Afghan war-boom economy goes bust as foreign troop pullout nears, election dispute rages

Rows of dusty trucks and used cars sit unsold in Afghanistan's capital, where real estate agents bemoan a lack of sales and international businessmen no longer frequent top hotels. Even government employees nervously await each payday, worried the next might be delayed.

Afghanistan's economy, vastly supported by international military spending and aid since the 2001 U.S.-led invasion to topple the Taliban, finds itself struggling on the precipice of what could be an uncertain future. NATO forces plan to pull out at the end of the year, insecurity is rising as international aid falls and a drawn-out election battle threatens to destabilize the country.

All those worries have seen the country's economy retract in recent months and many fear things will only get worse.

"The people of Afghanistan have experienced civil war, and they worry that a civil war might happen again," said Ahmad Omed, a car dealer on Kabul's outskirts who says his sales have slumped as people hoard their money out of fears of having to flee the country.

Since the U.S.-led war began, Afghanistan's economy has been boosted by foreign spending. The World Bank has said about 97 percent of Afghanistan's gross domestic product is derived from spending linked to foreign forces and the donor community.

It reported in April that economic growth had dropped to an estimated 3.6 percent in 2013, compared to 14.4 percent in 2012 as investors and consumers worried about the coming security and political transitions. Violence targeting foreigners in Kabul in recent months, including a Taliban assault in January on a popular restaurant that was the deadliest single attack against foreign civilians in the war, has led many international organizations to cut back.

The U.S. Senate's Committee on Foreign Relations itself warned in 2011 of the danger of Afghanistan's lopsided economy, saying it "could suffer a severe economic depression when foreign troops leave in 2014 unless the proper planning begins now."

Now that danger is compounded as the country's protracted election has spooked investors as well. Both former Foreign Minister Abdullah Abdullah and former Finance Minister Ashraf Ghani Ahmadzai, the two men vying to replace President Hamid Karzai, have alleged fraud in a runoff election.

An audit of all ballots is underway and the two sides have tried to negotiate a unity government. However, the longer the process goes on, the bigger the fear that the country will spiral into violence, adding to the pressure on the economy. A deal allowing some U.S. troops to remain in Afghanistan after the end of the year also hangs in the balance, sparking further worries about the country's stability.

"The overall situation is this: The election has severely affected the economy," said Atiqullah Nusrat, who heads the Afghanistan Chamber of Commerce & Industries.

While funding for Afghanistan's security forces comes mostly from international donors, funding for its civilian government is threatened by the economic slowdown. Deputy Minister for Finance Mohammed Mustafa Mastoor said the government is rapidly eating into a two-month cash reserve it keeps on hand for emergencies.

"So far we didn't delay any salaries, but I am afraid that we may do it soon because I still don't see any big hope to come in the near future," he said. "One factor, and a major one, is the election."

The woes can been seen across Kabul. Mastoor said his barber closed early recently for a lack of customers. Almost all the roughly 600 trucks registered to Sahil International Transportation are off the road right now, said the owner Nabiullah, who goes by one name like many Afghans, as shipping has halted and businesses keep their stocks low out of fear of unrest.

In Kabul's suburbs, Yunos Mohmand, the general director of Shadab Zafar Construction & Housing Co., had hoped to build a planned community of high-rise apartment buildings with a four-story mosque, a health clinic and a school. But work has stalled and Mohmand said he's sold only 50 of a hoped-for 600 apartments by this time.

"The builders and investors are not doing big projects now because they are not optimistic about the future of Afghanistan," he said.

Deputy Minister for Trade Mozammil Shinwari still points out some positive economic news, noting that roughly 6,000 kilometers (3,700 miles) of roads and Afghanistan's first commercial railway line have been built since the fall of the Taliban. The government made strides last year in preparing to join the World Trade Organization.

But when traders come to his office these days, he said they only want to discuss the election and when it will be decided.

"Every day the traders are coming saying, 'What's happening? What's happening? What should we do?'" he said. "And we are telling them 'OK, things will improve. Soon you will have a result.'"


Associated Press correspondent Amir Shah in Kabul contributed to this report. Follow Rebecca Santana on Twitter at .