Afghanistan’s economic growth is expected to recover this year and accelerate next year after a sharp decline in 2020 from the coronavirus pandemic as well as unrelenting violence and instability, according to a new report by the Asian Development Bank.
In its Asian Development Outlook (ADO) 2021, released on Wednesday, ADB forecasts Afghanistan’s gross domestic product (GDP) growth to rebound to 3.0% in 2021, rising to 4.0% in 2022 as business activity and market sentiment normalize.
“GDP contracted by an estimated 5.0% in 2020 as COVID-19 containment measures exacerbated the economic impact of persistent violence and political instability. ADO is ADB’s flagship annual economic publication,” said the report.
“Afghanistan’s economy experienced unprecedented disruption in 2020 due to the COVID-19 pandemic, political instability and continued violence, which cut remittances, trade, and revenue,” said ADB Country Director for Afghanistan Narendra Singru.
“With a successful COVID-19 vaccine rollout and post-pandemic recovery, the country should be on track to achieve economic growth this year and in 2022 as business activity and market sentiment normalize.”
According to the report, inflation more than doubled from 2.3% in 2019 to 5.6% in 2020 driven by higher food prices. Food price inflation in 2020 was estimated at 10% with the highest spike recorded in April, when border closure and panic buying propelled it to 16.6%. Inflation is projected to moderate to 5.0% in 2021 and 4.0% in 2022 as food supplies improve.
However, risks remain, including implementing vaccinations in remote and insecure areas, conflict, criminality, corruption, political instability, and broader social fragility. If unaddressed, these could weigh heavily on the economy and impede recovery, said the report.
Supporting the recovery of micro, small, and medium-sized enterprises (MSMEs) hard hit by the pandemic is pivotal to safeguarding workers’ incomes and livelihoods, according to the report. Before the pandemic, MSMEs were estimated to provide nearly 1.6 million service and industry jobs. The government approved a 2-year support package worth $295 million in October 2020 to improve business conditions and implemented countercyclical measures that include support for MSMEs.
The report suggests that to improve the business environment, Afghanistan should facilitate MSME access to markets by developing infrastructure, improving security, combating corruption, simplifying regulation, strengthening property rights and contract enforcement, and promoting innovation and better labor skills. Increasing access to credit and further expanding the formal bank sector is also crucial.
The report also said: “ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.”
This comes as many in the country are currently faced with poverty and unemployment.
United Nations Office for the Coordination of Humanitarian Affairs (UNOCHA) in Afghanistan in a report on Tuesday said that recurrent extreme weather events, increasing poverty, COVID-19 and 40 years of war are devastating the people of Afghanistan.
“Conflict continues to drive extreme physical and psychological harm and forces hundreds of thousands of people to flee their homes every year. Almost 5 million people are internally displaced across the country,” said the report.
Based on the report, the pandemic contributed to a near doubling of people in need, from 9.4 million in January 2020 to 18.4 million in January 2021. Ongoing conflict, limited access to basic services and the impacts of COVID-19 continue to exacerbate existing vulnerabilities.
“Fourteen million people are now in crisis or emergency levels of food insecurity and almost half of all children in Afghanistan will be acutely malnourished this year,” said the report.
In the meantime, UK's ambassador in Kabul Alison Blake on Twitter said that Some 18 million people in Afghanistan are now in humanitarian need. A ceasefire and political settlement to end the conflict has never mattered more.”
“Conflict, natural disasters and health crises impact women and girls differently. The pandemic aggravated pre-existing gender inequalities that undermine access to essential services for women and girls,” according to the UN report.
Back in February, a report by the US Special Inspector General for Afghanistan Reconstruction (SIGAR) indicated that according to World Bank estimates, Afghanistan’s overall poverty level increased from 55% to 72% in 2020 due to economic contraction as the country braced for a second wave of COVID-19 in early 2021.