Editor in Chief: Moh. Reza Huwaida Thursday, July 19th, 2018

Economy of Afghanistan and the Challenges Ahead

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Economy of Afghanistan  and the Challenges Ahead

The economic growth in our country Afghanistan has been one of the priorities to address for both the international community and the government. Economy forms the backbone of a country and society and therefore, rebuilding the ravaged economy of Afghanistan and placing it on a trajectory of growth and development has been one pillar of the project of rebuilding a new Afghanistan.

The development of the economy over the past years following the fall of the Taliban has been uneven both geographically and in terms of the pace of growth achieved over the years. The Central Bank of Afghanistan or Da Afghanistan Bank, as it is the job of every other central bank, keeps a check on the pulse of the economy and is responsible for regulating the economy by means of monetary policy which is its exclusive preserve.

The Central Bank recently announced that the country registered an impressive 22.5% growth last year and this rate has come down by half to 11.5% for the current year. The high rate of growth achieved last year has been possible on account of timely and abundant rainfall which greatly contributed to the growth in the agricultural sector and hence propelling the economy as a whole into a higher growth trajectory.

The growth in the agricultural sector alone has ticked a healthy 53% which has been unprecedented in the history of the country according to the Chief of the Central Bank. The year 1388 had been a tumultuous time for the country.

An all-important Presidential election and the uncertain political environment in the country inevitably cast its shadow over the economy leading to slow-down in such important sectors as construction. According to the Da Afghanistan Bank, this year will see the construction sector grow by a minimum of 15%.

The growth in the construction industry will have a positive impact on the economy as a whole since this industry coupled with agricultural sector has acted as the engine of growth for the economy as general. The Gross Domestic Product (GDP), considering an 11% growth in the economy for this year, will touch $11 billion.

The economy has certainly come a long way since its rag-tag days immediately after the fall of the Taliban when the haphazard statistics available pointed to a meager Gross Domestic Product of $4.5 billion.

This level of GDP makes the Per Capita Income stand at approximately $600. However, the Per Capita Income indicator can be a misleading yardstick by which to gauge the level of personal income of citizens in a country.

This indicator only shows the contribution of every citizen to the total national income of a country. The real income of every individual will be considerably less than the Per Capita Income figure since the total income of individuals is always a fraction of the national income.

This means the figure of $600 is by no means a net take-home income for our fellow Afghans. This meager figure, in turn, points to another fact that has been largely responsible for keeping the economy down: widespread poverty.

The Chief of Da Afghanistan Bank has stressed the urgent need for large-scale social welfare and poverty reduction programs across the country. Poverty reduction and poverty alleviation programs would help the country in two ways. First, it would help the impoverished and socio-economically underprivileged masses in the country find relief from an excruciating poverty that they grapple with on a daily basis.

Second, it would have a positive impact on the economy as a whole by increasing the purchasing power of the people and increasing consumption. Although our economy in general has almost no functioning manufacturing base and all the consumer goods are imported, increased consumption will still have its own positive, albeit limited impact on the economy.

Inflation is another important matter of concern for both the general population and the Da Afghanistan Bank. Large increase in inflation would lead to disproportionate rise in the prices of essential commodities and it will be the ordinary people who would bear the brunt.

Over the past few years, the rate of inflation has remained relatively stable at around 3% per annum. While this shows the commendable job that Da Afghanistan Bank has done in keeping the inflation under control, fundamental weaknesses in the economy remain major causes of concern.

Da Afghanistan Bank would not agree with this but Afghanistan being a huge importer of its needs and lacking even a semblance of an industrial base to manufacture locally cannot expect the inflation rate to remain low for a long time to come.

So far, it has been substantial intervention of the Central Bank in the foreign exchange market by regularly auctioning foreign exchange that has kept the Afghani exchange rate more or less stable against the US dollar. This situation cannot endure for an indefinite period of time and the end-result would be a major devaluation of our national currency and hence run-away inflation that would reverse years of economic and social gain.

In the absence of a functioning economy that is able to provide means of livelihood and income to the teeming masses of impoverished people in the country, Afghanistan cannot claim that it is heading in the right direction.

Unless the Afghan government and our partners in the international community drastically increase their efforts towards fundamentally rebuilding our economy, and unless they base these efforts on bold, workable and realistic plans, Afghanistan cannot be a prosperous and therefore a peaceful land.

Unfortunately, so far the plans and the efforts have been haphazard, misguided and failed to address the fundamental challenges. One is rebuilding the industrial base of the country and taking the first steps towards a partial self-sufficiency of the country in making a part of its needs locally.

This must be one of the priorities top on the agenda of the Afghan government and the international community. If this important goal is not achieved, the Afghan economy and consequently its polity and society would soon find themselves in the throes of major crises, which would reverse years of hard-earned gains.

The author is the permanent writer of the Daily Outlook Afghanistan. He can be reached at outlook afghanistan@gmail.com

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