Report on Progress Toward Security and Stability in - United States ...

development in key sectors that have the potential for promoting job creation, trade, and
commerce. Promising sectors include carpet manufacturing, dried fruits and nuts, jewelry,
cashmere, construction, and services.
Trade and regional economic integration are also key factors in sustainable economic growth.
However, implementation of the bilateral Afghan Pakistan Transit Trade Agreement (APTTA)
has not yet been realized. Although Afghanistan became a full member of the South Asian Free
Trade Agreement (SAFTA) in August 2011, political tensions between India and Pakistan have
delayed implementation of the membership agreement. Discussions took place in January 2012
between India and Pakistan on tariff reductions on non-sensitive goods, followed by a meeting in
Pakistan by SAFTA members to develop an action plan for SAFTA implementation. A followon
meeting is scheduled to take place in April or May to continue these discussions.
At the U.S.-Afghan Trade and Investment Framework Agreement meetings that took place in
Kabul in December 2011, U.S. Trade Representative policy discussions with the Afghan
Government advanced bilateral trade issues. USAID continues to provide technical assistance to
the Afghan Government related to capacity building for trade agreement implementation. This
support is expected to result in positive developments in World Trade Organization accession in
the medium term.
Although ISAF and the international community have provided Afghanistan with most of the
critical infrastructure necessary for sustainable economic development, the lack of power
remains a major constraint; in-country electric power production is far below the necessary
threshold for strong economic growth, and the distribution network is significantly
underdeveloped. Further, the development of infrastructure over the last decade requires
additional funding to meet O&M requirements. Regulatory authorities have been established for
some infrastructure industries, such as power and telecommunications; however, the
sustainability of strategic infrastructure, essential to economic growth, is at risk without further
improvements in establishing regulatory authorities for civil aviation, roads, and rail.
REVENUE GENERATION AND BUDGET EXECUTION
Although the Afghan Government continued to make progress in revenue generation from
customs, border management, and the growing mining industry, the rate of expenditure will
continue to far exceed government revenue in the near- to medium-term. The World Bank
estimates that in 2021-22, the financing gap between government expenditures and domestic
revenues will be approximately 25 percent of GDP, or $7.2B in 2011 dollars. This gap may
diminish somewhat as the size and cost of the ANSF is finalized; however, a significant fiscal
gap is expected to remain. As Afghanistan gradually develops its natural resources, royalties and
taxes on the export of materials, along with taxation on wealth generated as a result of these
industries, may help close the budgetary gap.
Domestic revenues reached 74.6 percent of the goal for SY1390 and covered 71.6 percent of
total operating expenditures in the first nine months of the solar year (March – December 2011),
including a 10 percent share for security forces in the first six months of the year, but are
expected to only cover 65 percent of the total operating expenditures by the end of the Solar
Year (March 2012). Continued improvements in customs revenue, the introduction of a value
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