In its most recent Afghanistan Development Update, the World Bank warns of economic uncertainty in the country with no prospects of growth. According to the report, released on Tuesday, October 3, Afghanistan economy continued to contract in all sectors, following a steep downturn since the political crisis of August 2021.
Melinda Good, World Bank Country Director for Afghanistan, said the economy is in a fragile state, heavily reliant on foreign support, and its private sector is weak. “To recover, the country needs to prioritize spending on human capital, basic services, and climate resilience and address harmful gender policies,” she added.
The report cites addressing the Taliban’s restrictive policies towards women that hinder economic output and future growth as a key step in improving the economy. However, the regime in Kabul does not seem intent on backtracking decrees excluding women from education, economic activity, and other aspects of public life.
The World Bank analysis challenges the Taliban’s efforts to portray a more positive economic outlook. Taliban authorities have cited the decline in inflation as evidence of the group’s effective financial and economic policies. However, the World Bank report attributes the deflation since April 2023 to weak aggregate demand, improved supply conditions, and the appreciation of the exchange rate, rather than the Taliban’s actions.
The report also shows that exports have decreased while imports continue to increase despite the economic crisis at a staggering rate of 32% since last year. Explaining the spike in merchandise imports in light of overall economic contraction and the Afghani’s appreciation, the report posits that there is an inflow of foreign currency in Afghanistan not shown in any official record. Not all of the country’s $6.3 billion imports, the World Bank says, could be meant for Afghanistan and are not paid for from its forex market. It yet does not offer any explanation as to where the final destination for the imported merchandise might be.
Iran and the United Arab Emirates, according to the data analyzed by the World Bank, appear to be the main regional countries with increasing exports to Afghanistan. Iran’s exports in 2023 rose to $1.4 billion while the UAE’s share in Afghanistan’s imports has increased from an average of 2 % before the Taliban’s takeover to 13 %.
Source: The World Bank, Afghanistan Development Update – October 2023
The World Bank publishes Afghanistan Development Update as part of a regular regional development report, The South Asia Development Update. Its new analysis shows that Afghanistan, along with Pakistan and Sri Lanka is in a severe crisis, estimating that about two-thirds of families in the country have significant difficulty making a living.
Since the Taliban takeover in August 2021, the humanitarian situation in Afghanistan has worsened, making it one of the world’s most critical crises. Over two-thirds of the population, nearly 29 million people, now require urgent humanitarian assistance. Humanitarian organizations estimate that at least $2.26 billion is needed by the end of 2023 to provide essential multi-sectoral assistance to 20 million people.
Experts’ predictions show that the country could have a harsher and colder winter, which means the severity and scale of the need for life-saving assistance would increase even further, especially as the winter would block access to large parts of the country such as the Central highlands. These areas are already under immense stress from the adverse effects of climate change such as a multi-year drought.
According to the Famine Early Warning System Network (FEWS NET), a USAID-led platform, water shortages, and depleted food stocks will put all of central, northern, and northeastern Afghanistan in a food crisis as early as this October.
UN and other humanitarian organizations have repeatedly warned that without adequate funding, millions in Afghanistan will face starvation.
Earlier in September, the World Food Program (WFP) warned that it would only be able to help one in five hungry people in the country, adding that funding shortfalls had forced it to remove 10 million people from its life-saving assistance program. The organization says it needs more than $1 billion for the second half of 2023 alone in Afghanistan.
The recent World Bank report forecasts weaker economic prospects, including in domestic revenue mobilization, after many international observers had applauded economic stability in the midst of economic and humanitarian crises. It attributes slight improvements in household welfare to the families exhausting all coping mechanisms, harbingering only worsening conditions.
Despite the growing demand for critical public services such as health and education, the report shows that the regime in Kabul continues to prioritize funding its security apparatus, a trend that comes with robust implications for human rights, particularly for women and smaller ethnolinguistic communities.
