Islamic Republic of Afghanistan - Enhanced Integrated Framework ...
Islamic Republic of Afghanistan - Enhanced Integrated Framework ... Islamic Republic of Afghanistan - Enhanced Integrated Framework ...
GROWTH PROJECTION ANDSTRATEGYThe average annual economic growth rate isprojected to be 8.1 percent for 1387-1391. Insubsequent years, growth rates are projected togradually decelerate from 9.0 percent in 1387 to7.0 percent in 1391 (Figure 4.5). This growthscenario envisages the following developments:• Agriculture: Agriculture is expected togrow 5 percent per year, the same rate asthe average growth rates for 1382-86.• Industry: Industry is expected to grow 9percent per year, supported by high investment(average investment is 34 percentof GDP). The main source of investment isexpected to shift from public investment toprivate investment (including domesticand foreign direct investment) with domesticinvestment initially leading foreign directinvestment.• Services: The services sector is also expectedto grow 9 percent. Although stillhigh in absolute terms, this is lower thanthe previous years’ average (14.5 percent).Figure 4.6. Medium term growth projectionsA key assumption underlying this ambitiousgrowth projection is an increasing role of theprivate sector over the projection period. Thisassumption is based on the understanding thatstrong private sector development better contributesto creating employment and hencepoverty reduction. Under the current environment(i.e. the evolving informal equilibrium),it is essential to break the informal equilibriumusing the following strategies:• Strengthening governance: Fighting corruptionwill require credible demonstrationsby high-level government – includingstrong commitments and clarification of institutionalarrangements; public administrationreform including merit-based selectionand appointment of civil servants;improving governance at the sub-nationallevel; further strengthening of public financialmanagement; and strengthening theexternal and public accountability mechanism(e.g. external audit, National Assemblyreview).• Responding to the challenge of the opiumeconomy: Past lessons have indicated thata key principle for success is focusing onthose parts of the drug industry that posethe greatest danger to the nation and itsdevelopment agenda – in other words, thelarger drug traffickers and their sponsors.Some strategies could include:oFocus eradication efforts on wealthieropium poppy cultivating areasand also areas that are new topoppy cultivation;44Afghanistan National Development Strategy (ANDS)
ooooIncrease interdiction efforts againstmedium and large drug traffickersand their sponsors;Actors associated with the drug industrywho are discovered to holdpowerful “legitimate” positions ingovernment or private sectorshould be removed and prosecuted;The government should focus onsensible rural development, insteadof short-term alternative livelihoodsprograms;The counter-narcotics dimensionshould be mainstreamed into developmentprogram.• Improving macroeconomic policy managementand aid effectiveness: It is veryimportant that macroeconomic policy formulationis transparent and avoids shorttermad-hoc measures. Some strategiescould include:oooFurther strengthening coordinationamong relevant line ministries. It isimportant that line ministries sharethe same view regarding the directionof macroeconomic policy;Continuing to enhance the budgetprocess and the role of the budgetas the central instrument for policyand reforms;Maintaining macroeconomic stabilityand progressing toward fiscalsustainability together with prudentmonetary policy will continueto be important.In order to break the evolving informal equilibrium,we must also ameliorate specific privatesector investment constraints. The results ofWorld Bank’s investment climate assessment in2005 show that more than half of respondentsidentify: (i) electricity; (ii) access to land;(iii) corruption (discussed above); and(iv) access to finance as major constraints toprivate investment. As the increase in privateinvestment is a key assumption to achievehigh, sustainable and quality growth rates, thefollowing specific strategies are suggested: 31• Electricity: Involve the private sector toexpedite power generation and distributionprojects in urban centers as well as in ruralareas. Specific strategies include:oooDeveloping the legal framework topermit and encourage power generationand distribution by the privatesector;Accelerating the execution of prioritypower generation initiatives;Improving distribution system.• Access to land: Implement measures tofacilitate access to land by clarifying propertyrights, simplifying procedures for thetransfer of titles, and allowing for longertermleases. Specific strategies include:oooDeveloping a strategy for industrialparks;Implementing improved and simplifiedprocedures for transfer ofprivately owned land;Developing better legal frameworksfor land registration and land adjudication.• Access to finance: Strengthen the financialsector to increase access to credit and financialservices, paying special attention toalleviating capacity constraints. Specificstrategies include:o Enacting an appropriate legalframework;ooBuilding capacity in the financialsector;Increasing the availability of financialservices in rural areas.Scaling up of industrial parks is a possibleshort-term solution: Although in themedium-term the Government should tacklethe abovementioned issues, in the short-term31 See the Government’s “Policy for Private Sector Growth andDevelopment”, presented at the Enabling Environment Conference,June 2007.Macroeconomic Framework 45
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GROWTH PROJECTION ANDSTRATEGYThe average annual economic growth rate isprojected to be 8.1 percent for 1387-1391. Insubsequent years, growth rates are projected togradually decelerate from 9.0 percent in 1387 to7.0 percent in 1391 (Figure 4.5). This growthscenario envisages the following developments:• Agriculture: Agriculture is expected togrow 5 percent per year, the same rate asthe average growth rates for 1382-86.• Industry: Industry is expected to grow 9percent per year, supported by high investment(average investment is 34 percent<strong>of</strong> GDP). The main source <strong>of</strong> investment isexpected to shift from public investment toprivate investment (including domesticand foreign direct investment) with domesticinvestment initially leading foreign directinvestment.• Services: The services sector is also expectedto grow 9 percent. Although stillhigh in absolute terms, this is lower thanthe previous years’ average (14.5 percent).Figure 4.6. Medium term growth projectionsA key assumption underlying this ambitiousgrowth projection is an increasing role <strong>of</strong> theprivate sector over the projection period. Thisassumption is based on the understanding thatstrong private sector development better contributesto creating employment and hencepoverty reduction. Under the current environment(i.e. the evolving informal equilibrium),it is essential to break the informal equilibriumusing the following strategies:• Strengthening governance: Fighting corruptionwill require credible demonstrationsby high-level government – includingstrong commitments and clarification <strong>of</strong> institutionalarrangements; public administrationreform including merit-based selectionand appointment <strong>of</strong> civil servants;improving governance at the sub-nationallevel; further strengthening <strong>of</strong> public financialmanagement; and strengthening theexternal and public accountability mechanism(e.g. external audit, National Assemblyreview).• Responding to the challenge <strong>of</strong> the opiumeconomy: Past lessons have indicated thata key principle for success is focusing onthose parts <strong>of</strong> the drug industry that posethe greatest danger to the nation and itsdevelopment agenda – in other words, thelarger drug traffickers and their sponsors.Some strategies could include:oFocus eradication efforts on wealthieropium poppy cultivating areasand also areas that are new topoppy cultivation;44<strong>Afghanistan</strong> National Development Strategy (ANDS)
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