Afghanistan’s struggling economy led to deflation, poverty: World Bank Report

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Afghanistan’s struggling economy has led to deflation and poverty, Khaama Press reported citing a World Bank report. This deflationary trend persisted from April 2023 to December 2023. According to the report, Afghanistan has been facing economic challenges due to reduced aggregate demand, including factors like the stronger local currency, dwindling household savings, reduced public spending, and the ban on opium cultivation causing farmers to lose income.

Afghanistan has witnessed a significant decrease in headline inflation, with a negative 9.7 per cent year-on-year rate in December 2023. Food inflation reduced to negative 14.5 per cent and non-food inflation dropped to negative 4.2 per cent, reflecting weak demand. Core inflation, excluding food and energy prices, also reduced to a negative 6.0 per cent year-on-year. These economic struggles have increased unemployment and pushed half of the population into poverty, with 15 million people facing food insecurity.

Coal exports dropped by 46 per cent in 2023 to USD 257 million. Furthermore, food exports witnessed a rise by 13 per cent, reaching USD 1.3 billion. Textile exports increased by 46 per cent in 2023 and reached USD 281 million, with Pakistan and India remaining primary export destinations. Imports in Afghanistan increased by 23 per cent in 2023 and reached USD 7.8 billion, with food, minerals, and textiles making up a major portion.

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Chemicals, machinery, and transportation products faced notable growth, contributing to a merchandise trade deficit of USD 5.9 billion in 2023. The Afghani currency appreciated against major currencies in 2023. However, the trend reversed in January 2024 as the Afghani currency depreciated against all major currencies., Khaama Press reported. The report stressed that the difficulty in assessing the monetary policy of the Afghanistan Central Bank is due to a lack of monetary statistics. However, it recommends that the central bank supports the local currency through forex auctions.

Revenue collection in Afghanistan for the first ten months of the fiscal year 2023-24 reached AFN 171 billion which reflects a 5.7 per cent increase in comparison to previous year. However, the revenue collection fell short of achieving targets, according to Khaama Press report. According to the report, rigorous tax collection measures in a depressed economy could hamper growth, worsen poverty, and result in business closures, impacting future revenue collection prospects.

Earlier in January, the United Nations Development Programme (UNDP) in its latest report, indicated a worsening economic insecurity under the Taliban’s rule in Afghanistan, Afghanistan-based Khaama Press reported. The UNDP report, released on January 18, revealed that 69 per cent of Afghanistan’s population faces a shortage of necessities, including suitable living conditions, healthcare, essential goods, and vital job opportunities.

According to this report, the social and economic situation in Afghanistan has darkened since the Taliban seized power, resulting in severe economic insecurity for the people of the country. According to the UNDP report, currently, seven out of 10 people in Afghanistan are not able to meet their basic life requirements and face economic insecurity, according to Khaama Press report. The findings of the report continue to highlight the restrictions on women’s rights and its impact along with the collapse of the banking system in Afghanistan.