The FINANCIAL — KABUL, AFGHANISTAN (26 September 2018) — Afghanistan’s economy in 2018 is now projected to grow slower than the previous forecast due to the challenging security and political situations in the country and the impact of severe drought in the first half of the year, says a new Asian Development Bank (ADB) report.
In an update of its flagship annual economic publication, Asian Development Outlook (ADO) 2018, ADB revised downward its forecast for Afghanistan’s gross domestic product (GDP) growth rate in 2018 to 2.2%, a slight decrease from the previously forecasted 2.5%, as political uncertainty before parliamentary elections, worsening security, and a decrease in crop production due to the worst drought in decades show signs of limiting economic growth.
Based on ADB’s forecast, the growth projection for 2019 will be 2.5% but with risks clearly on the downside. Both Iran and Pakistan, Afghanistan’s main trading partners, are expected to experience slower growth in 2019, and business investors are likely to stay on the sidelines before Afghanistan’s presidential election expected in April next year.
Meanwhile, average annual inflation in the first half of 2018 braked to only 0.8% from 6.1% a year earlier. Food prices were 0.5% lower, reversing unusually high food inflation in the first half of 2017, when border closings with Pakistan limited imports. With trade normalized and food inflation moderating in the second half of 2017, this base effect will fade, lifting inflation in the second half of 2018 to broadly align with price developments in Afghanistan’s trade partners. On balance, inflation in 2018 is now expected to be 3.5%, lower than the earlier forecasted 5.0%. The 2019 inflation projection is 5.0%.
Exports reportedly increased in the first half of the year, benefiting from expanded air connections with India for high-value goods such as fruit. Nevertheless, the current account surplus is forecast to narrow in 2018 because imports, which are 10 times exports, will grow faster than expected partly to bring in more food.
Security and the political situation remain concerns in Afghanistan’s economic outlook. Security is unstable, as large attacks by the Taliban and the Islamic State in August and September seemed to counter earlier indications of progress in negotiating a peace settlement. Parliamentary elections are scheduled for October 2018 and a presidential election in 2019, which could cause businesses to adopt a wait-and-see approach.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members—48 from the region. In 2017, ADB operations totaled $32.2 billion, including $11.9 billion in cofinancing.
