Outlook for 2011-12

The legitimacy of the government led by the president, Hamid Karzai, will remain compromised by the tarnished electoral process and the circumstances surrounding Mr Karzai's re-election in 2009. The president will be even weaker in his second term than during his first, and will be more reliant on the warlords and strongmen to whom he owes political favours. The parliamentary election of September 2010 should, in theory, have bolstered Afghanistan's democratic credentials, but the allegations of electoral fraud and the fact that the outcome of the poll is still being contested indicates that political stability will remain elusive and, if anything, has worsened in recent months. The security outlook is highly unsettled, and attacks by elements linked to the Taliban will remain at a high level. Despite improvements in tax collection, Afghanistan will remain dependent on donors. Relations with Pakistan and Iran will be volatile. Instability in Pakistan will present security and trade risks for Afghanistan. Growth in construction will help to drive economic expansion in fiscal year 2010/11 (March 21st-March 20th) and 2011/12, while output growth in the crucial agricultural sector will decelerate following the strong expansion recorded in 2009/10.

The political scene

The results of the parliamentary election that was held in September 2010 were finally announced in early December. Allegations of electoral fraud are widespread, and there have been calls to void the result. Discussions among the nations making major troop contributions to the International Security Assistance Force (ISAF) in Afghanistan have in recent months centred on setting the dates for the withdrawal of troops. Proposed peace talks between the government and the Taliban appear to have stalled.

Economic policy

On October 29th the governments of Pakistan and Afghanistan signed another element of the transit trade agreement, extending the agreement signed in July 2010. On December 11th a framework agreement was signed by the presidents of Turkmenistan, Afghanistan and Pakistan, as well as India's energy minister in Ashgabat, the capital of Turkmenistan, for the TAPI natural gas pipeline.

The domestic economy

The relatively stable northern city of Mazar-i-Sharif is experiencing an economic boom as investors look for opportunities in Afghanistan and turn away from the more volatile south of the country.

Foreign trade and payments

Afghanistan plans to export raisins to the UK. On November 30th the UAE hosted the first Afghanistan International Investment Conference in Dubai.