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Analysis of economic situation in Afghanistan since 2002

Feature: An Analysis of Economic Situation in Afghanistan Since 2002

With the formation of a so-called democratic system after the downfall of Taliban in 2002, the citizens of Afghanistan hoped for a change in the socio-economic life and for the general improvement of the country’s economic situation. But after more than 18 years, it is clear that neither their aspirations came true, nor could they experience any improvement in economic and social situation. Of course, the people’s hope for change is a valid one. And the question that why the governments in Afghanistan, despite so much support from the International Community, has not been able to provide a suitable environment for economic growth and thus provide improvement in the living conditions of the people needs a deeper look at the issue.
The reasons for the current situation in the economy are primarily rooted in the failures of Karzai’s 13-year rule and the lack of political will, vision, program and managerial inability in Ghani’s government. These two cases are the fundamental factors during the transformation. To explain the matter, we must have a brief overview of the performance of the Karzai government in its thirteen years, and then an analysis of the causes and motivations of the slowdown and the decline in growth and socio-economic prosperity in National Unity Government (NUG).
As we know, Afghanistan has had an exceptional opportunity in terms of financial and monetary resources, political and diplomatic opportunities in the history of its economic and social development since the end of 2001 with the US and NATO military intervention and the overthrow of the Taliban regime and the establishment of the new regime. But the country could not use it efficiently and purposefully. Why it could not do so has its own internal and external reasons. Internally, the new government had to first make a relatively acceptable estimate of the damage to the national economy and its internal capacities, facilities and resources, or in other words, a clear definition of the economic and social situation of the time, and with the help of society. The international community took urgent action on the economic reconstruction and reconstruction program to provide the sources of funding without proper need assessment.
The new government started socio-economic activities in 2002, while its economy had reached this exceptional opportunity after experiencing a recession and the destruction of the economy of the previous period and the lack of favorable infrastructure. Immediately after its creation as a result of the Bonn Accords in December 2001, the interim government estimated the damage to the economy at about $30 billion after preliminary assessments, while the United Nations at the Afghanistan Reconstruction Conference in Tokyo in January 2002 predicted the required costs to be $10 billion for 10 years, and participating countries and institutions were to provide $5 billion over five years, starting from $1.8 billion in the first year, 2002, and about $2 billion in 2003 for Afghanistan’s reconstruction.
So, the Afghan government developed and implemented a program called National Development (Afghanistan Reconstruction Plan) in six areas (national solidarity, job search, road construction, health, education, irrigation and renovation of government buildings). The President’s speech at the Afghanistan Development Summit on April 30, 2007 stated that 26,000 villages were covered by the program. The program lasted for five years and was successful. According to the Minister of Rural Rehabilitation and Development at the Fifth National Conference of Rural Development Councils on November 1, 2015 in Kabul, 35,000 villages had been covered by the relevant development programs of the relevant ministry. Of course, the international community’s contribution to rural development is still ongoing, albeit to a lesser extent.
However, despite the success of the National Solidarity Program at the time and the passage of five years and the cost of billions of dollars in aid from the international community, the government could not predict its studies on the amount of damage completed and the reconstruction time and the required cost to properly plan and implement economic reconstruction and implementation. All in all, the government presented the second draft of the five-year plan, entitled “Afghanistan National Development Strategy”, to the Paris Conference on June 12, 2008 for funding, and obtained funding sources, and implemented the plan with many shortcomings, and the implementation process lasted until 2012. The cost of the program was tens of millions of dollars, and control over it was left to a few individuals and departments, while the growth indicators were not accurately predicted.
As noted, the Afghan government failed to provide specific figures for further assistance to Afghanistan Reconstruction Assistance Conferences until the end of Karzai’s thirteen-year term. However, during this period, by holding several meetings and conferences from the Tokyo Conference, January 2002 to the Chicago International Conference on May 20 and 21, 2012, it received a commitment of billions of dollars in aid for the reconstruction of the country.
According to the Ministry of Finance, about $57 billion to $60 billion were spent on Afghanistan reconstruction during this period, of which 18 to 20 percent were spent through the government and the rest by donors and NGOs. Meanwhile, the US government was said to have spent about $104 billion and other countries about $50 billion dollars in the military sector in Afghanistan. However, due to various sources of funding and costs, the government did not publish the statistical figures.
Summary: In thirteen years, Karzai’s government failed to take full advantage of unprecedented opportunities in terms of time, money, money, and the military and civilian presence of the international community (about forty countries), including the active presence of the United States, NATO, the United Nations, and domestic sources.
The first failure of this government was the inability to measure and estimate the damage to the national economy as a result of nearly three decades of war and stabilization of the needs of the Afghanistan Reconstruction Program and the inability to plan and implement a comprehensive national development strategy, especially economic development strategy. It was also marked with the failure to adopt accurate and effective economic policy and select the appropriate economic model within the framework of the market economy system.
In the absence of a coherent plan and a transparent monitoring system, the grounds for the non-targeted implementation of expenditures and revenues and widespread financial corruption, looting of national assets in the name of privatization, usurpation of state property, and corruption became favorable. This situation prevented the government from fulfilling its responsibilities in the areas of counter-narcotics, good governance, security and peace, and the basic tasks of the government in macroeconomics, at a cost of billions of dollars.
Despite the shortcomings, as mentioned above, there is no doubt that some work was done in the field of economic reconstruction and growth in Afghanistan, the most important of which are: rapid reconstruction of limited facilities from the past that were destroyed by war and infrastructure renovations, modern system private banking with more than three billion dollars, the use of advanced technology in the field of communications and the use of mobile phones, freedom of the media (print, audio and video), hotel buildings, wedding salons, modern residential and commercial buildings, the creation of private aviation companies and development of land transport, establishment of oil and gas storage facilities and its distribution throughout the country by modern fuel tanks and house-to-house distribution system, construction of ten of thousand kilometers of ring roads and highways and expected construction of another five thousand kilometers by the end of 2020. Construction and extension of the railway from Hairatan port to Mazar-e-Sharif Airport (2 km), which connects the Uzbek railway with Afghanistan, progress in the field of education, higher education and health, investment of 11 to 13 billion dollars in thirteen years, monetary reforms and increase in taxes and customs duties on products. But at a rate of about $60 billion in international aid over thirteen years and domestic resources, it did not live up to expectations.
One of the indicators cited as an achievement of the Karzai government, cited by international organizations (the World Bank, the International Monetary Fund, and the Asian Development Bank) is the economic growth index, which is, however, magnified and is deceiving and in some cases artificial and contradictory.
In a February 2004 report on Afghanistan’s economic recovery, the Asian Development Bank forecasted economic growth of 10% next year, the same as the previous year, and the International Monetary Fund (IMF) forecasted growth of 30%. The World Bank said in a 2004 report that Afghanistan had made significant progress compared to other war-torn countries, and that compared to two years ago, it was now witnessing economic, political and social activity while a significant portion of the population was living in poverty. The bank said in a 2005 report in Kabul that Afghanistan’s economy had grown by 50 percent in the past two years, with the main reasons for growth were improving the agricultural situation in the war-torn country, reviving economic activity and government policy. In the area of monetary reform in late 2002, it mentioned the control of the foreign exchange market and the support of the country’s currency. The bank’s next report in 2006, which looked at the last four years, expressed concern about Afghanistan’s slow growth, noting that administrative capacity in Afghanistan’s financial system was weak and, in some cases, non-existent.
At the same time, insiders and experts who closely followed surveys on the economic situation in Afghanistan by international organizations easily realized the inconsistencies in their reports and assessments, which were not only far from the truth, but also artificial, in some cases, intentionally misleading to suggest a kind of negative encouragement. For example, GDP per capita in 2003 was estimated at $4.4 billion, with a per capita income of $170, while the same sources reported that about 50 percent of GDP was produced by narcotics.
The share of narcotics in the country’s gross domestic product has remained at this level and even more. When it comes to economic growth, narcotics production is not calculated, but when it comes to per capita income, narcotics production is added to it. Because per capita income is the result of the distribution of gross national product on the country’s population.
The situation had been deteriorating since 2009, but the Asian Development Bank forecasted Afghanistan’s economic growth at between 3.5 percent in 2013 and 5.1 percent in 2014. The Asian Development Bank forecasted Afghanistan’s economic growth in 2014 and 2015 at 3.5 and 4.5, respectively.
It is natural that with the use of billions of dollars (albeit ineffective) growth and change in the Afghan economy had been revealed. But this artificial growth was based on the production of foreign goods and foreign aid, mainly in the service sector, which had declined with the outflow of foreign forces and the reduction of aid, not due to the performance of the real economy. The government had not worked on the real economy at all. If the $9.1 billion in foreign aid was cut, Afghanistan’s economic cycle would stall. We all know that the Afghan government started its economic activity in 2002 from scratch. It is natural that any dot placed after zero will fill the page. The nature and quality of growth is important.
The government could not use the extraordinary facilities to create and manage the infrastructure of the national economy and potential capacities in the fields of agriculture, mines, water, transit, geography (political and economic). The work Karzai government did in these fields were mostly incomplete or they were not cost-effective. Among Karzai’s honors is the implementation of the contract for the Logar copper mines and the Amu Darya oil field with a Chinese company. Although Afghanistan’s iron ore reserves are one of the largest in Asia, the lack of infrastructure in the mining market is unfortunate. There were legal, infrastructural, and technical knowledge problems in the mines that could never be solved during Karzai regime.
The country’s agricultural sector remained insufficient in terms of grain production. Grain production in the year 2008 amounted to 4.6 million tons, although an increase of 0.6 million tons, but the domestic need is of 7 million tons of grain per year (5 million tons of wheat and 2 million tons of other grains). Afghanistan imported $200 million worth of construction timber annually due to its vast forests. Due to low capacity and lack of security, development budgets were not implemented by ministries, and resources were either transferred to the next year or returned to source. Of the $3.7 billion in Asian development aid alone during this period, only $ 1.7 billion was spent by the stagnant government.
The Kabul Bank crisis was the biggest financial scandal in the history of Afghan banking. With poor management and incomplete understanding of the free market system, Karzai practically turned the country into a country with a consumer economy and a market for low-quality and low-quality goods and acted as a marketing manager for them. At the end of the 13-year trade balance, it inherited $11 billion, including $10 billion (90%) from imports and $1 billion (10%) from exports, an empty treasury, a corrupt, insecure and troubled system so that the next government could not balance its 13-year performance.
The NUG itself is a direct product of the Karzai regime and its unbelieving offspring, and the conditions prevailing in it are partly due to the previous turmoil. As noted, the 13-year-old Karzai government failed to pave the way for economic growth and development. He did this purposefully by engineering and prolonging the elections in order to maintain his influence during the NUG as well, including in the financial and economic sectors.
NUG began its work with an empty treasury, a reduction in aid, citizens’ distrust of security and the subsequent development of the situation, a weak foundation. It made people very hopeful with very fat and warm promises during and after the election campaigns and raised expectations. Lack of strong political will, a unified understanding of national interests and the unity of government opinion and action in its internal affairs that could not form its cabinet for more than six months, many departments at the central and local levels stared to be governed by supervisors.
Ideally, the new government should have made an accurate assessment of the general situation of the country, including the performance of the previous government for thirteen years, and clearly calculating all the needs and possibilities (internal and external) and based on that the comprehensive national development strategy plan should have been designed and implemented. With the realization of the priorities step by step, a change in the time horizon was revealed in different parts and the people felt its influence gradually and the government consciously noticed the shortcomings in performing its duties and corrected things in time by making adjustments in the program.
The government began its work in a hurry by launching a series of anti-corruption programs in the Kabul Bank case and the Ministry of Defense contracts, in which there were hundreds of millions in embezzlement, but without concluding them. While some others issues, like ghost schools and hospitals and ghost personnel in police station etc. arose, and government attention was not focused. All of these indicated widespread corruption left over from the previous government, and the inability of the present government to tackle them. It was also incapable of working due to internal consensus, and as the NUG progressed, the distance between the people and government kept on increasing, as it was not able to deliver anything tangible to the people. So, as a result of the weakness of the leadership and management of the government, our country and people started witnessing the following unfortunate developments: increased insecurity; lost capital (material and non-material); decrease in domestic and foreign investments; youth plight and increased migration to Europe; reduction of domestic production and consequently reduction of economic growth; more than 90% trade balance deficit; inflation and devaluation of the currency against foreign currency; and rising poverty rates.
Thought NUG had an opportunity to take action and thwart some of its failures and review all matters on the basis of national interests, and to take urgent measures to prevent further deterioration of the economic and security situation. However, it could not determine or practice any long-term program or strategic macro-plans. Thus, it could not solve the issues pertaining to security, infrastructure, corruption, despite wasting a large sum of money, which was mostly devoured by corruption.
Now, at the present scenario, the government formed after Ghani’s reelection, or any other arrangement that may be formed after intra-Afghan talks (if the talks are successful) needs a strong political will, national understanding and effective management and a precise plan for national development, no doubt all obstacles in the way forward will be removed step by step and the country will go through the stages of development and prosperity and our deprived people will prosper.
(Sahar News)

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