Afghanistan: Economy

Rivals in the disputed presidential election in June 2014 finally agreed in September to form a unity government in Afghanistan. The political crisis and the withdrawal of international security forces undermined confidence and the economy. The outlook is for modest recovery helped by large inflows of development assistance and security grants. The new government has energetically sought to improve governance, shore up public finances, and enlist regional cooperation to improve security.

Selected Economic Indicators (%) - Afghanistan 2015 2016
GDP Growth 2.5 3.5
Inflation 5.0 5.0
Current Account Balance (share of GDP) 1.4 -1.5

Source: ADB estimates.

Economic performance

Protracted deadlock and political uncertainty before agreement to share power in a unity government combined with worsening security sharply curtailed economic growth in Afghanistan in 2014. Growth is estimated to have fallen to 1.7% from 3.4% in 2013.

On the supply side, expansion in industry and services fell by half and agriculture remained flat at about 1.0%, as food production achieved its maximum potential for a third consecutive year. Opium production rose by 17%, though its farm gate value of $850 million was 10% less thFan in 2013. While opium is omitted from official gross domestic product estimates, its earnings boost domestic demand and are a significant source of foreign exchange.

On the demand side, private consumption continued to be the main driver of growth, but at a much slower pace because of uncertainty and income lost in the retrenchment of spending by security forces. Investment decreased with the number of newly registered firms falling to 2,086 from 3,895 in 2013. These figures include registrations of foreign firms, which halved to 98 from 193.

Economic prospects

The economy is projected to grow by 2.5% in 2015, up from 1.7% in 2014, if the political, security, and business environment is stable. With the cabinet not yet fully named at the end of March and parliamentary elections due by June 2015, consumer and investor enthusiasm will remain subdued.

As agriculture performed at full potential in 2014 and winter snowfall was meager, agricultural output is expected to decline in 2015.

Growth in industry and services is projected to pick up in the second half of 2015 on greater political stability, but demand for services will suffer from the withdrawal of international security forces.

Growth in 2016 is projected to edge up to 3.5% on progress with political and security issues.

Excerpted from the Asian Development Outlook 2015.