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Afghan Economic Growth Projected at 4% in 2021: ADB Report

in Afghan Business

Afghan Economic Growth Projected at 4% in 2021: ADB Report

According to the Asian Development Outlook 2020 report, political uncertainty and COVID-19 pandemic are going to further dampen Afghanistan’s economy.

The country’s economic growth is expected to remain sluggish in 2020 at an unchanged rate of 3.0% from 2019.

However, GDP growth is projected to rise to 4.0% in 2021, supported by improved prospects for long-term political stability and security, as well as a successor to the Extended Credit Facility program of the International Monetary

Fund that reached completion in December 2019—and despite a gradual decline in international grants. These developments promise to raise consumer confidence and, triggering the repatriation of capital held overseas, boost investment. Initial steps taken to shift public spending from security to development should contribute to economic growth.

The outlook is subject to significant risks. On the upside, a successful political settlement and sustainable peace would open a new window of opportunity for Afghanistan and unleash significant growth, raising business confidence and paving the way for prosperity and socioeconomic development. On the downside, uncertainty and lower domestic demand could ensue from a prolonged period of political transition after the September presidential elections, delays in commencing intra-Afghan talks, and a steeper reduction in foreign aid than is currently expected. These risks could be compounded by rising tensions in the Middle East or a worsening COVID-19 outbreak in Afghanistan or Iran, which is a major trade partner and source of remittances.

The report adds that the government should pursue structural reform as outlined in the Afghanistan National Peace and Development Framework to ensure sustained progress towards self-reliance.

Strenuous efforts are needed to improve governance and public financial management. Policies should continue to work toward strengthening revenue collection, improving customs and tax administration and compliance, introducing carefully designed and appropriate new taxes, and improving the tax policy mix.

In the short term, policy actions can focus on introducing digital technology into revenue collection, reinforcing controls and tax audits, strengthening antifraud measures, and sanctioning noncompliance. Over the medium term, additional excises and property taxes should be introduced, a fiscal regime for natural resource taxation developed, and enforcement and compliance strengthened.

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