World Bank warns of increased poverty due to COVID-19 shock
The World Bank has stated that a clear commitment from international partners to continue grant support would help reduce uncertainty and improve investor confidence in Afghanistan which would in turn enable the country to recover from the severe impacts of the COVID-19 crisis.
In its twice-yearly report, the World Bank stated that South Asia as a whole is set to plunge into its worst-ever recession due to the pandemic which will take a heavy toll on informal workers and push millions of people in the region into extreme poverty.
According to the report, although Afghanistan experienced moderate growth in 2019 as the agricultural sector recovered from the impacts of drought, the economy is estimated to have contracted sharply in the first half of 2020 due to economic disruptions associated with nation-wide lockdowns, border closures, and declining remittance inflows.
In addition, the report stated that medium-term prospects are subject to high levels of uncertainty, related to the COVID-19 pandemic, peace talks and future international security and aid support.
“Given the shock to the economy, poverty is expected to increase in 2020,” the report stated.
While there was significant growth in wheat production, the World Bank said this was not enough to offset the large negative impact of COVID-19 on other sectors of the economy.
The World Bank stated that while inflation was low in 2019 (averaging 2.3 percent) it increased significantly in 2020.
One reason was that in March and April 2020 – during lockdown – panic buying and import disruptions resulted in a sharp increase in food prices, which led government to adopt administrative measures to prevent price gouging.
Government also initiated an emergency wheat distribution program that resulted in a food inflation decline in the months that followed.
In the first quarter of 2020 Afghanistan registered a growth in exports of 11 percent year-on-year, which reflected the improved performance of air corridors. However, a weak domestic demand led to a 14 percent decline in imports.
“In the second quarter of 2020, both imports and exports fell precipitously given border closures and disruptions to trade and transportation, with greater absolute declines in imports driving an improvement in the trade and current account balances,” the report read.
With the onset of the COVID-19 crisis, weak economic activity, disruptions to trade and compliance, revenue performance deteriorated significantly and revenue estimates for 2020 were revised downward by over 30 percent (from Afs 209 billion to 144 billion) in the budget mid-year review.
“Total domestic revenue collection at end-June reached Afs 74.7 billion, 20 percent lower than the initial budget target,” the report stated.
Poverty meanwhile is believed to have worsened in 2019 surpassing 54.5 percent amid continued violence and political uncertainty and “in the first half of 2020, with declining household incomes due to economic hardship, higher food prices due to COVID-19, a significant fall in remittances, and high returnee flows, poverty is estimated to have further increased,” the report read.
According to the report, the outlook for the rest of 2020 was grim as the GDP is expected to contract by 5.5 percent – again largely due to the impact of the pandemic.
“In following years, the pace of recovery is expected to be constrained in a context of continued insecurity, uncertainties regarding the outcome of planned peace talks, and questions about the level and duration of international security and aid support.
“The trade deficit is projected to narrow to 26 percent of GDP down from 30.4 percent in 2019. While exports are projected to fall by 24 percent, imports are expected to decline by around 18 percent,” read the report.
World Bank analysis meanwhile suggests that the combination of reduced incomes and higher prices could drive the poverty rate to as high as 72 percent in the medium term.
“Over the medium term, the poverty outlook hinges on the pace of economic recovery and the continued provision of international aid and humanitarian support,” the report read.
“The main source of downside risk to the outlook stems from possible further adverse COVID-19 developments,” the World Bank stated adding that additional sources of risk include further political instability, a deterioration of security conditions, uncertainties associated with the planned peace agreement with the Taliban, and precipitous reductions in aid flow.
“By contrast, on the upside, a sustainable and credible political settlement with the Taliban could help boost growth, confidence and private investment,” the bank stated.
In terms of recommendations, the World Bank stated that given Afghanistan’s declining revenues and constrained fiscal potential, public expenditures need to be carefully directed to protecting the vulnerable, limiting long-term economic damage, and establishing solid foundations for economic recovery.
“To support households, the government should prioritize: i) targeted social protection measures; and ii) ensuring the continued provision of basic services, especially healthcare.
“To support the private sector, priorities include: i) pursuing business regulatory reforms to facilitate new investment; ii) expanding access to credit; iii) ensuring the continued provision of basic infrastructure; and iv) avoiding accumulating arrears to private sector vendors.”
Uzbekistan, Pakistan discuss construction of railway through Afghanistan
Uzbekistan’s Special Representative Ismatulla Irgashev and Pakistan’s Ambassador in Tashkent, Ahmad Farooq, on Thursday met and discussed the construction of the Termez–Mazar-e-Sharif–Kabul–Peshawar railway.
A thorough exchange of views took place on the current situation in Afghanistan and the efforts of the international community and both countries to expand cooperation in the Afghan direction, Uzbekistan’s foreign ministry said in a statement.
Pakistan’s envoy emphasized the significant role of Uzbekistan in establishing a long-term and sustainable peace in Afghanistan, as well as involving the country in regional integration processes, the statement said.
The parties also discussed ongoing transport and communication projects in Afghanistan, in particular, the construction of the Termez–Mazar-e-Sharif–Kabul–Peshawar railway, it added.
Pakistan passes order to allow barter trade with Afghanistan, Iran, Russia
Pakistan has passed a special order to allow barter trade with Afghanistan, Iran and Russia for certain goods, including petroleum and gas, the Ministry of Commerce said on Friday.
Left with barely enough foreign exchange reserves to cover one month’s imports, Pakistan’s government is desperately trying to manage a balance of payments crisis and bring inflation under control after it hit a record of nearly 38% last month, Reuters reported.
The government order, called the Business-to-business (B2B) Barter Trade Mechanism 2023 and dated June 1, lists goods that can be bartered. State and privately owned entities would need approval to participate in the trade mechanism.
After Pakistan’s first purchase of discounted Russian oil in April, petroleum minister Musadik Malik told Reuters that Pakistan would only be buying crude, not refined products under the deal.
There was no confirmation about how the payment would be made. But, Malik said purchases could rise to 100,000 barrels per day (bpd) if the first transaction went smoothly.
Last year, Pakistan imported 154,000 bpd of crude oil, little changed from 2021, data from analytics firm Kpler showed.
In May, Pakistan Petroleum Dealers Association complained that up to 35% of the diesel sold in Pakistan had been smuggled from Iran.
Pakistan’s government has also ordered a clamp down on smuggling of flour, wheat, sugar, and fertilizer to Afghanistan.
Ministry of mines promises major investment in Sar-e Pul mines
The Ministry of Mines and Petroleum (MoMP) says in the next seven months, about $148 million will be invested in extracting mines in Sar-e Pul province.
In a trip to the province on Thursday, Minister of Mines and Petroleum Shahabuddin Delawar said that the process of investing in Sar-e-Pul mines will begin soon.
Delawar has promised the residents of Sar-e Pul that practical work regarding development in this province will begin within the next seven months.
At the meeting, local authorities and residents of the province also presented their suggestions for the development of the province.
Speeding up the work of mining, recruiting educated young people in the mining process, and implementing construction projects from revenue obtained from the mines are among the most basic demands that were expressed at the meeting.
He also pledged that besides taking care of the basic needs of the people, priority will be given to employing professional youth in the province.
“So far, the vast works of this project have not started and those youths of this province who are professional will be employed,” said Delawar.
Sar-e Pul province in the north of the country, has coal mines and oil and is one of the wealthiest provinces in terms of untapped minerals.
Qashgari oil wells, which are in this province, are already operational.
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