The World Bank expects Afghanistan’s economy will contract by 5.5 to 7.4 percent this year due to the coronavirus pandemic.
In its biannual report on Afghanistan “Surviving the Storm”, the World Bank warned that the proportion of Afghans living in poverty may increase from 55 percent in 2017 to up to 72 percent in 2020 because of declining incomes and rising prices of food and other vital household goods.
“The COVID-19 crisis is having a devastating impact on the livelihoods of Afghans while undermining the government’s revenue collection and its capacity to finance comprehensive programs to save lives, protect the poor, and jumpstart the economy,”saidHenry Kerali, World Bank Country Director for Afghanistan.
The report said that economic activity plummeted in the first half of 2020 as lockdowns and social distancing measures to curb COVID-19 negatively impacted the industry and service sectors.
Despite continued robust growth in agriculture following the recovery from the 2018 drought, lower outputs in industry and services, as well as declining revenues due to trade disruptions and weaker tax compliance have put government finances under pressure, it said.
Due to reduced trade, administrative disruptions, and declining economic output, government revenues fell by more than a third below target levels in May, placing major pressure on government finances, the report said.
The COVID-19 crisis will have a serious and sustained impact on Afghanistan’s economy. Recovery is expected to take several years, with new investment constrained by political uncertainties, continued insecurity, and questions around ongoing international support, the report said.
Reflecting higher food prices, consumer prices are expected to increase by five percent in 2020. The inflation rate is expected to slow to 3.5 percent in 2021 before stabilizing at around five percent over the medium term, the report said.
In 2021, the Afghan economy is expected to growth by one percent, the World Bank said.
“Short-term measures are needed to support households through the current crisis, while improvements in the business regulatory environment and maintaining the core functions of government will pave the way for longer-term recovery,” saidKerali. “Ongoing support from development partners will help finance critical government operations and restore private sector confidence. The World Bank is working closely with the Government of Afghanistan both to implement the short-term response and lay the foundations for longer-term recovery.”
