Esmatullah Karimi is currently pursuing M.A in Economics at South Asian University, New Delhi, India. He has obtained B.A in Economics from Kandahar University (2017), Kandahar, Afghanistan. His research interest is mainly in the area of Development Economics. He can be contacted at Esmatkarimi1995@gmail.com
The recent developments in the transit routes, the planned domestic railway project, the ongoing peace negotiations, and a number of other improvements have escalated hopes for an improvement in Afghanistan’s economy.
Afghanistan, as a landlocked country, is not only at a disadvantage for its geographic location, but the unstable security and political situation, huge trade deficit, and extreme poverty also trouble the economy of Afghanistan in several ways. The country is currently considered the 23rd poorest country in the world and poorest country in Asia. What could the future hold for its economy?
The current performance of a country’s economy is not only dependent upon current investment, budget allocation, etc. but it is also dependent upon what has been done for the economy in the past. A country which had made adequate investment in several aspects of the economy in the past will have much better performance than the country which had invested less in the past. To ensure what has been done for the economy of Afghanistan in the past, we have summarized the last 100 years as follow:
During the first and second world wars, Germany, Japan, England, and almost the entire Europe were ruined; millions of people were killed, governments collapsed, and economic infrastructure was destroyed. In addition to Poland, Russia, and China, Germany and Japan were two countries that had suffered a lot in the Second World War, but the wilderness countries are now the world’s third and fourth largest economies respectively. The experience of Germany and Japan shows that patience, tolerance, and cooperation can pull out the country’s economy from any crisis.
Although Afghanistan did not witness such anxiety during the two world wars, it had suffered a lot during the past thirty years – from the invasion of the Soviet Union (1979) and Civil War (the 90s). During that time the governments collapsed by one another, millions of people were killed, millions of civilians were forced to migrate, and millions were physically disabled. Before the failed invasion of Soviet Union in 1979, Presidents Ghazi Amanullah Khan, Mohammad Zahir Shah and Sardar Mohammad Daud Khan had worked enough for the betterment and improvement of economic infrastructure of Afghanistan. The central bank of Afghanistan (Da Afghanistan Bank) was formed in 1939, then in the first, second, and third five-year plans 1951-1966, fifty percent of the government budget was allocated to build large roads.
As a result, around 2500 kilometers of roads were constructed, Kabul – Kandahar Highway, Kabul – Mazar-e-Sharif Highway, Kabul – Torkham Highway, Kabul – Herat Highway and some of the other major highways were established. Around 37 Airports were inaugurated while the Kabul and Kandahar airports were the most advanced airports. Moreover, the Kajaki and Naghlo Hydropower Dams and many other large Hydropower Dams were built, prime universities like Kabul and Nangarhar universities were established, and some other prior works were conducted which created hope for the improvement of the economic situation. But then the failed invasion of the Soviet Union and the civil war in the 90s harmed the economy in several ways, the infrastructure was ruined. This uncertain situation was going on until 2004.
After The Civil War
In 2004, the normal situation took place with the new administration of Hamid Karzai. Afghan government started investing in security, education, health, infrastructure, governance, and other aspects of the economy with the help of the US and other donor countries.
Between the 2008 and 2012 years, Afghanistan had an average of ten percent economic growth, millions of students reached the school, universities were reopened, health facilities increased, and human capital started growing. However, after 2013 a large number of foreign troops left the country, and the six months delay in the result announcement of presidential elections again worsened the situation as leading donors left the country. Thousands of people remained unemployed, migrations started once again, and the capital was either taken out of the country or was kept uninvest. In 2014 and 2015, the economic growth of Afghanistan also dropped to less than two percent per year.
After 2015, once again the situation improved, Afghanistan’s economic growth raised from one percent to two percent, political instability also reduced, and the government and private sectors started investing in several sectors of the economy. As a result, economic growth started picking up. Afghanistan was connected via the Aqina port with Turkmenistan, the inaugural process of CASA1000 ( Central Asia-South Asia) power project was opened, Afghanistan was connected through railway with Uzbekistan and its route creating the way to trade with China, the Lapis lazuli corridor was inaugurated which facilitated transit and trade with Turkmenistan and some of the Asian and European countries. Meanwhile, the transit and trade between Afghanistan, India and the Middle East through Chabahar improved the trade and transit volume of Afghanistan. Moreover, Afghanistan installed ASYCUDA and SIGTAS electronic systems in Customs which increased the domestic revenues. Added to that, Afghanistan was admitted to the World Trade Organization, and the promise for financial support in many international conferences was restated.
The Current Situation
Despite the achievements, many problems have remained unsolved. Based on the Afghanistan Central Statistics Survey, 54% of the population of Afghanistan lives in poverty, 23 percent of the people are unemployed, with more than 90% of the trade deficit -imports are around $ 7 billion a year, and exports are a paltry $ 0.7 billion. Moreover, access to clean water is still deficient. Although the healthcare facilities have improved, the infant mortality has remained pretty much the same. 110 children die out of every 1000 before their fifth year of life. Only 38 percent of the people in Afghanistan can read and write.
As mentioned previously, Afghanistan’s economy had witnessed ups and downs in the last century. In the same way, Afghanistan’s economy will witness ups and downs in the future too. In July 2019, the presidential election and conflict over the result would once again create political instability. Perhaps if the results are announced soon, we might not witness such difficulties. In the future, 54% of the poor population, 23 percent unemployed population, huge trade deficit, and some other difficulties will still be troubling the economy of Afghanistan.
According to the World Bank report, if the results of the presidential election are announced without a long delay, the security situation will not be much spoiled, and more political instability will not be created, the economic growth of Afghanistan would be 2.3 percent in 2019, and likely it will reach 3.6 percent in 2021
The mentioned World Bank’s report suggests rapid economic growth is required for the reduction of poverty, unemployment, and other problems in Afghanistan. Based on the report, if the Afghan government wants to reduce the number of issues, it should improve the extraction of existing natural resources. Meanwhile, it should work with existing capabilities and work for the further capacity-building, and also it should make an adequate investment in energy and connectivity systems. Moreover, the government should work hard for security and political stability.
Although the economy faces a number of challenges, however, the ongoing peace negotiations, the domestic railway projects, the openness of Lapis lazuli corridor, the inauguration of TAPI ( Turkmenistan-Afghanistan-Pakistan-India gas pipeline project), the trade and transit through Aqina and Hayratan ports, the trade with India and Middle East via Chabahar, and some other improvements and projects have created some hopes for the recovery of the security, political, and economic situation of Afghanistan in the future.
Hopefully, one day we will break out of all the problems and will have a self-sufficient, prosperous, and secure Afghanistan.
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