AFGHANISTAN is rich in resources such as coal, chromite and marble. In 2010, the US discovered untapped mineral deposits that included huge veins of iron, copper, cobalt, gold and critical industrial metals such as lithium.

The mineral deposits are worth $900bn and the natural gas industry could be worth more than $220bn. Untapped reserves have attracted considerable investment, with China pledging $2.8bn for the development of copper mines. A consortium of Indian companies in partnership with Canadian companies also pledged $14.6bn investment for the development of iron ore mines in Hajigak.

The revenues from these industries could have provided billions of dollars in yearly revenue for the government and reduced reliance on foreign aid. However these projects are at a standstill due to the precarious security scenario. But majority of the country’s deposits are undeveloped, abandoned awaiting new contracts, or mined by local community members. At the same time, Afghanistan’s economic growth and stability has been consistently neglected. The withdrawal of foreign troops and income lost in the retrenchment of spending by security forces damaged growth in 2014 that fell to 1.7pc from 3.4pc in 2013.

Political uncertainty and insecurity has adversely affected Afghan economy. If the political, security and business environment stabilises, the government expects the economy to grow by 2.5pc in 2015. According to the World Bank, economic growth declined from an average of 9pc during 2003-2012 to 3.7pc in 2013 and 2pc in 2014 due to so called ‘political transition’ and slow pace of reforms.

The economic slowdown resulted in a hefty decline of domestic revenues from a peak of 11.6pc of GDP in 2011 to 8.4pc in 2014. In spite of measures to restrain expenditures, the government faced a financing shortfall in excess of $500m in 2014. Consequently the government started 2015 with a relatively weak fiscal position, further strained by stagnating revenues in the first quarter. The economy needs systemic reform, ranging from better financial management of the incoming foreign assistance and modest revenue collection to measures needed to attract foreign direct investment.

The government faces a large deficit. It can only finance 60pc of its operational budget, the rest 40pc and the entire development budget relies on international aid. Situation is getting worse as western donors are increasingly cutting funds. Hundreds of projects have already been closed rendering many people jobless. About 60pc of Afghan workers are jobless. More and more people are falling below poverty line and the rich are getting richer. Poverty is most heavily concentrated in the rural areas. Only 29pc of rural households against 90pc of urban households have access to electricity. And 58pc of urban households have access to safe water against only 19pc of rural homes.

The Afghan finance minister, however, expects the country will not face any financial problems in next three years as foreign aid worth $4bn had been deposited in the state exchequer after successful negotiations with the World Bank, the US and the UK. An amount of $3bn was provided by the Bank, $800m by the US and another $500m by the UK. While efforts were underway to attract foreign direct investment from the EU, China, Germany and other countries besides increasing domestic revenue in order to push Afghanistan towards economic self-reliance. The government is trying to introduce a balanced budget in the future and reduce government expenditures.

Security challenges continue to prevent international investors from investing in mining projects.Future regarding peace in Afghanistan seems very unclear. The US development assistance to Afghanistan has declined from $1.8bn in 2013 to $1.1bn in 2014. The country spends half of its budget on its military.

Russia

Russia has a high-income mixed economy with state ownership in strategic areas of the economy. Market reforms in the 1990s privatised much of Russian industry and agriculture, with notable exceptions in the energy and defense-related sectors.

Russia is unusual among the major economies in the way that it relies on energy revenues to drive growth. The country is succumbing to its first economic contraction since 2009 after energy prices fell and international sanctions over Ukraine curbed financing. A weaker currency is helping producers struggling amid a recession, as the government runs out of options to counter a deepening slump.

The EU foreign ministers have reportedly extended the economic sanctions imposed on Russia until the end of January 2016, imposed since August 2014. The EU and the US had imposed sanctions on entire sectors of the Russian economy. Russia, in response, has banned certain food imports from the countries that imposed the restrictions. Tight monetary policy and weak business sentiment may lead to a deep fall in investment.

The Russian economy ministry has updated its economic forecast for this year and the next. The economy will now contract by 2.8pc this year, helped by recovering oil prices, but will return to positive growth next year with a forecast of 2.3pc growth in 2016.

The economy contracted by 1.9pc in the first three months of 2015 because of low oil prices, weaker spending and sanctions from the West. The IMF predicts GDP to shrink 3.4pc this year and growing 0.2pc in 2016. The EBRD is also of the views that lower oil prices, sanctions and weakening investor confidence will push the Russian economy into a deep contraction this year.

The rouble is seen averaging$60 in 2015 and strengthening to$ 53.2/ in 2018. Russia has no target exchange rate. The exchange rate is formed on the basis of market supply and demand. As an open economy, Russia is subject to serious external shocks. The standoff over Greece and the market turmoil plaguing China have weighed on Russian assets and some officials are raising questions about the ability of the world’s biggest energy exporter to endure the crises gripping the global economy.

Published in Dawn, Economic & Business ,July 21st, 2015

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