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

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Reuters
(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.”

 

Business

Pakistan discussing expansion of CPEC to Afghanistan

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(Last Updated On: September 28, 2021)

Pakistan has discussed Afghanistan joining the multibillion-dollar China-Pakistan Economic Corridor (CPEC) infrastructure project, the Pakistani ambassador to the country said on Monday.

“Regional connectivity is an important element of our discussion with Afghan leadership and our way forward for our economic interaction with Afghanistan,” said Mansoor Ahmad Khan, Pakistan’s envoy to Kabul, in an interview with Reuters.

“This important project – China Pakistan Economic Corridor … provides good opportunities, good potential for providing infrastructure and energy connectivity between Afghanistan and Pakistan … (and) also connecting South Asia to the Central Asian region.”

CPEC is a central part of the Belt and Road Initiative, under which Beijing has pledged over $60 billion for infrastructure projects in Pakistan, much of it in the form of loans.

Khan said that discussions had been held with the Islamic Emirate of Afghanistan (IEA) on this and other ways to develop the country’s economy.

“I think there has been deep interest in terms of developing economic connectivity of Afghanistan with Pakistan through CPEC and with other neighbouring countries including Iran, China, Central Asian countries.”

In recent days representatives from Pakistan, China and Russia have held meetings with IEA officials. Khan said security and economic development were the two main topics under discussion and that these countries expected to continue to consult as a group and meet with the IEA officials going forward.

Since the IEA took over Afghanistan on August 15, the country has been plunged into economic crisis as the nation’s international assistance has been largely cut off. Billions of dollars in central bank assets held abroad have also been frozen, which has put pressure on the banking system and prevented most transactions involving U.S. dollars, which Khan said was also hampering trade.

Khan said that Pakistan was also trying to work with the international community to ease international restrictions on the banking system and several executives from Pakistani financial institutions with a presence in Afghanistan had visited Kabul in recent days to see if the situation could be improved should international limits end.

The United States and other Western nations are reluctant to provide the IEA with funds until they provides assurances that they will uphold human rights, and in particular the rights of women.

Pakistan, which shares a border with Afghanistan and hosts millions of Afghan refugees from decades of conflict, is concerned about the economic crisis hitting its neighbour. Its prime minister, Imran Khan, and other officials have urged the international community not to isolate the IEA administration, saying aid should be provided to prevent economic collapse and a wave of refugees.

Pakistan has had deep ties with the IEA and has been accused of supporting the group as it battled the U.S.-backed government in Kabul for 20 years – charges denied by Islamabad.

However, Pakistan has not yet formally recognised the IEA-led administration and Khan, the Pakistani ambassador, told Reuters that “the issues of formal recognition will come later as Pakistan is part of the international community.”

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Afghan traders see increase in exports to Pakistan

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(Last Updated On: September 27, 2021)

Pakistan-Afghanistan Joint Chamber of Commerce and Industry (PAJCCI) said on Monday that Pakistan has facilitated the export of Afghan goods and that shipments worth $200 million have been sent to Pakistan this week alone.

This comes after Sadiq Khan, the special envoy to Afghanistan, said in a letter that Pakistan will not collect duty tariffs on Afghan goods, in order to boost trade between the two countries.

PAJCCI said that tariffs on Afghan apples have not however been lifted and because of this Afghan traders have suffered serious losses.

“Our export levels to Pakistan have increased. We exported goods worth $200 million. Both countries should facilitate trade,” said Khan Jan Alokozay, head of PAJCCI.

Afghan exporters of fresh fruit meanwhile voiced concerns about some limitations regarding the export of goods to Pakistan and called on the Islamic Emirate of Afghanistan (IEA) to remove restrictions.

“Pakistan has created some problems regarding our exports. Some of the problems have not been solved yet. Responsible institutions should solve the problems,” said Mirwais Hajizada, deputy head of Afghanistan’s Chamber of Agriculture and Livestock.

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Carpet industry takes major knock as client base dries up

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(Last Updated On: September 25, 2021)

Afghans working in the country’s renowned carpet industry say they fear for their future and that business has taken a hit following the Islamic Emirate of Afghanistan’s (IEA) takeover.

“Carpet weavers should be supported and the carpet weaving industry should grow as well,” said weaver Najaf Ali Mejrayi, while pausing from his work on an intricate rug in the capital, Kabul.

Carpets are one of Afghanistan’s most well-known exports, having been exported around the world for centuries.

Manager of the Sadaat Weaving Company, Mohammad Qasim Ahmady, said his primary market used to be European countries and the U.S., with carpets making their way overseas through Pakistan. But now, he said the customer base has evaporated, while prices for materials such as wool are rising.

He used to have as many as 50 employees before the IEA takeover but now has only about half a dozen.

“This business is down and there is not much production,” he said.

Ghulam Wali Mirzaei, who does dyeing for the carpets, said his family’s wellbeing is at stake.

“If this company falls, all of the employees working here will be unemployed. We take care of our family needs only through this job,” he said.

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