13 June 2016

Afghanistan – Stability Projections and Trends

SR Research
Jun 8, 2016

Afghanistan – Stability Projections and Trends[1]


Improvement in coordination and functioning of the National Unity Government (NUG) -Negative
Coordination government and parliament – Positive Minus
Coordination with varied political elements including jihadi leaders – Uncertain.
Negotiations with Taliban - Negative

Coordination Kabul NUG and provincial governments- Negative

Recapture of nodes captured by Taliban/Daesh - Positive
Adopting a war time posture in the country at large - Positive
Expansion and effectiveness of security grid to hold on to key centres of governance such as districts and provincial capitals – Positive Minus
Coordination of security in provinces in the North – Badakshan in the East to Faryab in the West – Positive Minus
Intelligence acquisition and coordination - Negative
Taking Advantage of Taliban/Daesh factionalism – Uncertain.

Geo Political/Regional
Confidence and trust building with Pakistan – Negative.
Aid, development and security support of the international community – Positive.

Enhancing GDP Growth Calendar Year (CY) - Negative
[Real GDP growth at market prices in percent, unless indicated otherwise]
2015 2016 2017 2018
1.5 (2.5) 1.9 3.0 3.6

(As Per World Bank June

2015 report)

[Estimates as per World Bank Report GLOBAL ECONOMIC PROSPECTS Chapter 2.5 JANUARY 2016]

As per the World Bank Overview updated on 8 April 2016, the deteriorating security environment and persisting political uncertainty continue to undermine private sector confidence and affect economic activity in Afghanistan. Economic growth increased only marginally from 1.3 percent in 2014 to an estimated 1.5 percent in 2015. Domestic demand remains weak, with no signs of a pick-up in private consumption and investment. The number of new firm registrations – as a proxy for business activities -- indicates only a small increase in new investment activities in 2015, but it remains significantly below the levels of 2012-2013. Consumer prices dropped to -1.5 percent, down from 4.5 percent in 2014, due to lower private consumption and global commodity prices.

Agriculture, which is the second largest contributor to GDP growth after services, declined by a projected 2 percent in 2015. With population growth estimated at 3 percent per year and 45 percent of the poor relying on agriculture for their livelihood, sluggish GDP growth and a decline in agriculture production put continuous upward pressure on poverty, which is projected to have further increased from the 39.1 percent estimated using the latest data available. Declining job opportunities and growing insecurity have also driven up migration in 2015.

The fiscal position has improved significantly. Domestic revenues rebounded to 10.6 percent in 2015, after a significant decline to 8.7 percent in 2014. The government also continued to exercise prudent expenditure controls in 2015. Total expenditures increased marginally from 26.2 percent in 2014 to 27.7 percent in 2015. Improvement in revenue collection, more realistic budgeting and restraints on expenditures helped to balance the budget.

The exchange rate strongly depreciated by 7 percent against the US dollar in 2015. On the one hand, foreign aid inflows have declined, which makes foreign currency more valuable vis-à-vis the Afghani. On the other hand, growing uncertainty around the political and security environment have caused demand for Afghani to decline; both through consumer’s preference to retain their savings in US dollar, and through lower capital inflows which naturally increase demand for foreign currency. Moreover, increased out-migration might have also been associated with larger capital outflows.

The medium-term outlook points towards a slow recovery over the next three years. Growth is projected at 1.9 percent in 2016, assuming adjustment in domestic consumption and investment. Growth is projected to gradually increase from 1.9 percent in 2016 to 3.6 percent in 2018, predicated on political stabilization and stronger reform efforts. However, further deterioration in the security environment pose significant downside risks and could weaken growth prospects.[2]

As per Security Risks Asia for a country to get out of the negative spiral of underdevelopment and insecurity there is a requirement of GDP growth to exceed 5 percent. Thus it is evident that Afghanistan will remain in the zone of instability till 2018 as per current estimates.

[UPDATED 18 May 16. Indicative measures based on open source information for the purpose of debate on security]

[1] Projections are positive indicators that if achieved could lead to enhanced effectiveness and stability in key vectors such as politics, governance and so on. These are prescriptive based on information from primary sources and analysis of open sources. Trends indicate possibility or otherwise of projections identified as positive, negative or uncertain and are indicated against each vector. Sources based on which trends have been assessed are included in detailed assessments provided to subscribers. FOR DETAILED ASSESSMENT AND FUTURE TRENDS SUBSCRIBE TO AFGHANISTAN, DAILY WEEKLY OR MONTHLY BRIEFS. EMAIL officemail@security-risks.com.

[2] Due to lack of sufficient primary research indicators World Bank source has been used. World Bank Afghanistan Overview. Available at http://www.worldbank.org/en/country/afghanistan/overview. Downloaded 18 May 2016

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