Wahidullah Nosher has one of the hardest, some might say most unenviable jobs in central banking. He has been acting governor of Da Afghanistan Bank in Kabul since June last year when he was rapidly promoted following the sudden departure of his predecessor Khalil Sediq who resigned citing poor health.
Nosher presides over a banking system that is only just emerging. The country has 12 commercial banks (three state banks, seven private banks and two branches of foreign banks) and only 15% of the population has a bank account.
Despite the well-known challenges that he faces, it is hard not to come away from a call with Nosher at least cautiously upbeat about the outlook for the land-locked Central Asian state. Certainly, much of this has to do with increased hopes for peace in the country but the banking sector is showing real signs of growth. More to the point, Nosher himself is respected internationally and his plans are measured and grounded in reality.
He has the right credentials for the job. An economist and a banker by training, with degrees from the UK and Pakistan, Nosher began his career in government as economic policy adviser to the minister of finance in 2008 and was appointed first deputy governor of Da Afghanistan Bank in 2016.
Here he talks to FinanceAsia about financial inclusion, the challenges of bringing women into the banking system, and the country's relationship with China.
The following transcript of FinanceAsia's interview with Wahidullah Nosher has been edited for brevity and clarity.
Q Afghanistan's new economic programme with the IMF is going to begin in the middle of the year. How do you intend to strengthen the financial system?
A We have to do some fine-tuning on whether we are going more towards a growth-oriented programme or if we want revenue-focused and revenue-centred programmes.
When it comes to the banking sector, obviously, we don't want to compromise on financial stability, but we want clear growth which can support economic growth.
Q You have said that you want 25% of the population to have a bank account by 2024. Is that achievable?
A It's a difficult target objective to achieve and it's a steep curve, but within the changing [political] context we believe that if there is any sustainable peace agreement, it will enable us to reach out to rural Afghanistan.
Q What are the challenges of getting women involved in the banking sector?
A The financial inclusion of women is a big challenge. At present, a very low number of women own accounts with the banks. And there are many reasons for that – obviously, cultural issues are one of them along with education and financial literacy.
It is a priority for us that more and more women come to the banking sector and finance in general. We have different strategies, for example, we're planning to target projects which are designed for women and also that women should have a bank account before they can receive money. This means that money cannot be given to a third party.
Q How have you managed to reduce exchange rate pressure on the afghani?
A We let the exchange rate be a shock absorber and we only interact with the market when we need to, and the currency is stable even though we have a hostile environment in the region, unfortunately. We have launched a big drive for the de-dollarisation or an Afghanisation process which has been effective in the eastern part of Afghanistan. And now we are moving towards Kandahar and other cities as well. This has helped us a lot.
Q How much of a challenge has it been to keep a lid on inflation?
A Most of our commodities are imported, that also why most of the time we also import inflation into the country. The central bank has played a vital role in keeping inflation stable, but at the same time, regional dynamics are also important. Did you see that GDP growth recently has been less than 3%? No demand also means lower inflation. The currency exchange has had a positive effect on inflation with a time lag. That has also been a political factor in this equation.
Q What are the challenges in setting up a stock market? How far down the line is it?
A We don't have any capital markets in the country, which is putting pressure on the banking sector. We have recently started to work on Islamic banking and Islamic bonds. We are at the early stages and we have a lot to do to establish a vibrant stock market.
I cannot give any precise time [on when that will happen], unfortunately, because it all depends on how things go in the country. What happens in Iran and Pakistan also directly affects a whole spectrum of issues, but initial work has been done on the legal framework, regulations and on the operational side of things. But I cannot say anything specific about the date and time of that.
Q The previous governor talked last year about a sovereign crypto bond – has that idea developed?
A Any complicated product like cryptocurrency or Bitcoin are the future and everyone must accept that. But we are in a central bank working on the regulatory environment and a good framework. Let's see how and when we can reach that equilibrium point.
Q The bank recently had meetings with its counterparts in Cambodia. What are your expectations from meetings like this?
A The team learned important lessons from Cambodia, all the way from structure to investment in different commodities to the mandate and the operation of monetary policy, as well as work on financial inclusion. There was a lot to learn from Cambodia. When we have similar meetings with different regional countries and in more developed economies, we always walk on the experience curve because Afghanistan is a country where we still have a lot of distance to go in terms of banking.
Q China is enthusiastic about Afghanistan being part of the Belt and Road. How do you see the relationship with China?
A I recently had to travel to China to meet [Yi Gang], the governor of the People’s Bank of China and the bank is obviously encouraging countries to invest in Chinese renminbi products. The portfolios of banks in Afghanistan are mostly invested in US dollar-dominant products.
I believe that the future is very well-connected in terms of the trade with China and obviously you can’t trade without banks, so banks must play this role. It's a big market but recently, the unfortunate events of the coronavirus have depressed most of the treasury facilities.
We are also working closely with other ministries in Afghanistan on a big deal which Afghanistan has signed with China, on trade to facilitate the inflows and outflows of payments.
Q Do you see yourself becoming increasingly connected to the renminbi?
A In the short term, no, but obviously in medium to long term there will be changes not only in our portfolio but obviously for the rest of the central bank because the interest rate that they are offering is a big spread compared to the US dollar.
In the short term, there are too many questions. As a central bank, we will only invest in currencies and products which are triple A rated with no possible risk. Our top priority is not profitability. It is security and liquidity.
Q Much of the country’s infrastructure work is along the China Pakistan Economic Corridor. How important is that to the Afghan economy and how can the bank help?
A Afghanistan is a landlocked country and we don't have any access to water. There is the China and Pakistan Economic Corridor and the port of Gwadar, and we have another every new opening on Iranian soil which is supported by India.
The realisation of those projects may need a lot of long-term efforts. But obviously, anything positive in the region will bring economic growth. Afghanistan’s geopolitical and economic location is key because we are between Central Asia and South Asia. What we see in Central Asia is an abundance of resources, but fewer skills. We are a connecting point. Obviously, any development in Central Asia, Southeast Asia and also China, matters for us.
Q What are your priorities for the rest of the year?
A Financial inclusion and credit growth are top priorities from the central bank perspective. We are also working on correspondent banking relationships with the rest of the world. The process of data analysis should continue, and we should have more coverage for the local currency. We are also getting ready for more complicated and complex banking like digital finance, digital banking and mobile banking. We are working on more integration with the rest of the country so that payments can easily go through.