Afghanistan's economic recovery is being held back not by lack of aid but by lack of security, Central Bank Governor Noorullah Delawari said yesterday.
Delawari, who is in Washington for the IMF/World Bank annual meetings, told Emerging Markets in an interview: 'Afghanistan's main economic challenge is to increase our productivity in order to substitute for the foreign aid we receive.
'We have all the ingredients and the manpower, and we are working to attract major foreign investors. Why the foreign investors are not coming in is the security concerns.'
Delawari stressed, however, that Afghanistan's security problems were mainly due to cross-border terrorism and violence from elements of the Taliban in Pakistan. 'A lot of people are comparing Afghanistan with Iraq. Iraq is a different situation. [Afghanistan] is a success story compared with Iraq.'
Delawari said that the Afghan Investment Support Agency that he hoped to establish has attracted preliminary interest of nearly $2 billion in investments, mostly from the Afghan diaspora.
Delawari pointed to the 'remarkable success' Afghanistan has had under President Hamid Karzai in beginning to rebuild its economy, with 17% average GDP growth over the last three years, and inflation down to 10%, from 48% at the end of the Taliban's rule. Inflation is expected to fall further, to 7.5-8%, Delawari said.
But with money continuing to flow into the country's vast grey economy through poppy cultivation and the opium trade, inflation remains a concern of many potential investors.
The opium situation may be improving, however. Earlier this week, the United Nations released what it called 'the best drug-related news' out of Afghanistan since the fall of the Taliban: poppy cultivation dropped 21% from 2004 to 2005. Opium production, on the other hand, fell only slightly, from 4,200 tons to 4,100 tons.
Delawari was confident that Afghanistan's level of reserves was sufficient to head off inflation. 'The rate of exchange has remained between 45 and 50 afghani per dollar for the past four years,' he said. 'Good monetary policy has resulted in the growth of our foreign exchange reserves from just over $300 million three years ago to $1.5 billion today. We have sufficient cushion there, and we have intervened and we will intervene to maintain price stability.'
To help maintain a stable fiscal situation and spur development of domestic businesses, he said, one of the priorities of economic development will be reducing imports through import substitution and developing Afghanistan's wide range of natural resources for export.