WASHINGTON, October 3, 2023-The Afghan economy is expected to hover around no-growth territory this year, amid uncertainty after contracting by 25% since August 2021 and adjusting to significantly lower demand, while the interim Taliban administration's restrictive policies on women's education and work will further lower Afghanistan's growth prospects says the World Bank in its latest Afghanistan Development Update.
Released today, the report titled Uncertainty After Fleeting Stability, shows how Afghanistan's economic downturn has affected all sectors. Services, which make up 45% of the country's GDP, shrank by 6.5% last year, following a staggering 30% drop in 2021. The agriculture sector, which accounts for 36% of GDP, declined by 6.6% in 2022 due to unfavorable weather conditions and farmers' lack of resources to cope. The industrial sector also saw a contraction of 5.7% last year, as businesses-especially those owned by women-faced closures due to limited access to resources and financial challenges. Following a record high in 2022, exports have been declining this year while imports remain robust, resulting in a growing trade deficit.
Dampened demand, better supply conditions, and a stronger currency caused inflation to sharply decline from its 18.3% peak last July, leading to deflation since April 2023. Although deflation may initially increase real wages, prolonged deflation could stifle business growth and increase unemployment. A potential reduction in international aid due to fiscal pressures in donor countries and the restrictive policies on women and girls pose risks to Afghanistan's recovery, as do concerns about stability of the banking sector and dysfunctional payments system.
"Afghanistan's economy is fragile, relies heavily on external support and its private sector is weak," said Melinda Good, World Bank Country Director for Afghanistan. "To recover, the country needs to prioritize spending on human capital, basic services and climate resilience and address harmful gender policies."
According to the World Bank's latest Afghanistan Welfare Monitoring Survey-also released today- despite conflict ceasing, one in two Afghans remain poor and recent gains in welfare have come at the cost of possibly exhausting all coping strategies and household resources. Since the crash of 2021, households report an improvement in their capacity to meet basic needs, but deprivation and vulnerability remain high. Afghan households have mobilized extra labor to make ends meet, mainly among youth and women. The overall increase in labor supply has outpaced demand, doubling unemployment.
While improved security has increased primary school attendance and narrowed gender and rural-urban gaps, millions of primary-school-age girls and boys remain out of school mainly due to a lack of access. Since the ban on female secondary school attendance was imposed, only 3% of girls attend secondary school. Among boys aged 13-18, only 44% are receiving a secondary education.
"Afghanistan's future growth potential hinges on improving human capital. What is happening to secondary education is a cause of grave concern," added Good. "Almost no girls and less than half of the country's boys are getting a secondary education. Where will the teachers and doctors of tomorrow come from? A country cannot grow if it willingly foregoes the potential of its citizens."
The Afghanistan Development Update is a companion piece to the South Asia Development Update, a twice-a-year World Bank report that examines economic developments and prospects in the South Asia region and analyzes policy challenges faced by countries. The October 2023 edition titled Toward Faster, Cleaner Growth shows growth in South Asia is higher than any other developing country region in the world, but slower than its pre-pandemic pace and not fast enough to meet its development goals. The report also includes short and long-term policy recommendations for countries in the region to manage fiscal risks and accelerate growth, including by boosting private sector investment and seizing opportunities created by the global energy transition.
