Political and security uncertainty slow Afghanistan’s economic recovery

Continued political uncertainty and a possible decline in international aid is slowing down Afghanistan’s economic recovery from COVID-19, the World Bank said Monday in its latest country update.

The World Bank’s report, Setting Course to Recovery, shows that robust agricultural growth has partially buoyed Afghanistan’s economy, which shrunk by around two percent in 2020 – a smaller contraction than previous estimates.

However, lockdowns, weak investment, and trade disruptions have hit services and industries, increasing hardship and unemployment in cities.

Growth is expected to reach one percent in 2021 and top around three percent in 2022 as the COVID-19 crisis fades. Per capita incomes are unlikely to recover to pre-COVID levels until 2025 due to fast population growth, the report noted.

“The current political and security uncertainties have created serious hurdles to Afghanistan’s economic recovery from the COVID-19 crisis. A slower pace of recovery means higher unemployment, lower government revenues, and – ultimately – more difficult living conditions for Afghans,” said Henry Kerali, World Bank Country Director for Afghanistan.

A full recovery will be challenging as many firms have closed and jobs were lost. Private sector confidence has weakened amid difficult security conditions, uncertainty about the outcome of the ongoing peace talks, the possible withdrawal of international troops, and potential sharp declines in future international aid support.

The report also noted that droughts are expected in 2021 and will likely reduce agricultural activity, further weakening growth prospects.

The report emphasizes that a strong and sustainable partnership between the Afghan government and its international partners is key to driving recovery and restoring private sector confidence.

In that effort, the government needs to accelerate reforms to improve governance, fight corruption, mobilize revenue, and boost business.

The report also noted that simultaneously, donors can support private sector confidence through clearer multi-year aid commitments and by defining measurable priority reforms that condition continued grant support.