Editor in Chief: Moh. Reza Huwaida Thursday, May 2nd, 2024

Decreasing Investment and Fleeing Cash

Worsening security condition, political instability, deep-rooted corruption, NATO withdrawal and other such serious issues that remain unaddressed have already started impacting the nascent Afghan economy. Foreign and domestic investments are considered the lifeblood of an economy. Keeping the economic vulnerability of Afghanistan and its dependency on foreign aids, investments are more than lifeblood to this country. But due to worsening insecurity in Afghanistan, not only Foreign Direct Investment (FDI) but also investment by Afghans themselves have been declining at an undesirable pace.

In 2003, when Afghanistan Investment Support Agency (AISA) was established in order to facilitate foreign and national investments, hopes and expectations were high. However, because of failure of government to tackle the security condition and ensure safety to entrepreneurs and investors, no major foreign firm seems interested in investing in Afghanistan.

Another problem that does much to weaken the backbone of Afghan economy is the fleeing cash. Amid NATO's plan to withdraw their full troops from Afghanistan by the end of 2014, huge amount of cash is leaving Afghanistan every year with government having no control and restrictions so far.

According to Da Afghanistan Bank (DAB), yearly about $800 billion in cash are taken out of Afghanistan which is double of the total asset of DAB and also twice the total amount of Afghanistan's last year national budget. The transfer of cash (mostly in dollar and Euro) from Afghanistan to UAE and other safer destination if on the one hand devalues Afghan currency and reduces foreign exchange reserves on the other leaves a damaging impact on the overall health of Afghanistan's economy.

Afghanistan that imports everything from basic necessities to luxury goods needs an adequate amount of foreign exchange reserve to meet its requirement consistently. Nonetheless, outflow of cash will certainly cause the Afghanistan foreign exchange reserve to continue decreasing. This will have a great role in devaluing the Afghanis (AFA).

Government's weakness, to implement the laws and regulations at times when international community's roles are decreasing, signals that Afghanistan should expect severe economic crises in addition to deterioration of security condition. It is a great failure for Afghan government that has awfully failed to wisely make use of the golden opportunities made available to it by the international community in the last ten years.