Publication: Afghanistan Economic Update, April 2013
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Date
2013-04
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2013-04
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One year into the transition process, Afghanistan sustains robust economic growth. An exceptional harvest, supported by the launch of first large-scale mining activities, increased real gross domestic product (GDP) growth from 7.3 percent to an estimated 11.8 percent in 2012. Inflation dropped to 6.4 percent and continuing high levels of aid helped to build up further international reserves. The medium-term outlook is tainted by uncertainty. Political and security uncertainties are expected to limit private-sector growth in the coming years. Increased public spending, however, will continue to fuel demand for services and construction through 2013. The transition process exposes Afghanistan to a number of serious risks, such as rising financing for public service provision. Security considerations aside, promoting sources of inclusive economic growth, especially agriculture, and strengthening domestic revenue mobilization will be important to mitigate some of these risks. In particular, a stronger reform effort in areas such as tax policy and customs is required to safeguard past gains in development. Finally, improvements in the legal and regulatory environment of mining could help to secure planned investment.
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“Nassif, Claudia; Joya, Omar; Sidonie Jaffrin, Guillemette. 2013. Afghanistan Economic Update, April 2013. © World Bank. http://hdl.handle.net/10986/16510 License: CC BY 3.0 IGO.”
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The recovery from the crisis differs by country depending on initial conditions and the intensity of the impact via the three principal channels through which the global financial crisis affected MENA economies-the financial sector, the price of oil, and the balance of payments, reflecting the impact on trade, remittances and Foreign Direct Investment (FDI) flows. The Gulf Cooperation Council (GCC) countries are leading the regional recovery as oil prices have rebounded and the GCC financial sector is stabilizing. Developing oil exporters felt the impact of the crisis, and now the recovery, largely through the oil price channel, due to the limited integration of their banking sectors into global financial markets and the importance of oil in their exports. The oil importers were affected by the crisis through the secondary effects on trade, remittances, and FDI flows, so their recovery will depend crucially on the recovery in key markets, especially the EU and the GCC countries. 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Addressing these issues will require applying rules and regulations consistently and without discrimination among firms and introducing reforms that promote business dynamism, private investment, and innovation.Publication Afghanistan Economic Update, April 2014(World Bank, Washington, DC, 2014-04)Economic growth slowed considerably to 3.6 percent (estimated) in 2013 despite robust agricultural production, as heightened uncertainty surrounding the political and security transition led to a slump in investor and consumer confidence. Growth is projected to remain weak in 2014, while a smooth political and security transition would help restore confidence in the economy and enable a pickup in growth in 2015. Revenue collection continued to weaken in 2013, while Afghanistan's large security expenditure obligations and high aid dependence pose the risk of crowding out important civilian operating and development spending. Domestic revenues declined to 9.5 percent of GDP in 2013 from 10.3 percent in 2012 and the peak of 11.6 percent in 2011. The decline in revenue collections is a result of the economic slowdown as well as weaknesses in enforcement in both tax and customs administration. In light of tight resources, austerity measures in 2013 disproportionately affected civilian expenditures as security expenditures have continued to grow. A concerted effort will be required going forward to improve revenue mobilization, while at the same time safeguarding important civilian spending. In addition to managing the transition related uncertainty and underperformance, Afghanistan will need to stay focused on its medium term structural reform goals, which include: (i) ensuring fiscal sustainability by mobilizing revenue, securing grant assistance, and safeguarding non-security expenditures; (ii) supporting inclusive and job-creating private-sector led growth by unlocking the potential of the agriculture, services, and natural resource sectors and by tapping the potential of regional integration; (iii) continuing to improve upon the still low levels of human capital and skills; and (iv) continuing to strengthen institutions and governance.
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