Covid-19: Afghanistan’s GDP to shrink this year

KABUL’s economic growth is projected to decline sharply in 2020 as a result of coronavirus disease pandemic and continued security and political challenges, the Asian Development Bank (ADB) said in a report released on Tuesday.

In an update of its flagship annual economic publication, Asian Development Outlook (ADO) 2020, the ADB forecasts Afghanistan’s gross domestic product (GDP) to contract by 5.0% in 2020—a significant downward revision from the ADO 2020 forecast released in April.

However, GDP growth is expected to rebound to 1.5% in 2021 subject to an improved situation in the country. 

“The COVID-19 pandemic has had significant impact on Afghanistan’s economy in the first half of 2020,” said ADB Country Director for Afghanistan Narendra Singru.

“Based on our projections, the economy could witness positive growth next year if the intra-Afghan peace negotiations succeed and bring a speedy political settlement, in addition to stronger commitments from development partners at the upcoming Afghanistan Conference 2020,” he explained.

Based on the report, border closures and lockdowns in major cities disrupted trade and transportation and undermined industry and services in the country.

As a result of the crisis, household consumption declined, confidence waned, and investment and remittance inflows decreased, the report said. These developments are estimated to drive up unemployment, suppress business activity and regional trade, and impact government revenues.

Average inflation in the first six months of 2020 more than doubled from 2.5% a year earlier to 5.3%, as food inflation jumped threefold on shortages caused by trade restrictions, border closures, and possibly hoarding.

Nonfood inflation remained subdued at 0.8%. The report notes that domestic fiscal revenue is projected to fall in 2020 due to the pandemic from the equivalent of 13.6% of GDP in 2019 to 10.0%. With expenditure rising as revenue drops, the fiscal deficit is forecast to reach 4.0% of GDP in 2020.

Fiscal support commitments from development partners amount to 2.0% of GDP, leaving the gap to be financed domestically. 

According to the report, exports declined by 28% in the first half of 2020 from the same period of last year alongside faltering remittances. Imports also fell 24% and higher external grant inflows widened the current account surplus.

In June 2020, international reserves exceeded $9 billion for the first time ever, providing cover for 15 months of imports. This occurred despite continued US dollar auctions by Da Afghanistan Bank, the central bank, that managed to stabilize the exchange rate. 

Risks remain, including high uncertainty about every major factor such as the persistence of the pandemic, security and the political situation, international grant inflows, and weather conditions.

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