Government policy reform, better execution of the development budget, and stronger performance in manufacturing are expected to drive growth in Afghanistan.
|Selected economic indicators (%)||2015||2016|
|ADO 2015||Update||ADO 2015||Update|
|Current Account Balance (share of GDP)||1.4||1.4||-1.0||-1.0|
Afghanistan Economic activity remained slow in the first half of 2015. Investor and consumer confidence was low as the political and security situation worsened and the National unity government struggled to deliver on anticipated reforms. Agriculture production is projected to be slightly higher than in 2014, based on initial estimates, with good harvests of wheat, fruit, and vegetables. Construction, trade, and services remained depressed. Foreign direct investment declined by 30% in the first half of the year, according to the Afghanistan Investment Support Agency. Moreover, a business tendency survey released in August by the Afghanistan Chamber of Commerce and Industry indicated that business conditions deteriorated substantially from January to June 2015.
The monthly headline consumer price index fell by 2.8% in June 2015 from a year earlier, reversing an increase of 5.6% in the year before. The food price index dropped by 3.3% to June 2015, an even steeper reversal from the 9.7% increase to June 2014, mainly because the prices of vegetables, cooking oil, bread, and cereals were all sharply down. The nonfood index declined by 2.2%—compared with an earlier 1.2% increase. This mainly reflected the continuing decline in housing and transportation service prices.
The afghani depreciated by 5.7% against the dollar from January to June 2015, continuing a declining trend since 2011. Declining capital inflow, rising capital outflow, and flagging demand for afghanis during the period amounted to downward pressure on the currency from weakening political and security situations.
The Asian Development Outlook 2015 Update (ADOU) maintains the growth forecasts for 2015 and 2016, assuming that business gains momentum in the second half of 2015. Despite problems at the start of the year, subsequent months saw positive political developments such as the full appointment of the cabinet and two rounds of peace talks hosted by neighboring countries.
The ADOU 2015 maintains the ADO 2015 forecasts for the current account balance including grants. Considering domestic price developments to June 2015 and the expected continuation of favorable global commodity prices, the forecast for average inflation is revised much lower for 2015 and little changed for 2016.
Excerpted from the Asian Development Outlook 2015 Update.