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UNITED STATES INSTITUTE OF PEACE

© USIP 2014 • All rights reserved.

“The delay in signing the BSA undermines 

confidence in the future 

international engagement 

with associated economic 

implications and negative 

consequences for Afghanistan’s financial outlook. ”

February 4, 2014

Compounding Uncertainty in Afghanistan

Economic Consequences of Delay in Signing 

the Bilateral Security Agreement

Summary

•	 The still unsigned Bilateral Security Agreement (BSA) between Afghanistan and the United

States providesthe legal basisfor continuing U.S. military presence in Afghanistan.

•	 In addition to itssubstantive importance, the BSA is also a confidence-building mechanism.

The delay in putting it in place is compounding uncertainty and further diminishing economic

confidence during Afghanistan’s already challenging and uncertain transition.

•	 Afghans’responsesinclude, among others, hedging behavior (legal and illegal), personal decisions on whether to come back to orstay in Afghanistan, delaysin investments, incipient job

losses, declining demand for goods and services and real estate prices, and farmers planting

more opium poppy.

•	 Most of these effects would appear to be reversible if the BSA issigned soon, but the longer

the uncertainty persists, the greater the risk that they become increasingly difficult, even

impossible, to undo.

•	 The BSA delay also increases Afghanistan’s vulnerability to other risks and shocks. For example, any problems during the election process, or adverse security developments, may be

magnified and feed on each other, potentially leading to a downward spiral in confidence

and outcomes, whereas having the BSA in place would provide a better anchor for navigating

transition challenges.

The BSA as a Confidence-Building Measure

Afghanistan faces numerous challenges and risks during its ongoing political,security and economic transitions. These include upcoming presidential and provincial council electionsin April

2014 as well as parliamentary electionsin 2015; political developments after elections; departure

of most international combat troops and performance of Afghan National Security Forces(ANSF);

evolution of the insurgency and prospectsfor reconciliation; declining international financial

support; actions by neighboring countries; and others. Some challenges and risks have an

immutable component (e.g., Afghanistan’s geographical location), whereas others are amenable

to policy decisions and risk mitigation measures. 

The BSA providesthe legal basisfor continuing U.S. military presence in Afghanistan, which in

turn would enable an equivalent NATO security agreement that would allow some NATO member

states also to maintain a limited troop presence. The BSA is widely seen to be extremely important

for the further development of (and continuing internationalsupport for) ANSF, as well as more

William A. Byrd 

E-mail: wbyrd@usip.org

Casey Garret Johnson 

E-mail: cjohnson@usip.org

Sanaullah Tasal 

E-mail: stasal@usip.org 

PEACEBRIEF166
© USIP 2014 • All rights reserved.

Compounding Uncertainty in Afghanistan

page 2 • PB 166 • February 4, 2014

generally providing a foundation for continuing international engagement and aid to the country. 

Those opposed to signing the BSA in the immediate future depict it as an issue of nationalsovereignty and try to mobilize support for their viewpoint, especially in rural areas, by emphasizing this

aspect and at least implicitly drawing on anti-foreign sentiment.1

This Peace Brief focuses not on the substance of the BSA, but rather on the BSA as an anchor for

domestic economic confidence and stability during Afghanistan’stransition. The delay in signing

the BSA undermines confidence in the future international engagement with associated economic

implications and negative consequencesfor Afghanistan’s financial outlook.

Economic Implications of Delay

In December and January, USIP staff conducted 29 key informant interviewsin Laghman, 

Nangarhar, Kabul and Herat provinces. While qualitative and far from comprehensive, these

interviewsshed light on how Afghans perceive the delay in signing the BSA and its economic

implications.2

Although one respondentsuggested that complete withdrawal of foreign troops(in the

absence of the BSA) would facilitate peace and thereby help the Afghan economy, the bulk of

the interviews highlight that continuing uncertainty over the BSA is having negative economic

repercussions. These include, among others,short-termism and hedging behavior that can take a

variety of forms—legal and illegal; declinesin demand for goods and services; various economic

decisions put on hold; falling land and real estate prices; uncertainty over jobs; caution on investments and slowdown in construction activities; foregoing education to meetshort-term economic

needs; and some people beginning to consider moving orstaying away from Afghanistan. Most

of these issues are juststarting to take hold and could be reversed if the BSA is put in effectsoon.

However, many respondents expect the adverse economic effectsto progressively worsen the

longer the uncertainty over the BSA persists. A former policeman in Laghman summed up:“By not

signing the BSA, President Karzai has attacked the Afghan economy, not the U.S., because if it is

signed four monthslater it won’t have any impact on the U.S., but it will have a big impact on our

economy in that time.”

At the extreme, hedging can involve outright theft. In Kabul, finance officers and those with accessto international organizations’funds and government bank accounts have been withdrawing

cash and disappearing at a greater rate than usual. Reportedly two international aid and development organizationsrecently lost more than $100,000 in this way, one U.N. agency $400,000, and

the Ministry of Finance at least Afs 350,000. At the macro level, the Afs 14 billion (11 percent)

shortfall in government budget revenue in 2013 as compared to the original target3has been

attributed at least in part to worsening corruption. Uncertainty and short-time horizons breed

these kinds of behaviors.

A variety of legal hedging also is underway. Some who rely on government and aid-dependent

salaries are cutting expenditures. In Laghman, government teachersreportedly are saving a

greatershare of their paychecks or have stopped purchasing on credit. Thisis beginning to ripple

through local economiesin the provinces, leading to declining imports, especially of luxury goods

but also ofstapleslike rice. Intervieweessaid that largerscale automobile importers and small

business owners alike are importing fewer goods. 

Farmers are also beginning to take measuresto insure themselvesfrom future shocks. In

Nangarhar, intervieweessaid that farmers planted more opium poppy in late 2013 than any time

in the last half decade orso. As one NGO worker whose family also owns a farm stated:“Everyone

keeps opium seedsin their house asinsurance and it isjust a matter of planting them.”
© USIP 2014 • All rights reserved.

Compounding Uncertainty in Afghanistan

page 3 • PB 166 • February 4, 2014

The second-order effect on security was explained in this way by one interviewee:“Families

in the east always used to make sure at least one of their boys went into the national army, if for

no other reason than to draw a steady paycheck. Right now they are rethinking thislivelihood

strategy, and fewer families are sending theirsonsto the government.” The recent failure of the

government to pay police in many provincesis not helping matters.4Some families are choosing

instead to arm themselves. A small arms dealer in Jalalabad city said he is moving more Kalashnikovs and handgunsthan“anytime since the fall of the Taliban.” He noted that the price of AK47s

and pistolsincreased by about $100 just a week after the late-November national Jirga (at which

President Karzai announced he would not be signing the BSA until after the presidential election).

A government engineer in Nangarhar reported that until mid-2013 the province had around

4,000 ongoing infrastructure projects, whereastoday there are only about 800. For yearstraders

and investorsin Nangarhar had been waiting for the Mahipar and Naghlu damsto come online

and provide reliable and cheaper electricity to the Jalalabad area. Both have been producing

electricity since October but investment has not increased, with the delay in the BSA the most

commonly cited reason. NGO employeesin Jalalabad stated that“before this BSA controversy, we

were not bidding on any projectslessthan $50,000, but now we will bid on anything for $20,000

just to keep our offices open. Some NGOs have closed their offices due to not being able to cover

staff costs and are now waiting at home.”

At the other end of the spectrum from infrastructure investments, a rickshaw driver in Herat

city said:“Right now no passengers want to use this old rickshaw because of how bad itsounds! I

have the money to trade it in for a new one, but I am waiting to see if the U.S. decidesto leave the

country or not. Right now I need to save this money to support my family.” When asked what he

would do if the BSA is notsigned and the U.S. pulls out, he said his most likely option would be

moving to neighboring Iran.

Although there does notseem to have been a large outflow of economic migrants yet, returns

of long-term Afghan refugeesliving in placeslike Peshawar (in neighboring Pakistan) appear

to have slowed. One interviewee in Laghman said that his brother had come from Pakistan in

November but returned to hisfamily and residence there after finding no work. A provincial

judge in Nangarharsaid that although he could save a considerable amount of money in weekly

travel costs by relocating hisfamily back to Afghanistan, he will continue to make the cross-border

commute because he would feel vulnerable without refuge in Pakistan.

Fluctuationsin real estate pricesin Kabul due to BSA uncertainty have been reported,5but

outside the capital land prices also have been dropping fast. A biswa (approximately 100 square

meters) of undeveloped residential property in Jalalabad city reportedly dropped from a pre-Jirga

price of US$6,000 to $3,000 a week later. Though it would seem to be a buyer’s market, both

buyers and sellers appear to be in a holding pattern at the moment—the latter reluctant to sell in

the event that the BSA issigned soon, the former feeling that if the zero-option becomes a reality

prices will only decline further.

And some may be giving up longer-term ambitions due to the uncertainty. A Laghman University studentsaid:“My family and I have lost hope. I belong to a very poor family and had to borrow

money to study, and my plan wasto repay the money and to startsupporting my family. Istudied

in order to be employed with an international organization and earn a good salary. If the BSA is

notsigned, then I will have to leave the university and take whatever job I can find.”
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Compounding Uncertainty in Afghanistan

page 4 • PB 166 • February 4, 2014

Conclusions

While the BSA cannot be seen in isolation from other factorsinfluencing the transition and affecting

confidence, it issignificant. The failure to sign itso far is by all indications having a damaging impact

by further diminishing confidence in an already uncertain environment. This paper hasfocused

on the problematic economic consequences, but there are also importantsecurity, political and

international implications. While most of the delay’s adverse economic effects would appear to

be reversible if the BSA issigned soon, the longer the uncertainty persiststhe greater the risk that

they become increasingly difficult, even impossible to undo. Moreover, the BSA delay compounds

uncertainty and increases Afghanistan’s vulnerability to other risks and shocks. For example, without

the BSA, problems during the election process, or adverse security developmentsin coming months,

may be magnified and feed on each other, potentially leading to a downward spiral in confidence

and outcomes. Having the BSA in place would provide a better anchor for navigating the unavoidable challenges.

Notes

1.	 Pro-BSA advertisements, which often feature economic arguments, have been targeted by opponents, which suggeststhat they do not want the BSA defined as an

economic issue (see http://www.reuters.com/article/2014/01/22/us-afghanistan-usadvertising-idUSBREA0L0OT20140122?utm_source=Sailthru&utm_medium=email&utm_

term=*Situation%20Report&utm_campaign=SITREP%20JAN%2023%20

2014).

2.	 There are also international economic and other ramificationsthat may be associated with the

BSA delay, which are not discussed in this paper.

3.	 Asreported by Tolo News(http://www.tolonews.com/en/

business/13470-government-revenues-miss-fiscal-year-target).

4.	 Many we spoke with attributed the delay in police salariesto the BSA controversy, whereasin

fact it was due to parliamentary delaysin passing the annual budget.

5.	 See Wall Street Journal (http://online.wsj.com/news/articles/SB100014240527023043551045792

34161225965976).

About this Brief

William A. Byrd, a senior expert at 

the U.S. Institute of Peace (USIP), 

has published extensively on 

Afghanistan’s economy and other 

topics. Casey Garret Johnson is a 

Kabul-based USIP senior program 

officer, who has published on Afghan 

local politics, tribal relations and 

the insurgency. Sanaullah Tasal 

is a Kabul-based USIP program 

officer, who has published on issues 

of religion, peacebuilding and 

security in Afghanistan. Additional 

reporting was contributed by Farid 

Bayat, Kabul-based USIP researcher. 

This paper forms part of ongoing 

research on economic aspects of 

Afghanistan’s transition. The views 

expressed in this brief do not necessarily reflect the views of the U.S. 

Institute of Peace, which does not 

take policy positions.