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.”
Government to build four dams in Zabul
The Afghan government said Friday that four dams would be constructed in Zabul province in order to help manage waters in the country, local officials said.
According to the officials, the dams – Mizan, Markok, Qaria Aja, and Allaudin – would be constructed at a cost of 132 million AFN.
The officials stated that the dams will be used for hydroelectric and irrigation purposes once the projects are implemented.
Ahmad Gul Rasouli, Governor of Zabul, stated that the dams could also produce between 61 to 77 MW of electricity.
The development comes as the government last month promised to begun constructions of 44 across the country this month.
According to the National Water Affairs Regulation Authority (WARA), the following dams, at an estimated cost of $600 million, would be contracted in 21 provinces.
Aghan Jan in Uruzgan; Mizan, Markok, Qaria Aja, and Allaudin in Zabul; Zardalo, Mullah Cheragh, and Chard in Ghazni; Gromby, Gorbat and Jalrez in Maidan Wardak; Gomal, Gomal Dowom, Zama, and Rustai Mirza in Paktika; Domand in Khost; Kharwar in Logar; Sori Khola in Paktia; Sultan Ibrahim and Qale Sokhta in Sar-e-Pul; Almar and Khisht Pol in Faryab; Rustai Aab in Samangan; Kantiwa and Kala Gosh in Nuristan; Aab Lory in Kandahar; Shoray, and Buzbai in Badghis; Wursaj Socha Maagh in Takhar; Dahane Mohammad Gicha in Bamiyan; Dare Bamsir in Daikundi; Shina, Zardag Bam, and Khair Maidanak in Ghor; Noor Gul and Qata Qala in Kunar; Pang Ziyan, Dare Shrasta, and Surkh in Nangarhar; Buzban in Ghor; Talkhak in Parwan; and Watan Gat in Laghman.
WARA stated that the dams, which will be used for hydroelectric and irrigation purposes, could store around 1,200 million cubic meters of water once the projects are implemented.
Once construction is complete, these dams will also irrigate an estimated 320,000 hectares of land, WARA said.
The Afghan officials said that the projects would also provide employment for thousands of people.
ADB committed to assisting Afghanistan post troop withdrawal
The Asian Development Bank says it will continue its economic programs in Afghanistan after US and NATO troops have withdrawn.
Officials at the bank said that although the withdrawal of foreign troops from Afghanistan will create an economic vacuum, the bank is working to continue its development plans for Afghanistan.
Officials added that they are continuing their projects in the sectors of electricity, transport and agriculture.
“We have a large number of infrastructure projects, and the security of these projects is provided by the Afghan Public Protection Forces, we will continue to work,” said ADB’s Country Director for Afghanistan Narendra Singru.
On the other hand, the Afghan Chamber of Commerce says that there are economic-related concerns about the withdrawal of foreign troops from Afghanistan, and some problems will remain in this area.
However, economists say continuing ADB projects in Afghanistan could address some of the economic challenges posed by the withdrawal of foreign troops.
Public Works on track with new road linking Badakhshan to China
The Ministry of Public works said Tuesday that construction of a road, connecting Afghanistan’s Badakhshan province to China, is underway and 15 percent of the project has been completed.
The Ministry said in a statement, the construction of a 49.7km unpaved road has started from Bozhai Gonbad Khord Pamir in Badakhshan and extends to the end of the Wakhan corridor close to the border with China.
The Ministry stated that the project is part of the government’s future plan for boosting regional transit that “brings Afghanistan steps closer to regional connectivity and economic policy.”
The project, at a cost of more than 369 million AFN, will be funded by the government, the statement said.
According to the statement, the impassable mountainous Wakhan corridor, which is a narrow strip of territory in Badakhshan province that extends to China and separates Tajikistan from Pakistan and Kashmir, would be connected to China via the road.
The Ministry of Public Works stated that the road, which will eventually be paved, will be the Wakhan Route and will “not only be a shortcut between China and Afghanistan…but will also help tourists reach Wakhan National Park.”
Historically, Badakhshan is a region comprising parts of what is now north-eastern Afghanistan, eastern Tajikistan, and the Tashkurgan county in China. However, the name is retained by Afghanistan in Badakhshan Province.
Located in northeastern Afghanistan, Badakhshan is bordered by Tajikistan, Pakistan and China.
Most of the province is occupied by the Hindu Kush and Pamir mountain ranges.
Once Badakhshan was a stopover on the ancient Silk Road trading path but the Wakhan corridor has been closed to regular traffic for over a century as there is no modern road.
There is a rough track for a few dozen kilometers that was built in the 1960s, but for much of the way, to the Chinese border, there are only rough paths.
The remoteness of the region has meant that, despite the long-running wars of Afghanistan since the late 1970s, the region has remained virtually untouched by conflict and many locals, who are mostly composed of ethnic Pamir and Kyrgyz, are not aware of wars in the country.
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