The isolation of the Afghan economy following last August’s political crisis threatens to erase the development gains made over the past two decades, leading to severe poverty, displacement, fragility and threats of extremism for Afghanistan, the region and the world, according to the World Bank’s new Afghanistan Development Update.
Towards Economic Stabilization and Recovery, published today, finds that per capita incomes likely fell by around a third in the final months of 2021, wiping out economic progress made since 2007 and leading to a significant increase in household hardship. The economic collapse was caused by a sharp drop in international subsidies, loss of access to foreign central bank assets, disruption of international banking relationships and a loss of confidence in investments.
The aid-dependent service sector has been hardest hit by the crisis, leading to a collapse in urban employment and incomes. At the same time, agricultural production is estimated to have declined by around 5%, reflecting the effects of drought and higher prices for key inputs.
Under current conditions, the outlook for the Afghan economy is dire. With international aid limited to meeting humanitarian needs and basic services, incomes are expected to remain stagnant and the economy is expected to contract further throughout 2022, with real GDP per capita declining by around 30% between the end of 2020. and end of 2022. The economy will not grow fast enough to improve livelihoods or create opportunities for the 600,000 Afghans reaching working age each year.
The report stresses, however, that an alternative path is possible. Afghanistan benefits from substantial economic potential stemming from its agricultural sector and natural resources, its young and growing population and recent improvements in the security environment. Harnessing this potential could allow for a stabilization of the economy and a recovery in production and incomes, based on a more sustainable economic model driven by the private sector.
But heading down that trajectory would require action from both the international community and the interim Taliban administration. To unlock additional international assistance and guidance, the interim Taliban administration is expected to adhere to basic standards for the treatment of women and girls, respect for human rights and sound economic management. . The international community must, in all circumstances, continue to meet basic humanitarian needs. If the policies of the interim Taliban administration allow, a broader program of economic assistance could be provided to macroeconomic management, broader public services, infrastructure and the private sector, allowing for a much faster recovery.