International Trade

The World Bank In Afghanistan

Afghanistan’s biggest economic challenge is finding sustainable sources of growth. To date, the World Bank has committed more than $4.70 billion for development projects. The Bank-administered Afghanistan Reconstruction Trust Fund has raised more than $12.27 billion.

Recent Economic Developments

Substantial improvements in development outcomes have been observed in Afghanistan since 2001, particularly in expanded access to water, sanitation and electricity, education, and health services. Macroeconomic management remains strong, government revenues have grown consistently since 2014, and the government has engaged in an impressive range of business environment and public financial management reforms. Expanded access to health, education, and infrastructure has seen rapid improvements in outcomes, with Afghanistan catching up with other low-income countries against key development indicators. While progress has been uneven, increased access to services and infrastructure has driven huge development gains.

At the same time, Afghanistan continues to experience insecurity and political uncertainty. Presidential elections were held in September 2019, but the outcome remains contested. Afghanistan’s economy has been hard-hit by the outbreak of the COVID-19 virus, due to negative impacts on consumption, exports, and remittances. Conflict is ongoing, and 2019 was the sixth year in a row when civilian causalities in Afghanistan exceeded 10,000. The displacement crisis persists, driven by intensified government and Taliban operations in the context of political negotiations. The number of conflict-induced IDPs increased from 369,700 in 2018 to more than 400,000 in 2019. An additional 505,000 refugees returned to Afghanistan, mainly from Iran, during 2019.

Negotiations between the US and the Taliban have concluded by signing of the “Agreement for Bringing Peace to Afghanistan” on February 29, 2020, but the process of a political settlement is only beginning. Meanwhile, the duration and extent of continued international security support is being questioned. Current international security and civilian grant support pledges are due to expire in 2020, creating uncertainty regarding future aid levels and the sustainability of security and development expenditures. This has fundamental implications for the economy, with growth and investment constrained by weak confidence.

Afghanistan’s economy is estimated to have grown by 2.9 percent in 2019 driven by easing of drought conditions and rapid agricultural growth. Inflation remained modest at 2.3 percent. The trade deficit remains extremely large, at around 31 percent of GDP, financed mostly by grant inflows. Fiscal performance continued to improve in 2019 despite the elections withdomestic revenues reaching 14.1 percent of GDP. Political uncertainties, however, dampened private sector confidence and non-agriculture growth. The basic needs poverty rate was 55 percent at the time of the last household survey (2016/17) and is expected to have worsened since due to declining per capita incomes.

The economy is expected to contract by up to four percent in 2020 with the negative impacts of the COVID-19 virus overshadowing improvements in weather conditions. Additional substantial downside risks remain, including political instability, deterioration of security conditions, premature reduction in aid flows, and further adverse regional economic or political developments. Poverty is expected to remain high, driven by weak labor demand and security-related constraints on service delivery.

Short-term priorities include continued implementation of business environment and anti-corruption reforms to improve private sector confidence, mobilize investment, and ensure confidence of the international community. Over the medium-term, reform efforts should focus on attracting additional investment in the agriculture and extractive sectors, which have the combined potential to deliver increased employment, exports, government revenues, and growth. To ensure that benefits of agriculture and extractives led growth are maximized and widely shared, continued investment is required in human capital, regional connectivity, expanded infrastructure, and an improved business regulatory environment.

Last Updated: Apr 01, 2020 by international group