Afghanistan is a deeply fragile and conflict-affected country, where the security situation remains precarious. Civilian casualties reached unprecedented levels in 2016. The country’s humanitarian challenges worsened, with increasing numbers of returnees and persons internally displaced by growing violence. Insecurity continues to affect livelihoods and economic activity, curtailing private investment and consumer demand. At the same time, difficult topography, vulnerability to climate change and growing population impose additional constraints on development.
Economic growth in Afghanistan has been slow: real GDP growth has increased marginally, from 0.8 percent in 2015 to 1.2 percent in 2016—a decline in per capita terms, since population growth is at nearly 3 percent. Afghanistan has the third highest youth bulge worldwide: more than one-fifth of its adult population is aged between 15 and 24. Yet 39% of Afghans live in poverty, nearly 70 percent of the working-age population are illiterate, and youth unemployment is at 28 percent. Poor nutrition, especially of children, threatens welfare and education gains. 41% of Afghan children under the age of five are stunted.
Internal revenue mobilization is weak and the government faces the risk of international aid tailing off: total security and development aid is expected to decline from about 59 percent of GDP in 2013 to about 44 percent by 2018. At the same time increasing security expenditures could crowd out civilian expenditures. The National Unity Government presented an ambitious reform agenda in 2014 to revitalize the economy, but its implementation has yet to gain momentum. Sustainability is a serious risk.