Population 32.017 million
GDP 19.847 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
8.4 |
5.8 |
6.9 |
6.5 |
|
Inflation (yearly average) (%)
|
7.7 |
13.8 |
9.1 |
6.7 |
|
Budget balance (% GDP)
|
-10.1 |
-12.2 |
-12.9 |
-12.8 |
|
Current account balance (% GDP)
|
-44.6 |
-40.7 |
-44.6 |
-43 |
|
Public debt (% GDP)
|
8.2 |
6.9 |
6.7 |
6.6 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Significant support from the international community
- Prospects for exploitation of raw materials (gas, oil, minerals etc.)
WEAKNESSES
- State of war, withdrawal of international coalition armed forces
- Unstable geopolitical situation
- Widespread corruption and deficiencies in governance
- Highly dependent on aid
- Weak banking system
Risk assessment
An economy still undermined by patent structural shortcomings
The country experienced strong growth in 2012, driven by the agricultural sector, which employs 80% of the working population. The harvests have been the most abundant of the last 30 years thanks to good weather conditions. However, supplies remained constrained by the presence of external risks and internal structural weaknesses such as high level energy prices, occasional interruptions of trade with neighbouring countries (closure of supply routes) and general internal insecurity.
The agricultural sector will dip slightly in 2013, if weather conditions are less clement. However growth will remain at a decent level, due to the strength of foreign investments, particularly in construction and the exploitation of raw materials (gas, oil, minerals etc.) Moreover, the modernisation of infrastructures and energy and electricity supply networks, often with aid from neighbouring countries, will keep activity buoyant.
It is also to be noted that the high level of private consumption – a key growth engine - comes in part from income from the illegal cultivation of the opium poppy, the country’s most important crop. In spite of campaigns conducted against its cultivation, opium-related revenues amount to 10 to 15% of GDP and were boosted in 2012 by higher sale prices. Finally, the economy is expected to suffer from the withdrawal of the international community’s armed forces at the end of 2014. This will result in a decline in retail sales (the troops consuming locally), the transfer of some of spending to the Afghan authorities and the departure of certain non-governmental organisations.
Public and trade deficits offset by international aid
Public finances suffer from patent weaknesses. The country is again struggling to grow its tax revenues (which will continue to reach a ceiling at 11% of GDP in 2012), though international aid provides much needed financial support for the budget. The donor countries have promised the country a further $16bn aid (equal to 80% of 2012 GDP) between now and 2015, which should enable the country to overcome its serious budgetary shortfalls. At the same time, the country intends to gradually increase its fiscal revenues thanks, especially, to the introduction of VAT and to royalties on extraction projects, while attempting to reduce its dependence on aid. The transition from a country dependent on foreign money to a more autonomous economy is going to be slow and tricky.
As far as the external accounts are concerned, the current account deficit remains very high. Growing imports of capital goods (linked to the development of extraction projects) will continue to put a big strain on the current account. However, prospects for the exporting sectors will be encouraging in the medium term: growing mineral exports, improved security of supply channels, stronger partnerships with neighbouring countries such as Iran. Nevertheless the impact of these changes will be minimal in 2013.
Finally it is proving difficult to put in place the structural reforms aimed at strengthening the banking sector. The restructuring of the sector since the main Afghan bank, the Kabul Bank, was placed under supervision remains slow. Finding out who is responsible for its losses is hampered by persistent governance problems, which also affect certain public enterprises (corruption, money laundering).
Critical political instability
Initiatives related to the security and control of the territory carried out jointly by President Karzai’s government and the foreign forces have at present little impact. Tribalism, the strength of local potentates and the power of the insurgents will remain significant and are apparently reinforced by the transfer of power to the Afghan security forces (poorly equipped, undertrained and fragmented) in readiness for the withdrawal of foreign soldiers.
Internally, business environment is still marked by endemic corruption, an ineffective fight against drug trafficking and reduced access to freedom, while international aid is conditional on these problems being brought under control. Aid is still subject to embezzlement and continues to be poorly distributed geographically. Though there has been notable improvement in all these aspects, donors, most of them western countries in economic difficulty, are likely to start to reduce their aid, weakening President Karzai.
