50 million. This area under intensive cultivationshould be capable of supplying the industrial needs of the area for agricul-tural products. The total investment in HVA to date includes $70 million ascapital and $30 million for operation and management expenditures.

90. The recent changes in administration of HVA has revitalized interestin 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 trainedextension workers will assist farmers with the adoption of new practices. Aresearch staff will be given the task of discovering or developing bettervarieties, 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 completedevelopment and settlement has served as a deterrent to progress. The lowinherent 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-loggedand saline areas is not recommended. A study to find and establish pasturegrasses adapted to the area and the promotion of a livestock industry issuggested.

93. The HVA experience emphasizes the importance of carefully examiningan area before allocations for development are authorized. Selection should bemade only after detailed soil investigations have been made and the areas withhighest potentials outlined.

94. The subdivision of land into farm units should be based on its qualityand capability for use. Soils are variable and large areas of the same type andquality are uncommon, which in itself precludes dividing an area into equal sizefarms if each settler is to be treated fairly. Farmers located on lands bestsuited for pasture use and livestock production require much larger acreages asa farm unit than the owner who practices intensive cultivation.

95. A farm unit should be of sufficient size to provide an income over andabove family needs. With extra cash, the farmer becomes a potential consumerable to purchase better farm tools, equipment, supplies and manufactured goods.

96. As noted above, some of the most valuable lands in the Valley havebeen under cultivation for centuries, irrigated by antiquated systems from whichfarmers use water at their own discretion. The fruit-producing area near Kandaharand the city itself receive their water supply from canals fed from the ArghandabRiver through a new elaborate permanent diversion system. This area produces alarge share of the fruit consumed domestically and that exported in both thefresh and dried state. This area has the potential for greatly increasing faim

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Incomes by renovating and redesigning irrigation facilities, by adopting improvedfarming practices and most importantly, adjusting fruit production by graduallychanging to varieties better adapted to market and processing requirements.

97. Although the progress has been slow, the HVA has a great potential fordeveloping into an agrecultural production area froa which a large part of thenation'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 RiverBasin, in which five per cent of the total population resides, is located northof Kabul on the northern slope of the Hindu Kush. This is the richest agriculturalarea in Afghanistan. The agricultural area is about 350O000 hectares (five percent of the country), 190,000 hectares are irrigated and the remaining dry-farmed.l4ost of the country's sugar beets, one-quarter of the cotton, 18 per cent of therice and five per cent of the wheat are produced in this area. Much of theindustrial activity is also located in the Kunduz Basin and is primarily engagedin processing agricultural raw materials. Since agricultural development hasalready begun in this area and some farmers are responding to market conditions,the potential for accelerating the production growth rate is favorable, andsignificant results should be achieved during the Third Plan if properly stimulated,

Paktia

99. German assistance is to be concentrated on extension and demonstrationfarms and plots in an effort to stimulate intensified farming. Paktia is a some-uhat isolated area in southeast Afghanistan and has been basically self-sufficientin agricultural production. If development efforts are seccessful and it becomesa surplus agricultural production area, the need for improved roads will be ofmajor importance. The only raaUor remaining forest reserves in Afghanistan arelocated in Paktia. During the Third Plan, Afs. 92 million are to be allocatedto the protection of forests and the production of seeds for forest expansionefforts.

Nangarhar Valley Authority

100. The U.S.S.R. is developing two large demonstration irrigated farms(11,600 hectares) near Jalalabad. The total cost is estimated to be Afs. 3.8billion, 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 agrowing population and rising per capita income;

(b) Larger supplies of raw materials, particularly of cottonand sugar beets, for domestic industry; and

(c) Greater export surpluses to meet the growing demand ofa developing economy for foreign exchange.

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102. We have noted that more success was achieved in meeting the secondand third than the first objective. The tasks for the Third Plan are still thesame, but the need for accomplishing them has become more critical because aggre-gate agricultural production has hardly kept pace with population increases; andin the case of foodgrains, per capita production has actually declined. The mostimportant aspect of the pending plan is the change in strategy which emphasizesincreasing yields on presently irrigated areas in preference to bringing newlands under cultivation.

103 Investment proposals in the agricultural sector for the Third Planare Afs. 7.8 billions 87 per cent greater than the expenditures of the SecondPlan (Appendix table 32 ).

104. Irrigation projects are to maintain their relative position at about 73per cent of the total. More emphasis during this period will be on small rather-than large systems. It is hoped that greater benefit 11 come to small farmers,and through better management water will be available for additional acreages.Work will include diversion dam construction9 survey and relocation or renovationof systems, installation of control structures and other devices. Much work alsoneeds 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 bebenefited.

1050 Since the farmer is the ultimate beneficiary, he should be expectedto make the most efficient use of the water resource and in some manner, throughtax or otherwise, help pay for the cost of maintenance and operation of thefacility from which he receives benefit. Farmers now make but a token paymentfor 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 andagricultural extension workers to help reach goals set. A large part of the workwill involve bringing water to the farm, redesigning distribution and drainagesystems 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 usedprimaril)y for disease control and breed improvement. Although expenditures oncrop production projects will be the second largest at Afs. 1.1 billion, therelative emphasis during the Third Plan has decreased. These activities willbe directed tow&ard disease and weed control and a variety of other improvements.Agricultural credit is projected to increase by 54 per cent but only to a totalof Afs. 0.5 billion.

108. Off-farm storage and processing facilities for agricultural productsare not included in the proposed investments for the agricultural sector duringthe Third Plan. However, these investments will have a profound effect on the rapid-ity and direction in which agriculture will develop. Investment in these facilitiesshould be about Afs. 1.2 billion greater than the Afs. 0.4 billion providedduring the Second Plan.

109. Seventy-three per cent of the foreign exchange of $78.5 million providedfor the agriculture sector during the Third Plan period will be allocated toirrigation projects. In principle, it would seem advisable to reduce the funds

al'.ocased to irrigation since about 87 percent of the Afs, 5,631 million willbo used on large irrigation projects that will bring about 90,000 hectares undercultivation. Although the costs per hectare are within reason (Afs. 52,000 perhectare), it may be more economical to allocate less to irrigation, especiallythat requiring foreign exchange, and use some of the resources to purchasefertilizer if it is physically feasible to get the purchases of fertilizer onthe land currently irrigated. On the other hand, if it is impossible for theagricultural sector to absorb these additional quantities of fertilizer, large-scale investment on irrigation projects should continue until a trained staffof agricultural technicians has been developed and farmers are accepting newtechnology procedures. Under present conditions in Afghanistan, the procurementand 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 theThird Plan has allocated sufficient funds to other purposes within the agri-cultural sector, it will be desirable to go ahead with irrigation investmentsuntil the necessary preparaticn has been made for more intensive development.

Production Targets

110. In general, the crop production targets proposed for the Third Planappear 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 performnance during thelast five-year period, it is doubtful if a growth rate of 3.0 percent can beachieved 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 significantimprovement and a seemingly feasible one if the current emphasis on increasingwheat production continues into succeeding crop years. This would result in anannual foodgrain output for 1971/72 of 4,100 thousand tons.

112. During the First and Second Plans wheat imports were 248,000 and394,000 tons respectively. Assuming that foodgrain production in 1971/72 is4,100 thousand tons, that per capita availability remains the same as it wasduring the Second Plan,and that the population growth rate is 1.9 percentmrLnually, the 1971/72 import requirement would be 60,000 tons and a total of370,000 tons for the entire Third Plan. If the foodgrain production target of4,450 thousand metric tons is achieved by 1971/72, wheat import requirementsfor the Third Plan would be about 220,000 tons, which would be imported duringthe first two years and none for the final three years.

113. Cotton is one of the major cash crops. The acreage devoted to it hasvaried and has been influenced largely by the prices farmers receive. Sincemuch labor and other inputs are required in growing the crop, preference isgiven to other crops unless cotton prices are right. Even under the compulsoryracreage allotment plan that was policed and enforced by the field extensionstaff, production fell below normal until prices were increased following theadjustment in the exchange rate. The field extension staff, although releasedfrom these police-like duties, have suffered a loss in effectiveness in dealingwith 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

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characteristics, higher yielding qualities and adapted to specific areas. Acompanion study of cultural methods is recommended.

115. When a suitable variety is found, all farmers within a prescribedarea served by one gin should use the same variety. This will prevent mixingof seed and help to maintain a uniform product for marketing. Farmers in suchan area should consider the organization of a cooperative to gin and market theircrop and stock the necessary supplies and equipmente

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 thefood 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-seemsextremely high. However, in 1963/64 cotton production reached a peak of 110,000tons mostly from increased yield per hectare, due to better cultural practicesas farmers responded to a 25 per cent price increase. As the economic incentivefor raising cotton disappeared, due to a general price rise of other agriculturalproducts, cotton production fell to the 1962/63 level of about 70,000 tons.Preliminary cotton production projections made by the Itinistry of Agricultureand Irrigation for 1971/72 is 140,000 tons, which appears to be a feasibleestimate assuming the exchange rate policy is favorable for increasing exports.

118. The historical performance of sugar beet production is similar to thatof cotton and governmental policy again is a prime determinant of the levelof production. The Plan assumes an annual growLth rate of 19.4 per cent, whichresults in a sugar beet production target of 190,000 tons. This would be a1h5,000 ton increase above the Second Plan annual average production of 55,000tons. A more likely estimate for 1971/72 sugar beet production would be around110,000 tons, slightly above recent trends.

119. To meet the sugar cane production target by 1971J72, the annual growthrate would have to be 1h.8 per cent. This would increase production from 51,000tons in 1966/67 to 100,000 tons by 1971/72. Since sugar cane is locally processedto be consumed in the form of gur, the demand and the production have beenrelatively constant over the past five years. This trend is likely to continueunless the sugar cane processing plant in Jalalabad is rejuvenated and a majoreffort is made to increase production.

120. The average annual sheep population of the Second Plan was 1.1 milliongreater than the average of 19.0 million for the First Plan. Karakul sheepincreased 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 of23.5 million head by 1971/72. Because of the current condition of the rangelands, a significant improvement in yields is hardly to be expected during the nextfive 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 markettheir product, the relative price relationships of meat, wool and pelts must beconsidered when projecting the quantity of each product and by-product that willbe marketed. In the case of a karakul sheep enterprise, for instance, onlyabout 20 per cent of total receipts come from pelts. Mith the recent doublingof meat prices during the last five years and an expected continued strong demand

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for rmeat, the sales of sheep for the production of meat will probably increasemore rapidly than will the production of other sheep products. Consideringthis, annual wool production in 1971/72 has been revised downward from 27.4thousand tons to 24.5 thousand tons and the production of karakul pelts downto 2,700 thousand from 3 million.

122. The fruit production target would require an annual growth rate of3.4 percent and result in a 1971/72 production of 470,000 tons. This wouldbe an increase of 120,000 tons and is in line with recent trends and appearsto be a feasible estimate.

Governmental Policy and Agricultural Development

123. In the process of national planning, the Government must decide whatpolicies 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 aregiven major consideration. In agriculture these would include productionincentives, new technology, markets for farm products, farm supplies andequipment, and transportation facilities.

124. As a producer moves from subsistence farming into a market-orientedenterprise, he becomes aware of, and responsive to the price relationships ofpotential products he can produce and the costs of the required inputs.Farmers in Afghanistan are sensitive to price changes as evidenced by therise in cotton production when price to the farmer increased 25 percent. Pro-duction again dropped when prices of other crops requiring less labor andother inputs rose. Producers should receive prices for their produce thatallow for reasonable compensation for effort expended over and above othercosts. However, in Afghanistan the Government's vested interests seem toomuch involved in maintaining low urban prices for basic foodstuffs.

125. The reliability of farm prices is as important as their level. As afarmer adopts new techniques, especially those requiring greater capital in-puts, he must be fairly confident that he will at least be able to cover theseadded costs. Because of the biological nature of agricultural production,prices fluctuate considerably during the year and from year to year. Manyfarmers do not possess storage facilities and must market their product atharvest time. In an area where agricultural production is increasing morerapidly 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 absenceof efficient marketing facilities, an effective price program cannot beestablished.

126. Annual fluctuations in producer prices are likely to be particularlygreat 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 canhave a severe depressing effect on farm prices.

127. Thus a desirable price policy is one that will stimulate capitalinvestment by establishing fairly stable prices and maintaining produnerprices at sufficiently high levels to cover producer coots.

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128. Underemployed or unemployed resources provide a source by wbich capitalformation can be accomplished without reducing output and consumption in otherareas. Because of the seasonal variation in labor requirements for agriculturalproduction in Afghanistan, labor is underemployed during off-season periods andcould be used for rural development projects, ninor irrigation constructionwork and other infra-structural development projects.

129. The bulk of the nation's wealth is located in the agricultural sectorand as such should be a main supplier of governmental revenue. Although exportsof agricultural products currently generate about 90 per cent of the foreign ex-change earnings, the agricultural sector has used very little foreign exchangeearnings for capital input imports. Intensive farming provides the greatestpotential for increasing agricultural production. However, for the time being,fertilizer and other yield-increasing inputs must be imported. The foreignexchange required for the purchase of smaller quantities of fertilizer wTouldbe considerably less if the expansion of cash crop production rather thancereals 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 growthof a country are the size of the market, the availability of raw materialsand 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 overa large territory still with major gaps in its transport system, the countryconsists of several smaller markets rather than a single larger one. This,combined with a low per capita income, makes it difficult for Afghan industliesto achieve economies of scale.

132. This disadvantage is in part overcome by the natural protectionprovided by its remote landlocked and mountainous geography which makestransport cost of imports high (but, of course, raises the transport costof exports also). Thus, Afghan industries have an advantage in sellingrelatively bulky low value products within the country, while in exportsits role is in increasing the value per unit of weight.

133. At present Afghanistan's major raw materials are agriculturalproducts. The chief items of industrial significance are cotton, sugarbeets, karakul skins, and wool. Except natural gas no large mineral de-posits have been definitely proven, but exploration is underway. At least70 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 becompleted shortly. The fact that so much energy is scheduled for exportindicates 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 tillthe 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 feasibilityof processing it internally or of its use for export. Several small coalmines are in operation, but the quality of the coal is poor, and as yet nocoking coal has been discovered.

134. The hydroelectric power potential is large. As a result of theconstruction of the Naghlu and Mahipar projects, with a combined capacityof 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 theHindu Kush also has abundant hydropower except during the dry seasons. Asuggestion has heen made to construct a stand-by thermal plant there, using

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nearby coal. In the Mazar-i-Sharif region the nearby natural gas is to beused for power. Two areas where increases in the supply of power arenecessary for further industrial development are in the Kandahar and Heratregions. Surveys have been conducted in those areas and several projectsare under discussion.

135. Industrial entrepreneurship and skills are scarce resources inAfghanistan. While many have trading and mercantile experience, this isnot directly transferable to industry. As compared with trade, industrialentrepreneurship 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 betrained over a lengthy period. A pre-condition is a sense of security bothin the narrow police sense and in the much broader economic sense. Thegovernment must not consider a new industry as a signal for imposing hightaxation and successful projects must be free from the threat of national-ization of the plant. Once the factory is established, the entrepreneurmust set aside resources to cover maintenance and depreciation, and for thelonger-term expansion of the plant. In other words, it should not be milkedfor maximum short-term returns. In a competitive market cost and qualityare of great importance.

136. In Afghanistan the Bank Melli group has some industrial experience.Also, various other individuals and groups have become interested inindustry but face the problem of transferring their trading experience tothe new field. These potential private industrialists tend to look to theGovernment as a source for technical and market advice, and for both generalsupport and specific concessions. But the feeling has been mixed, sincethere has also been a fear of Government. On the part of the State therehas been both a paternalistic tradition which requires that it grant per-mission for all major activities whether economic or otherwise, coupled witha distrust of private traders. Until recently both the demand for, andsupply of technical or management training has been very low. The traditionalsystem of management in both the public and private sector has laid stresson seniority in staffing, while incentives to stimulate efficiency have beenlacking. The general low level of literacy has made it difficult to traina 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, isprimarily a handicraft-trading economy. Factory industry plays only aminor role. W@hile 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 anestimated 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 estimatedat Afs. 740 million--or approximately 3 percent of GNP. The importanceof the handicraft industries--which include among others, carpet weaving,leather tanning, shoe-making, textile production, metal work, baking andsweets--is currently far greater. Employment in these is estimated at

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abhot 2GO,COO workers, and the value added at Afs. 4 billion--or about5 percent of total employment and 10-15 percent of GNP. 2/

138. While some scattered government efforts were made to set upindustries in Afghanistan before 1930, it was only after the governmentsponsored the establishment of the Bank Melli in the 1930's that anyorganized development occurred. This bank sponsored the growing of cottonin the north, set up a cotton ginning and oilseed processing industry, anda cotton textile plant in Pulekhumri before World War II. *In the earlierpostwrar 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 withthe introduction of economic planning about 1955. At that time thefounder of the Bank Melli left the country for an extended period of time.His return, several years later, was associated with greater interest bythe 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 andpower, which is shown in Appendix table 5. One or two enterprises ineach of these industries entered production during the past ten years.The Second Plan listed 17 manufacturing projects. Of these four werecompleted-the expansion of the Ghori Cement Plant to 400 tons/daycapacity; the Pul-e-Charkhi workshop; the prefabricated housing plant;and the raisin factory. Of the four completed only the last was in theprivate sector, and only the first and the last have begun making a profit.However, this underestimates the number of factories that have come intooperation in recent years: the Gulbahar Textile Plant of the Bank Melli-sponsored Afghan Textile Company began operation in 1960; the Omeed RayonCompany began production in 1958; the Afghan Wool Industry factory, aGerman investment, was completed in 1965; the Kandahar Fruit Preservationfactory was completed in the early 1960's; the Jangallak Machine and AutoRepair factory was also completed in the early 1960's; and a unit of theBost cotton ginning and oilseed processing plant was completed about 1965.Of these factories not listed in the Plan, only the first two have gonethrough the "teething" period to full capacity operation. The KandaharFruit Plant is an example of government-guided, or rather misguidedprivate investment, with heavy Industrial Development Fund (see below)support. It has failed badly thus far. It was constructed on the basis

1/ Sources of figures: The Russian Proposals for the Third Five-YearPlan (typed English translation), pp. VI, 18-20; IV, 96-101; E.Eskilsson - Report on Coordinating the Development of Afghanistan'sEnergy Resources (mimeo), p. 34 and Table 15; Ministry of Planning -Survey of Progress, 1964-65. (Kabul, 1965) (mimeo); Material onFactories in Afghanistan given to IFC Mission to Afghanistan in 1966.

2/ Appendix table 37 for the participation of the Bank Melli in variouseconomic enterprises.

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of a promise of an export market in Czechoslovakia and the U.S.S.R. thathas not materialized and no substitute market has been found. There werealso technical difficulties that could have been avoided by preparatorystudies. The Bost Plant has been operating well below capacity becausethe cotton that was to be forthcoining from the Helmand Valley and was toprovide the raw material, has not been supplied. The Jangallak Factoryhas yet to operate at more than about 25 percent capacity since thedemand for the original type of product this plant was to produce is verysmall in the Kabul area; while other types of metal products, such asfurniture and agricultural tools, have begun to be produced, the marketfor these must be built up.

14o. Factories that have been successful in Afgharistan turn out astandardized product, and for which new raw materials or new markets didnot have to be developed. The inarket for the cement industry has been thegovernment's public works program; the army supplies a market for the wooland shoe factories; there is a well established demand for cotton andrayon textiles with developed trade channels. But the other factoriesproducing for export or for a domestic market of a less well-defined andestablished type have had difficulties. Those problems are not peculiarto either the public or private sector. Individual plants in each sectorappear to be well run, with competent and aggressive management, but inseveral plants the management looks for the solution to its problems fromothers, such as the supervising authority or the parent company. In thegovernment sector also a major problem *s the long lags in the financialreporting of government enterprises to the responsible ministry. Thismeans 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 waspassed, and subsequently other laws were enacted affecting both domesticand foreign investors. This legislation provides certain assistance andexemptions to private industrial investors. Some provisions are general--for example the duty-free import of equipment, machinery and raw materialsfor three years, and the exemption from corporate income taxes and frompersonal income taxes by shareholders for a period of three years aftercommencement of production. Other privileges are negotiated on an ad hocbasis. 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-termfinance of up to ten years at interest rates of 8-12 percent. TheMinistry of Mines and Industry administers most of the laws but theMinistry of Commerce must approve foreign investment applications andlicense 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 itsapproval. For the larger investments this approval is in essence a kindof contract between the government and the private investor, and each ofthese contracts must be negotiated individuaIly. In the process of thenegotiations, many ministries as well as the Da Afghanistan Bank may

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becorne separately involved, and in fact the final decision mlay requirecabinet approval. i/ Part of the reason for this elaborate procedurereflects the basic policy decision of the first two Plans that thegovernment "guide and regulate" economic activities. Z/ This in turnreflects 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 wereset up by the government to encourage industry during the first twoPlans. The most important of these was the Industrial Development Fund,Ahich was established with some private participation in 1956. This fundlent approximately Afs. 215 million to private investors during the pastten years. This must have been a significant proportion of the totalprivate investment in manufacturing industry during that period, sinceprivate investment in industry during the Second Five-Year Plan has beenvery roughly estimated at about Afs. 300 million.

143. There is a staff in the Ministries of Yines and Industry andCommerce to provide technical assistance to potential investors, makefeasibility studies, advise on types and sources of equipment, and approveprojects. The small size of these staffs result in long waits before theadvice can be provided or decisions made.

The Third Five-Year Plan y

144, The draft of the Plan projects a doubling of the output offactory 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 percentin the Third Plan compared to the Second Plan--that is from Afs. 8.6billion to Afs. 12.1 billion. Direct investment in manufacturing industryis projected at Afs. 5.8 billion. v This investment is apparently to

l For the discussion of the present laws-and procedures see H. Nyberg -Analysis of Private Investment; Afghanistan (inmeoo Jan. 27, 1966),Section I; and p. 13 for quotation.

2/ Second Five Year Plan p.4

/ As of the time of this writing, this mission had not seen a completedraft of the industrial section of the Third Plan, or a definitive-listof projects to be included. There may thus be changes in detail betweenwhat is described in this section, and what is actually included in theThird Plan.

4/ The foreign exchange component has been converted at the official ex-change rate of 45.1.

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be left initially to the private sector. Under the heads of theMinistries of Mines and Industry and of Commerce the draft gqf the ThirdPlan contains a list of 67 different indLstrial projects. - (SeeAppendix table 35 for the complete list.)

145. 'What is the rationale for this proposed major expansion inindustrial activity? Investment in industrial activities must increaseif the proposed decline in public works expenditures during the ThirdPlan is to be compensated and the economy maintained. But apart fromthis balancing function there are some more substantial, and longerrange considerations that argue strongly in favor of more rapidindustrialization. As a result of the past investment in infra-structure,largely financed by foreign credits, the Afghan Government will be facedduring this Plan period both with larger operating expenses in itsordinary budget, and with rapidly increasing debt service charges whichcan lead to balance of payments difficulties. Therefore, it is importantto develop new productive activities.

146. It is also becoming increasingly important to develop employmentCpportunities other than the traditional ones. Apart frcm the short-termneed to find other jobs for people now employed on public works, in thelonger run it is possible that Afghanistan may be faced with problems ofurban under-employment. Although ostensibly there is apparently littleunemployment at present, there is a major inflow of population into thecity of Kabul which has been growing at a rate of 5 percent per year, ofwhich 3 percent per year is due to rural to urban migration. Thisindicates that there is a strong demand for work outside of agriculture;this demand will probably increase in time as population in rural areasgrow and as education increases.

147. Nhat are the opportunities and problems of expanding industryin Afghanistan? Cement is an example of a product with heavy transportcosts, and in the past the government's public works and irrigationprograms have provided a guaranteed market for the output of the twolarge plants. Other plants may be feasible in other areas where publicworks are to be built.

148. A second type of opportunity is one where the internal privatedemand is sufficiently large to warrant the setting up of factories of asize sufficient to compete with potential foreign suppliers. The cottonand rayon textile plants meet these requirements, and their product isnow competitive with imports both in terms of price and quality0 Atpresent, the factory output of both cotton textile and rayon meets lessthan 50 percent of the total Afghan demand for these products, whichwould warrant a presumption that expansion of these industries is feasible.There may well be other opportunities for development or expansion ofimport-saving industries, or other industries catering to internal demandand using domestic raw materials. For example, cotton seed and vegetable

v About twenty other industrial projects have been proposed under variousregional programs.

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oil industries, the sugar industry, food processing industries such asslaughterhouses, bakeries and sugar factories, leather and shoemakingindustries, and a cigarette factory. Wines and cognacs and canned ordried fruits are other possibilities if well studied in advance ofinvestment. Proper location may be crucial to their success as witnessthe Kandahar Fruit Plant.

149. Other products are those which embody further processing ofAfghanistan's present exports in order to increase Afghanistan'sforeign exchange earnings. Several of these are forward linked withhandicraft industries, such as carpet weaving, karakul and wool.Cleaning and standardizing the wool for both of these products, andcleaning the output, would make possible higher earnings from theirexport. Preliminary processing of the animal casings now exported tostandardize and raise their quality can also earn significantly moreforeign exchange than at present.

150. Next there are industries which would process new raw materialsfor export or domestic use. The mission is concerned that-the 4 billioncubic meters a year of gas exports may jeopardize potential futuredomestic industries. Finally, mention should be made of the touristindustry for which there appear to be opportunities for expansion duringthe Tird Plan and subsequently.

151. Care must be taken in the specific import substitution projectsto avoid worsening rather than relieving foreign exchange difficulties.In the present stage of Afghanistan's industrialization all initialcapital equipment for the manufacturing industry, and various recurringoperating items such as spare parts, and many raw materials, such as thechemicals for textile dyeing, spun rayon and others, will have to beimported. Thus, foreign exchange expenditures for such import savingprojects will rise initially, and may in fact increase for a specificproduct over the longer run if internal demand for the product and itsimported raw materials also increases. This will, in turn, requirecontinued steps to expand foreign exchange earnings from both traditionaland new exports, as well as care in choosing those fields in which importsubstitution is to be carried out.

152. Until proper studies are made of the economics of specificsupposed import-saving projects, it is not possible to say which shouldor should not be embarked upon--but past experience elsewhere testifiesto the problems that arise when such studies have not been made.

153. On the positive side, the free market foreign exchange ratesystem should put a realistic evaluation on the value- added componentof goods produced in Afghanistan. It is to be hoped that there willcontinue to be sufficient monetary and price stability so that before toolong a stable rate can be established and thus eliminate an element ofuncertainty in making industrial investments. As of this date only twelve

of the forty-one projects listed under the Ministry of Mines and Industryfor the Third Plan draft have undergone the detailed feasibility studiesthat are a necessary preliminary to any investment decision. Mbst ofthe projects are still simply ideas and it may be assumed that some atleast will be eliminated in the final version of the Third Plan.

Supply of Private Investment Resources

154. The Chairman of the Bank lMelli has indicated to the governmentthat the Bank expects to mobilize for industrial investment Afs. 1 billionduring the Third Plan. Apparently this is a total investment figureincluding hoped for financing from other possible sources so the BankMelli's own direct investment would be less.

155. The willingness of smaller potential investors to invest hasnot been quantified. Undoubtedly financial resources are available inprivate hands but the decision to invest in one field or the otherdepends upon the expected rates of return among the possible alternatives,and upon the expected security of the investment. There has apparentlybeen a very large volume of investment in houses, hotels, and real estatein Kabul in recent years. The return on real estate investment in Kabulis such that it has been possible to recover one's investment in housingin two or three years. Another alternative area of investment ismoneylending on which the rate of interest varies from about 25 percentto possibly as high as 100 percent-- but with the high risks theeffective rate of return may be far less. Finally, some businessmenspeculate in foreign exchange. The fact that the two latter types ofinvestment do not yield tangible evidences of wealth which could attractgovernment attention also has made them attractive. It seems likelythat the opportunity cost of attracting capital to industry is at least20-25 percent.

156. Afghan businessmen may be more receptive to industrialopportunities at this time than earlier. Some of the Afghan industrialfirms which have been successful are now earning rates of return inexcess of 30 percent. The heavy past concentration of investment inhousing may now be reducing the marginal return expected on additionalinvestment in that field; moneylending is risky and the gains fromforeign exchange speculation have lessened as the rate has stabilized.Investment in the traditional export commodities has been risky inrecent years because of erratic weather, and consequent fluctuatingsupplies. On the basis of such impressions, and the opinions ofknowledgeable businessmen and government officials, it is estimatedthat the total volume of investment that might be forthcoming fromprivate groups might be on the order of A-fs. 2 billion at the currentfree-market exchange rate over the Third Five-Year Plan period.Including loans by the proposed Industrial Development Bank, a reasonablefigure 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

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$1). 1/ While this figure is well below the sum of the investment inprojects listed in the draft Third Plan, it would be far higher thanthe volume of direct industrial investaent achieved in the previous tenyears. It is possible, too, that this figure might be increased signi-ficantly by appropriate govelnment policies as indicated below.

Government Policies and the Investment Climate

157. The traditional close relationship between the government andprivate businessmen has already been indicated. This relationship is notlikely to change during the period of the Plan. What can be improved isthe efficiency with which the government performs its guidance and ap-proval function. Businessmen who were asked by the mission what theirproblems and desires were with respect to improved government proceduresor assistance stressed the following points, more or less in order ofimportance:

a. Improved and speedier guidance with respect to thetechnical and economic feasibility of projects;

b. More rapid handling of project applications throughthe government machinery, especially concentratingthe approvals in a single agency;

c. A financial institution to provide industrialfinancing;

d. Improved implementation of the present incentiveslaw, for example, insuring that factories receivethe 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 anindustry became successful, others were clearly not worried by the supposedthreat. Several government officials mentioned that the failure to en-force the law respecting the protection of investors against coapany frauddiscouraged investment by small investors. It would be very desirable thatboth the capability to perform this function be enlarged, and that thefunction be set up in an independent organization. If the creation ofan independent organization is not possible then the new IndustrialDevelopment Bank should include a strong capability to perform this functionfor the private sector.

159. The new Industrial Development Bank is clearly required, evenif 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 offoreign exchange expenditures, then the total volume of investment isAfs. 2.3 billion at a 45:1 exchange rate (of which Afs. 1 billion wouldbe for domestic expenditures and Afs. 1.3 billion for foreign exchange).

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'an.r 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 endedup with a record of failure in many of its ventures. Also, the licensingagencies 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, theMinistry of Mines and Industry may take up,to a year to make up its mindafter the feasibility study has been made2 /--the proposed new Incentivesto Industry Law has as one of its major provisions the creation of aninterministerial investment committee in which would be concentrated allcontacts with investors and full power to grant approvals. This wouldeliminate the shuttling back and forth among various ministries that isnow required of would-be industrialists--and could thus shorten the entirewaiting period considerably. Because of its importance, considerationmight well be given to introducing this reform as soon as possible ratherthan waiting for general agreement on all the provisions of a new law.

161. The existing investment law with respect to exemption from dutieson inputs to manufacturing industries should be implemented, and the ex-tension of the period from 3 to 5 years is desirable as provided in theproposed new law. However, the mission has doubts as to the desirabilityof extending the exemption from personal or corporate income taxes from3 to 5 years, since there is little reason to grant such income taxexemptions at all. If the new firms make no profits. they would, ofcourse, not pay income taxes anyway, or declare dividends that can betaxed as personal income. Rather, the mission recommends as preferableincentives the proposed exemptions from duties on mrachinery and currentinputs, as well as a more general provision for carrying forward lossesas deductions from otherwvise taxable profits.

162. Until now the Covernment has apparently given little thought toa general policy of tariff protection for new industries. The fear ofmonopoly by a single enterprise in an industry, the desire to keep priceslow to the consumer, the fear of a loss of customs revenues, as well asthe 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 forindustry 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 goodsof up to 10 percent in purchasing goods for its owvn use. Such a generalprice preference is too low initially; both the protection and the pricepreference combined might be set at 25 percent for the first five years,and then reduced3

1/ The time taken for such approvals was often as much as two yearsuntil recently.

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163. There would be some advantage in issuing a public industrialpolicy statement listing industries reserved for private investment andthus freeing those industries of any fear of nationalization or Govern-ment competition. Some of this fear, to the extent it exists; may berelieved by the fact that in the Third Plan almost all manufacturing in-dustrial investment at this stage is the responsibility of the privatesector.

164. The development of tourism in Afghanistan is a potential largeearner of foreign exchange. The Government effort in this area in thepast has been very small, in terms of resources, administrative effort,and training of personnel. If tourism is to develop, much larger programsmay be necessary in all of these fields and they would yield their resultsafter some time. If such a program is found economically feasible itmight 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 admixistrativereforms to eliminate hurdles for tourists, such as the elimination of theresidence and exit visa requirement, would prove helpful in attractingadditional tourists.

Improved Supply of Raw Naterials and Infra-Structure Inputs

165. Agricultural Products. While agricultural products areAfghanistan's major raw materials, the failure of agricultural outputto expand in conjunction with the setting up of factories to processthat output, has hampered industrialization. Earlier mention was madeof the Bost cotton ginning plant in the Helmand Valley area, and thefact that this plant has been operating well below capacity becausecotton output has not increased as hoped. A similar problem may arisein the near future in the Kunduz Valley, since the Spinzar Cotton Gin-ning Company has increased its cotton ginning capacity from 45,000 tonsto 90,000 tons of raw cotton. However, in discussions with variousofficials, there was a great deal of uncertainty as to whether thatamount of additional cotton would, in fact, be forthcoming.

166. Minerals. The Third Plan envisions the continued explorationfor additional gas and oil deposits. Russian advisers are now engaged ina study of the extent and size of the potentially important Hajigak ironore deposit. Once this is completed, if the deposit appears physicallypromising, an economic analysis is the next step. Such an analysis shouldexamine alternative techniques of processing the ore, alternative potentialmarkets, 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 stressis rightly placed in the Third Plan on a shift from infra-structure projectsto projects yielding a more rapid return, there is a need for additionalpower and transport facilities. The Kajakai Hydroelectric Power projectin Kandahar-Girishk has been examined and would appear to be an im-portant prerequisite for further industrial growth in that area. It is

iapcrtanit to examine the economic feasibility of alternative sources ofpower supply in the Herat region, since industrial development in thatarea also will be strongly influenced by the availability of powver.

168. With respect to transportation, it is quite clear that the in-dustrial development of the Nazar-i-Sharif area will be strongly influencedby the creation of improved transportation connections with other sectionsof the country.

169. Management Training. In the short run Afghanistan will have tocontinue to rely upon foreign managers and technical personnel for manytop-level executive positions in new plants. But simultaneously, it willbe necessary to accelerate and improve the training of Afghan personnelfor such top-level posts, as well as for middle-level positions. A highlevel review of the problem of management and technical training is quiteurgent. Little systematic analysis of the requirements for such skillsarising from industrial growth has been undertaken. Data available ontechnical and management skills that are nowj present in Afghanistan arelimited, and no effort has yet been made to collect such data. The on-going management training programs on both the top and middle levels, aswell as the more general education program, have not been related to therequirements of more rapid industrialization. While local "on-the-job"training programs have been quite successful for training factory labor,little appears to be knou-n of such programs of management training. Over-seas training is frequently regarded as a "plum" for services alreadyrendered rather than training for a specific assignment; when the traineereturns he may find that the position offered him has little if any relationto the training. Much of the management training is carried on in highlydeveloped Western or East European countries. The relevance of this train-ing to the Afghan scene is often questionable. Consideration should begiven to the provision of such training in other countries of Asia,preferably those only somewhat more developed than Afghanistan, such asIran or Pakistan. This would also reduce training costs. Of course sometechnical training may have to be carried on in the country from whichthe machinery is imported. Urgent consideration should also be given tothe establishment of a management training institute within Afghanistanitself which would be able to use Afghan training materials and problems;that might cooperate in on-the-job trainIng program; and which might alsoperform some management advisory services for Afghan industries.

CHAPTER 6

TRAN4SPORTATION

GENERAL

Introduction

170. Afghanistan has no railways. Highways provide the basis ofAfghanistan'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 viewof the mountainous terrain of large parts of the country, the limitedtraffic 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 theroad system.

171. The past efforts of the Government have been concentrated ondeveloping a netmork of primary highways. Most sections of this networkeither have been completed by now or are under construction, except fora 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--Kabuland Kandahar--are international airports, built respectively by theU.S.S.R. and the U.S.A. Air services appear to be adequate in terms ofthe demand for them. In fact, the new Kandahar airport has much excesscapacity.

Administrative Arrangements

173. The Ministry of Public Works is primarily responsible for theplanning, design, construction and maintenance of primary and secondaryhighways. The tertiary or feeder roads are under the jurisdiction ofthe provinces, which, however, receive technical and financial help fromthe Ministry. The Helmand Valley Authority is responsible for somesecondary and tertiary roads in its area.

174. The General Transportation Department of the Home Ministry isresponsible for the regulation of highway transportation, the Civil Avi-ation Department (Air Authority) for airports and air transportation andthe Ministry of Mines and Industries for pipelines.

Past Investment Program

175. In the Second Plan (1962-67), transportation was accorded highpriority, and about 25 percent of overall Plan investment was assigned tothis sector. Out of a total transport investment of Afs. 7.4 billion

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(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, allthe other highway projects were carried over from the First Plan (1957-62).The Second Plan mentioned that it was planned to undertake surveys for theconstruction of additional roads, but it made no financial provision forsuch 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 privatesector.

Proposed Investment Program

176. The transportation investment program proposed for the Third Planmarks the next stage in the development of highways in Afghanistan. Althoughthe emphasis continues to be on completing the primary highway system, es-pecially those parts on which work had already begun, some secondary roadsand bridges have been included in the Plan, presumably on the basis of theireconomic priority. However, about 80 percent of the investments will be onprojects carried over from the Second Plan.

177. As can be seen from Table 1, the proposed Third Plan allocationfor transportation is smaller than in the Second Plan--both absolutely andas 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 expensiveprimary highway system is nearing completion, and the tapering off of in-vestment on this account has not been offset to any significant extent bynew investments in secondary and feeder roads.

178. The foreign exchange cost of the Second Plan program was aboutU.S.$ 90 million (55 percent of total cost), compared with about U.S.$ 46million (60 percent of total cost) in the Third Plan. About U.S.$ 35million equivalent in foreign aid has already been committed, covering theforeign cost of all carryover projects.

Table 1

Transportation Sector(Millions of Afghanis)

1962-67 1967-72

Highways and Road Bridges 6,227 2,929River Transport 36 2Railway Transport -- 40Air Transport 1,172 418

Total: 7,435 3,389

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HIGIHJAYS

Highway Network

179. For an area of about 650,000 square Kms., Afghanistan hasaltogether about 13,500 Kms. of highwqays, of which roughly 2,000 Kms. arepaved primary highwiays, 5,500 Kms. are secondary roads, mostly earth roadspartially improved by locally available uncrushed gravel, and 6,000 Kms.of tertiary (feeder) roads, mostly tracks and trails not always passablethroughout the year. Although the density of roads is hardly 21 Kms. for1,000 square Kms. of area, compared with 62 Kms. for Pakistan and 103 Kms.for India, the present highway system reflects more the distribution andlow density of population than the lack of access.

180. Ten years ago no modern paved roads existed in the country andthe total length of unpaved roads was only about 6,200 Kms., of which only3,700 Kms. constituted unpaved all-weather roads. The First Plan providedfor 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 linkc up theprincipal producing areas with one another and with the main consumingcenters. Special attention w7as to be given to the requirements of foreigntrade and to border areas. In addition to completing the projects takenup in the First Plan, the Second Plan provided for the paving of two otherhighways totaling 54lI Kms. W1hen all these projects are completed, theprimary highway network of Afghanistan will be largely complete, except fora gap in the northwest where foreseeable traffic needs do not call for anasphalt or concrete road in the near future, but may justify improvementto a gravelled surface.

182. As can be seen from the maps, the primary highway system consistsof a circular highwqay connecting Nvlazar-e-Sharif, Kunduz, Kabul, Kandaharand Herat, with branch roads to neighboring countries and to the principalprovincial capitals.

Third Plan Program

183. The selection of projects in the Third Plan is determined to alarge 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 moreobvious projects relating to the primary highway system have mostly beentaken up. Further foreign aid (mostly in the form of- grants from the SovietUnion and the USA) wlhich was readily forthcoming for the construction ofthe primary highwqays, is not forthcoming to any comparable extent forsecondary and feeder roads, and the Afghan Governemnt, having to carry outsuch projects with its own resources, both fiscal and technical problemsappear to be slowing down the pace of transportation investment.

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184. The method of selection of even the primary highway projects inthe past, and their design and eXecution, have not significantly added tothe experience and knowJledge of local technical personnel to equip them forsuch work in the future. Projects were selected in the past, and have beenselected for the Third Plan, not on the basis of technical and economicstudies 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 maintenanceexpenditures of the Ministry of Public Works for highways is given below.Surveys and studies included cover three more primary highwiays, but noprovision for their construction is included.

Table 2

Planned Highway Expenditures(14illions of Afghanis)7

Construction 1967 1968 1969 1970 1971 Total

Carryover Projects 581 499 476 472 323 2,351NeMew Projects 60 55 139 130 - 388_

Sub-total: Construction 6 41 554 615 602 323 2,735

Surveys and Studies 15 66 h7 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 andthis will be elaborated in a study being financed by the Bank.

7ehicle Fleet

187. The total number of registered motor vehicles in Afghanistan in1965 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 ofabout 5% a year, while GNP grew a little more than 3%. This represents aratio of about one vehicle for every 800 persons compared with 940 personsin Pakistan and 600 in India. About 50% of the vehicles are registered inKabul province and another 20% in Kandahar. In addition, there were almost3,000 vehicles imported for specific development projects and belonging tointernational organizations and diplomatic missions not registered with theTraffic 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 veryold vehicles continue to operate the average age of the fleet is probablyunder 8 years.

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188. The General Transport Department, attached to the Home Mlinistry,is responsible for the regulation of truck and bus transportation. It hasrecently initiated a countrywide vehicle survey to determine the exactnumber of motor vehicles by class operating in the various provinces. Thisis expected to be completed by the end of 1967. The Department has alsobegun to compile data on the movement of buses and trucks having the nationaland provincial capitals as the destinations.

Regulation of Transport

189. The General Transportation Department requires truck operators toobtain permits for each trip, charging a fee for such permits amounting to5%0 of the freight charges. This appears to be an unnecessary burden onoperators and the expense of collection is unjustified. The Department alsofixes the rates for both passengers and freight on the basis of estimates ofoperating costs plus a margin for profit. In general, operators appearsatisfied with the rates so fixed. The Department is also responsible forissuing 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 andmodels 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 andbuses. Only recently, it has begun to take seriously the last three functions.

191. The Monopoly Bureau, whlich is an independent agency of the Govern-ment, handles the import of trucks and buses. It charges a monopoly fee of12% plus 2% for administrative expenses on the cost of trucks and buses(purchase price, insurance, freight and customs duty of 10%). In additionto cash sales, it provides hire-purchase facilities over a 3-year period,charging L% interest per year. Cars and spare parts for all motor vehiclescan be imported by anyone by paying the Bureau a monopoly fee of 5% in foreignexchange. This is not a good method of handling foreign trade since theBureau in effect acts only as a commission agent and its use as a taxingdevice has not been successful since it does not submit up-to-date accountsto the Government.

User Contributions

192. The important classes of highway user contributions in Afghanistanare customs duties on motor vehicles and spare parts, monopoly fees on allthese items and on gasoline, license and pernit fees, and special tolls oilthe primary higlhwayso Tolls have been introduced only in the past year or-so, although the cost of collection may not justify their irapositionl Esti-raated receipts whlich could be considered as user charges inclu(igl onlyhalf the receipts from relevant taxess and highwiay expenditures during cur-rent and subsequent Plan periods are shomm below, Fuel levies are primarilythe fee charged by the Monopoly Bureau.

Table 3

Estimated User Contributions and Hi way Expenditures(Millions of Afghan

Total TotalUser Contributions 1962-66 1967 1968 1969 1970 1971 1967-71

Taxes on motor vehicles 2b0 50 50 50 50 50 250Taxes on spare parts etc. h0 15 15 20 20 25 95Fuel levies 500 130 140 150 160 180 760Tolls 20 h0 45 55 60 80 280

Total - Receipts 800 235 250 275 290 335 1,385

High-jay axpenditures

New construction and 6,061 555 628 675 728 313 2,929studies

AdminiAdministration and

maintenance 131 105 110 116 122 128 581

Total - EXpenditures 6,902 660 738 791 850 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 thatthe high level of outlays during that period was occasioned by the emphasison the construction of expensive primary highways, and almost 80% of thesewas financed from foreign grants. During 1967-71 user contributions areexpected to cover 0,°o of highway expenditures and the gap is expected tonarrow further as the primary highway system nears completion and outlaysdecline, while user contributions should show a steady rise. Neverthelessthe present sale price of gasoline appears to contain an element of subsidy,wqhich is not justified.

Traffic Volumes

194. There have been no traffic counts in the past even on the primaryhighways. However, lith the imposition of tolls on completion of eachpaved highway, traffic estimates could be made from toll collection data.The draft Third Plan estimates that daily traffic volume on the primaryhighways will range from 100 to 600 vehicles in 1967, rising to 175 to 750vehicles by 1971. About 70% of the traffic is expected to be heavy vehicles(trucks and buses) and the rest light vehicles (cars and jeeps).

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OTIER TRANSPORTATION MODES

Air Transport

195. The government-owmed Ariana Afghan Airlines operates 26 flightsa week between Kabul and the other six airports on its domestic services.On its international services, Ariana operates a further 1i flights weeklyconnecting Afghanistan writh Pakistan, India, Iran, Syria, Lebanon and theSoviet 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 O40and 2 DC-3's - compared ijit'h only 2 DC-3Is in 1956. The number of passengersflown has grown from 29,000 in 1962 to L9,000 in 1965, during which periodseat occupancy has improved from 30% to 44%p which is still unsatisfactory.The amount of cargo flown has, however, not recorded much change, withutilization of cargo space falling from 62% to 41%. Although Ariana'sfinancial situation is not knoweTn, it is stated that internal fares coveronly a part of the costs.

197. In view of the importance of air transport in a land-locked andmountainous country, the Second Five-Year Plan provided for the moderniza-tion of Kabul and Kandahar airports (with Soviet and American technical andfinancial 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 thePlan. 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. ilIore than half the outlayis for a program to build 20 air strips and purchase 4 "short take-off andlanding" aircraft as a pilot project run by the Government to provideservice to areas presently inaccessible by any other means. The ultimateaim is to have 100 landing strips and 15 "STOL" planes. The traffic potentialand economics of the project need further investigation, but the AfghanGovernment 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 Afghanisfor completing improvement of the ports of Qizil Qala, Tashguzar and Kelifon the Amu (Oxus) river on the Soviet border through which trade with theSoviet Union passes. A substantial portion of the work had already beendone in the First Plan with Soviet technical and financial assistance. Thereis little traffic among these ports themselves. All ships operating in theAmu river are Soviet ships of up to 1,000 tons capacity, and the presentport facilities on the Afghan side are considered adequate to handle tradewith the Soviet Union. Present traffic through them is roughly 200,000tons per year, of which half is petroleum products.

200. In the Third Plan, a small allotment of Afs. 2 million is proposedfor 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 Spinbaldakin southwest Afghanistan. The project had been studied as early as 1957by consultants who estimated that it would cost about US$ 1.2 million.If and when constructed, railway services on the connection would beoperated by the Pakistan WIestern Railway.

202. Afghanistan's traffic through Chaman is presently about 40,000tons a year and through Peshawar further north about 140,000 tons. TheAfghan Governrment expects that with the elimination of customs formalitiesat both Karachi Port and the Afghan-Pakistan border and the consequentdelays, a greater portion of the overseas trade going through Pakistanwould use the proposed railwJay spur. In any event, the immediately avail-able traffic would be less than even 100,000 tons, which would not justifya 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 agreerent onthe 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 transfergas 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 willbe foreign exchange. The economics of the projects do not appear to havebeen analyzed carefully by Afghanistan and no agreement has been reachedon the price to be paid by the Soveit Union for the gas. The projects arebeing carried out with Soviet technical and financial assistance.

PROJECTS REQUIRING FOREIGN FINANCING

204. In view of the fact that foreign aid is already committed formost projects, only projects involving a foreign exchange cost of aboutUS$ 11.0 million require foreign financing according to the Third Plan.However, of these projects, U.S. AID is reported willing to considerfinancing the foreign exchan-e cost of the railway spur, estimated to re-quire US$ 0.6 million. The remaining projects, a list of wihich is inAppendix table 38, can be divided into the following categories:

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205. Highnay Construction. There are 5 highway construction projectsinvolving an outlay of Afs. 342 million, of which Afs. 169 million (US$ 3.8million) will be foreign exchange. All these would presumably be eligiblefor foreign financing, provided adequate technical and economic justifica-tion can be shovn to exist. The consultants who undertake the surveys andstudies (paragraph 207) could be asked, at no significant extra cost, tolook at these projects to find out if feasibility studies should be under-taken.

206. Bridge Construction. Eleven bridge construction projects are alsoincluded in the Third Plan, involving a total cost of Afs. 80 million. TheAfghan Government proposes to build them with departmental labor forces andmaterials already in stock left over from other projects.

207. Surveys and Studies. Three studies for primary road projects areincluded, of which one is expected to be financed by the U.N. DevelopmentFund which has already financed a preliminary reconnaissance study on theroad concerned. The other surveys are expected to involve uS$ 2.8 millionin foreign exchange, besides US$ 1.0 million equivalent in afghanis.

208. Air Transportation Projects. The Afghan Government will have tofind 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 isconsidered 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. Alsosome secondary and feeder roads might have been included in theThird Plan, had feasibility studies for them been initiated earli-er. Studies should be initiated for such projects and prioritiesestablished as soon as possible. Without studies to determinepriorities in these areas, where the number of possible projectswill tend to be large and foreign aid for construction not soreadily forthcoming, the choice of priority projects for execu-tion will be difficult. The Afghan Government may need someforeign help in the beginning for organizing and conducting suchstudies, including problems of regional planning so as to derivethe maximum benefit from secondary and tertiary roads.

(b) The Plan provides for further studies on the direct Kabul-Heratroad, which presumably will relate to the detailed engineering of2 sections at either end which have been recommended by the con-sultants who undertook a reconnaissance study. Further work shouldbe 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.

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(c) A transport study dealing with the utilization of the iron orethat is found northwest of Kabul should be included, to beundertaken simultaneously with or soon after the results ofthe current geological studies are known, if the latter arepositive.

(d) The cost estimates of the roads and bridge projects includedin the Plan will need revision since the estimates are notbased on detailed engineering.

210. The proposed phasing of the transport investment program, shownin the table below, implies a sharp reduction in investments in the lastyear of the Plan, partly resulting from the fact that most of the newprojects are scheduled to be taken up and completed within the first threeyears. The overall investment, as well as the execution of the projectsincluded in the program, should be so phased over the five years that theworkload on the Ministry of Public Works is more even. This would alsoeliminate the need to increase outlays in some other sector or sectors toabsorb the labor force rendered surplus by the decline in transportationinvestment 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 2,875Other 88 34 - - - 122

Department of Civil Aviation 44 21 33 102 136 336

Helmand Valley Authority 6 9 14 13 14 56

Total: 687 684 709 830 h79 3,389

CHAPTER 7

EDUCATION, HEALTH AND URBAN DEVELOPMENT

211. In the Second Plan, expenditure on social services, including urbandevelopment, housing and public building, accounted for 10.2 percent of totaldevelopment outlay. This proportion is to be increased to 15.5 percent in theThird Plan.

Table 1

Social Services in the Second and the Third Plan(Amounts in Millions of Affs.)

Second Plan Third PlanPercent Percentof Plan of Plan

Amount Total Amount Total

Education 1,176 4.9 2,117.1 6.7Health 312 1.3 1,025.8 3.2Housing 599 2.5 665.9 2.1Public Buildings 266 1.1 779.2 2.5Urban development 88 0.4 300.5 1.0

Total 2,441 10.2 4,888.8 15.5

Source: Table 27 in the StatYi5tcal Appendix.

212. The objective of the education part of the Plan is to increase thenumber of students attending pre-senior school by 8.3 percent,vocational andtechnical school pupils by 14.3 percent, and those in higher education by 6.7percent annually. In the health sector, hospital beds are to increase 6 per-cent, doctors at 18.1 percent and semi-medical persomnel 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. Theseschools provide education only up to the third grade. The level of the trainizniof 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 tosixth grade. Teachers' schooling is a little better than in the rural school.sbeing from ninth to twelfth grade. The objectives of these schools are totrain students for admission to senior high schools, vocational schools andgovernment jobs.

214. There are two types of senior high schools, academic and vocatiorf,0Teaching programs are based on French and German systems. Vocational scthocTh

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cater to a variety of technical needs and some are assisted by industrial andcommercial concerns. There are also teacher training schools and an experimen-tal school designed to provide teachers for the pre-senior school level. Attha 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 atpresent twelve faculties. It enjoys a degree of independence from the Ministryof Education. U.S. technical assistance in education is focused on thisUniversity.

215. Foreign assistance has made a considerable contribution to the rapidgrowth of education. For over a decade, teams from Teachers' College of Colum-bia University and Wyoming University have been associated with efforts toraise the standard of primary, secondary and vocational training. German assis-tance dates back to the 'thirties and is focused on engineering, vocational andcommercial education. A significant part of the teaching staff at the univer-sity and in the technical schools consists of American, English, German andFrench instructors. Russians have also entered the arena and are planning toprovide six professors for Kabul to establish a technical institute at Kabuland to construct a technical workshop at Herat.

216. The existing system is characterized by the rapid growth of studentpopulation which has increased the Dressure on school facilities. The totalnumber of students increased by 103 percent from 1956/57 to 1961/62 and by148 percent from 1961/62 to 1964/65. The increase in the number of schoolsproceeded 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, vocationalschools and at the University.

Table 2

A Survey of Educational System

Number of Students Number of Schools Student(In 'OOOsJ Annual Annual Teacher

Rate of Rate of RatesTypes of 1956/ 1961/ 1964/ Change 1956/ 1961/ 1964/ Change 1961/ 1964/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 64Primary 89.7 168.0 239.0 13.0 402 533 627 5.7 52 53Secondary 4.6 12.2 21.9 21.6 27 52 111 19.3 35 59Senior High 1.1 2.9 4.5 19.3 16 22 28 7.3 4 5Vocational 3.4 6.1 10.3 14.8 21 31 27 3.2 14 14UniversityFaculty 0.8 2.0 3.1 18.4 8 9 12 5.2 7 6

Source: Based on data from Survey of Progress Reports.

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217. At the primary and university levels, the number of drop-outs andfailures is large but may be diriinishing. At present about 60 percent ofprimary school graduates enter the secondary schools, compared to 30 percentin 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 flowof graduates from the primary to the secondary schools and from the secondaryto vocational and other high schools; (2) a thorough review and effectivecoordination of external assistance provided by UNESCGO UNICEF,IDA, WyomingUniversity, Teachers' College of Columbia University and by the German,British, French, Russian and American governments. For this purpose, theplanning cell in the Ministry of Education should be greatly strengthened.

219. Third Plan. The target set for education in the Third Plan reducesmarkedly the yearly rate of increase in student population to be taken careof at the pre-senior school level.

220, In the Second Plan student population at the pre-senior schoollevel increased by 220 thousand and the number of schools rose by over onethousand. The objectives of the Third Plan call for increasing the numberof pre-senior school student population by 233 thousand and the number ofschools by 380, thus reducing the prevailing low school-student ratio.

221, The rationale for a modest education plan can be found if it aimsat improving the quality of education. This is not, however, reflected in theordinary budget forecasts. In 1966/67 under the stress of the stabilizationpolicy, the ordinary expenditure of the Hinistry of Education was curtailed by5.3 percent. In the Third Plan government spending per student is expected torise from Afs3 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 1964/65public spending per student was in the order of Afs. 910 which in real termsis at least 10 to 15 percent higher than the projected level in 1971/72. A10 to 15 percent real improvement (25 percent in terms of money) in the quali-tYof educational standards over 1964/65 would mean that about Afs. 950 millionadditional funds are required during the Third Plan for the existing studentpopulation. Further, in order to preserve even the prevailing standards interms of school facilities, the target for establishing new schools in theThird 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 preventivemedicine, the training of health personnel, and the raising of overall hygienicstandards. Medical facilities are also to be better distributed on the basisof geography, sex and the mobility of the tribes. The very sparse medicalservices are to be slowly improved.

22.3. Medical Facilities and Trainings. During the Third Plan, theavailability of hospital beds is to improve from one bed for 11.1 thousanc

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of population in 1966/67 to one bed for 7.6 thousand of population in 1971/72and that of doctors from one physician for 42.7 thousand of population in1966/67 to one doctor for 20.7 thousand in 1971/72. Presently, of less than400 doctors and 1.5 thousand hospital beds, about 80 percent and 60 percentrespectively are in the Kabul area. There are very few lady doctors in Afghan-istan, a predominantly orthodox Muslim country where the need for them appearsto be great. The concentration of medical institutions in Kabul is not likelyto promote better distribution of health services and personnel. Further, thePlan target for increases in the number of semi-medical staff such as nurses,inocculators, pharmacists, midwives, etc. is lower than the rate of rise inthe 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 ThirdPlan is to be on preventive medicine, the relative need for such medicalstaff does not appear to have been adequately provided for in the Plan.

224. Preventive Medicine. Hitherto, there has been preventive workagainst malaria, smallpox and tuberculosis. Notwithstanding the considerableprogress achieved in the Second Plan, the coverage, in terms of the number Gfpersons and the type of diseases included in the program, does not appear tobe very comprehensive. The Third Plan ordinary health budget allows a muchslower 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 administrativeand technical cadres as well as on the position of municipal finances. In allthese respects, municipalities are badly off in Afghanistan and so services arerudimentary or non-existent,

226. There are about 27 towns, each having an estimated population ofover 25,000,that contain 12 percent of the total Afghan population. KabulCity, with 440,000 population, accounts for 23 percent of the urban populationand the City is growing at a yearly rate of at least 5 percent. In the wakeof 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 servicesfor 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 engagedin the construction of over 800 pre-fabricated apartments for middle classfamilies.

228. The Third Plan envisages the continuation of these programs. Thereare also limited provisions for the sinking of deep wells for water supply tocities and for electric supply to some six towms. A UN project for ahousing and town planning authority is in its early stages.

229. Clearly at this stage urban development deserves attention bhcugi .Ltsclaim on investment resources will have to remain modest for some tim te c ,e

ANNEX I

THE REVENUE SYSTEM AND ESTInATES 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 taxesand the land and livestock taxes. The livestock tax was suspended last yearapparently for political-administrative reasons.1/ The mission was told thata revised version of this tax may be imposed during the Third Plan. In theSecond Plan, receipts from the personal income tax accounted for about 50percent, from the company income tax 20 percent, and from the land tax andlivestock taxes 14 and 16 percent respectively of the total direct taxrevenues.

2. Income and Company Taxes. The income tax dates back to 1943. Thelaw was revised in 1956 and again substantially modified in 1966. The 1966changes in the income tax law will be operative toward the end of 1967. Itsmain features are sumnarized below:

(a) The income tax no longer has,as heretofore, different ratesof taxation according to source of income. However incomefrom agriculture and animal husbandry is not taxable. Therates are progressive, rising from 4 percent to 40 percent,on incomes ranging from Afs. 10 thousand to Afs. 2.5 millionand above. All companies and agencies that employ more thanten people are required to withhold the income tax liabilitiesof their employees. The reason for income tax reform wasstated to be the need for simplification of the law so thattaxpayers would be able to determine their own tax liabili-ties without resort to government officials. This is anambitious objective for Afghanistan and accounts for thetaxes described in subparagraph (c) below. It is alsoclaimed that the reform wiould raise the revenue yield fromthis source by about 20-25 percent.

(b) Corporations and limited liability companies pay a flat rateof 20 percent on their net incomes.2/ In addition, they paya business receipts tax. This tax is paid on the followingbasis: (i) five percent on receipts from commissions, fees,interest, dividends, and rent; (ii) two percent on receiptsfrom the sale of goods, equipment, services, transportation,from premiums for insurance, and sales of tickets for publicentertainment. Losses are not reckoned when this tax islevied. 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.

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(c) Fixed taxes on individuals and small businesses are leviedeither in lieu of the income tax or in addition to it. Trhereare about 160 groups that pay fixed taxes in lieu of the incometax. The base of this tax is usually the rental value of thepremises, and the amount of the tax varies from 2 to 2½ and 3percent of such rental value. It is estimated that there areabout 25 thousand shops in Afghanistan subject to this tax.These enterprises do not keep records and thus cannot bebrought under the regular income tax. All contractors whoare individuals have to pay one to five percent on their totalreceipts. This payment is also in lieu of income tax.

(d) Capital gains from sale or exchange of assets other than landand real estate are subject to the income tax rates, but thegain is assumed to have accrued over the period the propertywas owned and is prorated accordingly. Capital gains can beoffset by losses from similar transactions.

(e) Under the new income tax law import and export businesseshave to pay a four percent tax on the total cost of importedgoods and a two percent tax on the total cost of exportedgoods. These payments are treated as costs for income taxpurposes.

3. Indirect Taxes. Custom levies are the single most important sourceof public revenue, and in the Second Plan, they constituted one-third of thetotal 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 essentialconsumption items, levy relatively high duties on goods in which Afghanistanhas a certain degree of self-sufficiency and tax raw-material and machineryimports at a low rate. Custom duties are both specific and ad valorem, withthe former type being more in vogue. In form, specific duties are expressedas a percentage of "unit prices". These prices are fixed by the administra-tion and can be altered without prior parliamentary sanction. In 1965 thetariff rates and the "unit prices" were revised but without changing the advalorem specific composition of the levy. In many cases, however, the unitvalues were revised upward and duties on non-essential commodities were raised.

4. With the substantial rise in the price of more essential items, thespread between the market and the unit prices has widened sharply; in somecases the market price being in excess of 15 times and in most cases at leasttwice the unit price. The 1965 revision did not affect markedly the advalorem duties. 1/

5. A score of items are banned, but they do not appear to have greateconomic significance. 2/

1/ Ad valorem duties cover items such as machinery, petroleum products,ph-armaceuticals, electrical appliances, cotton textile fabrics, transportvehicles, jewelry, etc.

2/ Prohibited imports include canned fruits, silk, fox skins and furs,porcelain wares and turbans.

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6. There appears to be much scope for increasing the yield fromcustoms, primarily by raising unit prices and rates and gradually shiftingto an ad valorem base. Also, there is a need for administrative improvementsto reduce smuggling. In the Third Plan custom duties may be revised forprotective reasons, although there appears to be great reluctance to do so.

7. There are also taxes on exxports mainly wool and cotton which accountfor about five percent of indirect taxes and three to five percent of the totalvalue of exports.

8. Another major source of public revenue originates from the foreignexchange transactions of Da Afghanistan Bank. During the First and theSecond Plans, these profits were derived primarily from the export proceedsof 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 isattributable to this exchange differential. Revenues would be considerablylargerexcept that (under agreement with the IMF) $16 million is sold togovernment agencies at the official rate. This is a little more than a thirdof the export proceeds from the major export commodities.

9. Another important source of public revenue stems from the operationof state trading organization known as the Monopoly Bureau. A major portionof indirect taxes is collected by the Monopoly. These levies comprise atwelve percent monopoly charge, supplemented by a complex of taxes thatdepend on the type of commodity and by a monopoly profit (or loss) whichvaries 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 burdenif the Third Plan revenue goals are to be achieved. At present, this sectoris tapped primarily through indirect taxes. The land tax is based on theassessment 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 landassessment in more recent years. In 1966/67 the revenue from this source wasslightly more than 0.5 percent of income originating from agriculture andforestry, despite the fact that the land tax rates were doubled last year byagreement with the landowners. A major problem is the unification of ratestructure and reassessment of the yield of land based on the result ofcadastral surveys. Administratively, Afghanistan is not presently able tocarry out a modern system of land taxes or to impose taxes based on thepotential use value of land.

11. The livestock tax, which was suspended in 1966/67, has its rationalein the fact that herds are income generating assets, and the herders havederived benefits from grazing their stock on public land as well as frombetter marketing facilities provided to them by large-scale public investmentin roads. The yield of the tax in 1965/66 was slightly less than one percentof the income originating from the livestock sector.

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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 isnot expected to rise significantly arid the livestock tax is assumed to remainsuspended over the Plan period, receipts from individual income tax and landtax are projected to increase at the yearly rate of 22 and 29 percentrespectively.

13. The recent revision of income tax law should increase the yieldfrom 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 10to 12 percent per annum and a 15 percent annual increase over the Plan periodmay be the maximum attainable. As for the land tax, if the effect of doublingthe rates in 1965/66 is excluded, the yield of the tax has not risen by morethan 2 percent per annum. More rapid reassessment of land values throughcadastral surveys may improve the performance of the tax to a 7 percent yearlyrate of increase. A sizeable part of the increase in yield from the land taxis already included in the supplementary source of revenue for the Third Planreferred to at the end of this Annex.

14. The mission believes that, without some new direct taxes or increasein rates revenue yield from this source may fall short of government estimatesof Afs. L billion by Afs. 700-800 million.

15. As for indirect taxes, income from import levies are expected toincrease at the rate of 7.5 percent per year, compared with an 8.0 percentannual increase in the Second Plan. In the Second Plan there was a 1.5 to 1ratio between the annual rate of increase in yields from the customs and inthe value of commercial imports. If in the Third Plan, the rate of increasein commercial imports is limited to 3.5 percent per year, which is one of theimplications of the balance of payments forecast in Chapter 3, and if no majorshift in the composition of commercial imports takes place, the yield fromimport taxes can rise by about 5.3 percent per year. However, the revisionof unit prices: and rates in 1965/66 and improvement in tax administrationmay bring receipts from this source about up to the official estimates. In1965/66, custom receipts per dollar of commercial imports was in the neigh-borhood of Afs. 19.5. On this reckoning, a total of $354 million commercialimports in the Third Plan is expected to yield Afs. 6.9 rillion of revenue.Therefore, with some improvement in the administration ot custom offices,Afs. 7.6 billion estimated revenue receipts from this source should bepossible. Income from export duties is also estimated to rise at the yearlyrate of 14.3 percent, compared with an annual increase of 7.6 percent in theSecond Plan. In the Second Plan, there was a 1 to 1 ratio'between the ratesof increase in income from export taxes and in the value of'exports. Themission'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 toreduce gradually taxes from this source as well as from exchange profits. Onbalance the mission has concluded that the Government's estimate of indirecttaxes(including export taxes) may be too high by about Afs. 300 million.

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16. Revenue receipts from the Monopoly Bureau is estimated by theGovernment to total Afs. 4.0 billion in the Third Plan. This estimateis based on the projected sale of commodities in the Third Plan. Therevenue forecasts from taxes and profits on the sale of these commoditiesappear fairly realistic. There is, however, a question regarding thesale price of gasoline which was reduced from Afs. 11,066 per ton in1962/63, giving rise to a certain amount of subsidy. In order to realizethe revenue targets and augment public resources, the subsidy on gasolinesale should be reduced.!/ 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 rathervolatile. Since little is known about the actual operations of theseagencies, not much can be said about the revenue prospects from thissource0 Certainly their pricing policies and accounting and reportingprocedures require closer control and administrative reforms, This isparticularly true of the itonopoly Administration which is the exclusiveimporter and distributor of petroleum products, vehicles, spare parts, sugarand tobacco. This agency also issues licenses for the import of vehicles fromthe West an/d imports and sells goods in competition with the local businesscommunity.a/ In the past several years, almost all public enterprises havefailed to submit their balance sheets and profit and loss statements to theMinistry of Finance. However, the German technical assistance team inAfghanistan is now engaged in streamlining the accounting procedures of theseagencies and in training the requisite staff for the purpose. Therefore, inthe expectation of some administrative improvement, the mission accepts theGovernment'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 percentper year. In the Second Plan, the real rate of growth of income from thissource was much higher. With the expansion of various public services inthe 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 bemore realistic.

18. In recapitulation of the foregoing survey, mission's estimate oftotal 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

Missionts Estimates (BillionAfs)

1. Direct Taxes 3,2352. Indirect Taxes 11,6003. Government Enterprises 5,4004. Sales of Property and Services 2,1205. Other 1,800

Total 27,17

2/ Estimated consumption of gasoline in the Third Plan is in the neighborhuo-1of 530 thousand tons, the estimated subsidy per ton of gasoline sold..3 .)fria600, and the estimated total loss of revenue is about Afs. 318 million.

2/ Such as radios, watches, cosmetics, textiles.

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19. The estimate of "additional" resources at present tax ratesamounts to Afs. 45 billion. The export of 10Q5 billion cubic meters ofgas to the Soviet Union at the rate of 6.0 roubles per thousand cubicmeters is expected to yield Afs. 3.0 billion. The balance of Afs. 1.5billion may be realized from higher land tax revenues and from the saleof the recently developed state lands in the Helmand and Nangahar areasand of electricity from Nangahar and Mahipar power stations and of agri-cultural products from the state farms.

ANNEX II

EKPORTS

1. Tne Sbviet team has made an estimate of exports for the ThirdPlan. The following is a summary of its projections with the mission'scomments. Of the total export earnings in the Plan, 47.9 percent areexpected to originate from agriculture, 29.2 percent from the livestocksector, 20.1 percent from the handicraft and mining sector, and 2.8percent unclassified. A major strategy is to achieve higher unit pricesfor exports by up-grading quality. Considering the importance oftransportation cost to Afghan's external trade, such a policy is soundsince it is likely to make Afghan goods more competitive in internationalmarkets.

2. Agricultural Exports. The main elements in this category arefruit (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 Planis expected to rise at the yearly rate of 5.5 percent and 3.0 percentrespectively,compared with 13.2 percent and 2.3 percent achieved in theSecond Plan. These estimates seem reasonable. Prices obtained forfresh fruits are expected to be 20 percent higher than in the SecondPlan and prices of dried fruits 13 percent higher. Hitherto, in handlingfruit by ordinary trucks from Kabul to Peshawar or New Delhi, 20 to 40percent losses were incurred which were reflected in the lower pricesthat exporters received from the middlemen. Introduction of refrigeratedtrucks and the extension of the marketing period by establishing coldstorage facilities at critical points are expected to improve prices by25 to 30 percent. Plans are also worked out to set up nut-shellingplants for almonds, walnuts, and pistachios, and fruit canning andraisin cleaning plants at Kabul and Kandahar. As a result of thesemeasures an' increase of 9.3 percent for fresh. fruit exports (14.8percent in the Second Plan) and 6.0 percent for dry fruit exports (9.8percent in the Second Plan) are contemplated. While the price increasesreflected in these estimates may well be obtained eventually, the missiondoubts whether the necessary facilities will be installed fast enough toachieve them during the Tird Plan.

4. The increase in the volume of cotton exports is estimated at14.2 percent per year, compared with 12.8 percent in the Second Plan.A limiting factor on the rate of increase in cotton exports in theSecond Plan was a shortage of ginning capacity. This is now beingremedied. Over the Third Plan the decline in the price of raw cottonexports is estimated at 4.1 percent compared with a 2.7 percent declinein the Second Plan. Exchange earnings from cotton are anticipated toshow an annual rate of increase of 13.9 percent a year in the Third Plancompared with 12.1 percent in the Second Plan. The realization of thistarget depends on the economic incentives for raising cotton as againstwheat and rice. Another aspect of the incentive problem is to make theexport of cotton more profitable particularly to multilateral markets.The achieuement of the export target for cotton seems quite speculativeunder present circumstances.

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. ~ With the expected rise in domestic demand for vegetable oiland in spite of fairly rapid rate of increase implicit in the Planprojection of oilseed output, it is anticipated that the volume ofoilseed exports in the Third Plan will rise only by about 1.6 percentper year, compared with an annual rate of 16.2 percent in the SecondPlan. Third Plan export prices for oilseeds are also expected to belower than those prevailing in 1966/67.

6. Livestock Products. Major exports originating from thelivestock sector are karakul (anticipated to account for 16.5 percentof 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 SecondPlan declined by 4.2 percent per year compared with an increase at anannual rate of about 6.3 percent in the Third Plan. This is in part areflection of the relatively more favorable effective exchange ratebecause of the removal of the exchange tax. The price of karakul isexpected to rise by 7.4 percent in the Third Plan compared to 3.8percent increase in the Second Plan. With the doubling of meat pricesin recent years and the diversion of livestock to meat production,aswell as the slow increase in the number of sheep these objectives seemhard to achieve. However, schemes for raising the quality of exports byestablishing breeding and slaughtering stations, curing and sorting units,etc. may help to raise the price although it is very much at the mercyof changes in fashion in the U.S. market. The European market is saidto be expanding.

8. Domestic demand from carpets and the woolen textile sector islikely to absorb most of the increase in raw wool output. Wool exporttonnage is anticipated to rise by 2.1 percent per year in the ThirdPlan and wool prices to improve by 5.4 percent owing to the upgradingof the product through the establishment of wool washing and scouringfacilities. Total export value is, therefore, expected to rise annuallyby 3.4 percent. This seems reasonable.

9. In terms of volume, exports of casings and unprocessed skinsare expected to rise in the Third Plan at the yearly rate of 3.5 percentand 6.5 percent, respectively; comparable figures for the Second Plan are15.6 percenrt and 10.6 percent. With the installation of properly equippedslaughterhouses and processing plants, an effort is to be made to upgradethese products. Considerable improvement in prices is thus anticipated.Prices of unprocessed skins are expected to rise by 10.2 percent duringthe Third Plan compared with the 18.1 percent increase that occurredin the Second Plan. Improvement in the price of casings is estimatedat 15.9 percent compared with a38.7 percent increase that took place inthe Second Plan.

10. Handicrafts. In the Third Plan exports of carpets and rugs areexpected to constU~ute 10.9 percent of total Third Plan exports. Carpetprices are estimated to rise by 13.3 percent over the Plan compared with

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a fall of 11 percent that occurred in the Second Plan. This rise inthe price is based on the plan to establish a yarn spinning plant atKandahar, a dye preparation unit at Herat, carpet washing facilitiesat Herat and design centers at Kabul and Herat. When established thesefacilities should produce much better quality rugs.

11. Prospects for the production of gas are good (the pipelineto Russia is nearing completion). However, its price is not yet finallynegotiated. We expect about 10 million cubic meters will be exportedduring the Third Plan.

12. Overall Export Prospects. The export potential of the economyis good. but total exports will depend greatly on the speed and successof up-grading of export products. A review of export performance in theFlrst and Second Plans point to major adainistrative and policy con-straints that are likely to apply also in the Third Plan. The Russiansforecast an 8.8 percent yearly increase of exports (other than gas).The mission has discussed this on an item by item basis with qualifiedpersons 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)l/may be a more likely outcome, assuming no change in present effectiveexport exchange rates.

1/ Russian estimate gives a higher rate of growth.

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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 Cormodity 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 Agricul.tural--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 196h.38 Transportation Projects.

Table 1: AFGHIANISTAN - EXTERNAL MEDIUfM- AND LO'NG-TER2 / PUBLIC DEBT OUTSTANDINGINCLUDING MIDISBURSED AS OF SEPTE!BER 30, 1966

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

Debt outstanding

Item September 30,1966eNet of Includingundisbursed undisbursed

TOTAL EXTERNAL PUBLIC DEBT 350,855 555Y417

IDA credit - 3,50q.

U.S. Government loan 15 720 56 ,03Export-Import Bank 30 038AID 15,682 26,365

Loans from Western Governments 33,884 57,415Germany 31,331 5h,419United Kingdom 2,554 2,996

Loans from "lEastern" countries 271f251 438o099Mainland China 647 27,998Czechoslovakia 3,159 3,159U.S.S.R. 267,145 406,942

l Debt with an original or extended maturity of one year or more.

Statistics DivisionIBRD-Economics Department

December 13, 1966

Table 2: AFGHANISTAN - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON ExTERNAL 1EDIUNI- AND

LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF SEPTEMIER 30, 1966 /

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

PAGE 1

_______________… __________1;KRAND- T.CTTAL - __________

______.DEaT .UtllIS ___

YEAR (BEGIN OF PERIOD) PAYMENTS CURING PERIOP P/

APRIL 1) UNDISBURSED ZATION INTEREST TOi-AL

L966 _5 3CL,953L2_5 -24 5 2,.79 6. a ,04 01967 527,867 8,076 3,648 11,724

__19j68--------519 ,)92 1--7-1--.6--- ,… 21 , 18.4-

1969 505,011 21,437 6,218 27,655

__ 7l - 48___s3, 5T4____5..63Q____ i5 6 -____ 2.33.,i3__-

1971 467,943 16,583 79647 24,229-J.97Z___ A51.36L_L 1Z7-.84 -1 xL9 24 ,9.82..--

1973 433,577 19,405 6,731 26,136__1974------- AIA, 1---5.1--.6-2.229 … 26,38O -0

1975 394,020 20,384 5,713 26,097

_919Jb--------373,.63,6__7 ,82 3Z3 3 5,.246……------26.,0.6.9._.1977 352,813 19,940 49856 24,796

1978 1 m32,. l 39796q ,A52 - 24,42L _1979 312,904 16,888 3,878 20,767

I9l ------- __ 9-6i5 15__ -16,23 1i 3. .5 63--------19795--.

_~~~Q.LLI. ._______________ _________________.. __ __

------------- _------------------------___ ____ ___

YEAR (BEGIN OF PERIOD) PAYMENTS DURING PERIODXBEGIfIING____INCLU-ING _AYf.ORTI=…--------------------------APRIL 1) UNDISBURSED ZATION INTEREST TOTAL

1g-96 - .3455Q/21967 3,500 4 4

-ls1B96.8 ----- 3. 15D-0-…- - -9…------------ 9_ 21969 3,500 14 14

500------ -…-_ .. … …2C1971 3,500 - 25 2519 7 2 S5nG_ 7h

1973 39500 ; 26 26

1.974___------__-3 3500 …--_--_-18…_-----26 … ----- 4-.

1975 3,483 35 26 61

9.76_ ___-____3,.44E_ ____…_352__.____6o___________-61. ._

1977 3,413 35 26 61197R 3t79 25 603h

1979 3,343 35 25 60

99__-________3-0.8---------__5_-_____25_------------- 60_

Table 2: AFGHAiNISTAN - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- ANDLONG-TER'N 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 .GfVT.. LOANS_-_OTAL___._._ …

YFAR (BEGIN eF PERIOD) PAY,MENTS DURING PERIOD(BEGItNINGI_L_INCLUGCING __AMDRt1-=-------------------____APRIL 1) UNDISBURSED ZATION INTEREST TOTAL

ls96._6. hA.,403L2,O.Q51___ 58' 3 .,.6.40 -1967 55,321 2,217 1,546 3,763

__ 1968…--------53.,104-----2,299....9 1,.512_________3,811..1969 50,805 21381 1,447 3,828

_1-9…70_--------4B.t1 42-4…-- 2,A465_--1-,35.4…--------3.,82.0.1971 45,958 2,552 1,259 3,811-L9-7-2 ___43,A.Q6 2., 64 -- 1 6,0 .3 0 I B1. -1973 40,765 2,853 1,057 3,910

-_1.914…--------37,912-----2.,-A5-----9A9 …---------3., 894.1975 34,967 3,142 840 3,982

--- 1976…--------31t ,25_____3--,393 --_71…--------4,1641977 28,432 3,613 692 4,305Ig7R 82 ,819.__ 3.155 5 60 4.,315-1979 21,064 784 453 1,237

___1J 9 _… 2..^2£0-------80 ---- …-436…-------1-.,?36.

-------------- U-S-GIjV.L. =-EXI M -------- --___________DEaT__ T_ _L___ ____ ____.__ _________ _____.__ ___.__.___

D.E.L.T OUTST_YEAR (BEGIN OF PERIOD) PAYMENITS CURING PE-.RIOD

.(…Is'…I'G----INCLU…I…G --- …D 0-q-… I_ _____-____APRIL 1) UNiDISBURSED ZATION INTEREST TOTAL

1967 29,C86 1,950 1,136 3,085--- 1968…_-------27v137-----2 ,02 4___1-j058 .. _____3,082-

1969 25,113 2,098 . 977 3,075___197D______… 23 ,015___2_,174…-----.893…-------3.O.67 -

1971 20,841 2,252 806 3,C59_ -l7 2 1 Elqs5a 2 ;DtA2 7161 3 , A4.&-1973 16,256 2,449 623 3,072___1.9.74~....______13,807_ .__ ,532_ ____.524 -------- 3,0561975 11,275 2,652 423 3,075

-1-16------ 623--7----- _ 16___ 3.C901977 5,849 2,861 205 3,C661Q7 T9h7 Z ,4.a7_ 3

Table 2: AFGHA&iISTAN - ESTINATED CONTRACTU.AL SERVICE PAYeMiTS ON EXTERNIAL EDIUM- AND

LONiG-TERN PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF SEPTE:BER 30, 1966 /1

(CONT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

PAGE 3

… .___ ___ _ . ___ ___U.S.GQVT.- AID ..--- -

YEAR (BEGIN CF PERIGD) PAYMENTS DURING PERIOD.(BEGDiNING ___I\CLUD1NGo---A1N RT..I-._… ___________________APRIL 1) UNDISSURSED ZATION INTEREST TOTAL

Il9.66.. _…2I6 ,365-- 195 3T 5A__ '554 _1967 26,234 267 410 677

.___1968 … 2 9 6_._25, .96-7 … 275 -- …-4…5-4---------729.-1969 25,692 283 470 753

.___1970 …---- ---- 25.t4.09 …--- --- 291---… --46.1…--- ---- ---753…_

1971 25,118 300 453 75319-72 _ 24,118S_39.. 4... 7453_

1973 24,509 404 434 838

.___19.74_ … 2 _______2ht1O5 … ____l43~.____. -A…----------_83S_-1975 23,691 489 418 907

.-- 1i976__.…------23,.202…-------.1S… 5---------10.731977 22,5283 752 488 1,24015LS2I,_a..1 831 7.6 _ 47 1, Z38

1979 21,064 784 453 1,237___198.0 _____ __…2D ,28.O …__---8-0___L--43,6…--------1.,236

-----.-. QIHEIL----T-- LCAN_________DELGU1SL_________ GOVT__AS___________________

_ -DEPI __GU-TST--YEAR (BEGIN OF PERIOD) PA.YMENTS DURING PERIOD

(BEGIIi' LG--ItNC.L2D I NA __RT.I- .APRIL 1) UN'CISBURSED ZATION INTEREST TOTAL

_ 1.956. ,A4l 5 /Z ,3La_ 01 ,043. 235 6..

1967 56,633 1,564 1,364 2,928____lS6.8…--------55,069- 1,645-- - -1,563. 3.-3.,208

1969 53,424 3,278 1,625 4,903

__1-9 7O0.-. … -5D. ,14.6._---3,.0Q6- -_ -I-561…---------5..267-1971 46,440 3,714 1,5CG 5,214

2q7 - 4.,275 . ,8 1 i 32 L. - ,Ll77

1973 . 38,920 3,897 1,232 5,129

____9z 7.4 ___.__ 035,C23_3_-,P- ___1,.D5.2...…_ _-- ,9e9 91975 31,126 3,897 952 4,849

___I9l76._------- 22, 229--,1 7. ___.__----3 .96381977 24,082 3,147 715 3,8621 28 20, 9 A 52,07- 13 3 '3A 343

1979 18,205 2,737 527 3,315

.___ 1930_..___-…__15,.41.8.____i ,.11't. ____._A38…-- … 2,552-.i

Table 2: AFGHLNISTAN - ESTIMATED CONITRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- ANDLONG-TERN PUBLIC DEBT OUTSTAILDING INCLUDING UNDISBURSED AS OF SEPTEMBER 30, 1966 /

(CONT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

PAGE h

------------------ -. _ LOANS FROP-.GER{YAqY ._

_E&T_C_. UITSJ -_

YEAR (BEGIN OF PERIOD) PAYt-iEiNTS DURING PERIOD.(BEGNNING-_ __1I'L LUDING_ __AM-.RT1r-APRIL 1) UNDISSURSED ZATION INTEREST TOTAL

1966_ _- aA,4L9 / 313 879. 2, 1921967 53,637 1,564 1,230 2,794

___196.8__ _ 52 3 ,.63-91 _,2-3.-__ _3 062-1969 50,434 3,157 1,484 4,642

__ .1910…_ ___4:7,27.6. __3,.4). ___1,4.3D_____ 9__.0 01971 43,806 3,470 1,382 4,8521 922- --. A,-336 6__3,556.. _t ,.265 4.,82-1973 36,781 3,641 1,139 4,781

___1974._____ __33.139.___3, .6hl1___1.,01.2________.-- ,.65.4.1975 29,498 3,641 885 4,526

_ __1976 -_______ 25., .856____., 89 L __-__2lib_-- 7_66--3.,657-1977 22,965 2,891 672 3,56419:8 __ 2c,if723 2,4.7A4 _ -3 ______ 3 D05.7.1979 17,599 2,398 510 2,908

___198D_ . …______15.,.201__ ___2,.078----- 433…_-------2,5.16-

--------------------- .--LAN --FRO K -__K__ -_______________

YEAR (BEGIN CF PERIOD) PAYMENTS DURING PERIOD-(BEGINING----- --INCLUD-ING- --. A!'RRT-I _--------------------------APRIL 1) UNDISSURSED ZATION INTEREST TOTAL

_ _1966 . ....- __q_4 164161967 2,996 134 134

____i968-------- 2-,996---------------------0. . -46...1969 2,990 121 140 2611970 - 2,8.0…-------23b6.6 ___1-,31 -- …------367.

1971 2,634 244 118 362L 1972.. _~-2 2,3aR925~C.15 r- 1.5-1973 2,139 255 93 348

----.19-14-__._ _.__1, 834_ ____255 … £. ____0.. … ____336..1975 1,628 255 68 323

--------- 1,3.73_______ 255-. _____55_ --------- 31.0 .-

1977 1,117 255 42 298- 19.78 862 7 q5...-n .. s

1979 606 36.9 17 406____19BD_________…__211________36.-_______-____________36-

Table 2: AFGHANISTAN - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERN[AL MEDIT4- ANDLONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF SEPTE1IBER 30, 1966 a

(CONT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

PAGE 5

---_ _ _ _ S EO . n;EASTERMti COUNTRIES -.___

-____ D.EE T EUTlL -_

YEAR (BEGIN CF PERIOD) PAYMENTS CURING PERIGD a(BEGINNING__IPCLUn1NGO3.T1SI=~..-._____ ______

APRIL:1) UNDISBURSED ZATIOf, INTEREST TOTAL

_ 1 lL966_ 413t275 E 2 ,04E 41967 412,414 4,295 735 5,02919.6.8- -- .tll9____O 8-, 11 9-- 3J7-3.,319 _ __ 9_ 14.t 1571969 397,282 15,777 3,133 18,910

- _19]D________38s15-3Bi ____S5a4 4 B_--21 ---- 1.4.s 28 0_1971 372,045 10,316 4,863 15,179

72 36LzZq 11 339 ~~~_ 4.9.6&1 1 i6_,97._1973 350,392 12,655 4,415 17,070

__191!_____- 337 ,137_ _13.,2.927___.,i6l___ _- 174453.1975 324,445 13,310 3,894 17,205

__191b -___311 s135___1A,24E_3,628 -___ 1s71977 296,886 13,145 3,423 16,569I 9 a2aa7,IL4 3t4 4S3 _ 253 _16., D031979 270,292 13 ,282 2,873 16,155___1980O____5__252fDOS_1__ 11,2E2 ____2, 665_______-15.,947.

& Includes service on all debt listed on Table 1 prepared December 13, 1966 exceptfor the equivalent of $2h,824,000 from the U.S.S.R. the repayment of which isdependent on disbursements which are not known.

2 Amounts outstanding are as of September 30, 1966; payments are for the entirefiscal year.

a According to Afghan-Soviet Agreement dated July 28, 1965, repayment of principaland 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 thecontractual maturity date.

Statistics DivisionIBRD-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 Dbmestic product atmarket price 28,304 39,559 48,110 54,238 61,034 63,1465 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 atmarket price 28,104 39,339 47,888 54,147 60,934 63,270 65,994 68,807 71,768 74,860

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 oncurrent account -3,000 -3,000 -4,779 -4,367 -4,675 -3,742 -3,170 -3,053 -3,919 -4,1145

7. DDmestic 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

_/ 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 TheFirst and Second Plan And Third Plan Projections to 1971

Second Plan Third Plan Third PlanRevised (by MissioR)

Average Annual Average Annual Projected Annual Projected

Production Growth Production Growth Production Growth Production

1952-61 Rate 1962-66 Rate 1971 Rate 19711.000 MT Per Cent 1,000 MT Per Cent 1,000 MT

Food Grains 3,544 0.1 3,577 3.2 4,1449 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 o.8 378 1.9 430 - _

Rice (Milled) 313 0.9 328 2.3 385 - _

Cotton (Raw) 50 10,9 84 11.5 180 7.5 140

Sugarbeets 41 6.1 55 19.4 190 10.4 110

Sugar cane 41 2.7 48 U1.1 100 2.0 55

Oil Seeds 48 1.2 51 2.8 62 - -

Fruits 276 4.8 349 3.4 470 _

Vegetables 500 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.o

Wool 20.91/ 2.1 23.02 3.0 27.4 1.1 24.5

Karakul Pelts 2,500 W 0.6 2,560 / 2.7 3,000 0.7 2,700(1,000 units)

1/ 19617/ 1965

Table 5

Major Industrial Production

Year Ended M4arch 20th 1957/8 1958/9 1959/60 1960/1 1961/2 1962/3 196 3/4 196I/5 1965/6

Product Unit

Cotton Textiles mill. meters 19.8 21.9 16.4 23.5 27.2 36.8 47.0 47.o 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 3h.1 36.6 40.o 59.5 103.0 12.2 143.2

Sugar 000 m. tons 4.7 4.7 h.4 4.5 48.0 7.o 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 84.4 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

Souroe: From data supplied by the Ministry of Planning to the mission, also from the Progress Report for Industryin Operation, 1341 (1962-63) op. cit., and from Ministry of Planning, Survey of Progress, 1962-64 andSurvey of Proeress, 1964-65. W4here there were discrepancies in the f4gures,the ones chosen were thoseagreed to by most sources.

Table 6

Commodity Composition of' Er-ports

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

IWJool 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 7Value 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/VMarch 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

HWdes and skins 0.8 1.4 1.0 1.1 1.4 2.2 2.0 1.4

Kiaraki2. skins 12.5 17.4 13.9 15.3 11.9 16.8 L2.5 6.1

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 ;,'bDs 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

Al1 other com-modities 0.1 0.3 0.6 0.5 O.8 2.5 0.8 0.6

Total value 46.4 60.4 49.9 53.4 58.9 69.0 ?0.7 70.0

1/ Preliminary.Source: Afghanistan's Foreign Trade, 1335-1342 (1956/57-1963/6h) (revised data);

and information received from the Ministry of Commerce. Due to roundingtotals do not always add up.

Table 8Value of Imports, 195B/59-1965166

(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/

Corel-cial Imports

Su7ar 1.7 3.2 2.4 3.8 2.4 1.2 5.7 3.02.8 3-2 3.3 2.9 3.7 3.7 4.2 2.9

foods 0.5 0 . ..7 .u 0.5 0.7 0.5 0.9To>vc:,O and tobacco

manufactures 0.3 0.5 0.4 0.5 0.3 0.3 0.3 0.2Petroleum products 2.3 4.8 5.5 6.6 5.7 6.5 7.5 4.3?Xecicinal, pharmaceutical

and other chemicalproducts 1.8 1.4 1.7 1.5 1.9 4.9 3.9 3.1

,.:bber +,ires arii tu'es 1.9 1.2 2.1 0.3 2.5 2. 1.1 2.1Gottoa Ifabrics 7.4 5.3 4.9 ,,_ 5.u 2.7 3.9 4.0Fabrics excluding cotton 10.4 7.1 3.9 3.9 6.1 5.6 5.8 4.3Other nonmetallic mineral

mar-afactures 3.5 2.8 2.6 3.1 1.3 5.2 4.4 3.5V.etQals and metal r-.z-.uIfac-

tures - n.e.s. 1.5 1.3 2.5 i.9 1.4 2.2 2.2 1.9I:achinery 5.2 1.7 3.7 1.3 1.7 2.0 3.3 2.7X:otor vehicles 4.0 1.5 2.3 1.7 2.1 3.9 3.4 4.1Bicyclas 0.2 0.3 0.5 0.3 G.' 0.3 0.5 0.2Other trans.ort equipment 1.2 0.8 2.0 1.4 1.2 1.2 1.0 1.0Plur.. g, neating and

Usedtbin e;,u apment 0.6 0.2 0.5 0.3 0.7 0.8 3.1 1.1Used clot;h'inz 0.6 0.7 1.5 1.1 1.1 1.5 2.1 1.4Foc-3wear 0.5 1.2 1.3 1.2 1.4 1.5 1.8 1.6C-'. ,miscellaneous

m.a.-.-factured articles 2.2 2.1 2.1 2.9 3.3 3.7 4.1 3.9All otaher commodities and

unknown 3.5 5.1 5.4 8.7 17.1 11.1 8.1 10.3

lotal commercial imports 52.1 45.0 49.2 49.1 59.4 61.9 66.9 56.5

A>. d-?`nanced Imports

Non-project loan and grantim.Dorts 5.6 11.4 6.1 6.5 4.9 12.3 15.4 18.1

Project loan and grantirnports 15.1 24.5 ILI 43 5 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 7.4 20.1 20.6 22.4 22.1 28.2 21.4Food & Tobacco -677. 737.7 -67_7.79 79 10.7 7.0Textile., Clotbing& Footwear C14.3 18.0 18.9 14.3 11.6 11.3 13.6 11.3 13.6 11.3Pharmaceuticals& 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 21.0Petroleum Products 1.2 2. 2.3 7. 5.5 -7 7.3Rubber Tyres &Tubes 1.2 1.9 1.2 2.1 0.3 2.4 2.9 1.1 2.1Machinery 6.5 2.8 5.2 1.7 3.7 1.3 1.7 2.0 3.3 2.7Transport Vehicles 4.7 7.2 5.2 2.3 4.3 3.4 3.4 5.4 4.9 5.4Metals, BuildingFixtures 0.9 1.8 2.1 1.5 3.0 2.2 2.1 3.0 9.7 6.5

C. Others 11.7 7.0 9. 4 10.1 10.5 14.7 21.7 20.0 12.1 lh.2

Aid-Financed ImportsA. Mon-project loan

and grant imports __ 3.8 5.6 11.4 6.1 6.5 4.9 12.3 15.4 18.1B. 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 U15.9 125.7 141.4 131.0

Source: Afghanistan's Foreign Trade 1335-1342 (1956/57-1963/64) and information received from the Ministry of Commerce.

Table 10

Balance of Paym,ents Position and Prospect During the Third Plan(In Millions of Dollars)

Third Plan1964/65 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 1149.5 160.7 149.3 160.3 178.6 192.1 841.0a) Commercial imports2/ 66.9 5S.0 64.0 T3 6.9 72.9 T7672 737 3674.ob) Commodity imports 16.1 17.8 23.2 13.4 13.4 13.4 13.4 13.4 67.0c) Project imports 62.7 64.2 62.3 79.0 73.0 74.0 89.0 95.0 410.o

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 23.14

4. Investment Income __ 4.9 -- 2.0 - 2.2 -- 4.3 -- 6.4 -- 6.6 -- 7.7 -- 7.5 -- 32.5

5. Government not includedelsewhere 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 7. 26.3 37.5 116.5a) Service component of

foreign assistance _/ -- 31.1 -- 28.2 - 25.3 -- 20.2 -- 19.8 -- 19.4 -- 24.1 -- 24.6 -- 108.1b) 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 O.o -- 0.7 -- 0 _0 - 7 _ 6 -- __0.6 -- 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 54.4 82.6 70.0 67.4 86.5 91.5 398.0

7. Loans received--CentralGovernment, non-aonetarya) 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--CentralGovernment, non-monetary -- 4.5 -- -- 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 basisof $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.3/ 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.4/ 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 1)

Third Plan Projections of Exports(Millions Or Dollars)

Increase 3rd Plan IncreaseTotal Total from 1st Total Composition from 2nd1st 1961/62 2nd to 2nd 1966/67 3rd (In percent) to 3rd 1967/68 1968/69 1969/70 1970/71 1971/72Plan 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 94.16 107.91 114.08 123.65

a) Karakuli) 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 16,1400 17,430 18,480 19,550b) Sheep skin

i) volume ('000 skins) 2,547 580 2,860 12.3 500 2,500 -12.6 500 500 500 500 500ii) value ('000 dollars) 1,140 291 1,698 48.9 310 1,550 0.3 -7.7 310 310 310 310 310

c) Raw skini) volume ('000 skins) 6,318 1,020 9,723 54.0 2,100 11,900 22.3 2,200 2,300 2,400 2,500 2,500

ii) value ('000 dollars) 5,266 1,080 9,570 8l,7 2,062 12,745 2.4 33.2 2,158 2,255 2,670 2,782 2,880d) Wool

i) volume (ton) 30,756 5,394 27,157 -11.7 5,500 30,000 10.4 6,000 6,ooo 6,000 6,000 6,000ii) 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) Casingsi) 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 3,16Lf) 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 40.9ii) 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 seedsi)volume ('O00 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 16,1490 171.4 13,747 19,984 3.8 21.2 4,077 4,077 4,030 3,900 3,900h) Fruits (Fresh)

i)volume ('ODO tons) 140.3 15.3 132.2 -5.8 28.5 167.7 26.9 30.2 31.9 33.5 35.0 37.1ii) value ('000 dollars) 22,143 2,197 18,642 -15.8 4,275 28,360 5.4 52.1 4,530 5,292 5,720 6,140 6,678

i) Fruits (Dry)i)volume ('000 tons) 144.3 27.7 156.8 8.7 31.0 173.0 10.3 33.0 3h.0 34.5 35.5 36.0

ii) value ('000 dollars) 46,271 8,733 67,453 45.7 13,915 84,035 15.9 24.6 14,950 15,945 16,800 17,745 18,595J) Fresh and dried vegetables

i) Voluma ('000 tons) 2,178 68 6,993 221.1 1,600 11,220 60.4 1,600 2,220 2,220 2,340 2,840ii) value ('000 dollars) 279 11 841 201.4 200 3,244 o.6 285.7 200 632 632 716 1,064

k) Medicinal herbsi)volume (tons) 2,090 599 10,066 381.6 2,500 12,500 24.2 2,500 2,50o 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 1,2501) Carpets and rugs

i) volume ('000 sq.met.rs) 1,475 444 2,438 65.2 535 2,950 21.0 550 550 600 600 650ii) 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 11,100n) Ores

i) volume ('000 tons) - - - - - 24 - _ 2 4 8 10ii) value ('000 dollars) - - - - - 1,872 0.4 - - 156 312 624 780

o) Othersvalue ('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 Bilateral AccountsV/(In millions of US Dbilars)

As at 1960 1961 1962 1963 1964 1965 196620th of: March March Narch March Sept. March Sept. March Wp-t. March 9apt.

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 -3.1U -3.58 -3.05 -2.41 -o.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

Tbtal -2.12 -6.53 -7.54 -7.83 -8.89 -2.04 -2.04 -0.42 3.93 2.34 2.34

1/ Dabshe 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)

Ycar endi-ng 1958/59 1959/60 1960/6' 1961/62 1962/63 963/64 1964/65 1965/66 i'

-r^,ots 46.4 60.4 49. Z.I 58.9 69.0 70.7 70.0~~C;ia 1~~~1.2 -10.8 6.9 5.2 8.0 9.1 1-1.2 4.9

2.6 3. 4.? '. - 3.9 5.9 9.7;, . r.A~ ....2.5 16.1 10.9 6.,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'nited States 9.5 12.8 10.3 10.1 9.0 11.2 8.8 11.0Urivetd Kingdom 6.0 9.2 7.7 8.7 7.6 9.4 6.3 12.3Genrrany,Fed.Rep. of 2.7 3.9 5.2 5.6 4.3 2.8 5.9 5.5Other 1.0 1.7 1.2 3.2 3.9 4.4 5.2 7.4

-s jOZtS 12Z.& 80.9 86.- 2L 115.9 125.7 141.L. 131.07.-a 6.8 8.0 9.3 7.9 o-° 10.5 8.0 5.0Pakistan 3.8 2.4 2.5 2.3 0.2 1.9 4.9 4.0U.S.S.R. 30.3 37.4 44.4 5.6 72.5 63.8 65.2 61.0Other bilateral 3.7 3.8 3.1 ,.5 6.0 5.8 6.0 5.6United States li.0 13.6 12.7 18.9 10.9 22.4 21.9 20.0united Kingdom 1.7 1.4 1.8 1.0 1.4 2.0 2.1 4.7C-errany,Fed.Rep.of 2.4 2.3 3.2 3.6 4.0 3.8 14.1 17.3uanan 1_.2 7.4 5.6 5.0 7.4 8.6 9.2 8.0Oth,er 1.9 4.6 4.3 4.3 4.7 6.9 9.9 5.4

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, totalsdo not always add ap.

Table 14

Forecast of Average Prices of Afghanistan's MAin Exports (2967/60-1971/72)

(ices idollars)

Rate of Increase inFirst Second Third The Second Plan The Third Plan Ministry of

Unit of Plan Plan Plan over the over the Commerce EstimateM zWrt~ Xtex 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

tIn 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.oo

Sheep Skin Unit 0.59 0.62 0.62 0.62 o.62 0.62 0.62 0.50 0.62 0.62 1.2 - O.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 1344.90 5.1 5.4 1323.90

Casings 000 Unit 443.00 642.80 643.10 643.20 720.60 782.60 811.30 452.20 433.00 726.80 38.7 15.9 816.10

Ginned Cotton Ton 724.30 702.80 684.70 681.00 686.00 686.00 686.50 735.40 715.80 686.60 -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 12.9 431.90

Fresh & Dried Vegetables Ton 160.30 125.00 125.00 284.70 286.70 306.00 374.60 128.00 120.20 289.10 -6.1 140.5 288.00

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 - - L.Ut 4.44 4.44 4.44 L.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/ 1964/ 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 16Actual 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(Actual) (Actual) (Actual) (Actual) P r o j e c t i o n s

Direct taxes 320.0 375.1 447.8 574.9 485.0 2,202.8 54s.0 646.o 777.0 934.o 1 114.0 4,020.0Indiv-idaual income tax 11.T3 57.1 230.4 324.3 27 O 1,1-08. 359.0 -73T17 517.0 -6F.0 174.0 2,671.0Company income tax 77.1 78.7 80.6 81.1 120.0 437.5 100.0 1N5.o 110.0 1114.0 120.0 54s.0Land tax 46.4 49.0 44.3 81.9 90.0 311.6 90.0 110.0 150.0 200.0 250.0 800.0Livestock tax 82.9 90.3 84.5 87.6 - 345.3 - - - - - -

Indirect taxes 1,127.1 1,712.3 1 917.5 2,175.5 1,874.0 8,8o6.4 2,040.0 2 190 0 2,335.0 2,555.0 2,730.0 11,850.0Imipart dutles So33.6 977.6 1',095-1 1,129.2 -1,203-.0 5,2525 1, 300.20 1,400.0 T -, 0 TX0. 1,650 0 1,750.0 7,60 0.01Export duties 74.7 76.5 80.1 139.3 100.0 470.6 1145.0 155.0 170.0 185.0 195.0 850.0Tax on sale of

consumer goods 71.6 90.3 197.6 92.3 67.0 518.8 70.0 75.0 80.0 100.0 125.0 450.0Tax 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 2,900.0Monopoly 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 ofProperty and Services 115.6 150.6 197.2 244.5 298.0 1,005.9 283.0 313.0 345.o 377.0 412.0 1,730.0Sale 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 1,194.0Other 36.4 46.6 48.8 82.3 80.0 2914.1 88.0 98.0 107.0 116.0 127.0 536.0

Revenues from licensefees and fines 76.7 90.1 110.3 114.1 94.0 485.7 114.0 121.0 130.0 138.0 147.0 650.0

Income from use ofproperty and money 29.7 79.5 86.1 50.1 167.0 1412.4 114.0 122.0 130.0 137.0 147.0 650.0

Income fromgovernment enterprises 388.8 570.0 347.2 767.7 947.0 3,020.7 928.6 988.0 1,019L.1 1,158.6 1,236.9 5,361.2

Income fromgovernment 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 othergovernment 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.o 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 4,128.6 4,485.0 4,876.1 5,414.6 5,906.9 24,811.2Less Commodity assistance

included above -61.0 -422.2 -131.L -2140.0 - -854.6 - - - - -

Total domestic revenue 2,120.0 2,686.7 3,099.8 3,905.5 3,950.o 15,762.0 4,128.6 14,485.0 4,876.1 5,414.6 5,906.9 24,811.2

Total conmrodity 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 4,200.0

Total government revenue 2,232.4 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 percetnt

S e c o n d P 1 a n T h i r d P l a nAverage AverageAnnual Compound Annual Compound1963/64 1964/65 1965/66 1966/67 Rate Rate 1967/68 1968/69 1969/70 1970/71 1971/72 Rate Rate(Actua) (Actual) (Actual) TliaFii (TP r-o j a c f F o n-9-7-

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 18.1Individual income tax 38.3 51.8 36.0 :tI77 -77 77 357 Y5 20. 19.9 -" =i 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 0.0Land tax 5.6 -9.6 8h.9 9.9 22.7 18.0 0.0 22.2 36.4 33.3 25.0 23.4 29.0Livestock tax 8.9 -7.4 3.7 - 1.7 2! 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 7.8Import duties 15._9 3.1 6.3 -FT -3-: 8.3 7.7 7.1 10.0 6.1 7 77Export 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 14.3Tax 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 13.3Tax 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 5.5Monoply 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 0.0Revenue from sale ofproperty and services 30.3 30.9 24.0 21.9 26.8 26.8 -5.0 10.6 10.2 9.3 9.3 6.9 6.7Sale 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 5.5Other 28.0 4.7 68.6 -2.8 24.6 22.0 10.0 11.6 9.1 8.b 9.5 9.7 9.7Revenues from license feesand 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 9.4Income from use ofproperty 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 -2.6Income from governmententerprises 46.6 -39.1 121.1 23.4 38.0 25.0 -2.0 6.4 6.2 4.4 6.7 4.3 5.5Inome from

goTernumet -mea).y 7.2 -60.3 289.8 27.2 66.0 20.5 -7.2 6.o 5.6 7.6 7.3 5.6 3.7Income from othergovernment 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 -19.4 -13.8 h.6 -18.2 -11.7 -14.0 9.1 8.3 7.7 7.1 6.7 7.8 7.8Nonrevenue income 88.0 6.6 152.0 -80.1 .41.6 0.0 33.3 0.0 0.0 0.0 0.0 6.7 5.9Total domestic revenue 26.7 15.4 30.0 1.2 18.3 16.8 4.5 8.6 8.7 11.0 9.1 8.14 8.4

1/ Cover three-year period.

Source: Planning Ministry.

Table 18

Actual and Projected Estimate of Ordinary Dovernment Expendithre 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 235National Assembly 14.0 14.4 8.8 18.0 32.6 87.8 30 31 32 33 34 160Senate .6 .5 1.2 4.2 10.0 16.5 5 5 5 5 5 25Prime Minister 19.5 23.4 24.0 26.3 2b.3 11'.5 30 31 32 33 34 160Ministry of Defense 593.6 646.0 778.0 886.1 800.0 3,703.7 1,060 1,080 1,100 1,120 1,140 5,500Ministry of Foreign Affairs 84.6 66.o 70.2 77.0 79.2 377.0 80 80 85 90 95 430Ministry of Interior (Civil) 31.0 37.0 50.6 55.4 60.1 234.1 45 47 49 51 55 247Ministry of Interior (Police) 99.5 112.8 146.5 157.3 147.5 663.6 140 150 160 170 180 800Ministry of Justice 13.1 20.0 37.8 48.3 63.5 182.7 50 50 50 50 50 250Ministry of Finance1 / 126.8 155.6 155.1 356.0 95.0 888.5 94 96 100 105 110 505Ministry of Education 167.1 232.9 300.4 352.3 340.0 1,392.7 440 488 532 585 644 2,689Ministry of Public Health 47.7 62.2 75.7 84.3 78.6 348.5 88 97 106 117 129 537Ministry of Communications 33.1 41.6 47.7 48.0 45.1 215.5 45 48 50 53 55 251Ministry of Commerce 8.0 14.4 11.8 13.7 31L.1 62.0 13 13.5 1h 14.5 15 70Ministry of Public Works 53.1 57.9 75.6 123.3 121.0 430.9 105 110 116 122 128 581Ministry of Agriculture 44.6 50.2 48.9 45.6 58.4 247.7 52 54 56 58 60 280Ministry of Mines and Industries 41.5 50.1 45.1 56.1 57.6 250.4 50 52 54 56 60 772Ministry of Planning 10.0 20.2 22.0 22.5 23.7 98.4 25 26 27 28 29 135Ministry of Press and Infornmation 26.8 39.7 33.4 28.0 28.0 155.9 36 38 40 42 44 200Tribal Affairs 20.8 24.8 26.3 26.7 28.0 126.6 25 25 25 25 25 125Kabul University 39.1 59.0 67.0 59.6 61.4 286.1 so 85 95 105 120 485Health Institutes 24.8 27.7 30.9 32.1 28.8 144.3 33 34 35 36 37 175Faculty of Medicine 9.3 10.6 11.7 11.6 13.6 56.8 14 15 16 17 18 80Department of Olympics 2.1 2.7 2.9 1.8 2.4 11.9 3.0 3.5 4 4.5 5 20Civil Aviation Authority 16.0 24.1 33.2 35.5 34.4 1L3.2< 45 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 39Helmand Valley Authority 36.8 33.6 34.5 29.3 37.5 171.7 35 35 35 35 35 17Soil 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 35Helmand Valley Agency of Kabul 0.5 0.5 o.6 0.5 - 2.1 - - - - -Subsidies - - - 140.02/ VO.0 160.0 180.0 200.0 220.0 240.0 1,000.0Other Expenditures - - - - 35.-O/ 35.0 lO.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 2,647.0 2,758.6 11,056.4 2,979.0 3,181.0 3,388.o 3,610.0 3,853.0 17,011.0Foreign Debt Servicing 215.6 543.4 378.7 255.1 304.0 1,696.3

Total Expenditures 1,310.5 2,415.4 2,562.6 2,902.1 3,062.6 12.753.2

1/ Excluding external and internal debt service.2/ Comnarable actual data for 1962/63-1965/66 are under the Ministry of Finance.3/ Maintenance cost of new pr-jects.

Source: Planning Ministry

Table 19

Annual Rate of Increase in Ordinary ExpendituresDuring 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 ) Annial 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 10.1National Assembly -- -35.7 100.0 83.3 36.9 24.0 -9.1 3.3 3.2 3.1 3.0 0.7 o.6Senate -16.7 100.0 300.0 150.0 133.3 79.0 -50.0 -- -- -- -- -10.0 -13.0Prime 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 7.2Ministry 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 7.3Ministry 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 3.8Ministry 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 2.5Ministry of Justice 53.8 90.0 26.3 33.3 50.8 49.0 -21.9 -- -- -- -- -143 -4.9Ministry of Tribal Affairs 19.0 4.0 3.8 3.7 7.6 7.5 -10.7 -- -- -- -- -2.1 -2.2Department of Olympics 50.0 -- -33.3 -- 4.1 -- 50.0 33.3 -- 25.0 -- 21.6 20.0Ministry of General Transport 250.0 -50.0 14.3 -25.0 47.3 10.7 16.7 -- 14.3 -- 12.5 8.7 8.5Ministry 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 3.0Ministry 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 13.8Ministry 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 8.6Ministry of Communications 27.3 14.3 -- -6.3 8.8 8.1 -- 6.7 4.2 6.o 3.8 4.1 4.1Ministry of Commerce 75.0 -14.3 16.7 -- 19.3 15.0 -7.2 7.7 -- 7.1 -- 1.5 1.4Ministry of Public Works 9.4 31.0 61.8 -1.6 25.1 23.0 -13.2 1.8 5.5 5.2 4.9 1.h 1.1Ministry 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 -0.2Ministry of Mines and Industries 19.0 -10.0 24.4 3.6 9.2 8.4 -13.8 4.0 3.8 3.7 7.1 0.9 0.7Ministry of Planning 100.0 10.0 1.5 4.3 29.7 25.0 4.2 o4. 3.8 3.7 3.6 3.8 3.9Ministry 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

InformationMinistry 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 11.9 114.7 8.o 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., 3/ Includes Faculty of Medicine and Health Institutes.b/ Includes Soil and Water Survey and Helmand Valley Authority.

Source: Planning Ministry.

Table 20

Financial Resources of the Second Plan and Projectionsof 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 2,687 3,100 3,906 3,950 15,763 4,105 4,430 4,760 5,225 5,6h5 24,165

Ordinary Expenditures 1,595 1,872 2,184 2,647 2,759 11,056 2,995 3,295 3,620 3,985 X,385 18,280Foreign Debt Servicing 216 543 379 255 304 1,697 639 1,033 1,204 1,069 1,106 5,051

Total Current 1 811 2,415 2,563 2,902 3,063 12,3 3,634 4,328 4,824 5,054 5,491 23,33Expenditures

Current Surplus 310 272 537 1,004 887 3,010 471 102 -64 171 154 834Foreign Commodity Aid 112 615 411 727 1,000 2,865 600 600 600 600 600 3,000Net Revenue Available

for Development 422 887 948 1,731 1,887 5,875 1,071 702 536 771 754 3 834New Resources - - _ - _- - 700 900 1,000 1,100 X5

Deficit Spending 1,024 953 707 83 -37 2,730 100 120 140 160 180 700Additional Taxes Needed

for the Plan - - - - - - 373 403 433 463 494 1,400Total 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 10,434

Foreign Project Aid V/ 3,406 2,397 2,781 3,585 3,L60 15,329 3,106 2,793 2,784 3,377 3,591 15,651

Public Sector Devel-opment Expenditures 4,852 4,237 4,436 5,399 5,010 23,934 5,177 4,655 4,640 5,628 5,985 26,085

V/ Converted at the rate of Afs. 45.3 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)

1961 196 -1963 1964 .. 9. 1966

March March March Sept. March Sept. Mlarch Sept. March Se-t.?j

Assets

Fereign Assets 1/ .. 1,007 1,101 2,345 2,279 2,o59 2,026 2,008 2,036 2,214Claims on National Government 2/ 1,729 2,581 3,926 4,287 4,839 5,643 5,494 5,923 5,596 6,094Claims on official entities (Govt.

enterprises and municipalities) 352 481 458 404 478 470 503 475 474 473Claims on private sector 2,244 2,162 2,113 2,105 2,154 2,177 2,402 2,519 2,645 2,673

Liabilities

Currency cutside banks anddemand 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 774Fireign currency deposits 3/ 66 72 65 144 173 81 119 213 309 237National Government deposits 403 528 640 911 662 1,027 370 787 440 1,017Official entities deposits 611 504 736 1,014 763 857 783 768 737 1,090Counterpart funds - 104 81 98 242 327 102 182 43 98

Foreign liabilities .@0 190 233 506 235 269 225 105 139 186Capital accounts 1,519 1,717 1,832 1,628 1,687 1,708 1,776 1,835 l,865 1,936Revaluation profits (net) / - - - 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 cfficial rate of Afs. 45 perUS$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 thebanking 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 instituticns with DaAfghanistan Bank and liabilities of Da Afghanistan Bank under bilateral payments agreements.

4/ Comprises net profit arising from the devaluation in April 1963 of holdings of gold and foreign exchangeassets and liabilities of Da Afghanistan Bank and commercial banks from the rate of Afs. 20 per U.S.$l

to the new rate of Afs. 45 per U.S.$l.5/ Preliminary.

Sourcesi International Financial Statistics and Da Afghanistan Bank.

Table 22

Pbney and Credit in 1961-66(Figures in Million Afghanis)

Annual IncreaseMarch 1961 March 1966 (Percent)

Foreign Assets 1,00oL/ 8002/ -4.6

Claims on Public Sector (Net) 1,007 4,9031/ 35.5

Claims on Private Sector (Net) 2,040 1,564 -5.5

Total Assets-Liabilities 4,107 7,267 12.1of which

Currency Outside Bankand Demand Deposits 2,550 5,338 15.9

1/ Estimate2/ In order to present a more accurate comparative picture of the

foreign asset position and of government borrowings from thebanking system revaluation profits resulting from exchange rateadjustment of Mlarch 1963 are not credited to government depositaccount. Similarly, the value of foreign assets is reduced bythe 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

1/~.

Fbr the year ending September, 1966 the rise in prices ranged between 10to 15 per cent for commodities that account for an aggregate weight of73 per cent. On this reckoning, the price rise in 1966/67 is expectedto 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 075o 49.5 10.0

US Governxment-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 Milliorg of U. S. Dollars)

1962/63 1963/64 1964/65 1965166 _L967_ Total Second PLanA c t u a i s Estimated Composition

(In Percent)

Sectoral Distribution

Industry, Ydnesand Power 20.2 20.8 20.3 32.3 28.0 121.7 34.6

Agricultureand Irrigation 9.0 7.5 12.7 9.7 11.9 50.8- 14.5

Transport andComimnications 39.7 32.7 3407 27.7 20.6 155.3 44¢2

Eduecation 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 0.14 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 8.9of 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)

1962/63 1963/64- 1961!65 1965/66 1967Country A c t u a 1 s Budget Tota

U.S.S.R. 61 422 131 240 250 19104

U.S. A. 51 183 242 369 528 1,373

Federal Republico. Germany - 10 38 118 222 388

Total commodity aidincluded inGovernment budget 112 615 411 727 1,000 2,865

(Commodity aid fromU.N. agenciesnot included inthe budget - - 30 21 10 61

Total commodity aid 112 615 441 748 1,010 2,926

Source: Planning Ministry.

Table 27

Development ExpendituresBy Sectors in the Second Plan

(In Millions of Afghanis)*

1962/63; 1963/64 1964/65 1965/66 1966/67 T0otaJi. CompositionActuals Estimate (Per Cent)

Agriculture 73.96 144.07 d3336 143e95 142.11 587.47 2.5Irrigation 527Pou n 1,021.28 879360 640,13 200f39 3v268.50 13.6In-d-uistrial Producti-.vn 749.78 132.15 112 .85 351.78 219.71 1,566.27 6.5Mineral Prcduction 27.82 32.97 53.28 108.62 187.23 409.92 1.7Power Producticn 327.70, 144.S1 482,49 863.31 788.21 2,606032 10.9Pvwer Transmission 6.80 47.75 173.68 228.23 1.0Forestry .23 1.62 3.19 14.148 1930 28.82 0.1Transport 2,039.41 1,836.70 1,748 33 1,378.99 746.95 7,750.38 32.4Communication 8.83- 47.50 141.66 168.50 103.77 4470,26 2.0Education 42.68 128.14 159.71 289.98 555143 1,175.94 4.9Health 29.88 25.34 32.58 187.23 37:06 312.09 1.3Information and Culture .73 1.08 4.78 9.67 27.42 43.68 0.2Housing _ 21.38 144.56 433.31 599.25 2.5Public Buildings 43.04 119141 50.21 46.71 6.50 265.87 1.1Rural Development 19.60 29.62 27.44 21.86 56.64 155.16 o.6Urban Development 10.89 17.77 16.67 21.08 21.87 88.28 V.4Surveys & Research 949.75 554.99 608.68 969.85 934.36 4,017.63 16.8Tourism - - 3.40 .50 .30 4.20 _Others/l - - - 356.19 35619 1. 5

4-,t51.42 4,237.25 14, L366.41 5,398395 5,010.43 23,934.46 100I0L)* 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.

Soiirce: Planning Ministry

Table 28

Third Plan Sectoral Allocation

Foreign Exchange Foreign Exchange Local Currency TotalExpenditure 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 6.9Irrigation 57e9 2,623.8 3,509.2 6,133.0 19.3Industrial Production 3/ 95.5 4,324.8 1,852.2 6,177.0 19.4M4ineral Production 5.6 252.8 126.9 379.7 1.1Power Production 52.4 2,373.3 716.4 3,089.7 9.7Power Transmission 14.8 668.2 200.7 868.9 2.7Forestry 1.5 66.1 56.3 122.4 0.4Transport 47.1 2,131.8 1,308.2 3,440.0 10.8Communication 6.2 282.7 160.1 442.8 1.3Education 4/ 14.6 663.2 1,1453,9 2,117.1 6.7Health 10.2 462.1 563.7 1,025.8 3.2Information & Culture 0.9 39.4 6.7 46.1 0.2Housing 5.4 244.6 421.3 665.9 2.1Public Buildings 2.9 133.2 646.0 779.2 2.5Rural Development 3.6 164.9 503.1 668.0 2.1Urban Development 4.7 212.9 87G9 300.8 1.0Survey & Research 45.6 2,064.8 973.5 3,038.3 9.6Tourism 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/ Iricludes 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)1/

1962/63 1963/64 1964/65 1965/66 1966/67 TotalMinistry (Actual) (Actual) (Actual) (Actual) Budget Second Composition

Estimates Plan (Per Cent)

Mines and Industries 2,o4o.87 845.07 1,2I1.40 2,366.21 1,968.00 8,431.55 35.2Agriculture 49.83 63.10 1J43.56 207.37 243.44 707.30 3.0Public Works 1,606.28 2,200.22 2,089.14 1,569.94 1,034.16 8,699.74 36.3Health 34.90 26.14 27.00 185.82 29.06 302.92 1.3Communication -- 1.97 115.90 152.54 118.97 389.38 1.6Education 37.35 80.88 54.48 75.35 263.49 511.55 2.1Information and Culture 9.56 138.05 65.14 37.14 15.86 265.75 1.1Silos 1.90 .22 27.29 24.51 38.37 92.29 0.4Kabul Medical Faculty -- 2.23 2.19 1.17 2.00 7.59 0.0Rural Development 14.35 20.00 21.49 21.20 30.00 107.04 0.5Polytechnic Institute -- -- -- 47.43 117.95 165.38 0.7Cadastral Survey __ 9.11 7.16 23.54 35.56 75.37 0.3Kabul University __ 35.51 18.63 33.08 22.53 109.75 0.5Health Institute __ -- 5.58 2.21 3.00 10.79 -Kabul Municipality 10.89 17.77 16.67 21.08 15.50 81.91 0.3Civil Aviation Authority 211.71 68.97 90.21 57.53 4.80 433.22 1.8House Construction Agency -- -- 21.38 144.56 205.90 371.84 1.6Cartographic Organi ation 10.96 12.57 13.07 5.65 4.78 47.03 0.2Paktia DevelopmentZl 508.85 549.23 43 .0 316.11 448.83 2,261.06 9.5Helmand Valley Authority 113.97 166.21 68.08 106.51 383.40 838.17 3.5Othersi/ -- -- - - 24.83 24.83 0.1

Total 4,851.42 4,237.25 4,436.71 5,398.95 5,010.73 23,9314.6 100.0

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 Expenditures by Ministries in the Third Plan

Foreign Exchange Expenditure hquiv.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 PuM c Private Public CompositionSector 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 31.6Agriculture and Irrigation_/ -- 71.4 71.4 3,234.4 -- 2,062.1 2,062.1 -- 5,298.7 5,798.7 18.2Public Works -- 41.8 41.8 1,893.5 1,111.7 1,111.7 -- 3,004.8 3,004.8 9.4Commmnication -- 6.1 6.1 276.4 -- 158.9 158.9 -- 435.2 435.2 1.3Public Health _- 5.3 5.3 240.2 -- 292.3 292.3 -- 531.1 531.1 1.7Information and Culture -- 7.0 7.0 317.1 -- 274.7 274.7 -- 590.9 590.9 1.9Commerce 3.7 0.1 3.8 172.1 98.8 1.7 100.5 266.9 4.4 271.3 0.9Justice -- -- -- -- -- 99.1 99.1 -- 100.0 100.0 0.3Interior -- -- -- -- 135.0 135.0 __ 135.0 135.0 0.4National Defense -- 3.0 3.0 136.0 -- 70.0 70.0 -- 206.0 206.0 0.7Rural Development -- 3.6 3.6 163.1 -- 466.o 466.o -- 630.9 630.9 1.9Helmand Valley Authority -- 51.0 51.0 2,310.3 -- 1,483.9 1,483.9 -- 3,793.3 3,793.3 11.9Paktia Development Unit -- 9.8 9.8 444.0 __ 137.3 137.3 __ 582.6 582.6 1.8Xabul Municipality -- 3.8 3.8 172.1 -- 121.4 121.4 -- 293.6 293.6 0.9General Transport -- -- -- - - 17.2 17.2 -- 17.1 17.1 0.1'Nangahar Development Unit __ 13.3 13.3 602.5 -- 1,200.0 1,200.0 -- 1,802.5 1,802.5 5.7Civil Aviation -- 4.4 4.4 199.3 -- 138.4 138.4 -- 337.6 337.6 1.1Faculty of Medicine -- 0.5 0.5 23.0 -- 44.4 44.4 -- 65.7 65.7 0.2Nadir Shat Hospital -- 0.8 0.8 36.2 -- 34.2 34.2 __ 72.3 72.3 0.2Silos 4.1 4.1 186.0 -- 152.6 152.6 -- 338.4 338.4 1.0House Construction Units -- 5.9 5.9 267.3 -- 514.5 514.5 __ 781.8 781.8 2.5Cadaster -- 0.1 0.1 4.5 i- 1.5 1.5 -- 6.0 6.o ng.Population Census - 0.5 0.5 23.0 -- 87.2 87.2 -- 111.2 111.2 0.4Polytechnics -- 2.6 2.6 118.0 -- 123.0 123.0 -- 240.8 240.8 0.8Cartography -- 0.5 0.5 22.7 -- 60.7 60.7 -- 81.1 81.1 0.3Kabul University -- 1.9 1.9 86.1 -- 125.0 125.0 -- 209.7 209.7 0.7Education -- 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.2/ Includes Afs. 500 million for the proposed Industrial Development Bank.

(Figures may not add up due to rounding).Source: Planning Ministry.

Table 31Third P?la, Targets

Second Third PlAnPlan annual annual

1967/7P 1971/72 ra teof rate ofas percent of as percent of incre-s nocrenee1961/62 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1962/67 1966/67 In Percent In Percent

lndustry

T.l. Indoutrial Production(in millions of afs.) at1966/67 pruces 1,731 3,567 4,265 4,690 6,252 7,864 10,339 204.9 191.5 15.6 23.9

2. l4ajor Industrial Production:i) Gas industry

(million cubic ntatra) - - 1,500 1,500 2,500 2,500 2,900 - 193.3* 17.9''ii) Coal (to 1000 tons) 66.3 152 180 200 200 230 310 229.3 203.9, 16. 15.3sit Electricity (to mm kwh) 125.8 242.8 270 600 360 390 600 193.0 267.1 16.1 19.8iv) Cement (in '000 tons) 40.6 177 177 177 175 179 180 66 101.7 36 0.3v)Cotton (in '000 tons) 15.7 32.2 36.9 61.5 68.6 52.0 59.9 205.1 186.0 15.1, 13.2vt) Cotton textile

(in en neters) 27.2 56 60 68 75 88 105 205.9 187.5 15.6 13.),vii) Woolen fabrics(to '000 meters) 157 665 650 650 850 900 100 410 155.0 32 9.2

vii6) Silk fabrics(in '000 moters) 267 1,000 1,000 1,080 1,460 1,700 3,000 370 300 30 26.6

ix) Leather shoes(in '000 pairo) 25.2 90 150 150 300 360 650 360 500 29 38x) Sugar (in '000 tons) 6.5 7.5 9.0 9.5 19.5 33.1 53.6 166.7 710 10.8 68xi) Wheat floor - In Stateowned departments(in '000 ton.n) 32.1 56 70 72 130 160 150 174.4 267.8 11.8 21.8oil) Vegetable oil (in '000 tons) 1.5 3.35 3.5 5.0 6.0 7.5 10.2 223.3 300 17.6 24.9

3. Production of HandicraftIndustrue at 1966/67 prices(in millions of afs.) 7,502 9,131 9,535 9,932 10,354 10,811 11,276 121.7 123.6 6.0 6.3

6. Agricultural Productionat 1966/67 prices(in nillions of afs.) 34,888 37,347 38,527 39,768 41,201 42,670 46,252 107.0 l18.5 1.6 3.6

5. Area under major agri-cultural crops:i) Grain and cereals

(in '000 hectares): 3,390_ 3,515 3,524 3,533 3,547 3,561 3,575 103.7 101.7 0.7 0.3a) WTheat(in '000 hectares) 2,230 2,365 2,353 2,361 2,374 2,387 2,400 105.1 102.3 1.0 0.A

b) Rice(in '000 hectares) 210 220 221 222 223 224 225 106.8 1o6.5 1.0 0.9c) law cotton(in '000 hectares) 65.0 75.8 79.8 86.0 90.0 94.2 100.0 116.6 131.9 3.1 5.7d) Oil seeds(un '000 hectaren) 150 150 150 150 151 153 155 100 103.3 - 0.7

6. Livestock. Population,i) Cow aod buffalo (in '000) 3,600 3,780 3,860 3,940 4,020 4,100 4,200 105.0 11.1 1.0 2.2ii) Sheep (in '000) of which 13,800 15,300 15,660 15,970 16,300 16,640 17,000 110.9 111.1 2.1 2.2Karakul ((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:6) Wheat (in '000 tons) 2,279 2,330 2,405 2,679 2,574 2,682 2,786 102.2 119.5 0.6 3.6it) lZice '315 335 365 350 360 370 385 105.0 114.9 1.0 2.8iii) Berley "378 387 396 402 411 4,20 430 102.6 112.1 0.5 2.1iv) Jawar "700 740 760 780 805 825 850 105.7 114.9 1.1 2.8v) Saw cotton "54 101 112 126 145 158 180 187.0 178.2 13.3 12.2vi) Sugar beot 446 76 91 112 138 165 190 168.2 256.8 11.0 20.8vii) Vegetables "500 596 622 661 698 737 780 119.2 130.9 3.6 5.5viii) Froits "365 385 400 617 434 650 670 105.5 122.1 1.1 6.1no) Ool seeds "50 51 52 54 56 60 62 102.0 121.6 0.6 6.0x) Sheep wool I 20.9 23.6 24.3 24 25.8 26.5 27.6 112.9 116.1 2.5 3.0xi) Karakul (in '000 units) 2,500 2,610 2,670 2,725 2,800 2,900 3,000 166.6 116.9 0.9 2.8

xii) Beef end mutton (net)1. Beef (in 1000 tons) 53.1 55.3 56.2 57.2 58.2 59.2 6D.0 166.1 108.7 0.8 1.72. Mutton 103.0 117.0 121.0 125.1 129.6 133.8 138.6 113.6 118.3 2.6 3.6

Tswam-s1a & .0enicattort8. Transport and Commsunications

u) Length of motorableroads (in 000D ofki lometers) 613 6.7 6.7 6.7 6.8 6.8 6.9 106.3 103.0 1.2 0.6ii) Goode transportation(in en km) 438 728 797 870 944 1,029 1,125 166.2 156.5 10.7 9.1iii) Number of inter and citybuses (in '000 units) 0.6 1.0 1.1 1.2 1.3 1.6 1.5 166.6 150.0 10.7 8.6iv) Passenger transporta) 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 8.8b) Inter-city (in ens

passenger loss) 2.4 6.0 4.5 5.0 5.5 6.0 6.6 166.7 165.0 10.7 10.5v) Passenger transport by air(in '000 persons) 61.2 60.0 60.0 65.0 65.0 50.0 60.0 97.1 150.0 0.6 8.6vi) 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 8.9vii) Cargo transport by air Ariana Co. (in en tonskilometer) 9.5 8.0 8.0 9.0 9.0 9.5 10.0 84.2 125.0 3.5 4.6viii) Goods transport from seaports (in '000 tons) 250 350 365 380 400 625 650 160.0 128.6 7.0 5.2ix) Postal letters (in mm) 6.6 7.5 8.0 8.5 9.0 9.5 10.0 163.0 133.3 10.3 5.9x) Num,ber of installedtelephones (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 PlanPlan annual annual

1967/72 1971/72 rate of rate ofas percent of' as percent of' increase increase

1961/62 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 196 2/67 1966/67 In Percent In Perent

Manpower and Population

9. Manpower and ioploynenti) Population (in mn) 14.O4 15.4 15,7 16.0 16.3 16.6 16.9 109.7 109.8 1.75 1.9

ii) Labor force (in mn) . 3.77 L.13 * - 4.54 109.5 109.9 1.8 1.9iii) Labor force engaged in

economic activities (in mn) 3.55 3.86 - - - 4.305 108.7 111.5 1.7 2.2

10. Iducationi) Village, primary and

secondary schoolsa) liumber of schools 1,373 2,410 2,547 2,691 2,728 2,757 2,789 175.5 115.7 11.9 3.0b) Number of studenta

(in 000) 225.28 hh5.12 538.0 62b.5 6h3.0 659.7 678.1 202.2 148.9 15.1 8.3I1) I0ci-iotnl and

Tachnical Schoolsa) 11umbor of school3 - 27 31 34 34 34 36 - 133.3 - 5.9b) lumber of students - 9,280 12,659 15,292 15,995 16,575 18,080 194.8 - . 14.3

c) Number of graduates - 1,662 1,476 2,107 5,093 4,702 6,119 - 370 - 9.8it) High Education

a) ilumber of schools 1 1 1 1 2 2 2 100 200 - -

b) iiumber of students 1,987 2,905 2,955 3,010 3,445 3,646 4,ol8 146.2 138.3 7.9 6.7c) ilumber Of graduatee 229 51o 513 569 654 622 637 222.7 124.9 17.l, s .5

Health

11. Public Healthi) Number of hospitals 49 61 68 80 82 82 83 124.5 136.1 4.5 6.4

il) tNumber of hospital beds 1,165 1,384 1,594 1,834 1,984 1,981 2,01h 118.8 145.5 3.5 7.8iii) Number of laboratories, etc. 27 35 39 43 47 49 51 129.6 145.7 5.3 7.8iv) Number of doctors 293 361 430 485 580 720 830 123.2 229.9 h.3 18.1v) Number of semi-medical

personnel 866 1,861 1,895 1,960 2,035 2,120 2,215 214.9 119.0 16.5 3.5

Rural Development

12. Sural Developmenti) Number of rural development

projects under implemen-tation 8 47 s9 50 59 67 79 590 168 4.3 10.9

Foreign Trade

13 Foreign Tradel) Turnover of foreign trade

(C.no of aer.) 4,612 6,615 7,280 7,517 8,645 9,200 9 973 1h3.4 155.0 7.5 9.2a) Exports (in mns of afs) 2,402 3,312 3,929 4,237 4,856 5,134 5 564 137.8 168.0 6.6 10.9b) Imports 2,210 3,303 - - - - _

c) Difference 1 + *193 +9 *578 +957 *1,067 a1,068 +1,155

National Income

14. Increase in national incomea) Total national income

(percent) _ _ _ _ _ _ - 117.5 123.1 3.3 h.2b) Per capita national

income (percent) - - - - - - - 107.1 112.2 1.8 2.3

Source: Itussoan Plan

0- As percent of 1967/68During 1966/67-1971/72

Table 32Agricultural

Proposed and Actual ExpendituresSecond Plan and Proposed Third Plan

(In million afghanis)

PercentChange

FromThird Second

Second Plan Percent Plan Percent PlanP opsed 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 o.6 122 1.6 320.7

AgriculturalExtension 30 15-/ 0.3 99 1.3 560.0

Mechanization 774 692/ 1.5 162 2.1 134.8

Sericulture 9 14_/ 0.3 44 0.5 214.3

Beekeeping 4 21/ - ~ 4 0.1 100.0Fisheries 3 12/ __ 28 0.3 2,700.0

Plant Protection 8 112/ 0.2 45 0.6 309.1

Plant Improvement --

and Soil Research -- -- 853 10.9 --

Agricultural Research 73 251/ 0.6 - _

AgriculturalStatistics 3 21/ 0.1 39 0.5 1,850.0

Agricultural --Credit 324 -- -- 500 6.14 -

Otner 5 984h2/ 22.0 574/ 0.7 -94.2

Total 5,239 4,I479 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.Il Green Forces.

Source: Second Plan - M1inistry of Planning; Third Plan - Russian draft plan.

Table 33

5econd Plan Agricultural ProductionAnd Input Targets and Achievement

Actual asPlan 1/ Per Cent

Item Unit Target Actual-/ of Target

ProductionFood grains 1,000 MT 3,964 3,591 90.1Wheat 1,000 MT 2,449 2,156 88.oCorn 1,000 MT 755 720 95.4Barley 1,000 MT 405 380 93.8Rice 1,000 MT 357 335 93.8

Cotton (Raw) 1,000 MT 159 84 52.8Sugar beets 1,000 MT 66 70 106.1Oil seeds

(Exc. cotton seed) 1,000 MT 57 55 96.5Wool 1,000 MT 20 23 115.0Karakul pelts 1,000 2,800 2,610 93.2Sheep and goat skins 1,000 7,500 7,230 96.4

InputsIrri. gation

New lands Hectares 115,000 31,000 27.0Improved Water supply Hectares 96,000 n.a.

Agriculture credit Million Afs. 324

Fertilizer production Mr 50,000 _ _inports MT - 37,387 _

1/ Preliminary

Source: Second Plan-Targets - Second Five-Year Plan, 1962-1966, Ministry ofPlanning, Kabul.. Afghanistan, pp. 15-30.

Table 34

Fertilizer Requirements for 1971-/

Revised1962-1966 1971 Increase 50 Percent Fertilizer 1971 1971Average Production Due to of Yield Response Fertilizer Fertilizer

Production Projectixns Yield Increase!/ Coefficient./ Requirements Requirements

1,000 MT 1,000 MT3/

Wheat 2,156 2,784 576 288 5.3 54X3 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 toother yield-increasing inputs and interaction.

2/ Response coefficient assumptions: Nitrate was applied to all crops at the rate of 40 kilograms perhectare. Phosphate was applied at the rate of 46 kilograms per hectare excepting cotton whichreceived no phosphate. It was assumed that these rates of application would increase yiel,ds by 50 percent.

3/ Plant nutrients.

Table 35

List of Industrial Projects Proposed forInmestment in a Draft of the Third Five-Year Plan

ForeignExchange(Million Afghani

Name of Project Dollars) (Mil3lion)

1. Paints and varnish for factory in Kabul 0.10 1.002. Completion of match factory in Kabul 1.00 5.003. Caustic soda plant 1.00 23.004. Washing powder factory 0.90 40.005. Glass factory 1.30 39.006. Cement factory in Herat 3.00 82.007. Completion of shaker ceramic factory 0.40 2.008. Bricks and lime factory in Sulton Kat 1.10 10.009. Carbide factory in Kabul 0.40 5.00

10. Paper manufacturing in Eham Saheb 1.50 30.0011. Factory to manufacture wood plates 0.50 10.0012. Factory for manufacturing agricultural

machinery and bicycles 1.00 1.0013. Sugar factory in Jalalabad 3.50 50.0014. Slaughterhouse in Pule-Kumri 1.30 36.0015. Slaughterhouse in Herat 0.80 20.0016. Equipping existing slaughterhouse in Kabul 0.20 0.5017. Vegetable oil factory in Mazar Sharif 0.70 25.0018. Vegetable oil factory in Emam Saheb 0.50 20.0019. Vegetable oil factory in Herat 0.70 25.0020. Beer and fruit juice factory in Gul Bahar 0.50 18.0021. Spirit distillery (cognac) 1.00 40.0022. Reconstruction of cotton cleaning factory

in Kunduz 0.10 4.5023. Cotton cleaning factory in Balkh 0.40 18.0024. Reconstruction of Gul Bahar textile factory 2.00 -25. No. 1 Textile factory in Bagram 4.60 88.oo26. No. 2 Textile factory in Kandahar 4.20 80.0027. NTo. 3 Textile factory in Mazar Sharif 4.20 80.0028. No. 4 Textile factory 4.20 80.0029. Cotton textile factory 0.10 2.0030. Rayon manufacturing factory in Kabul 1.20 22.0031. Rayon production factory in Kandahar 1.20 22.0032. Expansion and reconstruction of Kandahar-. wool textile factory 0.90

33. Shoemaking factory, Kabul 0.90 31.5034. Fertilizer factory in Mazar Sharif 24.20 380.0035. Production workshop 0.14 50.0036. Leather factory in Mazar Sharif 0.60 25.0037. Skin improvement plants in Yazar,

Kandahar, Herat 0.10 4.50

FbreignExchange(Million Afghani

Itame of Project Dollars) (Million)

38. New slaughterhouse in Kabul 0.80 20.0039. Sugar factory in Herat 3.50 100.0040. Gin and press plants in Mazar and Herat 0.20 0.9041. Linters in Khwajaghar 0.80 -42. NTo. 1 wool washing and cleaning plant

in Kandahar 0.45 12.0043. No. 2 w,ool washing and cleaning plant

in Herat 0.30 20.0044. Dairy in Kabul 0.28 30.0045. Wool yarning plant for carpet weaving in Herat 0.30 8.0046. Wool yarning plant for carpet weaving in

Mazar Sharif 0.30 8.0047. Wiool yarn dyeing plant for carpet wreaving

and dyes in Herat 0.05 1.0048. Carpet washing plant 0.10 4.5049. Carpet design center in Kabul 0.05 3.0050. Sheep wool cutting plant and skin

tailoring plant 0.43 10.5051. Skin tanning factory in Mazar Sharif 0.03 2.1652. Skin tanning factory in Maimana 0.01 2.1653. Godown for skin sorting in Kabul 0.05 2.5054. Fruit conserving plant in Kandahar 0.09 1.0055. Raisin cleaning factory (Kabul) 0.11 2.0056. Raisin cleaning factory (Kandahar) 0.11 2.0057. Walnut peeling and packaging plant in Kabul 0.44 8.0058. Expansion of dairy plant (HVA) 0.03 1.5059. Sash Kargah silo and mills 3.65 15.0060. Purchase of moving cold storage trucks 0.7h -61. Plant for production of medicaments for

natural herbs in Herat 0.15 10.0062. Casing, cleaning and sorting plant 0.01 2.0063. Rokham stone factory in Helmand Valley 0.04 -64. Sugar factory in Helmand Valley 4.50 20.0065. Flax factory in Bbst 1.29 9.0066. Provision of wood and wood plates, sawing

machine, wood stores 0.15 -67. Sawing machine wood stores 0.15 2.0068. Wood factory, tool manufacturing and

metal works 0.30 13.0069. Wood box factory 0.40 8.oo70. Carpentry and stone works factory 0.45 10.0071. Plant to produce coal from wood 0.11 15.0072. Woolen handicrafts 0.38 15.5073. Ceramic works in Paktia 0.19 9.0074. Second mill in Kabul 0.75 20.90

FbreignEcchange(Million Afghani

Name of Project Dollars) (Million)

75. Construction of mill in Pule Khunri Silo - 1.0076. Silo and mill in Herat 2.70 72.0477. Macaroni and biscuit manufacturing in Kabul 0.65 16.00

Total 95.40 1,852.16

The distribution of these projects by Ministry is shown below:

Project NTos. Ministry Fbreign E;change Afghani(million $) (millions)

1-41 Mines and Industry 75.7 1,h495.4

42-62 Commerce 7.7 145.3

63-77 Helmand Valley andPakhtia Projects, andMiscellaneous Agencies 12.1 211.5

Total 95.5 1,852.2

Source: Planning Ministry

Table 36

Status of the Balance Sheet and Income Statementof Some of the State-Owned Enterprises

as of October 1966

Capital Date of Last(In millions Submission ofof afghanis) Balance Sheet

I. Commercial Enterprises:

1. Monopoly Bureau ... 19592. Ghouri Power and Cement Company 227.6 19643. Government printing press 44.9 19604. Transport and Communication Bureau 39.4 19635. Pharmaceutical depots 31.0 19636. Slaughterhouses 11.9 19627. Kabul Hotel ... 19628. Kabul Airport Restaurant ... 19639. Construction unit for the repair ... 1963

of ditches and canals10. Port Trust Authority ... 195911. House construction factory ... 196412. Handicrafts, Ministry of Education 8.8 1965

II. Noncommercial Enterprises:

1. Health Insurance Agency ... 19632. Child Care Administration ... 19483. Bureau for anti-malarial campaign 32.7 1963

III. Enterprises No Longer UnderGovernment Administration:

1. Central Silo Administration 131.2 19642. Transport management for 30.1 1959

mines and industry3. Handicraft Administration (Women's) ... 1963

IV. Enterprises under Liquidation:

1. Printing Press, Ministry ... 1959of Education

2. Cooperative Depot Administration 242.2 19613. Cooperative Bureau 13.8 1963

Source: Finance Ministry, October 1966.

Table 37The Most Important Econominc UIoldings of the Bank i11elli in 1964

Total Capital Holding of Bank Melli-TMn mil Iion (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 8.2Fund

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 WirtschaftlicheEntwicklung Afghanistan's 1880-1965. (C. W. Leske Verlag,1966). Table VII, 2, 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 Wlorks

(1) Road Construction:Mazar-Tashguzar Road 268.0 3.50Jabaluseraj-Gulbahar Road 19.0 0.26Surkhakan-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 6.0Guzarga 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 1.5Taluqan Bridge 20.0 --

(3) Surveys and Studies:Kabul-Herat Road 28.0 0.50Shibergan-Herat Road 130.0 2Q30Kunduz-Faizabad Road 40,0 0.50

Sub-total: 620.1 7.06

2. Helmand Valley Authority

(1) Road Construction:Darweshan-Reeshow Road 56.o 0.37

(2) Surveys and Studies:Survey of Possibility ofWater 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