EKN open to guarantee exports to Afghanistan

Press release - 12 JUN 2017

Following a review, EKN has opened up to highly restrictive issue of guarantees for exports to Afghanistan. The country is in the highest country risk category, 7.

Afghanistan is experiencing a difficult changeover, from the strong foreign military presence in 2001 to now having to manage independently. When military strength was at its highest in 2011, there were 150,000 NATO soldiers in the country. For the past two years, fewer than 10,000 remain.

“There are still daily reports of incidents, conflicts and attacks in the country. From both a safety and economic perspective, Afghanistan is a weak trade environment to say the least; however wide and strong international support makes the level of debt low and international reserves high,” says Johan Dahl, Country Analyst at EKN.

“The main country-related risks, transfer risks, access to currency and the risk of suspension of payments are limited, and are the primary motivation to open up for an issue of guarantees for the country”.

Afghanistan has a variable exchange rate and unusually liberal currency policy. There are no restrictions to currency exchange or transfers related to business transactions.

GDP growth fell from an average of 11.5 per cent between 2007 and 2012, to 1.5 per cent between 2013 and 2015. The IMF forecasts a growth of 2-3 per cent for 2016 and 2017.

“The growth forecast is way below the level that would be necessary to reduce unemployment and improve the quality of living, however it still points to a recovery”.

The deficit to the trade balance and state budget is financed by aid. External debt is low; seven per cent of the GDP and international reserves are high; corresponding with 8-9 months’ import.

“Despite the complex situation in Afghanistan, there are glimmers of hope. One such is that the reforms introduced over the past two years have increased tax revenues and decreased expenditure,” says Johan Dahl.

One policy programme with the IMF was implemented in 2015 with positive results, and a new three-year financing programme with the IMF has been in place since the middle of 2016.

“The first review of the programme has been conducted and has received preliminary approval. The IMF programme is an important factor in the country’s reform work and together with other actors, such as the World Bank, is decisive for economic development in the right direction”.