Afghanistan Economic Forecast

June 13, 2010Afghanistanby EW Content Team


Afghanistan Economic Forecast Over the past eight years, the United States has provided financial assistance and been involved with foreign investments to help boost Afghanistan’s struggling economy. Although Afghanistan has had a strong agricultural industry, a serious four-year drought caused significant damage to the economy. However, with aid from the United States, as well as expat remittances, a dramatic increase of agricultural production, and replacement of the opium trade, improvements have been seen in areas of housing, jobs, economic reform, infrastructure, education, and medical care in the past few years. However, with the opium trade accounting for 35% of the GDP, Afghanistan remains one of the least developed and poorest countries. Afghanistan’s GDP Forecast With Afghanistan seeing a level of rebound specific to agricultural production, in 2005 economic growth was able to reach double digits. From that time forward, the country’s government stayed on course with its macroeconomic reform for policy and structure¸ as well as elections going through without major problems. Even so, the country still faces challenges in a number of areas to include heavy dependency on foreign aid, low domestic revenue base, the now illicit opium production, and constraints on institutional and staff needs. Afghanistan’s government understands that to turn the economy completely around, significant and continued commitment to reform, international relationships, and promotion of the private sector is essential. Thankfully, recovery in agriculture during 2009 saw incredible growth.

As a result, the fiscal year ending 2009 had GDP growth rebounding to approximately 15%. In fact, harvesting experienced the largest recorded growth in more than three decades. While the GDP dropped by 10% because of changes in opium crops, it remains a primary source of income for a large number of farmers, particularly those involved with drug trafficking. Another change was seen with a downward trend for inflation, which included lower global prices for food and some degree of recovery for domestic crops. Looking at the entire year of 2009, the rate was a negative 13%, which was a huge drop from 43% the previous summer. The focus of the central bank in Afghanistan has been on controlling inflation while also looking for seamless exchange rate volatility.

To achieve the goals set for the GDP in 2010, the central bank is now increasing use of 28-day capital notes along with buying and selling foreign exchange with market dealers. This coupled with the central bank’s promotion of a secondary market for the notes to help develop a foundation of controlling reserve money, as well as monetary policy via open-market operations should product vast improvement. Today, Afghanistan maintains a floating exchange rate, which has seen some improvement from fiscal year ending 2009 taking it to approximately AF50/$1, closing a five-year average in actual effective terms. Even revenue collection has seen great improvement as Afghanistan’s government started controlling expenditures, aligning a budget with the Afghanistan National Development Strategy’s objectives for sustainable growth and macroeconomic stability, and adopting a framework for medium-term fiscal that could be sustained.

The need for tighter levels of spending on security has been recognized, which could be accomplished through operating the budget through domestic revenue that was initially slated for the fiscal year 2015, which will probably move to fiscal year 2023. Currently, Afghanistan’s deficit, not including grants, is expected to expand from $6.4 billion to $7.0 billion, which would account for almost 54% of the country’s GDP. The Afghanistan GDP (Gross Domestic Product, Current Prices, US Dollar) the for fiscal year 2010 is forecasted to reach moderate levels to 7.6%, based on several assumptions. For instance, assumptions would include slow improvement in security, sustained agricultural production, ongoing growth of businesses that serve increased consumer demand, and better revenue administration. Additionally, assumptions would cover ongoing large development funding for projects through projects, and increased foreign direct investment to help develop mineral resources. For the monetary policy, the goal is to keep inflation in check to 8.4% and 4.5% within the forecasting period, pending nothing globally develops unexpectedly.

Afghanistan Unemployment Forecast

Although Afghanistan has received tremendous financial support from the United States and other foreign partnerships, as well as private donors unemployment still lingers around 40%. This means that today, the Afghanistan population of 25 million people living in Afghanistan have no work, forcing more than 50% of the country’s population to live below the poverty line. The greatest concern with this is that the younger generation is being pushed toward the Taliban where they are provided with daily necessitates and income, affecting the Afghanistan unemployment rate With several endeavors in the works and Afghanistan having natural resources that are currently being used different, it is expected that unemployment rates will improve. In 2008, Afghanistan and China executed a formal contract for copper mining, which was comprised of a $2.8 billion investment and annual income for the Afghan government of $400 million. This endeavor alone is estimated long-term to product 20,000 jobs. This along with the new projects being formed around natural gas and other resources, new banking operations, and the development of private-based investment enterprises is expected to help the high unemployment rate.

Afghanistan Inflation Rate Forecast

The Afghanistan inflation rate is as follows. Average Consumer Prices (Indexed to Year 2000) for Afghanistan in year 2009 is 168.53 (Index, Base Year 2000 = 100) or 2.32%. This makes Afghanistan number 79 in world rankings according to Inflation, Average Consumer Prices (Indexed to Year 2000) in year 2009. The world's average Inflation, Average Consumer Prices (Indexed to Year 2000) value is (Index, Base Year 2000 = 100); Afghanistan is 168.53 more than the average. Projecting Inflation through 2015, Inflation, Average Consumer Prices (Indexed to Year 2000) for Afghanistan in year 2015 is 210.705 or 4.57

Afghanistan Current Account Balance Forecast

When talking about a country’s “current account balance”, this is the balance of trade, net unilateral overseas transfers, and net overseas factor income combined. For forecasters to come up with accurate numbers, several standards are used to include definitions, concepts, facilities, classifications, and conventions. Today, the Afghanistan current account balance is estimated at negative $2.5 billion, significantly down from $85 million in 2008. This means Afghanistan moved its rank from 74 to 155, making this a 3,594% change.

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