The overall macroeconomic and security context in Afghanistan since 2007 can be broken into two distinct phases, pre- and post- the 2014 security transition, when international troops handed over security responsibilities to the Afghan National Security Forces (ANSF).
The pre-transition phase was marked by higher economic growth (GDP per capita grew 63 percent relative to its 2007 value) and a relatively stable security situation.
. With the withdrawal of most international troops and the steady decline in aid (both security and civilian aid) since 2012, the economy witnessed an enormous shock to demand, from which it is still struggling to recover.
Similarly, welfare can be characterized into two distinct phases.
Despite high economic growth and a relatively stable security situation during the pre-transition phase, the period was a lost opportunity for poverty reduction as growth did not benefit the poor. Despite some progress during this period, especially on human development, challenges – the lack of productive employment, illiteracy and low levels of education, and huge demographic pressures – remained pervasive.
Welfare deteriorated between 2007 and 2011 as growth was not pro-poor. .
A vast majority of Afghans have not reaped the benefits of growth
The welfare of the bottom 80 percent of the population appears to be relatively unresponsive to trends in economic growth, which have been driven by services growth, with real per capita expenditures in steady decline over the last decade. .
. Afghans living in the Central, East, and North regions were also able to gain from these boom years; poverty rates decreased between 2007 and 2011 at a rate of 3 percent per year on average.
Since the security transition, everyone lost, from the poorest to the most well-off.
Yet, those who gained during the pre-transition years had the most substantial losses as gains in welfare, likely a result of international security and aid-related jobs and incomes declined sharply between 2011 and 2016.
Similarly, the post-transition period hit urban areas particularly hard with increases in poverty at a rate of 10 percent compared to increases in poverty in rural areas of 8 percent.
The winning regions during the boom period—the Central, East, and North regions—were the biggest losers during the slowdown, with increases in poverty of 10 percent per year, compared to 6 percent in the remaining regions.
Looking ahead: The economic pie must grow and benefit everyone
The currently high poverty rates represent the combined effect of stagnating economic growth, increasing demographic pressures, and a deteriorating security situation in the context of an already impoverished economy and society where human capital and livelihoods have eroded during decades of conflict and instability.
More troubling, growth has not been inclusive, leaving large parts of the country and the population untouched. , whose consumption increases and falls with GDP per capita.
During the former period, growth was primarily driven by services and characterized by highly volatile agricultural growth (Figure 1).
Figure 1: Contribution to GDP growth, by sector, 2007-16
Since the security transition, while services were the only driver of growth, its rates of growth slowed to 1 percent per annum, with other sectors of the economy essentially at a standstill.
Consequently, . (Figure 2).
If a similar trend of inequitable sharing of growth across the distribution continues, future growth will not translate into poverty reduction.
Figure 2: Trends in poverty and GDP per capita, 2007-16 Looking forward, we must not only grow the pie but, we must also grow it in ways that are more equitable. This means investing in sectors that can generate employment and incomes across the country, particularly for the poorest Afghans.
Great commitment is thus required to ensure growth becomes pro-poor by implementing policies that will improve consumption of the bottom 50 percent to a larger extent than at the top. .
. A higher number of Afghans in employment can make the country more equitable and stable.
. Agriculture must grow to revitalize the sector for economic growth, job creation, and food security. .
An improvement in the security situation and the right signals from the government and the international community will provide opportunities for broad-based, less aid-dependent growth that takes advantage of Afghanistan’s natural endowments and strategic location.