International aid is vital for Afghanistan’s COVID-19 recovery

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An Afghan woman working for small local business to support her family. Such business have been severely impacted by COVID-19 crisis.
An Afghan woman working for small local business to support her family. Such business have been severely impacted by COVID-19 crisis.

Afghanistan has been hit hard by the COVID-19 pandemic. Thirty thousand cases and 600 deaths have been officially recorded but the numbers are likely far higher. Cases are increasing rapidly, with no sign that the pandemic is under control.

In that context, our latest Afghanistan Development Update surveys the economic impacts of the pandemic and finds that Afghanistan’s economy is set to contract by at least 5.5 percent in 2020. 

Measures to contain the virus, including border closures and the lockdowns of major cities, have cut consumption and imports massively, including essential household items, and led to rapid inflation. Exports have declined due to disruptions at border points, and remittances have gone down

Poverty is increasing  

Amid slow growth, the COVID-19 crisis is undermining the livelihoods of the poorest and most vulnerable.

The poverty rate in Afghanistan could jump to 72 percent in 2020, from 55 percent in 2017, due to the impact of reduced incomes and higher prices.  Poverty will mainly impact households whose work or activities are vulnerable to lockdowns, such as small retail and daily labor in construction, agriculture, or personal services.

About 15 million Afghans live in households that derive over half their income from these activities, 30 percent of whom reside in urban areas that have been under lockdown.

COVID-19 hits Afghanistan at a particularly difficult time

Lower economic activity and trade disruptions, combined with weaker tax compliance, are putting government finances under pressure, with public revenues expected to fall by over 30 percent—as new spending is needed to curb the impacts of COVID-19.

Even before the pandemic, Afghanistan’s economy was suffering from slow growth amid weak confidence and investment. 

Growth averaged a mere 2.3 percent from 2014 to 2019, reflecting declining grant support and substantial political and security uncertainties.

Many of these uncertainties remain.  Following the September 2019 presidential elections, the implementation of the power-sharing agreement is underway, but changes in senior staff across key ministries keep disrupting government business.

While the US and the Taliban have signed a peace agreement that opens the door for negotiations of a comprehensive political settlement, the security situation keeps deteriorating.

Growth averaged a mere 2.3 percent from 2014 to 2019, reflecting declining grant support and substantial political and security uncertainties.

Urgent action to protect the vulnerable, limit long-term economic damage, and prepare for recovery

Support must be provided to vulnerable households to allow continued investment in human capital, such as nutrition, health, education, and productive assets.  Barring that, the negative impacts of COVID-19 will only worsen.  

The Afghan government and its partners should prioritize social protection measures, especially for the poorest and in locked-down areas with limited job opportunities,  and continue to provide essential services, especially healthcare.

Many firms may shut down – at least temporarily – during the crisis. Since the government has limited fiscal resources, direct support to the private sector should prioritize sectors and businesses that, should they close, would trigger lasting economic damage.

Measures to strengthen the private sector include pursuing business reforms to facilitate new investment when the crisis eases, expanding access to credit and avoiding arrears, and keeping basic infrastructure such as water, electricity, and telecommunications afloat and running as firms rely on these services.

The highest priority for the international community is to ensure continued and predictable grant support.

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Kitchen Gardening in Mir Gul Village, Herat Province, Afghanistan

Afghanistan’s rapid recovery relies a great deal on foreign aid

Since the war against the Taliban started in 2001, Afghanistan has depended heavily on international donors to hold its fragile economy and social fabric together . Security and civilian grants of nearly $8.6 billion per year have contributed significantly to the country’s development and improved the lives of millions of Afghans.

Now, the highest priority for the international community is to ensure continued and predictable grant support.  Sadly, the future of foreign assistance remains in question. The United States has substantially reduced troop numbers over 2020, with further reductions likely. Current grant pledges expire at the end of 2020, and international partners are due to consider future aid commitments in November.

With COVID-19 depressing public revenues, steep declines in grant flows will force a significant contraction in government services, undermining development outcomes, and future growth prospects.

There is little Afghanistan could have done to avoid the economic impacts of the COVID-19 crisis.

What’s certain, however, is that close collaboration between Afghanistan and its international partners is vital to mitigate the impact of the coronavirus and achieve rapid recovery .

Authors

Tobias Haque

World Bank Senior Country Economist for Afghanistan

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