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- GDP (PPP):
- $33.7 billion
- 10.2% growth
- 9.9% 5-year compound annual growth
- $1,054 per capita
- Inflation (CPI):
- FDI Inflow:
Afghanistan’s economic freedom could not be graded because of a lack of reliable comparable data. The government’s compilations of official economic data are not comprehensive, and many of the international sources relied upon for Index grading contain incomplete data on Afghanistan. This assessment is based on the limited data available from government and international sources.
Over the past 10 years, Afghanistan has undergone a challenging economic transition requiring significant institutional development. Growth rates have been high but volatile. Real GDP growth, driven mainly by agriculture and construction, has averaged almost 10 percent over the past five years. Large volumes of foreign aid have yielded some improvements in such areas as health and education.
Operating under difficult developmental circumstances, Afghanistan remains severely burdened by numerous systemic shortcomings worsened by ongoing security challenges. The government’s weakness, exacerbated by vested interests and corruption, has hindered politically difficult policy reforms and eroded trust. Previously implemented reform measures have not been sustained, with political uncertainties further undermining progress in economic reconstruction.
President Hamid Karzai is constitutionally required to hand power to a successor following elections scheduled for April 2014. The U.S. and NATO have committed to withdrawing all combat forces by the end of 2014 but will continue to fund and train the Afghan National Army and provide development aid. A bilateral security agreement will determine the levels and conditions of a post-2014 U.S. troop presence. The U.S. is seeking peace talks with the Taliban, but insurgents continue to battle coalition and Afghan forces. Afghanistan is one of the world’s poorest countries. GDP is growing, but the economy remains hobbled by poor infrastructure, insurgency, and corruption. The agricultural sector depends heavily on cultivation of the opium poppy, and illegal drug trafficking fuels violence and instability.
Fueled by proceeds from opium trafficking and unimpeded by weak state institutions, corruption permeates Afghanistan from the presidency down to the lowest levels of government. The judicial system is severely underdeveloped. Weak protection of property rights due to a lack of property registries or a land titling database leads to land title disputes. An estimated 80 percent of land is held and transferred informally.
The top individual income and corporate tax rates are 20 percent. Other taxes include sales taxes. Tax revenue remains relatively low at 8.7 percent of GDP. The government still remains heavily reliant on foreign assistance to cover budget shortfalls and has missed established budget goals. Expenditures have risen to 23 percent of gross domestic product.
Despite recent reforms, the inefficient business environment still impedes broader economic development. Application of regulations has been inconsistent and non-transparent. On average, launching a business requires four procedures, but obtaining necessary permits can take over 300 days. In the absence of a well-functioning labor market, informal labor activity persists in many sectors. Inflation has decreased to below 5 percent.
Afghanistan has a 6.4 percent average tariff rate, and non-tariff barriers that include customs delays deter imports. Foreign ownership of land is prohibited, and the government regulates investment in some sectors, including insurance and telecommunications. The underdeveloped financial system has only a limited role in the economy, hampering private entrepreneurial growth. The banking sector, whose laws are often bent, remains fragile.