Afghanistan’s Economic Growth Improves Slightly in 2019 Amid Challenges

Afghanistan’s 2019 economic growth is now projected to improve slightly as the agriculture sector recovers, says a new report published by the Asian Development Bank (ADB). However, heightened security risks and political uncertainty continue to hamper growth in the manufacturing and services sectors.

In an update of its flagship annual economic publication, Asian Development Outlook (ADO) 2019, ADB forecasts Afghanistan’s gross domestic product (GDP) growth rate at 2.7% in 2019, up from the 2.5% projection in April this year. In 2020, GDP growth is expected to accelerate further to 3.4% depending on the situation in the country.  

“Going forward, Afghanistan can improve its economic growth by boosting infrastructure development, improving the business environment, enhancing domestic revenue collection, and creating more employment opportunities,” said ADB Country Director for Afghanistan Mr. Narendra Singru.

Favorable weather allowed agriculture to recover from last year’s drought stronger than expected. With rising production in agriculture, an upturn in household income is expected to support growth in private consumption.

Average annual inflation in the first half of 2019 accelerated from 0.8% a year earlier to 2.5%. Reversing an unusual decline in the food prices in 2018, when substantial imports countered drought-induced shortages, food inflation at 3.4% pushed up the overall inflation rate in the first half of 2019. The report notes that with declining international fuel prices and afghani appreciation against the currencies of two major trade partners, including Iran and Pakistan, nonfood inflation decelerated from 2.1% last year to 1.7%. On balance, inflation in 2019 is now expected to be 2.0%, lower than the earlier forecasted 3.0%. The 2020 inflation is projected at 3.5%.

With recovery in agriculture, exports reportedly have increased by 2.1% in the first half of the year and imports have markedly declined by 7.7%, compared with the same period in 2018. The forecasts for current account balances including grants are revised to modest surpluses in both 2019 and 2020.

Security and the political situation remain concerns in Afghanistan’s economic outlook. Continued insecurity also weighs heavily on the business climate and private investments in the country.