Afghanistan’s economy grew by around two percent in 2018 despite progress in economic policies, likely leading to further increases in poverty and deterioration in living standards, according to the World Bank’s recent Afghanistan Development Update.
The latest edition of the biannual publication released on Sunday highlights the negative combined impacts of conflict, drought and political uncertainty on the Afghan economy, resulting in the lowest growth rates among South Asian economies in 2018.
“Afghanistan faces challenges of insecurity, election-related political uncertainty, potential declines in international security support, in addition to the drought in 2018,” said World Bank Afghanistan Country Director Henry Kerali. “Anyone of these shocks would normally generate strong headwinds to growth. Afghanistan has faced all of these concurrently”.
The Development Update report notes that economic management remains strong in Afghanistan and prospects are improving for 2019, with growth expected to accelerate to 2.5 percent with the easing of drought conditions. Government policies have continued to support low inflation, improved revenue collection, and a limited fiscal deficit.
According to the report, slow growth generally reflects the impact of negative shocks rather than deterioration in government policy. In fact, government has, by many measures, maintained progress with policy reform even during these difficult times. Government revenues reached a new high of nearly 190 billion Afghanis in 2018, up to seven percent from 2017, the Update notes, while budget execution rates also reached record levels. The government spent 92 percent of the available national budget in 2018 and is on track to repeat this strong performance in 2019.
Predicated on continued strong economic management, the World Bank projects improvements in economic growth over the coming years. Growth is expected with improving weather conditions to accelerate to 3.2 percent in 2020 and to 3.5 percent in 2021, with the resolution of election-related political uncertainties.
Over the longer-term, much faster rates of growth are required to significantly reduce poverty from high current levels. According to the report, the potential for much-faster growth exists, but will only be realized under certain conditions.
“For government, more work is needed to improve the business environment, ensure a smooth election process, and prevent corruption and mismanagement of scarce fiscal resources over the difficult months to come. The international community can also play a vital role in supporting private confidence and growth by committing to security and aid support and ensuring that this support is closely coordinated and aligned with government plans” said Henry Kerali.
The Development Update notes that any political settlement with the Taliban could bring major economic benefits through improving confidence and encouraging the return of Afghan capital and skilled workers from overseas. Realizing such benefits, however, will depend on achieving a sustained and substantial improvement in the security situation.
“Whatever happens, rapid growth will only be possible with improved security under a government that remains committed to private sector development, respects the rights of investors, and maintains the gains Afghanistan has achieved over the past two decades towards establishing strong and impartial government institutions,” added Henry Kerali.