DAIMG’s Review of the World Bank’s Afghanistan Development Update April 2024

DAIMG’s Review of the World Bank’s Afghanistan Development Update April 2024 I. Introduction The World Bank is the principle imperialist economic and social policy advocacy agency currently working in the Islamic Emirate. An Islamic analysis of its policy proposals is necessary for understanding the imperialist’s economic and social strategy for undermining the legitimacy of Islamic rule in the Islamic Emirate. This review (a) assesses the macroeconomic picture of economic development that the Report presents (b) outlines its policy proposals and (c) tentatively suggests policy responses to prevent the Islamic Emirate’s economic subjection to imperialist finance. II. Macroeconomic Trends On the basis of national statistics and Information Authority (NSIA) data the Report says that GDP has declined significantly in 2022 and 2023. The Report does not note that such a decline is inevitable in revolutionary situations. Following the Bolshevik revolution of 1917 aggregate production declined by over 70 percent in the USSR during 1918-21 and recovery did not start until three years later – the USSR experienced widespread famine condition in 1919-20. The Report does not note that deceleration of GDP growth has slowed down since 2022 and national GDP rose by over 2 percent in 2023. The Report does not present any estimates of the expenditure on structure of GNP. Thus there is no assessment of trends in private and government consumption and gross domestic capital formation in the Report which makes its forthcoming gloomy forecasts for continuous depression dubious. On the basis of its own-private sector survey it recognizes growth in business units in 2023 compared to 2022. It presents no figures on unemployment and “disguised unemployment” and it is clear that the “employment gap” – not defined anywhere in the Report – has widened remains unsubstantiated as its dubious claim about household poverty, It “assigns economic hardship and increased poverty to political shifts of the Islamic government without any substantiation of this propagandist claim. The Report noted “some improvement” in the business environment and decline in food insecurity in 2023 but without providing any justification expects food insecurity to increase in 2024. It notes the negative GDP impact of the ban on poppy Cultivation but does not recognize the successful policy initiatives of the Islamic government leading to a major shift in the cultivation area under food crops and the associated increase in faster productivity in agricultural sector. Instead the Report is entirely silent about factor productivity growth throughout the economy. Its focus is entirely on the decline in demand (not supported by any reference to aggregate consumption or investment figures) and completely ignores the improved supply conditions in the economy. It does not recognize the major achievement of the Islamic government in substantially improving security and eradicating transactional corruption which has led to an improvement in the supply condition prevalent in the economy.

The Report recognizes that achievements of the major fiscal revenue targets in 2023 customs revenue increased despite a decline in the duty rate a major achievement of the Islamic government. Collection efficiency has substantially improved which the Report fails to acknowledge. Moreover inland revenue growth in 2023 was greater than the growth of border tax revenue. The Tax base has broadened – against despite tax rate cuts. Non tax revenue has also increased significantly but the Report pays no attention to the contribution of Islamic sourcing of fiscal revenue (Zakat, Usher etc.) in its evaluation. The Report does not recognize that that the Islamic government has successfully increased its expenditure because of restrictions on imperialist grants or loans. The Report laments the growth of security related public expenditure and fails to recognize the direct and indirect effect of such expenditure on national investment and production. The Report accuses the Islamic government of lying about its budget and projects. It claims that the Islamic government’s projects expenditure lacked adequate financing plans. Ministries left employees with remunerations arrears mounted . in the Ghaddar era - projects contractors were not paid. All this is asserted without a shed of evidence being cited to substantiate this imperialist propaganda. Evidence is also lacking to substantiate the fairy story that the Report crafts to explain Afghanistan’s rising trade deficit. It claims that “one fourth of Afghanistan’s imports were actually destined for Pakistan and the bulk of secondary imports (machinery, chemicals etc ) is from Pakistan . In a convoluted hypothetical calculation the Report estimates Afghanistan’s imports in 2023 as amounting to $5.5 billion (rather than the actual $7.6 billion) and according to the fairy tale the trade deficit was largely covered by remittance inflows and UN grants. This fairy tale is also supposed to explain the 27 percent appreciation of the Afghani during 2023. This fairy tale ignores all the administrative checks which improved as the cross border movements imposed by the government of Pakistan & Afghanistan as well as the declining trends of Afghan exports and imports to Pakistan. The surge in capital goods imports – machinery, transport and chemicals – reflects increased expenditure on gross domestic capital formation which the Report refuses to recognize. Contrary to what the Report says this trend to not “at odds” with the condition of the Afghan economy. It shows that the industrialization process is gradually gaining momentum in the Islamic State. No source is cited for the claim that remittances amount of $2 billion nor the year mentioned to which this figure is attributed. Remittances are probably much higher and growing. No proof is offered for the assertion that the Afghani is overvalued. The shift to “Islamic Finance” is deplored reportedly without any evidence that this shift has negatively affected asset and deposit growth in the banking sector. It is not at all clear what is meant by the phrase “non-traditional payments networks”. The banking sector is supposed to be in “a crisis” but the Report fails to define this “crisis” and admits that it is “not entirely clear”. It is recognized that broad liquidity has imposed in 2023 and that the decline in aggregate deposits “is largely due to fluctuations in currency values”. It speaks of a banking sector “crisis” despite the growth in total bank branches and the total number of bank employees and growth in ATM and POS machines and despite an improvement in the capital adequacy ratio in 2023. The Report relies primarily on its Private Sector Survey for its endorsement of a presumed banking sector crisis. This survey surveyed firms and not banks.

The Report claims that “interest income” increased by 15 percent during 2023 – despite the official ban on interest based transactions – due to correspondence relations with banks in Bahrain and Central Asia. Without any proof the Report claims that accounting procedures of the banks significantly under estimate the size of the infected portfolio. The Report accuses DAB of money laundering and “terror financing” and says this is a major hurdle in the establishment of correspondence relationships with foreign banks. It derides the growth of the “hawala” system which is a major route for remittance transfer to the Islamic Emirate. It applauds the introduction of the “Murabaha financing scheme” introduced by DAB in September 2022. III. Policies Policies are based on forecasts for the period 2024-2025. The forecasting model is not explicated in the Report. The forecasts are exceptionally gloomy. “The economy is expected to remain stagnant up to 2025 due to the ITA’s policies, banking instability and climate based shocks”. Crucial to the forecasting model is the presumed negative growth impacts of the declining level of “off budget” imperialist financing – which fell by 15 percent in 2023 and is forecasted to fall by a further 10 percent in each subsequent year (2024-2025). Currency ‘over-valuation’ is expected to be controlled due to the fall In imperialist off-budget financing. Inflation is expected to revive – averaging 6 percent annually during 2024-2025. Imports are expected to fall by 9 percent (period not specified). Unemployment will soar. Food insecurity will rise. Revenue collection will stagnate. The Islamic government will not be able to meet its financial commitments to suppliers and pensioners – it will be unable to find additional sources of financing due to the restrictions on imperialist borrowing. Fall in imperialist financing will lead to a drastic reductions in aggregate spending during 2024 and 2025. Further reduction in imperialist financing will lead to an intensification of the present “crisis”. These forecasts are not worth the paper they printed on because of the assumption that everything depends on growth of imperialist financing – the sole source of efficient economic growth without any assessment of the actual growth impact of imperialist financing on different sectors of the economy. They world Bank assume that the Islamic government (which they contemptuously describe as an “interim” regime) is a passive agent surrendering to inevitable economic decline and preparing to commit political suicide. The forecasts are inherently contradictory as they predict a revival of inflationary trends in 2024 and 2025 while also predicting continued depression. This is because the forecasts fail to recognize structural changes that have taken place – and continue to take place – in aggregate consumption and gross domestic capital formation and without consideration of the governance impact during the period of Islamic rule. That is why the World Bank conceals this macroeconomic model on which these fictitious forecasts are based.

The only imperialist policy advocacy is related to revising and the decline in imperialist financing – i.e. to return to the strategy of the ghaddar governments of 2002-2021. The Report acknowledges that macroeconomic stability has been sustained by the Islamic government (though “fragilely”) and that imperialist off-budget financing has been insufficient. According to the Report if the forecasted 10 percent decline in imperialist financing remains unchanged the Islamic government should seek to substitute 50 percent of on-budget expenditure to offset imperialist financing decline and switch its budget financing from security to social sectors. The practical feasibility of doing this is not explicated. The simulated scenarios show that if this is accomplished the GDP and social expenditure may increase marginally by 2025. However according to the simulated scenarios the Islamic government can only partially substitutes for the expected decline in imperialist off budget financing. Again this contradicts the base projection that budget expenditure and revenue will contract in 2024-2025. IV. Policy Response by the Islamic Government: Some Suggestions: The World Bank is an imperialist agency advocating policies that serve imperialist interests. It is not a neutral, non-political agency and the theoretical models it utilizes for its analysis are vintage neoclassical entirely unsuitable for an economy seeking structural change and the strengthening of economic national self-reliance and the safeguarding of national sovereignty. The World Bank subservience to imperialism is evident from its continued reference to the Islamic government as “the Interim Taliban Administration” (ITA). We are not an interim regime and Insha Allah there will be no transition to imperialist subservient capitalist rule in Afghanistan ever. DAIMG recommends that the World Bank should not be allowed to play any role in economic policymaking in Afghanistan and its access to national data sources be severally restrictrd. The Islamic government has been successful in stabilizing the economy. It has eliminated corruption, established a strong administrative and judicial system, significantly improved the security situation and since 2023 began to revive the inevitably deflationary trend subsequent to revolutionary transition. Despite price deflation GDP has grown in nominal terms in 2023. We must ensure that the economy grows in real term in 2024 and this real growth rate is exceeded in 2025. The key instrument for reviving growth in present circumstances is public investment (of which the Report says absolutely nothings). Public investment must be channelized to sectors (agriculture, mining, and manufacturing) with high production, consumption and employment growth elasticities . A public enterprise rehabilitation program should be carefully crafted and launched for this purpose. Contrary to the World Bank advice we must not reduce security expenditure. We must seek to build a jihadi economy and integrate security sector investment with investment in agriculture, manufacturing, service and social sectors. The development of input-output based planning models for the purpose is essential. Expenditure on defense services should be regarded as investment enhancing and not as waste.

The revenue constraint on investment can be reversed by adaptations in monetary policy. DAIMG recommends: Top priority be given to the national printing of currency. Money supply contraction should be relieved by relating money supply growth to estimates of the GDP and not the DAB’s asset base. Allocation of currency and credit should be the sole responsibility of DAB. 100 percent reserve ratio should be maintained and currency and credit allocation should be in accordance with national currency and credit plan linked to a national production and investment development plan. We note with alarm that according to statistics presented by the Afghanistan Banking Association interest is still being earned and paid by banks in Afghanistan and in 2023 represented about 18 percent of their total income. This is clear violation of government policy and an indication that the banking sector is being integrated into the imperialist financing system through the agency of correspondence relationship with foreign banks. DAIMG has previously recommended nationalization of all financial institutions leading to the establishment of a full fledge tamveeli system. If that is not possible at the present stage. DAB must tighten its regulatory grip on banks especially with regard to their dealings with foreign riba based bank transactions as soon as possible.