Afghanistan’s economy is shaped by fragility and aid dependence. The private sector is extremely narrow, with employment concentrated in low-productivity agriculture (44 percent of the total workforce works in agriculture and 60 percent of households derive some income from agriculture). Private sector development and diversification is constrained by insecurity, political instability, weak institutions, inadequate infrastructure, widespread corruption, and a difficult business environment (Afghanistan was ranked 173rd of 190 countries in the 2020 Doing Business Survey). Weak institutions and property rights constrain financial inclusion and access to finance, with credit to the private sector equal to only three percent of GDP. Weak competitiveness drives a structural trade deficit, equal to around 30 percent of GDP, financed almost entirely from grant inflows. Grants continue to finance around 75 percent of public spending. Security expenditures (national security and police) are high at around 28 percent of GDP in 2019, compared to the low-income country average of around three percent of GDP, driving total public spending of around 57 percent of GDP. The illicit economy accounts for a significant share of production, exports, and employment, and includes opium production, smuggling, and illegal mining.
With an influx of aid since 2002, Afghanistan sustained rapid economic growth and improvements against important social indicators for more than a decade. Annual growth averaged 9.4 percent between 2003 and 2012, driven by a booming aid-driven services sector, and strong agricultural growth. A range of factors have since slowed economic and social progress, with the economy growing by only 2.5 percent per annum between 2015-2020, and gains against development indicators slowing or – in some cases – reversing. Aid flows decreased from around 100 percent of GDP in 2009 to 42.9 percent of GDP in 2020 (with the number of international troops declining from more than 130,000 in 2011, to around 15,000 by end-2014, to around 10,000 today). Declining grants led to a protracted contraction of the services sector, with an associated deterioration in employment and incomes. The security situation deteriorated, with the Taliban insurgency gaining control over increased territory and intensifying attacks on military and civilian targets, with civilian casualties totaling more than 10,000 per year between 2014 and 2019. The impacts of declining grants and worsening security were exacerbated by political instability following the disputed outcome of the 2014 presidential elections. The formation of the National Unity Government under an extra-constitutional power-sharing agreement led to administrative disruptions and slowed reform progress.
At the Geneva conference held in November 2020, donors renewed their commitment to aid support to Afghanistan for 2021-2024. However, several major donors provided only single-year pledges, with future support made conditional upon the government achieving accelerated progress in efforts to combat corruption, reduce poverty, and advance ongoing peace talks. Aid support is now expected to decline by around 20 percent from the previous pledging period (US$15.2 billion over 2016-2020) but could fall even lower if conditions are not met or if major donors further reduce commitment levels amid domestic fiscal pressures. Afghanistan now faces daunting challenges in sustaining recent development gains in the face of mounting political uncertainties, declining international grant support, and continued insecurity. Policy options are narrowed by the weak implementation capacity of government agencies, reflecting governance constraints, and tightly constrained macroeconomic policy options in the context of narrowing fiscal space and weak monetary transmission mechanisms.
World Bank Group engagement pursues a programmatic approach to support the Afghanistan National Peace and Development Framework (ANPDF II) that was presented by the Government of Afghanistan at the Geneva conference. Advisory work and operations focus on: macro-fiscal policy and management; finance, private investment, and job creation; public sector governance and anti-corruption; human capital development and service delivery; citizen engagement and social inclusion; urban development and infrastructure, connectivity and sustainability.
Afghanistan became a member of the World Bank in 1955. Shortly after the Soviet invasion in 1979, World Bank operations were suspended, although the Bank continued to provide assistance to Afghans through its office in Pakistan.
Prior to 1979, the World Bank provided 21 no-interest loans, known as ‘credits’, to Afghanistan across a wide range of areas, including education, roads, and agriculture. Of the original $230 million in credits approved by the International Development Association (IDA), the Bank’s concessionary lending arm, $83 million was disbursed and $147 million was subsequently canceled. Afghanistan repaid $9.2 million to IDA and was up-to-date on debt service payments until June 1992, when it stopped making payments.
Operations resumed in May 2002 to help meet the immediate needs of the poorest people while assisting the government in developing the administrative systems required for longer-term nationwide development. Aid has since grown tremendously. To date, the World Bank has provided a total of over 5.3 billion for development and emergency reconstruction projects, and eight budget support operations in Afghanistan. This support comprises over $4.8 billion in grants and $436.4 million in no-interest loans. The Bank has 12 active IDA-only projects ($940 million) and 15 projects jointly funded with the Afghanistan Reconstruction Trust Fund, with net commitment value of over $1.2 billion from IDA.
International Finance Corporation (IFC), the World Bank Group’s private sector development arm, continues to work with its investment and advisory services partners in Afghanistan. IFC’s current cumulative committed investment portfolio stands at over $300 million and its advisory services portfolio stands at $11.3 million.
IFC’s investment portfolio includes investments in the infrastructure sector (telecommunications, energy) and financial markets. The investment pipeline looks promising and includes investments in the power and education sectors.
IFC’s advisory services program has been supporting the investment program in access to finance, strengthening horticulture export, access to renewable energy, corporate governance structure enhancement, and investment climate reform interventions.
The Afghanistan Reconstruction Trust Fund (ARTF) was established in 2002 to provide a coordinated financing mechanism for the Government of Afghanistan’s budget and national investment projects. Since its inception, 34 donors have contributed over $12.9 billion to the ARTF, making it the largest single source of on-budget financing for Afghanistan’s development.
The ARTF has a three-tier governance framework (Steering Committee, Management Committee, and Administrator), plus three working groups. This sound framework has enabled the ARTF to adapt to changing circumstances and development priorities with consistency and consensus. The World Bank is the Administrator of the trust fund. The Management Committee consists of the World Bank, Islamic Development Bank, Asian Development Bank, United Nations Development Programme, Ministry of Finance, and the United Nations Assistance Mission in Afghanistan as an observer.
The World Bank Group’s support to Afghanistan over 2017–2022 aims to help Afghanistan build strong and accountable institutions to deliver services to its citizens and to encourage growth of the private sector. The CPF also aims at supporting economic growth that includes all members of society, with a focus on lagging areas, urban informal settlements, and people driven from their homes by conflict.
The World Bank Group strategy aims to help Afghanistan:
Build strong and accountable institutions to support the government’s state-building objectives and enable the state to fulfil its core mandate to deliver basic services to its citizens, and create an enabling environment for the private sector;
Support inclusive growth, with a focus on lagging areas and urban informal settlements; and
Deepen social inclusion through improved human development outcomes and reduced vulnerability among the most underprivileged sections of society, including the large numbers of internally displaced persons and returnees.
Building Institutions: The Tackling Afghanistan’s Government HRM and Institutional Reforms is a follow-on the Capacity Building for Results Facility and will assist the Government of Afghanistan to deliver its key policy priorities through merit-based recruitment and administrative reforms in 16 line ministries. The project will support up to a total of 1,100 new civil service positions to enable the ministries to meet their objectives and deliver on their priorities.
The Eshteghal Zaiee - Karmondena Project aims to strengthen the enabling environment for economic opportunities in cities where there is a high influx of displaced people. The project will support actions to increase returnees' access to civil documents, provide short-term employment opportunities, improve market enabling infrastructure, and support investor-friendly regulatory reforms.
Education: The Higher Education Development Project (HEDP) aims to increase access to higher education in Afghanistan, as well as improve its quality and relevance. HEDP uses an Investment Project Financing instrument based on the Results-based Financing modality. Enrollment in key priority disciplines (those that contribute to economic and social development) has increased substantially from 64,200 at the project baseline to about 81,900 . The project helps Ministry of Higher Education to develop a policy and by-law for the practice of e-learning. This will support gradual introduction of blended learning, incorporating e-learning into the university curriculum, as well as recognition of blended learning toward program credits.
The Skills Development Program project supports the Government of Afghanistan in its strategy to build market relevant vocational and technical skills for economic growth and development. Building on the former Afghanistan Skills Development Project, this program will continue to strengthen the Technical Vocational Education and Training (TVET) institutional system, improve performance of TVET schools and institutes, and improve teacher competencies. Under the Afghanistan Second Skills Development Program, 100 national occupational skills standards have been benchmarked to an international level with the support of an international certification agency, and corresponding curricula developed for 15 trades.
The project was recently restructured to respond to the closure of TVET schools and institutes due to COVID-19 measures by developing an Alternative Learning Program through distance learning. The restructuring also places strong emphasis on implementation of an action plan for addressing issues associated with Gender-Based Violence.
ASPD II is financing an academic partnership contract with Pune University in India. In addition, TVET teachers are pursuing Master’s degrees in one-year technical programs at the Universities of Reva and Sam Higginbottom.
Financial Sector: The Access to Finance Project aims to build institutional capacity to improve access to credit of micro, small, and medium enterprises. The Microfinance Investment Support Facility for Afghanistan (MISFA) has initiated a series of activities, in particular the scaling up of the Targeting the Ultra Poor (TUP) program. The Targeting the Ultra Poor (TUP) program in six provinces (Balkh, Kabul, Kandahar, Kunar, Laghman, and Takhar), where it has been successful in targeting and initiating meaningful improvements in the well-being of ultra-poor beneficiaries. Based on the success of the program, the TUP was scaled up in 2019 to reach close to 4,000 households in two more provinces (Parwan and Nangarhar). With the COVID-19 crisis, the TUP was expanded to cover an additional 1,100 households in these two provinces.
Health: Bringing most of the efforts in public health service delivery under one umbrella in Afghanistan, the Sehatmandi (Health) Project aims to increase the utilization and quality of health, nutrition, and family planning services across Afghanistan. The project supports implementation of a Basic Package of Health Services and an Essential Package of Hospital Services through contracting arrangements across the country. Sehatmandi also supports efforts to strengthen the capacity of the Ministry of Public Health at central and provincial levels to effectively carry out its stewardship functions.
Health indicators saw an improvement with the support of theSystem Enhancement for Health Action in Transition Program, the precursor of the Sehatmandi Project. For example, the newborn mortality rate fell 32 percent from 53 to 23 per 1,000 live births from 2003 to 2018; the number of functioning health facilities increased from 496 in 2002 to more than 2,800 in 2018, while the proportion of facilities with female staff increased; and births attended by skilled health personnel among the lowest income quintile increased from 14.9 percent to 58.8 percent.
Agriculture and Food Supply: Responding to food security challenges and reduced income from the COVID-19 crisisEmergency Agriculture and Food Supply Project supports critical food supply chains and create short-term economic opportunities. The project balances immediate action on job creation for food security and livelihood support with early action against crop failure (seeds for 2021 wheat harvest, as well as irrigation infrastructure to mitigate drought-related crop loss for food security). To date, the project has reached over 210,000 farmers with improved seed packages as part of its efforts to boost wheat productivity of the next harvest season, beginning in June, for vulnerable households. In April-May, EATS will be able to advance implementation of its key activities planned for the 2021 spring season, while preparing for another seed distribution campaign with improved seed packages covering over 300,000 households.
Rural Enterprise: The Women's Economic Empowerment–Rural Development Project is a follow-on project to the Afghanistan Rural Enterprise Development Project (AREDP) that aims to increase social and economic empowerment of poor rural women in selected communities. It will engage in 76 districts and 5,000 villages in all 34 provinces across Afghanistan
a total of 473,756 beneficiaries have been mobilized into establishing 42,143 active SHGs, of which 80 percent are women’s groups. Further, 2,383 VSLAs have been established, with credit functions for their members. The project continues to support business development in the areas previously covered by Afghanistan Rural Enterprise Development Program.
Social Service Delivery: The Citizens’ Charter Afghanistan Project (Citizens’ Charter) is the successor to the highly successful National Solidarity Programme (NSP), which introduced a community-driven development approach toward rural infrastructure and service delivery and reached about 35,000 communities over 14 years. The Citizens’ Charter supports the first phase of the Government of Afghanistan’s 10-year Citizens’ Charter National Program and will target one-third of the country. The Citizens’ Charter aims to improve the delivery of core infrastructure and social services to participating communities through strengthened Community Development Councils (CDCs). These services are part of a minimum service standards package that the government is committed to delivering to the citizens of Afghanistan.
Implementation progress includes:
In rural areas: A total of 12,170 communities have been mobilized with 12,130 CDCs established, 2,402 Cluster CDCs/GAs registered, and 12,052 CDCs completing Community Development Plans (CDPs). 11,478 SPs are underway and 4,040 SPs have been completed. In addition, there are 260 SPs approved and 111 ongoing.
In urban areas: 850 communities have been mobilized with 850 CDCs having completed elections, 175 GAs registered, and 850 CDPs completed. Under the KuchiSub-Program, 640 KCDCs have been established, representing an increase of over 23 percent. More than 600 KCDCs prepared their CDPs and 364 sub projects proposals have been submitted. In terms of subproject implementation, there are 944 SPs ongoing and 782 SPs have been completed.
Results expected under the first phase of the Citizens’ Charter include: (i) 10 million Afghans reached; (ii) 3.4 million people gaining access to clean drinking water; (iii) improvements to quality of service delivery in health, education, rural roads, and electrification; (iv) increase in citizen satisfaction and trust in government; and (v) 35 percent return on investment for infrastructure projects.
Urban Development: The Kabul Municipal Development Program increases access to basic urban services in certain residential areas of Kabul City. Over 2 million people (about 73 percent women and children) have benefited from the construction of about 660 kilometers of neighborhood roads, 890 kilometers of community drains, and 44 kilometers trunk roads.
Last Updated: Mar 30, 2021
GDP per capita in 2010-11 of Afghanistan, one of the world’s least developed countries
Afghanistan’s achievements in the last years have been impressive in many ways. The coming years will be critical to strengthening Afghan institutions’ ability to deliver basic services nationally and consolidate and ...