Due to political unrest, the information on these pages may not reflect current conditions in the country.

Country Risk Rating

The highest-risk political and economic situation and the most difficult business environment. Corporate default is likely. - Source: Coface

Business Climate Rating

The highest possible risk in terms of business climate. Due to a lack of available financial information and an unpredictable legal system, doing business in this country is extremely difficult.


  • Potential for the exploitation of commodities (including gas, oil, and minerals)
  • Development of transit corridors (Lapis-Lazuli linking Afghanistan to Turkey), launch (at the end of 2020) of negotiations to revise the transit agreement with Pakistan, and to conclude a preferential trade agreement
  • Development of regional energy corridors (TAPI gas pipeline, Central Asia-South Asia power line (CASA-1000), TAP power line and power line with Uzbekistan)
  • International financial support, notably from the International Monetary Fund (IMF), which renewed the Extended Credit Facility (ECF, USD 370 million) at the end of 2020 for three and a half years in return for reforms
  • Military support from the international community, as part of the renewed "Afghanistan National Peace and Development Framework" for 2021-2025, aimed at achieving self-sufficiency


  • Dependence on international aid (43% of GDP, 50% of tax revenues)
  • Dependence on agriculture (22% of GDP, 40% of employment) vulnerable to weather conditions
  • Poorly developed credit (3% of GDP), fragile (29% of non-performing loans in September 2020), and dollarised (48% of loans, 61% of deposits) banking system
  • Difficult geography (landlocked and 50% mountainous) and vulnerability to natural disasters
  • Inadequate infrastructure (energy, water, transportation, health)
  • High poverty (66% of the population), against a backdrop of informality, unemployment, and food insecurity
  • Weak governance (corruption, 47% of the territory not controlled by the central government, 19% of which is in the hands of the Taliban)
  • Ethnic fragmentation and armed conflict, generating significant public spending (50% of the total), population displacements, and military and civilian victims (more than 10,000 civilian victims per year for the last 6 years

Current Trends

Negotiations between the government and the Taliban begin

Afghanistan has been mired in civil war for four decades. The insurgent groups, led by the Taliban, remain at the height of their territorial expansion since their ousting from power in 2001 by the United States (U.S.)-led military coalition. Following a process that began in late 2018, an agreement was reached at the end of February 2020 between the U.S. and the Taliban, reducing the number of American troops from 13,000 in February 2020 to 2,500 in January 2021 (plus the 8,000 from the other NATO countries). It could be challenged by President Biden. The sine qua non condition of the withdrawal was the conclusion of a peace and power-sharing agreement with the government talks which began in September 2020. The actual negotiations are expected to begin in 2021. Their outcome remains uncertain and is not expected to resolve the entire conflict. On the one hand, it will face obstacles such as the ethnic fragmentation of the country, the difficulty of reconciling the Taliban with democratic norms, and the presence of other actors, such as the Islamic State (IS) group. On the other hand, with the February agreement providing only for a reduction in violence, attacks by the Taliban to consolidate their position in the negotiations persist. The balance between this strategy and the breakdown of the agreement is fragile. U.S. troop numbers could increase if the security situation deteriorates.

The talks will be led by a government that remains divided. After five months of waiting, the results of the September 2019 presidential election were announced at the end of February 2020. Outgoing president Ghani was elected in the first round (50.6% of the vote), followed by Abdullah (39.5%). Abdullah's challenge to the results ended, under pressure from the U.S. and, like in 2014, in a power-sharing agreement allowing him to appoint half the government and to appoint himself president of the High Council for National Reconciliation to lead the talks. While internal executive wrangling is expected to continue and despite strained relations, the government is expected to continue to call on Pakistan, which had already facilitated discussions for the February agreement, to use its influence on the Taliban.

A recovery dependent on the pandemic and driven by agriculture

It is in this tense context that Afghanistan entered into recession in 2020. The complex health situation due to its proximity to Iran, the lockdown from mid-March to mid-May 2020, and the closure of borders have disrupted supply chains. Industries (23% of GDP) were impacted, suffering from shortages of raw materials due to trade disruptions. The structural trade deficit widened. The decline in exports (6% of GDP), especially fruit (45% of total), was not offset by the decline in imports (38% of GDP). This deficit is expected to narrow in 2021, as cross-border points with Pakistan were reopened in mid-June 2020 and transit corridors with India in mid-July. Services (55% of GDP) have also been impacted, suffering from the fall in private consumption (113% of GDP) which is facing a decline in remittances (5% of GDP) and a sharp rise in unemployment, poverty, and food insecurity. Inflation, probably underestimated, is being pushed up by food prices. Support measures consist of livelihood measures, such as the program launched in 2020 with the World Bank (1.6% of GDP) to finance cash and in-kind transfers worth up to USD 100 per household.

The recovery in 2021, dependent on the pandemic, is expected to be driven by agriculture, whose growth in 2020 was driven by good harvests and climate conditions. This sector is expected to benefit from the recovery plan (16% of the total) which provides for the construction of storage infrastructure to limit losses. While the security environment is constraining investment (18% of GDP, 6% is private), international aid will remain valuable in exploiting the sector's potential. Work will continue on infrastructure projects, such as those beginning in early 2020 for the construction of the Afghan section of the power line of the CASA-1000 project (2.4% of GDP, 78% financed by the World Bank).

A drop in international aid that finances twin deficits

In 2020, one-off expenditures (5% of GDP) and the decline in revenue increased the public deficit excluding grants (-6% of GDP), which is expected to persist in 2021. The sustainability of public finances remains dependent on grants to keep the public debt-to-GDP ratio low. This debt, equivalent to external debt, is medium- to long-term, concessional, and 90% held by multilateral donors.

Trade-related disruptions have widened the already abysmal current account deficit excluding grants (-31% of GDP). The flexible exchange rate remained stable thanks to sales of foreign exchange by the central bank. These were more than offset by the inflow of new grants and concessional loans to mitigate the impacts of the crisis on 2020-2021, including USD 483 million (2.6% of GDP) from the IMF. They have also increased foreign exchange reserves (8 billion USD in November 2020, 15.6 months’ worth of import coverage). At the end of November 2020, donors were called upon to renew their aid commitments for 2021-2024, totaling USD 12 billion (including USD 3.3 billion available in 2021), a 21% drop compared to 2016-2020. They are in part conditional on progress in the talks.


Coface (02/2022)