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afghani (AFA)

Hamid Karzai


Update No: 049 - (01/01/06)

A round of elections is over
Afghanistan completed its electoral season in December, with the election of the upper house of Parliament (Meshrano Jirga) by the provincial councils. The results give a hint of which groups will effectively play a leading role in the future parliament, beyond the rhetoric of democratic elections and gender equality. About half of the 68 members of the Meshrano Jirga are former jihadis, while women account for just 2%, although president Karzai will appoint another 34 members, of which 17 have to be women. The lower house (Wolesi Jirga) still has to elect a speaker, but the focus of attention is now moving towards NATO deployment in the country, which according to the plan should allow the US to reduce their commitment and withdraw a few thousand soldiers. The insurgency is also shifting its focus towards NATO and it is trying to target non-US foreign troops in corners of the country where it had not been previously active, like Mazar-i Sharif in the north. The Arab terrorist groups financing the insurgency are not happy about US disengagement and are trying to scare NATO countries from committing themselves.

The economy: good macro, but political trouble for budget
In November the IMF released its review of the Afghan economy, pointing out that inflation has been rebounding, but not as much as expected. Oil prices are pushing it up, but that was offset by the decline of rents from the highs of the last two years. In September, yearly inflation was estimated at 12.9%. While government revenue grew faster than expected at +40%, that was entirely due to customs, as tax revenue, already very low, declined even further. The foreign currency reserves of the national bank now stand at a healthy US$1.5 billion, up from US$1 billion in 2004, US$500 million in 2003 and US$300 million in 2002. However, a recent decision of the Supreme Court, ruling that previous regime's military pensions have to be paid, represents a blow for the sustainability of budget reform, as it could add US$45 million worth of payments this year and another US$22-23 million each future year. Foreign debt stands at US$2.5 billion, of which US$1.5 are owed to countries other than Russia and are expected to be written off. Most of this debt dates back to the pre-2001 period, as the new government is only liable for US$350 million. 

Social problems
In terms of the impact of these good macroeconomic conditions on the population, however, the problem is that unemployment remains very high. The Ministry of Social Affairs estimates that the number of unemployed in Afghanistan stands at 2.5 million, that is over 20% of the workforce. Social problems are also beginning to start demanding the attention of the government. For example, the number of estimated drug users in-country is rising fast. According to a recently released joint UNODC/Ministry of Counter-narcotics study, 920,000 Afghans are drug users. Of these, 150,000 are opium users, 50,000 heroin users, 520,000 hashish users and 180,000 consume non-prescribed pharmaceuticals, such as anxiolytics, painkillers and hypno-sedatives. 

Dynamic sectors
The most dynamic sector of the Afghan legal economy remains telecoms, which has been growing 35% a year since the change of regime in 2001, as the expected arrival of two more competitors in the mobile business is prompting market leader Roshan to increase its investments to maintain its lead. It plans to invest another US$100 million next year and by mid-2006 it should have expanded its network to the whole country. The airline sector also appears set for major developments, despite government hostility to allowing private companies to operate internal flights. Ariana, the national air company, has finally announced a plan to replace its ageing fleet. Four new Boeing 737-700 have been ordered, while two 757-200 will be leased. Prospects for more foreign investment improved at the beginning of December, as the foreign investment law was finally passed, after a troubled history and long time spent being worked out. 

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