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
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.
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.
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
Barring that, the negative impacts of COVID-19 will only worsen.
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.
Afghanistan’s rapid recovery relies a great deal on foreign aid
. 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, 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 .
