Afghanistan’s economy is projected to remain at 2.5 percent growth in 2018 and 2019 due to the challenging security and political situations in the country, a new Asian Development Bank (ADB) report says.
In its Asian Development Outlook (ADO) 2018, ADB noted that preliminary gross domestic product (GDP) growth for Afghanistan in 2017 was 2.5%, up only slightly from 2.4% in 2016, as a tenuous political situation and worsening security limited economic growth.
“..The most important thing we do is that we are involved with the government here [in Afghanistan] at a policy dialogue; e. g. we have the transport sector, we have been investing a lot, we have about $2 billion of investments in roads in Afghanistan,” said Samuel Tumiwa, ADB Country Director for Afghanistan.
“We have to help the Public Works Ministry to maintain those roads, right now road maintenance needs to be improved in Afghanistan, so we are helping with policies and regulations at the ministry to improve road maintenance,” he said.
According to the report, the domestic investment remained steady in 2017, equal to 18.5% of GDP. Private investment is estimated at only 8% of GDP in 2017, reflecting a lack of confidence in political and security conditions. Public investment increased by 8% in nominal terms over 2016 as the execution rate improved from 54% that year to 67% in 2017 with better budget planning, simplified execution rules, and more authority delegated to line ministries.
Security and the political situation remain concerns in Afghanistan’s economic outlook. Security is unstable, particularly in Kabul, and the country is likely to experience greater political uncertainty due to friction within the National Unity Government. Parliamentary elections are scheduled for 2018 and a presidential election in 2019, which could cause businesses to adopt a wait-and-see approach.
The ADB report noted that the government has attracted very little private investment, estimated to equal 8.0% of GDP, well below the average of 20.8% in the region. “This shortcoming is a major constraint on economic growth, job creation, and reduced dependence on donor aid from abroad,” it said.
The report suggested that the government should maintain its efforts toward regional cooperation.
According to ADB, connectivity and open trade with neighbors can attract more private investment as regional markets become more open.
“On top of the commercial benefits of regional cooperation, a peace dividend would give neighboring countries a greater stake in peace and stability in Afghanistan through economic links and opportunities,” it said.