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ADB report states 70% of Afghan transit trade diverted through Iran

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(Last Updated On: July 23, 2020)

The Asian Development Bank (ADB) said in a recent report that although Afghanistan has traditionally relied on Pakistan as a gateway to international shipping routes, recent trends indicate that 70 percent of Afghan transit trade is now diverted through Iran.

The ADB’s Corridor Performance Measurement and Monitoring (CPMM) Annual Report 2019, published this week, stated that Pakistan is still facing challenges in terms of removing barriers for road transport. 

This shift away from Pakistan has been driven by lower costs from foreign ports and more attractive security deposit and detention tariffs for transit containers from shipping lines that operate at Iran’s seaports.

The report stated that in addition, diesel fuel in Iran ($0.06 per liter) is significantly less expensive than in Pakistan ($0.86 per liter), which provides an additional edge in terms of cost competitiveness. 

Also, in the absence of a formal agreement with Pakistan, shippers and carriers face uncertainty in transit procedures, it added.

The report further stated that the CPMM trade facilitation indicator (TFIs) reported longer average border-crossing time, although relatively unchanged average border-crossing cost.

Total average transport cost showed an improvement, but both measures of speeds showed that trucks did not move as fast compared to 2018. The average border-crossing time between Afghanistan and Pakistan increased to 38.2 hours.

The time to cross Chaman was 60.1 hours, ranked as the most time-consuming border crossing point in 2019.

Peshawar took 45.8 hours and ranked the third most time-consuming, the report stated. 

These samples were estimated from commercial shipments carrying goods destined for Afghanistan as well as Central Asia.

Following the approval of its National Transport Policy in 2018, Pakistan embarked on a series of reforms and initiatives to address structural inefficiencies and impediments, to increase exports through lowering cost and lead time of transportation.

The report recommended the implementation of the national single-window system and port community system (PCS) to reduce cargo dwell time in seaports.

It said better parking area design and queuing systems could improve efficiency and speed up border crossing.

Pakistan does not yet have a domestic regulation on the international carriage of goods on road, which is a fundamental condition to implement the Carriage of Goods by Road (CMR).

The report also stated that greater adoption of freight on rail and inland waterways would reduce freight costs and boost low-unit value exports such as agricultural produce.

Afghanistan and Pakistan have however reactivated talks on the Afghanistan–Pakistan Transit Trade Agreement 2010, which aims to attract transit from Central Asia to seaports south of Pakistan, the report stated.

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Pakistan parliament to host trade and investment forum for Afghans

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(Last Updated On: October 21, 2020)

Pakistan’s National Assembly will host a Pakistan-Afghanistan trade and economic forum next week to enhance bilateral relations and find ways to overcome transit and trade challenges. 

The two-day seminar in Islamabad will include a 17-member Afghan parliamentary delegation led by the Speaker of the Wolesi Jirga (Lower House of Parliament) and representatives from Afghanistan’s trade and investment community. 

Pakistan’s The News reported delegates attending from Pakistan will include political leaders, academics, investors, and traders.

Prime Minister Imran Khan will address the opening ceremony of the conference on October 26 and a video message from Afghan President Ashraf Ghani will be telecast during the event.

The seminar is being viewed as a positive sign of change and a way to overcome issues faced by traders and investors in both countries and will also open new avenues of political and parliamentary cooperation and coordination between the two countries. 

 

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Joint economic commission planned between Afghanistan and Iran

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(Last Updated On: October 11, 2020)

Afghanistan’s acting Foreign Minister Haneef Atmar said Sunday he held a “valuable” virtual meeting with Iran’s Minister of Energy Reza Ardakanian on a number of issues including that of permanent transmission of electricity to Afghanistan. 

Atmar said they also discussed holding a joint economic commission, opening the Khaf-Herat railway line, setting preferential tariffs on importing electricity, custom tariffs, and expanding trade. 

“We are committed to strengthening relations and expanding cooperation with our friendly and brotherly country Iran,” Atmar tweeted.

Iran’s Mehr news agency said the Iranian energy minister emphasized his country’s support for cooperation with Afghanistan, especially in the field of energy production and transmission.

Last month, a delegation from the Iranian ministry of energy traveled to Afghanistan to strengthen relations and discuss joint ventures in the electricity sector.

Afghanistan currently imports electricity from neighboring Iran, Turkmenistan, Uzbekistan and Tajikistan.

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World Bank warns of increased poverty due to COVID-19 shock 

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(Last Updated On: October 8, 2020)

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.”

 

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