Afghanistan faces a sluggish economic recovery from COVID-19 amid continued political uncertainties and possible decline in international aid, says the World Bank in its latest country update.
Released on Monday, a report titled "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 hard 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 says.
“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, the organization says.
The World Bank says that 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.
Droughts are expected in 2021 and will likely reduce agricultural activity, further weakening growth prospects, the World Bank report says.
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. Simultaneously, donors can support private sector confidence through clearer multi-year aid commitments and by defining measurable priority reforms that condition continued grant support," the report said.
The World Bank findings show that based on preliminary NSIA estimates, Afghanistan’s economy is estimated to have contracted by 1.9 percent in 2020, following an average growth rate of 2.4 percent over 2014-2019, reflecting weak confidence amid continued political instability and the impacts of the COVID-19 crisis.
According to the report, investment remained suppressed in the context of pervasive uncertainty.
Private consumption is estimated to have contracted by around 6.6 percent, reflecting lower incomes and increased precautionary savings. Government consumption, on the other hand, increased by around 5.6 percent, mainly due to the increase in donor-financed COVID-19 related expenditures, the report says.
The report adds that the agriculture sector is estimated to have grown by 5.3 percent over 2020.