Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

ISLAMIC REPUBLIC OF AFGHANISTAN

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

Status Under IMF Articles of Agreement
Article XIVYes.
Exchange Arrangement
CurrencyThe currency of the Islamic Republic of Afghanistan is the Afghani.
Exchange rate structure
Unitary.Da Afghanistan Bank (DAB), the central bank, maintains a daily official rate defined in terms of the dollar and based on the average of the opening quotations of a number of important and reputable money traders operating in a free market in the form of a money bazaar. In principle, the DAB’s buying and selling rates for foreign cash are within margins of ±1%; in practice, however, the DAB’s transactions have been limited to buying and thus have little impact on the exchange rate movements in the market. A second exchange rate—the official rate—is applied to certain transactions of the central government (mainly debt-service payments) and certain foreign currency income earned in the Islamic Republic of Afghanistan.
Classification
Managed floating with no predetermined path for the exchange rateMost convertible currency transactions are effected at the free market exchange rate. The DAB posts rates for dollars, euros, Indian rupees, Pakistan rupees, pounds sterling, and Swiss francs. These rates are calculated using the IMF’s daily SDR rates for these currencies.
Exchange taxn.a.
Exchange subsidyn.a.
Forward exchange marketThere are no arrangements for forward cover against exchange rate risk in operations in the official market or the commercial banking sector.
Arrangements for Payments and Receipts
Prescription of currency requirementsSettlements with countries with which the Islamic Republic of Afghanistan maintains bilateral payments agreements are made in bilateral accounting dollars, in accordance with the procedures set forth in these agreements. Exchange rates for trade under bilateral payments agreements are specified in each agreement. The proceeds from exports of karakul to all countries must be obtained in convertible currencies. There are no other prescriptions of currency requirements.
Controls on the use of domestic currencyThe Afghani is used for all transactions and settlements of accounts unless the use of another currency is specified by the parties concerned.
Payments arrangements
Bilateral payments arrangementsThe Islamic Republic of Afghanistan maintains bilateral payments agreements with Bulgaria, China, and Russia; however, some of these have been inoperative for several years.
OperativeYes.
InoperativeYes.
Administration of controlForeign exchange transactions are controlled by the government through the DAB. No restrictions apply to transactions in the free exchange market.
International security restrictionsn.a.
Payments arrearsn.a.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeImports and reexports of gold are permitted, subject to regulations. Exports of gold bullion, silver, and jewelry require permission from the DAB and the MOF. Commercial exports of gold and silver jewelry and other articles containing small quantities of gold or silver do not require a license. Customs duties are payable on imports and exports of silver in any form, unless the transaction is made by, or on behalf of, the monetary authorities.
Controls on exports and imports of banknotes
On exports
Domestic currencyTravelers may take out up to Af 2,000 in domestic banknotes and Af 50 in coins.
Foreign currencyTravelers entering the Islamic Republic of Afghanistan are required to spend a minimum of the equivalent of $26 a day in foreign exchange. They may take any amount out of the country that was declared upon arrival, subject to this minimum conversion requirement.
On imports
Domestic currencyTravelers may bring in up to Af 2,000 in domestic banknotes and Af 50 in coins.
Foreign currencyTravelers may bring in any amount of foreign currency but must declare it when entering the country if they intend to take out any unspent amount on departure.
Resident Accounts
Foreign exchange accounts permittedDAB approval is required for residents to open and hold foreign exchange accounts domestically and abroad.
Held domesticallyDAB approval is required for residents to open and hold foreign exchange accounts.
Held abroadYes.
Approval requiredYes.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyNo.
Nonresident Accounts
Foreign exchange accounts permittedDAB approval is required for nonresidents to open and hold foreign exchange accounts.
Approval requiredYes.
Domestic currency accountsYes.
Domestic currency accountsNo.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetAn annual import program drawn up by the Ministry of Commerce covers both public and private sector imports. Adjustments in the public sector import plan are made as circumstances change. There is an indicative import plan for the private sector, drawn up on the basis of proposals submitted by the Chamber of Commerce.
Financing requirements for importsn.a.
Documentation requirements for release of foreign exchange for imports
Letters of creditPayments through the banking system for imports to countries with which the Islamic Republic of Afghanistan has payments agreements may be made only through LCs. Payments to other countries may be made through LCs, against bills for collection, or under an arrangement in which the importer imports goods of at least an equivalent value to the payment made through the banking system. Except for public sector imports under the government budget, all importers are required to provide minimum import deposits with banks when they open LCs. The deposit ratios, based on the c.i.f. value of imports, are 20% for essential products, and range from 30% to 60% for other products.
Import licenses and other nontariff measuresAll importers must obtain a license from the Ministry of Commerce for statistical purposes. A license is issued on the basis of appropriate documents that have been approved by the Chamber of Commerce. For imports of nonessential goods, a 1% fee, based on the import value, is levied and is payable in dollars. The Chamber of Commerce charges a 2% fee to members and a 2.5% fee to nonmembers. The fee is based on the value of the imports.
Positive listMost bilateral agreements specify quantities (and sometimes prices) for the products to be traded.
Negative listThe importation of certain drugs, liquor, arms, and ammunition is prohibited on grounds of public policy or for security reasons; in some instances, however, special permission to import these goods may be granted. The importation of a few textiles and selected nonessential consumer goods is also prohibited.
Licenses with quotasThere are no quantitative restrictions on most imports, but tariff rates on most consumer items range from 30% to 50%.
Import taxes and/or tariffsNo.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsExport proceeds from bilateral accounts may be retained in bilateral clearing dollar accounts with the DAB. These retained proceeds may be used either directly by the original exporter or sold to other importers. In either case, the retained proceeds are converted at the clearing rate applicable to that particular bilateral arrangement. In the case of exports to countries trading in convertible currencies, export proceeds may be retained abroad for three, six, or twelve months, depending on the country of destination. During the relevant period, the exporter may use these funds to import any goods not included on the list of prohibited goods. Alternatively, at the end of the relevant holding period, foreign exchange holdings abroad must be repatriated and held in a foreign currency account with a bank in the Islamic Republic of Afghanistan or sold at the commercial exchange rate.
Surrender requirementsProceeds from exports of raisins, fresh fruits, animal casings, skins, licorice roots, medicinal herbs, and wool must be surrendered immediately at the commercial exchange rate.
Financing requirementsn.a.
Documentation requirementsn.a.
Export licensesFor statistical purposes, all exporters must obtain a license from the Ministry of Commerce to engage in export trade. A license is issued on the basis of appropriate documentation that has been approved by the Chamber of Commerce. The Chamber of Commerce levies a 5% fee based on the export value. The exportation of opium and museum pieces is prohibited. Otherwise, control is exercised only over exports to bilateral agreement countries.
Without quotasYes.
Export taxesn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersForeign exchange for most private purposes may be acquired in the money bazaar.
Payments for travelThe DAB levies a charge of Af 0.75 per $1. A charge of 1% on the total value of other convertible currencies is levied on permits for their export by authorized travelers.
Prior approvalYes.
Quantitative limitsThe limit for tourist travel is $2,000 or its equivalent, except for private travel to India, for which the limit is the equivalent of $700. The limit for business travel is $15,000.
Personal paymentsFor medical treatment, the central bank levies a commission of Af 0.75 per $1. No information is available for other types of personal payments other than medical costs.
Prior approvalYes.
Quantitative limitsNormally, the DAB authorizes up to the equivalent of $2,500 for medical treatment.
Foreign workers’ wagesForeign employees working in the Afghan public and private sectors must convert 60% of their foreign currency salaries into Afghanis at the official rate.
Quantitative limitsYes.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsn.a.
Restrictions on use of fundsn.a.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instrumentsThe liquidation of investments in enterprises requires approval from the High Commission and the prior settlement of all accounts.
Controls on derivatives and other instrumentsn.a.
Controls on credit operationsn.a.
Controls on direct investment
Inward direct investmentInvestments require prior approval and are administered by the Investment Committee. Foreign investment in the Islamic Republic of Afghanistan can take place only through joint ventures, and an investment approved by the Investment Committee requires no further license to operate in the Islamic Republic of Afghanistan. The Foreign and Domestic Private Investment Law includes the following provisions: (1) income tax exemption for four years (six years outside Kabul province), beginning with the date of the first sale of products resulting from the new investment; (2) exemption from import duties on essential imports (mainly for capital goods); (3) exemption from taxes on dividends for four years after the first distribution of dividends, but not more than seven years after the approval of the investment; (4) exemption from personal income and corporate taxes on interest on foreign loans that constitute part of an approved investment; (5) exemption from export duties, provided that the products are not among prohibited exports; and (6) mandatory procurement by government agencies and departments from enterprises established under the law, as long as the prices are not more than 15% higher than those of foreign suppliers.
Controls on liquidation of direct investmentSales of investments in enterprises, as defined by the Domestic and Foreign Investment Law, must be approved by the High Commission and must be preceded by the settlement of all accounts.
Capital may be repatriated after five years at an annual rate not exceeding 20% of total registered capital.
Controls on real estate transactionsn.a.
Controls on personal capital transactionsn.a.
Provisions specific to commercial banks and other credit institutionsn.a.
Provisions specific to institutional investorsn.a.
Other controls imposed by securities lawsn.a.
Changes During 2004
No significant changes occurred in the exchange and trade system.

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