Afghanistan’s economy is experiencing the most sustained period of slow growth since it emerged from the conflict in 2002. The October 2016 edition of the Afghanistan Development Update explores the inextricable link between security and development in Afghanistan, demonstrating that the poor security environment is continuing to exert a significant constraint on confidence, investment, and growth.
According to the Update, Afghanistan’s economic growth rate stood at only 0.8 percent in 2015, reflecting a decline in agricultural production and slow growth in industry and services. The level of investment in the first half of 2016 was low, with agricultural production expected to remain poor. In 2016, growth is expected to reach only 1.2 percent, despite progress with a number of initiatives, including Afghanistan’s accession to the World Trade Organization and the opening of the Chahbahar port in Iran, which has excellent potential as an alternative trade route.
With the economy growing at a significantly lower rate than the population, poverty is expected to have increased in 2015, with further increases expected in 2016. The Afghanistan Development Update states that economic growth is expected to gradually accelerate, increasing from 1.8 percent in 2017 to 3.6 percent in 2019. However, stronger growth in out-years is predicated on improvements in security, political stability, reform progress, and continued high levels of aid.
The fiscal situation remains stable, as presented in the Afghanistan Development Update. Revenue collection performance improved significantly in 2015, with domestic revenues reaching 10.2 percent of GDP. This strong performance has continued into 2016, with domestic revenues collected in the first 8 months of 2016 30 percent higher than in the same period last year. This increase is largely the result of improvements to tax administration and the implementation of new policy measures.