summary
Afghanistan is in a state of transition which involves the handover of security responsibilities from
international forces to the Afghan government. This process is characterized by more political and
security uncertainty. However, at present, Afghanistan’s economy is growing strongly as a result of an
exceptionally good harvest this year. Real GDP growth will most likely close the calendar year at around
10 percent, a significant increase from last year’s 7.3 percent. The services and construction sectors
continue to grow strongly, driven mostly by continued high military spending and external aid. The good
harvest has also brought Afghanistan to near food self‐sufficiency and slowed inflation to 4.6 percent in
July 2012 (y‐o‐y).
Revenue collection and budget execution has been higher than at the same time last year, but have
missed quarterly fiscal targets. Changes to the budget calendar and prolonged parliamentary discussions
have shortened the time frame for the execution of this year’s budget and will make it challenging for
the government to meet fiscal targets.
The banking sector is still recovering from the Kabul Bank crisis. The authorities made little progress in
recovering the assets owned by the previous shareholders and related parties of Kabul Bank and
subsequently shifted their asset recovery strategy. The privatization of New Kabul Bank (NKB) is moving
forward but there is a risk of insufficient interest from the investor community to buy NKB. Sector‐wide
audits have revealed considerable weaknesses at all levels of banking governance and operations, which
also affect the micro finance sector.
Progress in the mining sector is clouded by uncertainty about a new mineral law. While investor interest
in the sector is encouraging, gaps in the legal and regulatory framework of the sector do not provide
sufficient confidence to investors to start operations or make firm commitments. A new law is in
preparation but has also been heavily debated.
The medium‐term outlook for Afghanistan remains optimistic. At the Tokyo conference in July, donors
pledged sufficient funds to fill the financing gap, and this should allow the government to sustain
development gains and continue making progress towards achievement of the UN’s Millennium
Development Goals. Nevertheless, the transition process and the upcoming presidential elections will
international forces to the Afghan government. This process is characterized by more political and
security uncertainty. However, at present, Afghanistan’s economy is growing strongly as a result of an
exceptionally good harvest this year. Real GDP growth will most likely close the calendar year at around
10 percent, a significant increase from last year’s 7.3 percent. The services and construction sectors
continue to grow strongly, driven mostly by continued high military spending and external aid. The good
harvest has also brought Afghanistan to near food self‐sufficiency and slowed inflation to 4.6 percent in
July 2012 (y‐o‐y).
Revenue collection and budget execution has been higher than at the same time last year, but have
missed quarterly fiscal targets. Changes to the budget calendar and prolonged parliamentary discussions
have shortened the time frame for the execution of this year’s budget and will make it challenging for
the government to meet fiscal targets.
The banking sector is still recovering from the Kabul Bank crisis. The authorities made little progress in
recovering the assets owned by the previous shareholders and related parties of Kabul Bank and
subsequently shifted their asset recovery strategy. The privatization of New Kabul Bank (NKB) is moving
forward but there is a risk of insufficient interest from the investor community to buy NKB. Sector‐wide
audits have revealed considerable weaknesses at all levels of banking governance and operations, which
also affect the micro finance sector.
Progress in the mining sector is clouded by uncertainty about a new mineral law. While investor interest
in the sector is encouraging, gaps in the legal and regulatory framework of the sector do not provide
sufficient confidence to investors to start operations or make firm commitments. A new law is in
preparation but has also been heavily debated.
The medium‐term outlook for Afghanistan remains optimistic. At the Tokyo conference in July, donors
pledged sufficient funds to fill the financing gap, and this should allow the government to sustain
development gains and continue making progress towards achievement of the UN’s Millennium
Development Goals. Nevertheless, the transition process and the upcoming presidential elections will
further increase uncertainty in the medium term and will likely take a toll on investor confidence.
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source: world bank
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