Publication: Afghanistan Development Update, May 2017
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2017-05
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2017-07-12
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The Afghanistan Development Update, which is published twice a year, provides a comprehensive report of the state of the Afghan economy. It covers recent economic developments and outlines the medium-term outlook for Afghanistan. Afghanistan. Each edition includes a section that provides in-depth analysis on one or more specific focus topics. The lack of high-frequency data in Afghanistan makes it difficult to track economic activities on a monthly or quarterly basis. Thus, proxy indicators are utilized when their quality is deemed satisfactory. Efforts are made to ensure that key analysis and forecasts are based primarily on reliable sets of data. The Afghanistan Development Update is intended for a wide audience, including policy makers, the donor community, the private sector, the community of analysts and professionals engaged in monitoring the economy and Afghanistan’s citizens at large. In this issue of the Update, the Focus Section discusses how economic stimulus can be provided in Afghanistan’s resource-constrained environment. In the context of the economic slowdown, Afghanistan faces the difficult dilemma of balancing measures to stimulate the economy while at the same time avoiding a further weakening of its fiscal position. The fiscal space is already extremely limited, with no room to increase public expenditure or to lower taxes. Thus, the Government must implement initiatives to maximize the growth impact of fiscal expenditure. First, policies to encourage government spending on non-tradable goods from local suppliers will ensure that demand taps domestic production, rather than imports. Second, policies to improve absorptive capacity will increase the quality, speed of execution and value for money of public investments. Third, policies to promote contestable markets in banking and construction will stimulate the entry of small and medium-sized firms in both sectors. Fourth, polices to increase fiscal space should include measures to improve revenue mobilization and to use existing resources more effectively, which will release additional resources.
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“World Bank. 2017. Afghanistan Development Update, May 2017. © World Bank. http://hdl.handle.net/10986/27550 License: CC BY 3.0 IGO.”
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Publication Afghanistan Development Update, November 2017(World Bank, Washington, DC, 2017-11)Afghanistan’s security environment is continuing to deteriorate. The increased conflict appears to be holding back business and consumer confidence from recovering fully from the impact of the security transition in 2014. Economic growth has increased moderately from 2014-15, when the lowest growth rate was recorded since 2003. Proxy data for the first half of 2017 indicates that economic activity is continuing to languish, while business sentiment, gauged from the quarterly business perception surveys, appears to have improved slightly between the first and second quarters of 2017, though it remains lower than in the second quarter of 2016. The annual economic growth rate is projected to reach 2.6 percent in 2017, increasing very slightly from the figure of 2.2 percent recorded in 2016. 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Secondly, business and investor confidence deteriorated significantly in the context of elevated uncertainty around: i) the level and duration of international security assistance; ii) the outcome of upcoming presidential elections (now delayed until September); iii) prospects of continued or worsening election-related violence (civilian deaths reached their highest level since 2001); and iv) ongoing peace negotiations with the Taliban. Real GDP growth is expected to have accelerated during the first half of 2019, mainly driven by the easing of drought conditions and improved agricultural production. Intensifying political uncertainties, however, are expected to have continued to dampen private sector confidence and investment. Poverty is estimated to have increased and deepened. The rate of economic growth substantially lagged population growth, leading to declining per capita incomes. The drought negatively impacted livelihoods of many of the 82 percent of the poor living in rural areas, including those reliant on poppy cultivation (poppy production declined by 30 percent). Reflecting widespread hardship, drought-induced displacement reached record levels of 298,582 individuals, mainly to urban areas in adjacent provinces.Publication Afghanistan Development Update, July 2020(World Bank, Washington, DC, 2020-07)The global COVID-19 crisis has compounded the daunting challenges currently facing Afghanistan. Afghanistan has officially recorded 31,238 cases and 733 deaths as of end-June, with actual cases and fatalities expected to be far higher. The number of cases is increasing rapidly, with no sign that the pandemic is under control. With major disruptions to domestic economic activity, regional trade, and remittance flows, the economy is now contracting rapidly. With declining incomes and increasing food prices, hardship is increasing, with the poverty rate expected to increase to up to 72 percent over 2020. Due to reduced trade, administrative disruptions, and declining economic output, government revenues fell by more than a third below target levels in May, placing major pressure on government finances. COVID-19 has hit Afghanistan in the midst of a difficult political transition, an intensifying conflict, and significant uncertainty regarding future grant support.Publication Afghanistan Development Update, October 2016(World Bank, Washington, DC, 2016-10)Security and development remain inextricably linked in Afghanistan, with the poor security environment continuing to exert a significant constraint on confidence, investment, and growth. As a result, in 2015, the economy grew at only 0.8 percent. In addition to the security situation, adverse weather conditions also constrained growth, contributing to a decline in agricultural production of 5.7 percent in 2015. Available data for the first half of 2016 indicate ongoing low levels of investment, with agricultural production expected to remain poor due to crop diseases and pests. Thus, in 2016, the growth rate is expected to reach only 1.2 percent, despite progress with a number of important initiatives that are expected to have a positive impact on Afghanistan’s economic development, including Afghanistan’s accession to the World Trade Organization and the opening of the Chabahar port in Iran. With the economic growth rate significantly lower than the population growth rate, it is expected that poverty will have increased in 2015 and that it is likely to continue to increase throughout 2016. In the medium-term future, economic growth is expected to gradually accelerate, increasing from 1.8 percent in 2017 to 3.6 percent in 2019. However, stronger growth in out-years is predicated on improvements in security, political stability, reform progress, and continued high levels of aid.Publication Afghanistan Development Update, August 2018(World Bank, Washington, DC, 2018-08)The Afghanistan Development Update is a twice-annual publication providing analysis of recent developments and presenting the World Bank team’s most-recent macroeconomic projections. The August 2018 edition focuses on the state of the economy in the context of upcoming elections, and the potential for a loss of recent momentum as confidence declines. Special topics address: i) the potential for trade to underpin development in Afghanistan; ii) recent trends in poverty and welfare; and iii) priorities for improving education quality and coverage. Afghanistan has experienced slow growth since 2014, with the draw-down of international security forces, accompanying reductions in international grants, and a worsening security situation (growth has averaged 2.3 percent between 2014-2017). Following a period of political instability after the 2014 elections, the economy has slowly regained momentum as reforms have been implemented and confidence restored. From a low of 1.5 percent in 2015, real GDP growth accelerated to 2.3 percent in 2016, and is estimated at 2.7 percent for 2017. Building momentum now appears to be at some risk, with increasing election-related violence, declining business confidence, worsening drought conditions, and some apparent slowing of economic activity. Growth is projected at 2.4 percent in 2018, with substantial downside risks arising from the prospects of political instability around upcoming parliamentary and presidential elections. Risks can be partly mitigated and recent momentum maintained through: i) continued reform progress, demonstrating to investors that the deterioration in governance seen in 2014 will not be repeated; and ii) continued donor commitment to sustained grant support.
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