Subchapters:
- Basic data
- Public finances and the state budget
- Banking system
- Tax system
Basic data
Afghanistan was not affected by the coronavirus pandemic with such intensity as, for example, neighboring Iran, but its consequences were reflected in macroeconomic indicators for 2020. The national economy, with less than half of all income coming from foreign aid, showed a 5% decline over the past year. In 2021, stabilization accompanied by moderate (1.5%) growth is expected. In addition to the effects of the pandemic, this year Afghanistan will face the risk of adverse natural events (drought, floods, earthquakes). Check ebizdir for economical facts of Afghanistan.
In connection with the development of the peace negotiations, a period of political transition is expected on the one hand, and on the other hand, the end of the international military presence on September 11, 2021, which is linked to a number of services and jobs, and will therefore have a negative impact on the real economy. The creation of a safe and stable environment thus continues to remain a fundamental and at the same time high-risk factor for economic development.
Despite significant security and economic uncertainty, the Afghan government plans to carry out a large-scale economic recovery, providing significant opportunities for Czech companies. Increased investment in the education of professionals, building infrastructure, energy, increasing the productivity of mining, the processing sector and agriculture, could lead to the compensation of the current recession, which occurred as a result of the pandemic and the end of the international military presence.
The Afghan economy is small and underdeveloped, but with significant potential for development, especially in the mining, processing, and tourism sectors, which, however, is not sufficiently developed, primarily due to persistent political-security instability and a lack of infrastructure. Economic differences between larger cities and rural areas are significant. The economy is dominated by the state sector, the private sector is limited, and approximately half of the state budget is financed by foreign aid. Structurally, primary (agriculture, breeding, mining) and limited secondary (construction, processing industry) prevail.
The tertiary sector (services) is minimal and is mainly concentrated in the capital and provincial capitals. It is assumed that the end of the international military presence on September 11, 2021 will have the greatest impact on the Afghan tertiary sector and the jobs linked to it in the past two decades. The economy is characterized by considerable sensitivity to external influences, both regionally (Iran, Pakistan, India, China, Central Asian states) and globally, in connection with the geopolitical importance of Afghanistan and the fluctuating willingness of the international community to provide foreign aid.
| Pointer | 2018 | 2019 | 2020 | 2021 | 2022 |
| GDP growth (%) | 1.2 | 3.9 | -5 | 1.5 | ON |
| GDP/population (USD/PPP) | 2,163.8 | 2,236.2 | 2073 | 2300 | 2400 |
| Inflation (%) | 0.6 | 2.3 | 5.4 | 4.8 | 4.3 |
| Unemployment (%) | 11.1 | 11.0 | 11.7 | 12.7 | 12.7 |
| Export of goods (billion USD) | 0.9 | 0.9 | 0.77 | ON | ON |
| Import of goods (billion USD) | 6.6 | 6,7 | 6.5 | ON | ON |
| Trade Balance (Billion USD) | -5.7 | -5.3 | -6.4 | -6.4 | ON |
| Industrial production (% change) | ON | ON | ON | ON | ON |
| Population (millions) | 37.2 | 38.0 | 38.9 | 39.8 | 40.8 |
| Competitiveness | ON | ON | ON | ON | ON |
| OECD export risk | 7/7 | 7/7 | 7/7 | 7/7 | 7/7 |
Source: EIU, OECD, WEF
Public finance and state budget
Afghanistan continues to run a significant trade deficit. The third quarter of 2020 saw a 5% decrease in exports (to $198 million), while imports increased by 20.9% (to $billion). The trade deficit from 2019 (billion USD) was thus further overcome last year. In 2022, when the new transmission system from Tajikistan to Pakistan is to be put into operation, a slight increase in income from transit fees is expected. On the contrary, the decrease in income for the past year 2020 occurred due to a slowdown in labor migration, due to anti-pandemic measures.
In connection with the decreasing willingness of the international community to continue providing financial assistance to Afghanistan, and due to the termination of the international military presence on September 11, 2021, a rather negative development of the condition of the national economy can be expected. The coronavirus pandemic and security instability contributed to more than 5% inflation and related price increases in 2020. They are expected to grow further in 2021 due to an uncertain harvest that can be adversely affected by drought or floods, and its harvest made difficult by fighting between rebel and government forces.
In 2020, the government presented an overarching reconstruction and development plan for the period 2021-2025 Afghanistan National Peace and Development Framework II, within which it plans to build state institutions and a market system through the achievement of peaceful conditions. By inclusion in regional investment and infrastructure cooperation, incl. supply chains, the government aims to make Afghanistan a trade-investment hub of regional importance.
In the economic field, the Private Sector Development National Priority Program was approved for the period 2018-2023, with which the government aims to increase support for the business environment and investments. The private sector is not yet sufficiently developed in Afghanistan, so either working directly with it or engaging in government incentives represents potential in a number of sectors, particularly in building the transport network and infrastructure, energy and waste treatment. Due to the extraction of globally important reserves of mineral wealth, the supply of engineering equipment and technological units of the mining and metallurgical industry is in demand.
| Public finance | |
| State budget balance (% of GDP) | 10 |
| Public debt (% of GDP) | 8.8 |
| Current account balance (billion USD) | 1.99 |
| Taxes | |
| AFTER | 20% |
| F.O | 10%; 20% |
| VAT | 10% |
Banking system
The central bank of Afghanistan is Da Afghanistan Bank (DAB), which is the state regulator of all transactions carried out on Afghan territory. DAB has dozens of branches, most of which are in Kabul, where the main office is also located. The basic tasks of the DAB include the implementation of monetary policy and monetary regulation, management of foreign exchange reserves, issuance of banknotes and minting of coins, issuing of licenses, performance of state supervision over commercial banks, foreign exchange traders, payment system providers and brokers of securities transactions, etc.
In recent years, the financial sector has experienced a partial recovery and the banking sector is slowly moving towards digitization, which is, however (somewhat paradoxically), characterized by the growth of bureaucratization as a result. A characteristic feature of the Afghan financial market is the high degree of volatility of the national currency (AFN), the consequence of which is the extreme degree of dollarization of the economy: the USD currency is substituted for the national currency in the real economy basically wherever it is possible and advantageous (wages, official and unofficial transactions, gray economy, black market).
State banking institutions:
- Da Afghanistan Bank
- Bank-e-Millie Afghan
- Pashtany Bank
- New Kabul Bank
Commercial banks:
- Afghanistan International Bank (AIB)
- Afghan United Bank
- Azizi Bank
- Maiwand Bank
- Bakhtar Bank
- Afghanistan Commercial Bank
- Ghazanfar Bank
- Arian Bank
- Islamic Bank of Afghanistan
- Alfalah Bank
Foreign banking institutions:
- World Bank Office Kabul
- Afghanistan Asian Development Bank
- First Micro Finance Bank
- Alafullah Bank
- National Bank of Pakistan
Insurance companies:
- Afghan National Insurance Company
- TFG Global Insurance Solutions Ltd
- Insurance Group of Afghanistan
- Afghan Global Insurance Company
Tax system
The Afghan Ministry of Finance is responsible for tax collection and relevant legislation. Taxes are collected under a 2009 law, but the International Monetary Fund and the World Bank are working to modernize Afghanistan’s tax system and make it more transparent and efficient to meet international standards.
The corporate income tax rate is 20% of total (gross) income. Net taxable income is the balance after deducting all necessary expenses from gross income. Corporate income tax applies to business corporations, limited liability companies, as well as some types of business partnerships. Personal income tax applies to all income of tax residents, regardless of the geographic origin of the income, wages, salaries, rents, income from certain types of business partnerships, and royalties. Tax non-residents are required to pay tax to the government on all their income that originates in Afghan territory.
The tax rates are as follows: individual income up to 12,500 AFN ($160) is exempt from income tax, income above this amount up to 100,000 AFN ($1,275) is subject to a 10% tax. Incomes above 100,000 AFN are taxed at 20%. Companies with two or more employees are required to pay withholding tax for each employee on their income according to the rates indicated.
Companies with one employee who has no other source of income are not required to file an annual tax return. Anyone who has either more than one employer or other sources of income is required to file an annual tax return.
Entrepreneurs and self-employed persons are required to submit an annual tax return. However, they can deduct all ordinary and necessary costs from the tax base in connection with the calculation of net taxable income. The 10% and 20% tax is thus calculated on their net annual taxable income.
