CFC Thematic Report - Economics of Self-Sustainability: The Future of Afghanistan’s Economy, 08...

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AFGHANISTAN IN TRANSITION

August 2013 Comprehensive Information on Complex Crises

Economics of Self-Sustainability: The Future

of Afghanistans Economy

Nekia LaneAssistant Desk Officer

[email protected]

Edited byRainer Gonzalez PalauAfghanistan Team Leader

[email protected]

This reportprovides an in depth review of Afghanistans post-2014 prospects for financial self-sustainability by

examining the national budget and reviewing the past, present and future of international aid commitments. The

feasibility of the opportunities for economic growth on which the international community has pinned its hopes is also

discussed. Further information on these issues is available at www.cimicweb.org. Hyperlinks to source material arehighlighted in blue and underlined in the text.

iscal analysis conducted by the World Bank indicates that Afghanistan faces the upcoming transition from

positions of both strength and weakness with regard to economic growth and financial stability.

Afghanistan remains a nation weighed down by the lack of institutional capacity to enhance development

budget execution rates, which currently stand at approximately fifty per cent, according to the 2011-2012 Annual

Fiscal Report published by the Afghan Ministry of Finance (MoF). The past, present and future of Afghanistans

economy is uniquely dependent upon foreign aid, with total military and civilian foreign aid disbursements to

Afghanistan in 2011-2012 reaching USD 15.7 billion, a figure roughly equivalent to 100 per cent of the nations

GDP, reports the World Bank. In light of the 2014 withdrawal of coalition forces, and the subsequent decline in

aid, it remains uncertain to what extent Afghanistan can rely on funds pledged at the 2012 Tokyo Conference to

support the transition. Experts posit that Afghanistans path towards financial self-sustainability requires

comprehensive intervention toimprove agricultural and extractive industries, and maximise domestic revenue, a

subject that will be explored in this paper.

F
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AFGHANISTAN IN TRANSITION // ECONOMICS OF SELF-SUSTAINABILITY

August 2013 Page 2

Current National Budget and Source of Funds

At the very foundation of economic stability is a nationsbudget; a balance must be struck between revenue and

expenditure. A study on the budget formulation process by the Afghans Coalition for Transparency and

Accountability (ACTA) warns that the properdistribution of resources among the various sectorsstill remains a

significant challenge for the Government of the Islamic Republic of Afghanistan (GIRoA). Although Afghanistan

receives billions of dollars in international aid assistance, state institutions struggle to provide good governance,

deliver basic services and uphold the monopoly of violence. The International Crisis Group says that Afghanistan

follows the pattern of other post-conflict contexts with high rates of international aid, which often leads to the

neglect of state institutions and limits the governments ability to raise revenues to finance development

expenditures or cover operational costs. Nonetheless, the World Bank adds that experiences elsewhere have

shown thateconomic deterioration is not inevitableprovided financial planning is programmed to alleviate effects

of gradual decline in aid.

According to data released by the MoF1, Afghanistans total national budget in Fiscal Year (FY) 2013-2014

increased by 47 per centcompared to the national budget at the start of FY 20122, rising from AFG 244.7 billion

(USD 4.7 billion) to AFG 354 billion (USD 6.8 billion). The country has two parallel budgets: an external budget

and a national core budget. The former is composed solely of donor funds. The latter encompasses both

international aid and domestic revenues collected by the Afghan government and is usually separated into two

primary allocations: the operating budget and development budget. The operating budget primarily covers

government wages as well as nonwage operation and management (O&M) costs. The development budget covers

the capital and operating costs of the government-run projects, which are predominantly donor-financed3. Table 1

shows the operating and development budgets (core budget) for each of the main sectors in FY 2013. Likewise,

Table 2 provides a breakdown of fund allocation by ministry of the operating budget for the same fiscal year.

Table 1. Core Budget 2013 (FY 1392)Sectors Operating(USD 000)

Development(USD 000)

Total(USD 000)

%in Total

%operating

%development

Security 2,174,829 754,714 2,929,543 43.0% 58% 25%

Infrastructure 62,167 901,795 963,962 14.2% 2% 30%

Education 654,803 373,760 1,028,564 15.1% 17% 12%

Agriculture 39,163 504,723 543,886 8.0% 1% 17%

Governance 213,510 75,526 289,037 4.2% 6% 2%

Health 65,305 187,422 252,727 3.7% 2% 6%

Economic Governance 53,609 121,711 175,320 2.6% 1% 4%

Social Protection 44,722 21,343 66,066 1.0% 1% 1%

Contingency codes 467,412 92,659 560,071 8.2% 12% 3%

Total 3,775,519 3,033,655 6,809,175 100% 100% 100%

Source: Afghanistan Ministry of Finance,1392 Financial Year National Budget.

1The World Bank warns there are large margins of uncertainty with regard to the information that is available due to thedifficultyof collecting reliable datawithin Afghanistan.2Until 1391, Afghanistans fiscal year was based on their solar year calendar (22 March 21 March the following year), but Public

Financial Expenditure Management Law was changed by Parliament in October 2011 to implement a new parameter for the fiscalyear (21 December20 December the following year). As such, FY 1391 was only nine months long running from 21 March 2012to 20 December 2012.3 According to the World Bank, in 2010-2011 only fifteen per cent of the core development budget was domestically financed.
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National military expenditure in 2011 was 4.4 per cent of the nations total gross domestic product (GDP), a figure

that isprojected to increaseto more than 17.5 per cent of GDP by 20212022. As Tables 1 and 2 further indicate,

a great majority of the national budget is dedicated to security-related spending, in addition to the roughlyUSD

242.9 billion spent on foreign military operations and international peacekeeping forces. The GIRoA and the

international community aim, with this security-focused strategy, a secure and investor-friendly environment as a

precondition for private sector investment. Nonetheless, political and economic analysts argue that it has been a

waste of energy and resourcesto pursue such a strategy rather than one that forms an economic structure that can

bring about a modern state and a developed economy, writes The Asian Foundation. Analysts emphasise that a

shift in focus is necessary so that resources go towards improving infrastructure and human resources

development, institutional capacity-building approaches, targeted and coordinated economic strategies as well as

transparent government policies and procedures. The details of suggested policies to accomplish such a shift are

detailed in the final section of this paper.

Table 2. Ministries with Largest Share of Operating Budget (FY 2013-2014)

Budgetary Units (USD 000)% share in total Operating

Budget

Ministry of Defence 2,938,182 29.1%

Ministry of Interior Affairs 2,195,252 21.7%

Ministry of Education 1,522,507 15.1%

General Directorate of National Security 503,835 5.0%

Ministry of Public Health 174,716 1.6%

Ministry of Higher Education 164,165 1.7%

Ministry of Foreign Affairs 136,342 1.3%

Directorate of Local Governance 126,996 1.3%

Ministry of Public Works 27,456 0.3%Ministry of Finance 94,462 0.9%

Total (10 Ministries) 7,883,918 78.1%

Source: Afghanistan Ministry of Finance,1392 Financial Year National Budget.

According to the World Bank, financing theAfghan budget depends greatly on external aid, with donor funds

providing 85 per cent of the development budget and 28 per cent of the operating budget. Table 3 provides a

breakdown of the progressive increase in donor assistance to Afghanistan over a period of seven years. As aid-

dependent as Afghanistan is, it is important to understand how aid affects the economy and the potential impact

during the transition. Another World Bankstudysuggests that aid inflates the governments role in the economy

by raising the public consumption. For instance, public consumption between the period 2006/07 2008/09increased from 10.8 per cent to 47.5 per cent of GDP. Notwithstanding, spending on Afghanistan does not

equal spending in Afghanistan, as much foreign spending finances security costs such as military personnel

salaries, logistics and research of international forces as well as development projects implemented by companies

or organisations from overseas, which have a limited direct impact on the countrys economy. Hence, many doubt

that the effects of the withdrawal could be less than expected.
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Table 3. Donor Assistance (USD million)Donor assistance 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Civilian aid 2,416 1,350 2,188 2,675 3,942 5,262

Security-related aid 988 1,905 7,028 2,750 5,470 8,594

On-budget support 720 717 1,069 1,024 1,275 1,886

Total 4,124 3,972 10,284 6,449 10,686 15,742

% of GDP 66% 56% 118% 61% 86% 98%

Source: World Bank Afghanistan in Transition: Looking Beyond 2014 Volume 2: Main Report, May 2012.

Given that aid flows are set to decline following international troop withdrawal, a key economic question for

Afghanistans transition is whetherlarge decreases in aid to other post-conflict countrieshave negatively affected

their economies. One comparator identified by the World Bank is Mozambique, where aid was equal to roughly

60 80 per cent of Gross National Income (GNI) in the first three years of transition, but declined to less than

twenty per cent and stayed in the 20 30 per cent range for the rest of the fifteen-year transition. Yet real percapita GDP growth in Mozambique maintained average annual growth of over 4 per cent. Another comparator is

Bosnia and Herzegovina, where aid declined early in the post-conflict from 57 per cent of GNI in 1995 to 6 8

per cent in 2002 2004 and 2 3 per cent in recent years. In this case, the country saw an initial slowdown of

GDP growth, but growth picked up to 5-7 per cent in the period from 2004 2008. Therefore, as evidenced by

these cases and others, World Bank economists claim the impact of large aid reductions on economic growth may

be less dramatic than expected, although it is important to highlight a number of factors distinguishing

Afghanistan as uniquely different. In Mozambique and Bosnia and Herzegovina, aid was reduced early in the

post-conflict period at a time when post-conflict economic recovery was still strong and could offset the loss of

aid. Crucially, in both examples peak levels of aid were temporary, so their economies did not develop a reliance

and form to expect high aid flows. Afghanistan, on the other hand, has surpassed its post-2001 economic boom

and has become highly adapted to high aid flows. As a result, Afghanistan crucially needs strategic and gradualaid taperingto allow the economy to adjust to new opportunities for growth and warns that a rapid decline could

lead to serious macroeconomic instability and negative socioeconomic consequences.

Domestic revenue collection has improved dramatically in the last decade, according to leading international

organisations. The World Bank and the International Monetary Fund (IMF) cite an increase in Afghanistans

domestic revenueby twenty per cent a year in the four years leading up to 2011, rising from three per cent of GDP

in 2002 2003 to eleven per cent of GDP in 2010 2011. The World Bank attributes revenue growth to the

introduction andstrengthening of sound public management systemsand to the maintenance of fiscal discipline.

Specifically, Afghanistan has undergonean improvement of the Large Taxpayers Offices(LTOs), a key structure

to guide large taxpayers, including medium and large-sized businesses, through complex tax procedures. The

establishment of such institutions in facilitating tax payment compliance has significantly increased revenues, withLTOs contributing thirty per cent of all tax revenues raised by the MoF and heightening tax administration

efficiency. Medium Taxpayer Offices (MTOs) have been targeted for improvement alongside the LTOs by the

United States Agency for International Development (USAID) as part of the organisations Economic Growth and

Governance Initiative (EGGI) and have also contributed to boost Afghanistans tax revenue. Furthermore, in 2010

the UK Department for International Development (DFID), in collaboration with the World Bank, introduced the

Standard Integration of Government Tax Administration System (SITGAS) inHerat,Balkh,Nangarhar,Kunduz

and Kandaharprovinces. SITGAS is an automated database that re-engineers tax administration delivery and

makes various aspects of tax management more systematic.
http://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://www.imf.org/external/pubs/ft/scr/2012/cr12245.pdfhttp://www.imf.org/external/pubs/ft/scr/2012/cr12245.pdfhttp://www.imf.org/external/pubs/ft/scr/2012/cr12245.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Resources/305984-1201489063036/4608353-1213149149023/PFMParis.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Resources/305984-1201489063036/4608353-1213149149023/PFMParis.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Resources/305984-1201489063036/4608353-1213149149023/PFMParis.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Resources/305984-1264608805475/6739619-1276813833351/Paper2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Resources/305984-1264608805475/6739619-1276813833351/Paper2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Resources/305984-1264608805475/6739619-1276813833351/Paper2.pdfhttp://webarchive.nationalarchives.gov.uk/+/http:/www.dfid.gov.uk/procurement/files/ojec8333tors.pdfhttp://webarchive.nationalarchives.gov.uk/+/http:/www.dfid.gov.uk/procurement/files/ojec8333tors.pdfhttp://afghanistan.usaid.gov/en/USAID/Activity/124/Economic_Growth_and_Governance_Initiative_EGGIhttp://afghanistan.usaid.gov/en/USAID/Activity/124/Economic_Growth_and_Governance_Initiative_EGGIhttp://afghanistan.usaid.gov/en/USAID/Activity/124/Economic_Growth_and_Governance_Initiative_EGGIhttp://leadership.ng/blog/100513/modernising-tax-administration-sigitashttp://leadership.ng/blog/100513/modernising-tax-administration-sigitashttp://leadership.ng/blog/100513/modernising-tax-administration-sigitashttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Herat.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Herat.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Herat.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Balkh.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Balkh.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Balkh.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Nangarhar.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Nangarhar.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Nangarhar.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Kunduz.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Kunduz.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Kunduz.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Kandahar.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Kandahar.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Kandahar.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Kunduz.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Nangarhar.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Balkh.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Herat.aspxhttp://leadership.ng/blog/100513/modernising-tax-administration-sigitashttp://afghanistan.usaid.gov/en/USAID/Activity/124/Economic_Growth_and_Governance_Initiative_EGGIhttp://webarchive.nationalarchives.gov.uk/+/http:/www.dfid.gov.uk/procurement/files/ojec8333tors.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Resources/305984-1264608805475/6739619-1276813833351/Paper2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Resources/305984-1201489063036/4608353-1213149149023/PFMParis.pdfhttp://www.imf.org/external/pubs/ft/scr/2012/cr12245.pdfhttp://www.imf.org/external/pubs/ft/scr/2012/cr12245.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdf


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Additionally, improvements have been made in domestic revenue collection with the introduction of a two per

cent Business Receipt Tax (BRT), greater revenues from the state fuel company and the amendment of the income

tax law, adds the World Bank. Finally, the implementation of theplanned Value-Added-Tax(VAT) for 2014 will

further also increase domestic revenues. While the gains made in domestic revenue collection have exceeded

expectations and fiscal targets, fiscal consolidation remains dependent upon donor funding. Economists foresee

significantgrowth in expenditure will overtake gains in domestic revenueand as donor funding declines domestic

revenue, Afghanistan could reach aprojected financial gap of 25 per cent of GDP, approximately USD 7.2 billion

a year.

Table 4. Inflows: Revenues and GrantsItem FY 2012-2013 (USD) % of GDP FY 2013-2014 (USD)

% of GDP

(projected)

TOTAL REVENUES AND

GRANTS3,648,201,736 22.9% 5,510,541,546 23.4%

Total Domestic Revenue 1,758,991,318 11 2,666,391,070 11.3%Tax Revenues 1,374,534,931 8.6% 2,666,391,070 8.8%

Income, profits & capital gains 413,393,964 2.6% 638,693,675 2.7%International trade &transactions 551,880,942 3.5% 793,716,411 3.4%Goods and services 343,116,990 2.1% 527,077,304 2.2%Other 66,143,034 0.4% 115,750,310 0.5%

Non-Tax Revenues 384,456,386 2.4% 593,220,338 2.5%

Grants 1,889,210,416 11.9% 2,844,150,474 12%

Grants to operating budget 1,221,579,164 7.7% 1,909,880,115 8.1%Grants to development budget 667,631,252 4.2% 934,270,359 4.0%

Source: International Monetary FundCountry Report No. 12/245, August 2012

Capacity of the Government in Budget Execution

The inability of the Afghan government to address itschallenges regarding budget execution4

is an issue that has

been widely explored by experts, insofar as improper allocation of resources proves a major detriment to

economic stability. Budget analysis conducted by Afghans Coalition for Transparency & Accountability (ACTA)

claims that during the period 2011 2012, budget expenditure figures show approximately 94 per cent of the

operating budget was executed; for the same period only fifty per cent of the development budget was executed.

The World Bank notes that the predictable or recurrent costs associated with the operating budget (e.g. staff

salaries) are where governments maintain efficiency whereas the development budget, which covers one-time

expenses such as training and education programmes, is associated withinstitutional improvementor expansion.

In this regard, the World Banks analysis of Afghanistans public financial management identifies four areas of

improvementwith regard to budget execution. Firstly, financial management processes must guarantee that funds

reach service delivery units. Secondly, reform and progress inpublic financial managementlaws is necessary to

strengthen the control framework for public spending. Thirdly, progressive implementation of the Procurement

Law is necessary to establish a fair and transparent procurement system. Lastly, external examination and audit

4The term budget execution refers to a governments ability to plan and use the funds it has at its disposal.
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are crucial to keep the GIRoA accountable for the use of public funds. Overall, progress in these four areas will

address the overarching challenge of corruption by addressing the core governance problems.

Further studies addressing public financial management citedonor practices as a major culpritbehind GIRoAs

weak budget execution. One issue complicating the process to execute the budget is the diversity of different

delivery mechanisms, programme monitoring and financial systems of each donor. In these circumstances, it is

hard for the Afghan government to know the amount of money it has and how and when the funds are to be

received. In addition, donors annual budgeting obliges the government to approach budget execution in the short-

term, rather than allowing for long-term, high-cost investments.

In December 2012, the lower house in Afghanistans parliament voted in favour of the impeachment of eleven

ministerswho failed to spend at least fifty per cent of their fiscal-year budgets, reports Tolo News. The eleven

ministers were summoned in early 2013 to undergo a vote of confidence in parliament. In April 2013, two

ministers received votes of confidence during the parliamentary sessions to question the ministers budget

spending and vote on impeachment. As an illustration of the nations sustained struggle to improve government

capacity to properly disperse funds, Figure 1 depicts budget execution against percentage efficiently allocated and

executed from 2005/2006 - 2010/2011.

Figure 1. Core Operating and Development Budget Execution, 2005/06 - 2010/11 (per cent and USD millions)

Source: World Bank Afghanistan in Transition: Looking Beyond 2014 Volume 2: Main Report, May 2012

Decline of International Aid during the Transition

The withdrawal of international troops and the transfer of security responsibilities to the Afghan National Security

Forces are expected to be completed in correspondence with the next Afghan election cycle. Along with the

handover of military functions it is expected a decrease in foreign aid assistance, an impact that might be

deepened if the Afghan government fails to satisfy the conditions set by donors at the Tokyo Conference.
http://www.undp.org.af/Publications/KeyDocuments/ADR_Afghanistan.pdfhttp://www.undp.org.af/Publications/KeyDocuments/ADR_Afghanistan.pdfhttp://www.undp.org.af/Publications/KeyDocuments/ADR_Afghanistan.pdfhttp://tolonews.com/en/afghanistan/8815-parliament-rejects-2013-budgethttp://tolonews.com/en/afghanistan/8815-parliament-rejects-2013-budgethttp://tolonews.com/en/afghanistan/8815-parliament-rejects-2013-budgethttp://tolonews.com/en/afghanistan/8815-parliament-rejects-2013-budgethttp://tolonews.com/en/afghanistan/9988-mps-delay-impeachment-vote-on-ministers-of-botched-budgetshttp://tolonews.com/en/afghanistan/9988-mps-delay-impeachment-vote-on-ministers-of-botched-budgetshttp://tolonews.com/en/afghanistan/10042-two-govt-ministers-receive-mp-confidence-vote-http://tolonews.com/en/afghanistan/10042-two-govt-ministers-receive-mp-confidence-vote-http://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://www.nytimes.com/2011/12/06/world/asia/us-withdrawal-from-afghanistan-worries-aid-groups.html?pagewanted=all&_r=0http://www.nytimes.com/2011/12/06/world/asia/us-withdrawal-from-afghanistan-worries-aid-groups.html?pagewanted=all&_r=0http://www.nytimes.com/2011/12/06/world/asia/us-withdrawal-from-afghanistan-worries-aid-groups.html?pagewanted=all&_r=0http://siteresources.worldbank.org/AFGHANISTANEXTN/Images/305983-1334954629964/AFTransition2014Vol2.pdfhttp://tolonews.com/en/afghanistan/10042-two-govt-ministers-receive-mp-confidence-vote-http://tolonews.com/en/afghanistan/9988-mps-delay-impeachment-vote-on-ministers-of-botched-budgetshttp://tolonews.com/en/afghanistan/8815-parliament-rejects-2013-budgethttp://tolonews.com/en/afghanistan/8815-parliament-rejects-2013-budgethttp://www.undp.org.af/Publications/KeyDocuments/ADR_Afghanistan.pdf


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Tokyo Conference Commitments and the Conditionality

Seventy representatives from around the world convened at the Tokyo Conference5

in July 2012, where they

pledgedUSD 16 billion in aid6

to Afghanistan over the next four years. The funds promised by the delegations are

subject to the Tokyo Mutual Accountability Framework (TMAF), which states some conditionality for the funds

to be handed over. This is a clear indication, according to some experts, that donors are not willing to make

indefinite commitments. As the largest donor, the United States government announced it will maintain the level

of assistance that has been provided to Afghanistan over the last ten years, approximatelyUSD 2 billion a year

until 2017 according to The Guardian. Similarly, Japan, the second-largest donor, committedUSD 3 billion over a

four-year periodthrough 2016, USD 2.2 billion of which will be provided in grants for infrastructure development

programmes, said Japanese Foreign Minister Koichiro Gemba. Also, Germany made a pledge ofUSD 536 million

a yearuntil 2016, with Foreign Minister Guido Westerwelle emphasising that Berlin will diligently tie its aid to

government reforms. Moreover, Canada made a commitment of USD 227 million in development aid between

2014 and 2017, on top of its initial pledge of USD 300 million for 2011 to 2014. The money is to go towards

empowering women and girls in the areas of education, human rights and humanitarian assistance. Australias

Foreign Minister Bob Carr announced his country is set to provide USD 1 billion over four years for education,

rural jobs and development of the mining industry beginning in 2015-2016. Furthermore, the European Union

announced that it will provide funding in line with current levels ofEUR 1.2 billion a year, on the condition that

progress is achieved in womens rights and rule of law. The Asian Development Bank will provide USD 1.6

billionthrough 2016.

The logistics of the financial aid pledged at the Tokyo Conference are detailed in the Tokyo Declaration, a

document agreed on by conference participants, which lays out the Tokyo Mutual Accountability Framework

(TMAF). The TMAF identifies reciprocal principles set to ensure each side monitors and honours its

commitments, so that donors follow through with pledged assistance and the Afghan government secures delivery

and accountability in light of fears of corruption and poor governance. The aid is tied to a mechanism of

conditionality linked to the government performance and includes benchmarks to measure progress in various

sectors, including corruption, human rights, gender equality, finance management and democratic processes,amongst others. In order to receive at least twenty per cent of the committed funds, the GIRoA must reduce

corruptionand meet governance standards, according to theNew York Times. Theconditions includefree and fair

presidential and parliamentary elections in 2014 and 2015, and the implementation of a law regarding violence

against women. A major problem with the pledges from the Tokyo Conference, as identified by the Center for

Strategic and International Studies (CSIS), is that they are not linked to any credible assessment of actual

requirements.

Pledges versus Actual Disbursement

Despite the fact that donors have pledged large amounts of funds for Afghanistan reconstruction, the 2010 briefing

paperAfghanistan: Tracking major resource flows 2002-2010 questions the reliability of donor commitments.

While donors pledged USD 62 billion in aid for the period 2002-2013, in 2009 only 43 per cent (USD 26.7

billion) of the total had been disbursed to development projects and activities. Table 5 illustrates whether the

commitments have been met for each of the donors. These past trends and the challenges the Afghan government

5 For a detailed breakdown of the 2012 Tokyo Conference, see CFC publication Second International Tokyo Conference onAfghanistan.6For the purpose of this report, use of the term aid henceforth refers to official development assistance (ODA), either a grant or

loan, from a bilateral agreement or a multilateral agency.
http://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://www.guardian.co.uk/world/2011/dec/05/afghanistan-conference-support-troop-withdrawalhttp://www.guardian.co.uk/world/2012/jul/08/afghanistan-donors-16bn-development-aid?intcmp=239http://www.guardian.co.uk/world/2012/jul/08/afghanistan-donors-16bn-development-aid?intcmp=239http://www.guardian.co.uk/world/2012/jul/08/afghanistan-donors-16bn-development-aid?intcmp=239http://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://www.spiegel.de/international/world/donor-nations-pledge-billions-to-afghanistan-a-843344.htmlhttp://www.spiegel.de/international/world/donor-nations-pledge-billions-to-afghanistan-a-843344.htmlhttp://www.spiegel.de/international/world/donor-nations-pledge-billions-to-afghanistan-a-843344.htmlhttp://www.spiegel.de/international/world/donor-nations-pledge-billions-to-afghanistan-a-843344.htmlhttp://www.huffingtonpost.ca/2012/07/08/canada-afghanistan-aid_n_1657080.htmlhttp://www.huffingtonpost.ca/2012/07/08/canada-afghanistan-aid_n_1657080.htmlhttp://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://www.guardian.co.uk/world/2012/jul/08/afghanistan-donors-16bn-development-aid?intcmp=239http://www.guardian.co.uk/world/2012/jul/08/afghanistan-donors-16bn-development-aid?intcmp=239http://www.guardian.co.uk/world/2012/jul/08/afghanistan-donors-16bn-development-aid?intcmp=239http://president.gov.af/Content/files/Tokyo%20Declaration%20-%20Final%20English.pdfhttp://president.gov.af/Content/files/Tokyo%20Declaration%20-%20Final%20English.pdfhttp://www.un.org/apps/news/story.asp?NewsID=42418&Cr=Afghanistan&Cr1=http://www.un.org/apps/news/story.asp?NewsID=42418&Cr=Afghanistan&Cr1=http://www.un.org/apps/news/story.asp?NewsID=42418&Cr=Afghanistan&Cr1=http://www.nytimes.com/2012/07/09/world/asia/afghanistan-is-pledged-16-billion-for-civilian-needs.htmlhttp://www.nytimes.com/2012/07/09/world/asia/afghanistan-is-pledged-16-billion-for-civilian-needs.htmlhttp://www.nytimes.com/2012/07/09/world/asia/afghanistan-is-pledged-16-billion-for-civilian-needs.htmlhttp://csis.org/files/publication/120918_Afghan_Failing_Econ.pdfhttp://csis.org/files/publication/120918_Afghan_Failing_Econ.pdfhttp://csis.org/files/publication/120918_Afghan_Failing_Econ.pdfhttp://csis.org/http://csis.org/http://csis.org/http://csis.org/files/publication/120918_Afghan_Failing_Econ.pdfhttp://csis.org/files/publication/120918_Afghan_Failing_Econ.pdfhttp://www.globalhumanitarianassistance.org/wp-content/uploads/2011/02/gha-Afghanistan-2011-major-resource-flows.pdfhttp://www.globalhumanitarianassistance.org/wp-content/uploads/2011/02/gha-Afghanistan-2011-major-resource-flows.pdfhttp://www.globalhumanitarianassistance.org/wp-content/uploads/2011/02/gha-Afghanistan-2011-major-resource-flows.pdfhttps://www.cimicweb.org/cmo/afg/Documents/Tokyo/CFC_Afghanistan_Tokyo-Conference-July2012.pdfhttps://www.cimicweb.org/cmo/afg/Documents/Tokyo/CFC_Afghanistan_Tokyo-Conference-July2012.pdfhttps://www.cimicweb.org/cmo/afg/Documents/Tokyo/CFC_Afghanistan_Tokyo-Conference-July2012.pdfhttps://www.cimicweb.org/cmo/afg/Documents/Tokyo/CFC_Afghanistan_Tokyo-Conference-July2012.pdfhttps://www.cimicweb.org/cmo/afg/Documents/Tokyo/CFC_Afghanistan_Tokyo-Conference-July2012.pdfhttps://www.cimicweb.org/cmo/afg/Documents/Tokyo/CFC_Afghanistan_Tokyo-Conference-July2012.pdfhttp://www.globalhumanitarianassistance.org/wp-content/uploads/2011/02/gha-Afghanistan-2011-major-resource-flows.pdfhttp://csis.org/files/publication/120918_Afghan_Failing_Econ.pdfhttp://csis.org/http://csis.org/files/publication/120918_Afghan_Failing_Econ.pdfhttp://www.nytimes.com/2012/07/09/world/asia/afghanistan-is-pledged-16-billion-for-civilian-needs.htmlhttp://www.nytimes.com/2012/07/09/world/asia/afghanistan-is-pledged-16-billion-for-civilian-needs.htmlhttp://www.un.org/apps/news/story.asp?NewsID=42418&Cr=Afghanistan&Cr1=http://www.un.org/apps/news/story.asp?NewsID=42418&Cr=Afghanistan&Cr1=http://president.gov.af/Content/files/Tokyo%20Declaration%20-%20Final%20English.pdfhttp://www.guardian.co.uk/world/2012/jul/08/afghanistan-donors-16bn-development-aid?intcmp=239http://www.guardian.co.uk/world/2012/jul/08/afghanistan-donors-16bn-development-aid?intcmp=239http://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://www.huffingtonpost.ca/2012/07/08/canada-afghanistan-aid_n_1657080.htmlhttp://www.spiegel.de/international/world/donor-nations-pledge-billions-to-afghanistan-a-843344.htmlhttp://www.spiegel.de/international/world/donor-nations-pledge-billions-to-afghanistan-a-843344.htmlhttp://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708http://www.guardian.co.uk/world/2012/jul/08/afghanistan-donors-16bn-development-aid?intcmp=239http://www.guardian.co.uk/world/2012/jul/08/afghanistan-donors-16bn-development-aid?intcmp=239http://www.guardian.co.uk/world/2011/dec/05/afghanistan-conference-support-troop-withdrawalhttp://in.reuters.com/article/2012/07/08/afghanistan-aid-idINDEE86700820120708


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will face after the withdrawal of international troops will definitely test donor fatigue in Afghanistan7. Other

experts warn of presuppositions that aid can be relied upon to shape a stable state, for many of the reasons raised

above- including neglect of state institutions and an inability to provide basic services- as well as the reliability of

donors to deliver on their pledges. In response to the pledges made at the Tokyo Conference in 2012, Louise

Hancock, Oxfam Afghanistans head of policy and advocacy expressed concern over how much of the funds are

new investments or how the international community will approach aid toAfghanistan after 2017, remarking, It

will take decades, not five years, to pull Afghans out of poverty.

Scholars at CSIS approach the matter of aid pledges with similar weariness, positing that the broader problem with

future aid will strike at the ability (or inability) for donors to deliver on their pledges for Afghan aid. A CSIS study

titled Creating the Economic Conditions and Civil-Military Aid Efforts Needed for Transition claims Nations

often do not make good on even their short-term pledges, turn aid into loans, and tie aid to specific projects and

priorities regardless of need. Hence, in looking towards the future of Afghanistans economy, rather than

concentrating on a donor driven economy, experts recommend the GIRoA and the international community must

shift the focus to natural-resource extraction, agricultural and rural development and efficient domestic revenue

collection.

Table 5. Aid Pledges, Commitments and DisbursementsTotal Pledged 2002-

2013 (USD billion)Total Committed

2002-2009 (USD

billion)Total Disbursed 2002-

2009 (USD billion)% of Pledges

Disbursed by End

2009United States 38.0 28.4 10.9 28.8%

EU Institutions 2.0 2.0 2.1 102.8%

United Kingdom 2.9 1.8 1.8 63.3%

Germany 1.2 1.0 1.3 108.0%

Canada 1.7 1.2 1.2 70.3%

Japan 1.9 1.4 1.0 52.5%

Netherlands 0.8 0.9 0.8 102.4%

Norway 0.9 0.6 0.7 71.0%

India* 1.2 1.2 0.4 36.1%

Sweden 0.3 0.5 0.4 147.3%

Italy 0.5 0.4 0.4 79.6%

Turkey 0.2 0.2 0.4 213.7%

Australia 0.4 0.2 0.4 98.8%

Iran (Islamic Republicof)*

0.9 0.3 0.3 39.5%

Spain 0.5 0.1 0.3 59.8%

Denmark 0.7 0.3 0.3 40.2%

France 0.2 0.2 0.2 105.9%

Finland 0.2 0.2 0.1 97.0%

Russia* 0.1 0.1 0.1 104.1%

Switzerland 0.1 0.1 0.1 102.9%

Multilateral agencies 5.3 4.0 2.7 50.6%

7For a broader discussion of donor fatigue and consequences see CFCs publication Prospect for a Crisis post-2014 by KaterinaOskarsson.
http://bigstory.ap.org/article/afghans-worry-about-international-aid-vacuumhttp://bigstory.ap.org/article/afghans-worry-about-international-aid-vacuumhttp://www.oxfam.org/en/pressroom/reactions/oxfam-reaction-tokyo-conference-continued-support-afghanistan-welcomed-developmehttp://www.oxfam.org/en/pressroom/reactions/oxfam-reaction-tokyo-conference-continued-support-afghanistan-welcomed-developmehttp://www.oxfam.org/en/pressroom/reactions/oxfam-reaction-tokyo-conference-continued-support-afghanistan-welcomed-developmehttp://csis.org/files/publication/120918_Afghan_Failing_Econ.pdfhttp://csis.org/files/publication/120918_Afghan_Failing_Econ.pdfhttps://www.cimicweb.org/cmo/afg/Documents/Governance/CFC_Prospect_for_Crisis_in_Post2014_Afghanistan.pdfhttps://www.cimicweb.org/cmo/afg/Documents/Governance/CFC_Prospect_for_Crisis_in_Post2014_Afghanistan.pdfhttps://www.cimicweb.org/cmo/afg/Documents/Governance/CFC_Prospect_for_Crisis_in_Post2014_Afghanistan.pdfhttps://www.cimicweb.org/cmo/afg/Documents/Governance/CFC_Prospect_for_Crisis_in_Post2014_Afghanistan.pdfhttp://csis.org/files/publication/120918_Afghan_Failing_Econ.pdfhttp://www.oxfam.org/en/pressroom/reactions/oxfam-reaction-tokyo-conference-continued-support-afghanistan-welcomed-developmehttp://bigstory.ap.org/article/afghans-worry-about-international-aid-vacuum


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Others 5.9 3.3 0.7 12.3%

Total 62.0 46.1 26.7 43.1%Source: Global Humanitarian AssistanceAfghanistan: Tracking Major Resource Flows 2002-2010, January 2011.

*Note: all disbursements are based on OECD DAC data, excluding India and Russia, which are based on Afghanistan DAD data.

Prospects for the Future of Self-Sustainability

Afghanistans real GDP growth increased from 7.3 per cent in 2011 to approximately 11.8 per cent in 2012, but is

expected to slow down in 2013 and 2014 due to political and security uncertainties, writes the Wo rld Banks

Afghanistan Economic Update. Moreover, the World Bank projects anannual growth of 4.9 per centbetween

now and 2025, with the potential to increase to 6.9 per cent in the same time period depending on progress

achieved in some sectors. Measures emphasised by experts to achieve this figure include: i) putting in place an

enabling regulatory, legal, and infrastructural system for the mining sector; ii) investing in agricultural irrigation

systems, new production and post-harvest processing technologies; and iii) strengthening domestic tax revenue

mobilisation.

Natural and Mineral Resources

Expectations for the untapped mineral deposits of oil, gold, copper and iron ore within Afghanistan are immense,

holding an estimated value of USD 1 trillion, according to the New York Times. Afghan Minister of Mines

Wahidullah Shahrani has called this a conservative estimate, claiming the nations mineral wealth could reach

USD 3 trillion,reportsNY Daily Times. Regardless of the exact figure, putting in place a sound regulatory and

legal structure for the mining sector is crucial to take advantage of the lucrative opportunities, not only to boost

economic growth, but also as a source of revenue for the Afghan government8. The World Bank projects that in a

scenario withhigher investment in miningdevelopment, growth could increase to 6.9 per cent on average until

2025, and fiscal revenues could reach 2-4 per cent of GDP by the early 2020s, depending on the number and scale

of the exploited mines and the pace of their development. Similarly, the IMF reports that under a cautiously

optimistic scenario, mining revenues could yield about two per cent of GDP by 2025.

Nonetheless, the potential revenues of the mining sector cannot be considered a guarantee as mining investments

and operations are very sensitive to Afghanistans economic and political uncertainties. Aynak copper mine

project, located in Afghanistans notoriously dangerous Logarprovince, is an illustrative example of how these

uncertainties can jeopardise the normal progress any investment. Assessments evaluate Aynak as the second-

richest unexploited copper deposit in the world.Five years behind schedulethe thirty-year contract was won by

state-owned China Metallurgical Group Corporation (MCC) for USD 3 billion in 2007, reports McClatchy.

Development of the mine has not progressed as planned, as insurgents aiming to sabotage the governments

flagship project increased attacks in the area,causing Chinese workers to fleeand the project to halt, according to

Reuters. Currently, MCC is waiting for the Afghan government to pass a new mining law in order to renegotiate

the terms and conditions of the project and increase the legal and physical protection of the mine. The discovery of2,000 year-old Buddhist monasteries has further complicated the situation and prevented exploration from

beginning, reports the Guardian.

Recentprogress has been made to improve mining laws, a vital move to attract foreign investment (and secure

planned investment), with new legislation being discussed in Parliament, according to Tolo News. Although

previous versionsof the law have failed to go through, Parliament is expected to pass this new law that will bring

8 For an in-depth report by the World Bank on this subject, consult The Afghanistan Mining Sector as a Driver of SustainableGrowth: Benefits and Opportunities for Large-Scale Mining.
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themining sector in line with international standards. The law is expected to issue improved security of tenure for

investors and more transparent guidance on licensing, tendering and other obligations. With multi-billion-dollar

commitments from international firms pending, the laws passing will allow the implementation of large-scale

resource-extraction projects that have been held up due to insecurity and uncertainty. Another such delayed

project is the Hajigak iron ore deposit in central Bamianprovince, which is worth up to USD 11 billion. An

investment plan for the project with a consortium led by the Steel Authority of India Ltd (SAIL) is in limbo

awaiting the passing of the new legislation, reportsReuters. The broader plans around theUSD 1.8 billion tonnes

of iron orereserves include a crucial 600 km-long rail corridor linking Bamian to the new Chahbahar port in Iran,

according to the Economic Times. Both the Aynak and Hajigak mines will result in large amounts of materials

requiring feasible transportation out of the country, and per contract the companies exploiting the mines have to

invest in newrailway infrastructure.

Even with such growth, economists at the World Bank point out the direct impact of mining may not be asdirectly

transformativeas expected. As an economic activity, the mining sector is capital-intensive and does not result in

significant job creation. Estimates for the best-case scenario state mining will bring about 100,000 to 125,000 jobs

in Afghanistan over the next ten years, a figure that wanes in comparison with the 400,000500,000 peoplewho

will enter the workforce each year in the same period. Moreover, the report points out that those job opportunities

in the mining sector will be predominantly for skilled and semi-skilled workers, thusdirect benefitsto the poor

and low-skilled workers will be limited.

In order to maximise the economic benefits of the mineral wealth, strategicplanning and investmenton the part of

the Afghan government is called upon throughWorld Banks Resource Corridor approachwhich rests on the

idea of using mining development as an anchor for the infrastructure that underpins the viability of the other

sustainable activities. The approach was built on the theory that with development of a resource corridor the state

has an opportunity to leverage economic growth and diversification so that more can benefit from a spillover

effect. Essentially, the mines provide theincentive and opportunityto create an initial resource corridor that brings

transport and power infrastructure to rural regions, which then stimulate economic development in tandem with

the mining industry. A GIRoA-led programme focused on resource corridors is built upon the knowledge that ifsuch infrastructure is well designed, a resource corridor could emerge providing incentives for the discoveries of

additional minerals and thedevelopment of industriesboth related and not related to mining.

In late-2012, China National Petroleum Corporation (CNPC) began oil production in the Amu Darya basin in

northern Afghanistan. With around 1,950 barrels of oil produced per day, the number isexpected to growto more

than 4,000 barrels per day by the end of 2013. According to Reuters, The venture with CNPC, which has

invested hundreds of millions of dollars, was expected to produce billions of dollars over the next two decades -

CNPC will pay a fifteen per cent royalty on oil, twenty per cent corporate tax and give 50-70 per cent of its profit

from the project to the government. The expected contribution of Amu Darya oil to the Afghan budget through

royalties and taxes is approximatelyUSD 250 million annuallyfor 25 years. While the development of thenatural

gas sector, a USAID-led programme for rehabilitation and reconstruction of the poorly maintainedgas pipelineinSheberghan, began in 2012. This initiative is an important step towards becoming self-reliant in energy

production.

Agricultural Development

Agricultural development is frequently identified by experts as the most important sector the government can

pursue to achieve inclusive and sustainable growth. Agriculture weighs heavily in the outcome of Afghanistans

GDP, accounting for one fourth to one third of the nations overall economic growth, according to the World

Bank. Figure 2 demonstrates how the cyclical pattern of agricultural output is strongly correlated to real GDP
http://businesstoday.intoday.in/story/afghanistan-mining-potential-opportunity-india/1/194175.htmlhttp://businesstoday.intoday.in/story/afghanistan-mining-potential-opportunity-india/1/194175.htmlhttp://businesstoday.intoday.in/story/afghanistan-mining-potential-opportunity-india/1/194175.htmlhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Bamian.aspxhttps://www.cimicweb.org/AfghanistanProvincialMap/Pages/Bamian.aspxhttp://uk.reuters.com/article/2012/09/27/uk-afghanistan-aynak-idUKBRE88Q0XL20120927http://uk.reuters.com/article/2012/09/27/uk-afghanistan-aynak-idUKBRE88Q0XL20120927http://articles.economictimes.indiatimes.com/2012-12-21/news/35953283_1_afghan-iron-afisco-hajigak-deposithttp://articles.economictimes.indiatimes.com/2012-12-21/news/35953283_1_afghan-iron-afisco-hajigak-deposithttp://articles.economictimes.indiatimes.com/2012-12-21/news/35953283_1_afghan-iron-afisco-hajigak-deposithttp://articles.economictimes.indiatimes.com/2012-12-21/news/35953283_1_afghan-iron-afisco-hajigak-deposithttp://www.tolonews.com/en/afghanistan/6498-chinese-engineers-arrive-in-afghanistan-to-plan-railwayhttp://www.tolonews.com/en/afghanistan/6498-chinese-engineers-arrive-in-afghanistan-to-plan-railwayhttp://www.tolonews.com/en/afghanistan/6498-chinese-engineers-arrive-in-afghanistan-to-plan-railwayhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/02/000333037_20130502161223/Rendered/PDF/770830REVISED0box377289B00PUBLIC00.pdfhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/02/000333037_20130502161223/Rendered/PDF/770830REVISED0box377289B00PUBLIC00.pdfhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/02/000333037_20130502161223/Rendered/PDF/770830REVISED0box377289B00PUBLIC00.pdfhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/02/000333037_20130502161223/Rendered/PDF/770830REVISED0box377289B00PUBLIC00.pdfhttp://pull.khaamapress.netdna-cdn.com/wp-content/uploads/2013/05/Afghanistan-Economic-Update-April2013.pdf?644e90http://pull.khaamapress.netdna-cdn.com/wp-content/uploads/2013/05/Afghanistan-Economic-Update-April2013.pdf?644e90http://pull.khaamapress.netdna-cdn.com/wp-content/uploads/2013/05/Afghanistan-Economic-Update-April2013.pdf?644e90http://pull.khaamapress.netdna-cdn.com/wp-content/uploads/2013/05/Afghanistan-Economic-Update-April2013.pdf?644e90http://pull.khaamapress.netdna-cdn.com/wp-content/uploads/2013/05/Afghanistan-Economic-Update-April2013.pdf?644e90http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/02/000333037_20130502161223/Rendered/PDF/770830REVISED0box377289B00PUBLIC00.pdfhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/02/000333037_20130502161223/Rendered/PDF/770830REVISED0box377289B00PUBLIC00.pdfhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/02/000333037_20130502161223/Rendered/PDF/770830REVISED0box377289B00PUBLIC00.pdfhttp://pull.khaamapress.netdna-cdn.com/wp-content/uploads/2013/05/Afghanistan-Economic-Update-April2013.pdf?644e90http://pull.khaamapress.netdna-cdn.com/wp-content/uploads/2013/05/Afghanistan-Economic-Update-April2013.pdf?644e90http://pull.khaamapress.netdna-cdn.com/wp-content/uploads/2013/05/Afghanistan-Economic-Update-April2013.pdf?644e90http://www.worldbank.org/en/news/video/2012/07/02/afghanistan-resource-corridor-videohttp://www.worldbank.org/en/news/video/2012/07/02/afghanistan-resource-corridor-videohttp://www.worldbank.org/en/news/video/2012/07/02/afghanistan-resource-corridor-videohttp://www.nrrcp.gov.af/index.php?option=com_content&view=article&id=64&Itemid=39http://www.nrrcp.gov.af/index.php?option=com_content&view=article&id=64&Itemid=39http://www.nrrcp.gov.af/index.php?option=com_content&view=article&id=64&Itemid=39http://www.nrrcp.gov.af/index.php?option=com_content&view=article&id=64&Itemid=39http://www.nrrcp.gov.af/index.php?option=com_content&view=article&id=64&Itemid=39http://www.nrrcp.gov.af/index.php?option=com_content&view=article&id=64&Itemid=39http://www.reuters.com/article/2012/10/21/us-afghanistan-oil-idUSBRE89K08G20121021http://www.reuters.com/article/2012/10/21/us-afghanistan-oil-idUSBRE89K08G20121021http://pull.khaamapress.netdna-cdn.com/wp-content/uploads/2013/05/Afghanistan-Economic-Update-April2013.pdf?644e90http://pull.khaamapress.netdna-cdn.com/wp-content/uploads/2013/05/Afghanistan-Economic-Update-April2013.pdf?644e90http://pull.khaamapress.netdna-cdn.com/wp-content/uploads/2013/05/Afghanistan-Economic-Update-April2013.pdf?644e90http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/02/000333037_20130502161223/Rendered/PDF/770830REVISED0box377289B00PUBLIC00.pdfhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/02/000333037_20130502161223/Rendered/PDF/770830REVISED0box377289B00PUBLIC00.pdfhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/02/000333037_201305021612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growth. Agricultural productivity has far reaching benefits and is an important source of growth and income,

absorbing sixty per cent of the working population, with three out of five Afghan workers relying on farm-related

activities as their main source of income. The International Labour Organisation (ILO) has highlighted that with

joblessness as a recognised root cause of destabilisation and conflict, job creation is known to have a positive

impact on national peace and security, both directly and indirectly9. A more peaceful and productive Afghanistan

is better positioned to grow economically with a greater labour force, stimulated markets, internal demand and

further spillover benefits to other sectors.

Figure 2. Real GDP and Agriculture Growth Rates

Source: World BankAfghanistan Economic Update April 2013

The variability of the outcomes of the agricultural sector in terms of percentage of the GDP depends on a series offactors that significantly affect the agricultural production. On one hand, agriculture is of course highlydependent

upon weather conditions, with much of the harvest being rain-fed. On the other hand, agricultural sector is at the

mercy of the vacillating prices in regional and local markets, and yet the sector is insufficiently resilient to shocks.

Moreover, the countrys illicit opium production continues to play a significant role in agriculture as a highly

important cash crop for many households in rural areas, with the last three years showing an increase in opium

cultivation, according to the United Nations Office on Drugs and Crime (UNODC). With such impediments

preventing the exploitation of the agricultural sector, experts agree that it is necessary to address the challenges

and potential of agriculture as a crucial yet volatile piece of Afghanistans prospect for economic self-

sustainability.

The World Banks economic update on Afghanistan emphasises that with agricultural productivity currently

below fifty per cent of its pre-war level, the present challenges can be tackled by investing in agricultural

irrigation systems, new production and post-harvest processing technologies. Actions to achieve competitive

agricultural development must include what the ILO refers to as the simultaneous development of supporting

supply-chain services (again implementing and benefiting from the Resource Corridor approach), as Afghanistan

undergoes transition. More specifically, the Afghan government is advised to invest in agricultural irrigation

systems, as there is a lack of irrigated land and irrigation infrastructure, which oftenleads some farmers to grow

9 For a detailed exploration of the state of employment in Afghanistan, and its effects on economic and social stabilisation, see theILOs reportAfghanistan: Time to move to Sustainable Jobs.
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