Confidence in Afghanistan’s Future Rising Slowly

Afghanistan’s economy is expected to grow 2.6% this year, up slightly from the previous year despite deteriorating security, the World Bank said in a report on Tuesday.

While the figure is up from 2.2% last year, it does not keep up with the country’s population growth of roughly 3%, meaning that gross domestic product per capita continues to decline, Reuters reported.

“In the next three to four years, there are things that can be done to boost growth to between 4 and 5%,” said Shubham Chaudhuri, the World’s Bank’s country director for Afghanistan.

Chaudhuri, presenting a report on Afghanistan’s economy at the World Bank’s fortified headquarters in Kabul, said that agriculture, mineral attraction and the country’s youth were its biggest assets, as well as its geography as a regional land bridge.

The improved growth outlook will be welcomed by President Ashraf Ghani, whose technocrat government is seen as unstable but appears to be making the reforms that international donors—who provide more than half of Afghanistan’s funding—have been seeking.

Business sentiment is also on the rise, the World Bank said, though it is still lower than in 2014 when most foreign troops withdrew from Afghanistan. Growth is significantly below the “war economy” figures of the late 2000s, which saw annual rises averaging nearly 10%, but the World Bank believes it will continue to rise.

The organization projects 3.2% growth next year, though that assumes no deterioration in the country’s security. This appears unlikely given a recent increase in attacks by various militant groups.

One of the major tests for Afghanistan’s stability is its ability to collect taxes. Tax revenue in the first eight months of the year was 13% higher than the same period last year, the World Bank said.

Inflation remains in the single-digits, with consumer prices up 3.8% in the 12 months to September.

However, anecdotal evidence indicates that overall confidence is moderately improving, as the uncertainty around the international troop presence in Afghanistan is likely to subside following the announcement of the US strategy for Afghanistan and South Asia.

If improvements in security materialize, and with political stability, steady progress on reforms, and with aid flows continuing, at least at current levels, growth is likely to strengthen modestly.