Endnotes

¹This section relies mainly on Barakat and Wardell (December 2001) and Byrd (October 2002). See further Appendix 1, “Historical Review of the Afghan Economy”.

²The NDB was presented by the Ministry of Finance to a meeting of the Implementation Group in Kabul on 12-13 October 2002. The NDB translates the priorities of the NDF into programs and projects while simultaneously providing a vehicle for policy development. It provides an outline of ongoing and proposed investments for 2002- 2004 and consolidates investments based around 3 pillars presented within the NDF. Later, the framework was refined into 12 national development programs and 6 priority sub-programs (Islamic Transitional State of Afghanistan, March 2003).

³The best effort made by the Central Statistics Office (CSO) to date has yielded the Statistical Yearbook 2003 (forthcoming). Statistical capacity in Afghanistan is discussed in Appendix 2.

⁴In accordance with current Afghan practice, economic growth is measured by the Afghan solar year (and fiscal year). For example, the Afghan solar year (SY) 1381, or fiscal year 2002/3 runs from March 21, 2002 to March 20, 2003.

⁵ADB’s projections under different scenarios are presented in Section II. IMF (November 2003) predicts that with continued strong growth in agriculture, as well as in services and construction, real GDP will grow by about 20 percent in 2003/4.

⁶CSO (2003).

⁷Price data for Kabul as of August 2003, the only available price data, was used in valuing the minimum food consumption bundle, with a 30% non-food add-on. Without the benefit of any income/expenditure surveys, rough guesswork puts the incidence at about 64%.

⁸In November 2002, CSO/IMF did a quick survey of 200 CSO staff for the new weight for 202 items CPI. The result was that a family of 6 spent about Af5,000 per month, with a country-wide equivalent assumed at Af4,500 per month. This translates to roughly $100 per month for a family of 6 and about US$0.5 per day per person. In Kabul city about 60% of the population lack electricity and no one has running water.

⁹United Nations Development Programme (UNDP) and World Bank sources.

¹⁰ADB, UNDP, and World Bank. January 2002.

¹¹The ongoing population census is about 50-60% completed for the pre-listing phase (see Appendix 2). While more reliable population data will be available after this phase of the census is completed in early 2004, the CSO estimate is considered not unreasonable.

¹²The high fertility rate is linked to several factors including a traditional preference for large families since children are considered a source of family wealth, as well as a post-conflict desire for more children to replace family losses. The high fertility rate combined with a youthful population means a high population growth rate for at least the next two decades (CSO 2003).

¹³Due to the absence of census data, the survey methodology in the study followed the following steps: stage 1 selected 42 districts within 13 provinces covered by the international NGO that designed the survey, following the “extreme-maximizing” principle to include maximum of geographical and socioeconomic varieties; stage 2 selected total 33 populace clusters (towns and villages) to be surveyed in the chosen districts in proportion to the population share of each district selected; stage 3 selected 992 households to be interviewed, again, according to the extreme-maximizing principle covering maximum varieties of locations and wealth indicators; and stage 4 selected individual interviewees within the households following a 50:50 gender ratio. The household surveys were combined with establishment surveys: 100 vocational training centers; 637 local businesses; 77 shura (local community); and 65 bazaars.

¹⁴CSO 2003, p.25.

¹⁵As this figure is not based on structured household surveys, the reliability of the estimate is unknown.

¹⁶UNHCR source quoted in news releases.

¹⁷The Income Tax Law specifies individual and corporate income taxation, withholding taxes on imports and exports, various fixed (presumptive) taxes, and business receipts tax. Because 18 separate decrees have amended the law since 1965, and not all amendments have been included in a comprehensive consolidated version, it is difficult to know all the details of the law and its application. Further, tax administrators at MOF have different views about the applicable tax provisions. Because of their weak administrative capacities, income tax data is currently not classified according to the revenue classification of the government. In contrast to the income tax law, the current customs law is a consolidation of all changes to the law. Still the application in practice varies significantly in different parts of the customs administration. Although there is no excise tax, certain excisable goods are subject to higher customs duties. It seems that a “monopoly tax” on petroleum is being used, equaling 20% of the import value (or 30% of the imports if the government takes the tax) (IMF February 2002).

¹⁸The fiscal year commences on March 21. Thus, FY2003 refers to March 21, 2002–March 20, 2003.

¹⁹The exchange rate prevailing at that time, of Af34 per US dollar, was used in calculation. In afghani terms, the budget was Af15.7 billion plus an additional Af750 million to clear wage arrears.

²⁰IMF (September 2003).

²¹In the absence of a parliament, presidential decrees signed by the head of the AIA and ATA have the force of law.

²²Expenditures excluding the clearance of wage arrears.

²³IMF (September 2003).

²⁴The 1964 Organic Budget Law requires that any positive balance between locally collected revenues and budgeted expenditure be promptly sent to Kabul. The reluctance of most provinces to transfer local revenues also led to the collapse of the equalization system between “rich” provinces (border provinces collecting large customs revenues) and “poor” provinces (inland provinces).

²⁵Including: $22 million from the International Air Transport Association in accumulated overflight rights; $5 million from the sale of a telecommunications license; $7 million of customs valuation fees accumulated in the past few years; and $4 million of last year’s provincial surpluses.

²⁶This figure includes the external assistance deposited by donors in the central bank’s account in U.A.E. but not yet transferred to the government’s accounts.

²⁷IMF (September 2003).

²⁸IMF’s latest projection (November 2003) puts a lower domestic revenue of $147 million.

²⁹See Section I.5 for a description of ARTF.

³⁰IMF (September 2003).

³¹The budget decree includes an obligation for each ministry to break down its headcount ceilings into “sub-ceilings” for the center and each province.

³²In May 2003, the National Security Council chaired by President Karzai issued an instruction co-signed by the major provincial governors, ordering that: (a) all provincial tax and customs revenues be recorded and transmitted to the center on a regular and timely basis; (b) provincial authorities refrain from meeting their expenditures directly out of their local revenues; and (c) provincial expenditures be limited to budget allotments received from the center. In parallel with this initiative, 40 newly-trained fiscal experts will be sent to the provinces to enhance financial reporting from the provinces on revenues and expenditures, and to follow up locally on the agreement on revenue centralization.

³³The first development budget, covering both fiscal years 2002/03 and 2003/04, was presented to a donor meeting in October 2002 with an estimated total amount of $3.2 billion, but it was already halfway through the first fiscal year.

³⁴MF (September 2003).

³⁵As discussed in Section III, due to flaws in the 1994 Law, it was replaced by new legislation in September 2003.

³⁶Information obtained from the IMF mission visiting Kabul in mid 2002.

³⁷Due to the break in series because of the introduction of the new currency in October 2002, the annual growth rate is calculated by multiplying estimated quarterly growth rates.

³⁸The government occasionally ran an overdraft in the third quarter of 2002/03 and was still in overdraft by the end of the quarter. These overdrafts remained fairly limited in size, however. To some extent, the occurrence of these overdrafts reflected the procedure by which the government received foreign assistance only after expenditures were made and their eligibility for coverage by such assistance had been established. But it also reflected a lack of adequate monitoring and communication between DAB and the MOF. An increase in available foreign financing for the budget allowed the elimination of the overdraft in the fourth quarter of 2002/03.

³⁹Each morning, DAB calculates a simple average of the buy rate and the sell rate of ten reputable and large licensed money changers and quotes them as the official buy and sell rates. DAB quotes rates for cash and transfer transactions.

⁴⁰IMF (September 2003).

⁴¹Rashid (2000).

⁴²The Afghan-Pakistan Transit Trade Agreement (ATTA) was signed between the two countries in 1965 and has more or less functioned until today. The agreement includes exemptions from all customs duties, taxes, duties, or charges of movement of goods under the treaty, not including transportation services. The treaty defines two transit routes: Torkham (Afghanistan)–Peshawar (Pakistan) and vice versa, and the Spin Baldak (Afghanistan)– Chaman (Pakistan) route. The agreement also includes transit goods which move under customs control between Afghanistan and the port of Karachi in Pakistan. The bulk of customs operations are performed in five major customs houses. However, the breakdown of border surveillance, customs procedures and a large part of the infrastructure in Afghanistan has lessened the confidence of the Pakistani authorities in the Afghan custom’s application of the transit controls. The Pakistani authorities argue that traders have taken advantage of the instability in Afghanistan to smuggle transit items back into Pakistan over mountain roads. This has resulted in adverse consequences on the revenue and domestic production of Pakistan. The smuggling of goods back to Pakistan is, according to Pakistani officials, increased by Afghanistan’s low duty rates which create an imbalance in the price of goods. As a result of the perceived lack of control, Pakistan took unilateral action to curtail the flow of trade under the ATTA, and introduced a ban on 24 items that can no longer be imported to Afghanistan using the transit system. As a consequence, a significant increase in the transit trade through Iran has occurred, diminishing the long-term impact of the banned (or negative) list imposed by Pakistan.

⁴³World Bank (2001).

⁴⁴See Appendix 4, “Sector Descriptions and Policy Issues,” for a recent update on poppy cultivation.

⁴⁵However, even considering the impact of reconstruction activities, significant peculiarities that are difficult to explain include the disproportionate surge of imports from Japan in the last four years and the large imports from Singapore in 1996/97 and 1997/98 (Table A3.10).

⁴⁶This subsection relies on IMF (Sep 2003).

⁴⁷This section draws on IMF (Sep 2003; Nov 2003).

⁴⁸This section relies mainly on AACA (April 2003).

⁴⁹The preliminary needs assessment estimated that $1.7 billion in external contributions would be required for the first year of Afghanistan’s recovery to effectively jump-start reconstruction, $4.9 billion in the first 2.5 years, $10.2 billion in the first 5 years, and $14.6 billion over the first decade.

⁵⁰ADB staff back-to-office report, August 7, 2003.

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