Continued Intl Support As World Bank Predicts 7.4% Contraction Of Afghan Economy

Afghanistan’s economy is set to contract by between 5.
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5 to 7.4% in 2020 because of COVID-19, exacerbating poverty, and leading to a sharp decline in government revenues, said the World Bank in its biannual Afghanistan Development Update released on Wednesday.

“Surviving the Storm” examines the impact of Coronavirus on Afghanistan’s economic development as it continues to face insecurity, uncertainties regarding future levels of international support, and the expected initiation of peace talks with the Taliban.

“The COVID-19 crisis is having a devastating impact on the livelihoods of Afghans while undermining the government’s revenue collection and its capacity to finance comprehensive programmes to save lives, protect the poor, and jumpstart the economy,” said Henry Kerali, World Bank Country Director for Afghanistan.

The report warns that the proportion of Afghans living in poverty may increase from 55% in 2017 to up to 72% in 2020 because of declining incomes and rising prices of food and other vital household goods.

The World Bank found that economic activity plummeted in the first half of 2020 as lockdowns and social distancing measures to curb COVID-19 negatively impacted the industry and service sectors. Despite continued robust growth in agriculture following the recovery from the 2018 drought, lower outputs in industry and services, as well as declining revenues due to trade disruptions and weaker tax compliance have put government finances under pressure.

To address the impacts of the crisis, the report recommends that tightly constrained public expenditures be carefully prioritized to protect the most vulnerable and limit long-term economic damage. It also highlights the need for continued financial support from development partners to offset declining revenues and increasing expenditure and sustain the recovery.

“Short-term measures are needed to support households through the current crisis, while improvements in the business regulatory environment and maintaining the core functions of government will pave the way for longer-term recovery,” Kerali said.

“Ongoing support from development partners will help finance critical government operations and restore private sector confidence.”

The World Bank also emphasized that they will continue to work with the government of Afghanistan both to implement the short-term response and lay the foundations for longer-term recovery.

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