Editor in Chief: Moh. Reza Huwaida Thursday, July 19th, 2018

Saving Afghanistan from an Economic Crisis

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Saving Afghanistan from  an Economic Crisis

Recently the Afghanistan Chamber of Commerce and Industry (ACCI) has warned that Afghanistan might face serious economic crisis in the midst of ongoing war and conflict and absence of genuine and lasting development of its economy. The situation is particularly worrying given the fact that the country has an entirely consumer economy with imports having substituted the bulk of what could have been domestic production and manufacturing.

Imports for Afghanistan have been relatively cheap thanks to the stable and strong exchange rates of the national currency Afghani against foreign currencies such as the U.S. dollar and Pakistani Rupee. This has been so on account of the massive inflow of U.S. dollar into the country in the form of generous foreign aid and transfer payments that reach into billions of dollars annually.

In addition to these billions of dollars in foreign aid that has helped to keep the exchange rate of Afghani against foreign currencies relatively stable, the illegal drug and opium trade has also earned the country hundreds of millions of dollars annually in foreign currency mainly the U.S. dollar.

The intervention by Da Afghanistan Bank as the country's Central Bank in the foreign exchange market of the country by buying and selling foreign currencies has also contributed to the stable situation of our national currency, Afghani. If it was not for the incoming foreign aid, the drug dollars and the Central Bank's market intervention, our currency Afghani would easily lose a large part of its value.

Pakistani Rupee is facing the same situation having lost a large part of its value over the past few years. Now, the same fate might be awaiting Afghanistan in near future if the calls and warnings from various quarters such as the one by ACCI are not heeded by the government and our policy makers. If our currency Afghani loses even ¼ of its exchange value and trade at for example 65 Afghani for one U.S. dollar, then the cost of imported goods and services would climb by almost 50%.

This would be a disaster given the fact that almost all consumer and non-consumer goods are imported from outside. The cost of living and the inflation rate would skyrocket and Afghanistan would see food riots and hungry people on the streets much like what has been happening elsewhere in the world. In order to safeguard the economic gains made over the past one decade and further build on these improvements and bring jobs and employment to the poor and unemployed, economic growth and development is a must. However, certain areas of priority need to be identified and addressed before economic growth can be accelerated and maintained over the long-term. One of these fundamental areas is building a network of infrastructure systems for Afghanistan. Let us take a closer look at this much important requirement.

Infrastructure is one of the crucial areas in the present state of affairs in the country. Lack of sufficient infrastructure in the form of roads, bridges, tunnels, power generation facilities and transmission grids, hospitals and health clinics, sufficient urban housing, sewerage and solid waste management systems, railways and water supply systems in both rural and urban sectors have significantly slowed down and hampered the process of economic development and has led to denial of income and means of livelihood to our impoverished people. Infrastructure constraints or lack of it hamper the process of development and make it virtually impossible. It is high time that our policy makers and planners devise and announce ambitious programs of infrastructure development in the country. The experience from other developing countries also point to the paramount importance of infrastructure in the economic development and modernization of the traditional structures of national economies. In a developing economy, the infrastructure is the key to development of the country.

What Afghanistan requires at this juncture, is a grand plan on the lines of the European Recovery Program or Marshall Plan that rebuilt the Europe after the World War II and paved the way for the eventual emergence of these countries as developed and prosperous nations. Unfortunately, there is no political will on the part of the U.S. and the international community to come up with such a comprehensive program for Afghanistan. The onus is on the Government of Afghanistan to take the initiative into its own hands and, in a meaningful way, address the infrastructure needs of the country. The attempts so far to develop infrastructure in the rural as well as urban areas of the country have been haphazard and disconcerted and lacked coordination at the national level. The quality of the work done is poor in many instances and the infrastructure developed so far has been confined to roads, bridges, culverts and river-side fortifications. The volume of the work done is far less than what is required to revive the Afghan economy and provide lifelines to the country.

The cost and the technical know-how of developing the infrastructure needs of the country are, no doubt, massive. As the government of Afghanistan can not accomplish the task single-handedly, it requires the active participation of the Afghan private sector and international donors as well as private sector players from other countries in order to procure the huge financial resources needed for the purpose. Over the long term and after the semblance of a functioning infrastructure propels our economy into higher growth and development, developing and improving our infrastructure base further will be less of a difficult task.

The Government then can leave many areas to the private sector and in other sectors and join hands with the private sector in Public Private Partnerships. The Public Private Partnerships have proved to be effective models for reducing the huge financial burden of infrastructure development on the government and mobilizing the financial resources readily available with the private sector. Before all this can materialize, we need to enhance and improve the capacities and capabilities of our government. Nurturing and fostering a vision for growth, plans for the long term, commitment and political will on the part of the government and international community, removing the bureaucratic bottlenecks and red tape from the corridors of Afghan government and providing security all are pre-requisites for implementing a grand, national infrastructure policy that can revive the moribund economy of our country.

The author is the permanent writer of the Daily Outlook Afghanistan. He can be reached at outlook afghanistan@gmail.com

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