Country Report Afghanistan July 2009

Outlook for 2009-10

Security concerns will remain paramount in 2009-10, but foreign governments will want at least to announce plans for troop cuts by 2010. The incumbent, Hamid Karzai, looks to be the favourite in the August 2009 presidential elections, in part owing to the fractious nature of the opposition. A parliamentary election in 2010 is unlikely to alter the balance of power substantially. Efforts to improve infrastructure and education will make significant headway in 2009-10, especially in power generation. However, the poor security climate will hamper progress. The illegal output of opium will fall, but Afghanistan will remain the world's biggest producer of the drug. There will be only incremental improvements in the public finances, as Afghanistan will remain dependent on its donors. Relations with Pakistan and Iran will be volatile; instability in Pakistan will present extra security and trade risks for Afghanistan. Continued strong growth in construction and a boom in agriculture will drive economic expansion in 2009, but drought may pose a threat to farming output in 2010.

The political scene

Mr Karzai appears to have few serious rivals among the 41 candidates approved to stand in the August 20th presidential election. However, his selection of Mohammad Qasim Fahim as his running mate for the post of first vice-president has caused concern. The new general in charge of US troops in Afghanistan, Stanley McChrystal, has declared limiting civilian casualties a priority.

Economic policy

An IMF review estimates that fiscal revenue as a proportion of GDP fell to 6.7% in fiscal year 2008/09 (March 21st-March 20th), from 6.9% in the previous year, partly owing to the impact of problems in the customs service. The overall budget deficit expanded from 1.8% in 2007/08 to 4.1% in 2008/09.

The domestic economy

The IMF estimates GDP growth in 2008/09 at 3.4%, down from 12.1% last year. The Fund forecasts growth at 9% in 2009/10. Year-on-year inflation fell to 3% in March; the government hopes to limit it to 6% by March 2010. A cereal harvest of 6m tonnes is expected by August 2009. A new power-transmission cable between the capital, Kabul, and Uzbekistan has brought reliable electricity supplies.

Foreign trade and payments

The IMF expects the current-account deficit to widen to 3.7% of GDP in 2009/10, compared with 1.5% in 2008/09. Investment goods will make up a rising proportion of imports.

This report covers the following industry codes:
SIC Code: 10
NAICS Code: 212