Essay on Afghanistan: Constant Growth Despite Security Threats and Infrastructure Challenges

Afghanistan is one of the least developed nations across the globe. After the NATO-led invasion and Taliban government collapse in 2001, the country's economy has shown constant growth in terms of investment and an influx of foreign aid ("Afghanistan GDP annual growth rate | 2007-2019 data | 2020-2022 forecast | Historical"). Although, the country is still marred with continuous security threats, endemic corruption, and lack of infrastructure with the majority of its population depending on the crop.

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Arguably, one will not discuss Afghanistan economy without considering the same measure of the political situation and perilous security that affects different activities of the nation. In 2009, President Karzai inauguration was highly influenced by the protracted electoral process (Rahimi & Artukoglu, 273). Initially, the parliament declined to accept cabinet nominees, as was stated by the President, where about 11 seats were declared vacant in the period of writing. Based on the outstanding issues and short lead time, which were affected by the validation of the election outcome, they had to reschedule the election to September 2010.

In 2009, the security of Afghanistan deteriorated, which was one of the difficult years. Although the difficulty affected the economy of Afghanistan, the country still merits having favorable macroeconomic conditions giving a remarkable GDP growth of 22.5 percent. In the fiscal year 2010, the external debt dropped to 10 percent GDP when the country secured debt relief under the Multi-lateral Debt Reduction initiative and Heavily-indebted Poor Country. Even though the 2009/10 was the highest drop in GDP, it was offset by most of the donor inflows.

After the last decade's problems, the 2019 fiscal year, the economy of the country grew with about two percent of the previous year 2018. Although the country has registered advancement in its economic policies, deterioration of living standards and poverty is still on the rise. In 2018, the biannual publication revealed the negative repercussions such as political uncertainty, drought, and conflict of the country's economy lead to one of the lowest growth rates in South Asia economies.

The Development Update Publication reported that Afghanistan still has stronger economic management. In 2009, it was predicted that the country economy would accelerate to 2.5 percent to ease the drought conditions. Also, the government regulations support limited fiscal deficit, improved revenue collection, and low inflation ("Afghanistan GDP annual growth rate | 2007-2019 data | 2020-2022 forecast | Historical"). Research also reveals that if stronger economic management is conducted continuously, there will be an improvement in the World Bank in the future. The country expects growth if the weather conditions are improved to accelerate to 3.2 percent and 3.5 percent in 2020 and 2021, respectively. The increased growth rate is expected to reduce poverty from a high level in the country.

However, the Afghanistan government is expected to do more to improve the business environment, prevent mismanagement of scarce resources, and smooth election process over painful periods. Also, the international community needs to support economic growth and private confidence by committing to security. Since 2014, the Afghanistan economy has registered as a slow economic growth rate fueled by a reduction in international grants, withdrawal of international security force, and worse security conditions. In the 2014 election, there was a period of political instability in the country, which caused a slow momentum in the economy as people waited for confidence to be restored. In 2015, the country had a low percent of 1.5, making the real GDP to accelerate to 2.3 in the following year, which was later estimated at 2.7 percent for 2017.

In essence, the country is within the crossroad, where building economic momentum highly jeopardized. Afghanistan is one of the countries which is affected by worsening drought conditions, low business confidence, and increased election-related violence, which slows the country's economic activity. In 2018, the growth was projected to be 2.4 percent, with stronger downside risks emerging from political instability prospects around the presidential and parliamentary election. Although these risks can be partly mitigated, it remains to be a subject of discussion.

Poverty

According to the new Afghanistan Living Conditions Survey revealed there is a higher number of people living below the national poverty level of 55 percent in 2016/2017fical year. However, the living standard of Afghan is threatening with consistent drought conditions, which adversely affect food insecurity and harvest in the country (Rahimi & Artukoglu 273). With incessant displacement crisis, about 2 million Afghans are returning to the country, over 1.7 million are displaced internally, and those who return to the country are either from Iran and Pakistan.

Inflation

In the fiscal year of 2017, there was period-average inflation, which was about 5 percent. In June, in the same years, inflation rose to about 7.5 percent, which was caused by moderate food prices. In 2018, inflation was predicted to remain stable with about 3 percent, although the food price remained to be weak because of inflation that offset the international energy prices to rise.

Export Performance

In 2017, the exports increased to about 28 percent, which highly boosted by the resolution of border issues to trade with Pakistan. New air corridors also influenced Afghanistan export performance for export to India (Estrades & Campoy 89). During 2017, the export continued to be low in absolute terms to about 6 percent of the country's GDP. However, the trade deficit was stable, with about 40 percent of the GDP, a reflection of offsetting import growth, which is fueled by increased food imports and higher energy prices in response to growth. In 2017, foreign exchange stood at around $ 8.2 billion.

In the first quarter of 2018 fiscal year, there was rapid export growth. However, the trade balance remained constant, which reflected offsetting the growth of imports caused by drought-induced food imports and high energy prices. The prediction by 2018 was that the account surplus to have a small deficit in 2019 which materialize. The foreign exchange reserves are expected to decrease but will remain at a comfortable level.

Budget Reforms

In 2017, the outturn of the budget registered a deficit of about 0.5 percent of GDP. The revenue growth was offset by grant revenues shortfall. In 2018, there was a reform to the budget process, which entailed the end of automatic carrying over the unspent development project funds 'balance into the next budget. For that reason, the project execution rate increased for non-discretionary and discretionary development budget expenditures.

In 2018, the revenue growth rate was moderate, which reflected the exhaustion of revenue growth opportunities from enforcement after many years of improvements and strengthening administration. Notably, studies reveal that custom control may suffer from more pressure in the upcoming election (Rahimi & Artukoglu 273). In the first half of the 2018 fiscal year, the revenue data displayed collections at roughly like that of the previous year. When the amendment was performed in 2018, the budget led to development expenditure which is financed partly via an additional unfunded budget deficit and partly via reductions in recurrent allocation. Following the revisions, the projected deficit doubled after grants to about 2 percent of Afghanistan GDP. Currently, the grants and domestic revenue are projected to surpass the budgeted levels, with the deficit expected to be restrained to about 0.5 percent of GDP.

Financial Sector

In 2017, credit awarded to the private sector increased to about 3 percent after remaining unchanged during the 2016 fiscal year. By 2021, studies predict that growth will increase to 2.7 percent. Even if the current population growth is still at 2.7 percent, the country will need a faster growth rate, which improves livelihoods and incomes for most citizens (Wani et al. 34). Notably, it is estimated that about 400,000 youth will be absorbed in the job market every year. As time progress, an improved rate of economic growth will be boosted by many factors. One of the factors is to address avoidable constraint that affects private investment, such as unnecessary regulatory barriers. The other aspect is to conduct a careful public investment prioritization towards sectors with direct economic outcomes.

In Afghanistan, economic development relies on mobilizing institutions and sectors with the potential to support government revenue, exports, job creation, and increased growth. For the country to achieve these goals, a balanced growth strategy needs to be formulated. The growth strategy must include increased investment in human capital and increase agricultural productivity. In 2017, the agriculture sector growth improved to about 3.8 percent, even amidst the drought condition that the country face (Khaliq $ Boz 192). Although cereal production decreased, the creation of fruits increased. However, business license applications were low in 2018, which was about 20 percent deviation from that of 2016.

Works Cited

"Afghanistan GDP annual growth rate | 2007-2019 data | 2020-2022 forecast | Historical." Trading Economics | 20 million Indicators from 196 Countries, tradingeconomics.com/afghanistan/gdp-growth-annual.

Khaliq, Ahmad Jawid Abdul, and Ismet Boz. "The role of agriculture in the economy of Afghanistan." Proceedings Book (2018): 192.

Wani, Mr, Nassir Ul Haq, and Mr Rehman. "Determinants of FDI in Afghanistan: An empirical analysis." (2017).

Estrades, Carmen, and Diego Campoy. Computable General-Equilibrium Modeling of Afghanistan Growth Opportunities. World Bank, 2018.Rahimi, Mohammad Sharif, and Metin Artukoglu. "An Assessment of The Foreign Trade Structure of Afghanistan Agricultural Products." Tarim Ekonomisi Dergisi 25.2 (2019): 267-274.