(MENAFN- Daily Outlook Afghanistan) The fiscal year of 1395 economic report, which is released twice in a year by the World Bank, has been published this month. This report contains two main points: first, report about economic changes in the second half of 1395 fiscal year with long-term and international viewpoints. Second, a deep analysis about Afghanistan's economy. This report is highly significant for Afghan people, mainly high decision makers in economic affairs, private sectors and economic experts.
The report generally contains three parts: current challenges regarding economic activities, the development of economic situation (15 percent increase in revenue and increase in GDP growth from 1.1% in 1394 to 2.2% in the solar year of 1395), and improvement in economic and financial activities. All the three parts will be expressed shortly.
Part 1 – Challenges
There are several reasons behind decline in economic activities, investment and people's confidence:
A-The deteriorated security situation
The escalated insecurity and insurgency in different parts of the country has put an adverse effect on people's activities, living and business. The abduction of investors or their relatives is another barrier before economic activities and private entrepreneurs.
B-Lack of Balance between Economic and Population Growth
The report suggests that economic growth has been slower than population growth in the fiscal year of 1395. For instance, the population growth has been 3 per cent, while the economic growth was 2.2 per cent in 1395 – this means that per capita income declined which will result in extreme poverty and lack of welfare.
C-Limitation in Financial Resources:
Limitation or lack of financial resources is one of the main challenges in country's economy. Currently, the state's financial resources are based on three sources: tax-resources, non-tax resources (mines, rental property and government's real estate) and foreign aids. All these sources have their own challenges and getting rid of them need long-term strategy and mid-term and long-term work-plan. Although the government's income is growing via tax, there is still much to be done. The evolution in the country's financial sector is ambiguous according to the World Bank.
D-Repatriation of Refugees:
More than 800,000 refugees repatriated in 1395 and the number of internally displaced people have increased as a result of conflicts, which is a great challenge in the realm of economy. It is likely that the number of internally displaced people and refugees will increase in 1396 and create a setback before the government's struggles made to facilitate them.
Part 2: Relative Improvement of Economic Situation
The domestic economy (production) are composed of three parts: (1) GDP/agriculture and livestock (2) Industry (3) Services. The report by the World Bank suggests that economic growth was doubled in 1394 comparing to 1394. That is to say, the rate of economic growth was 1.1 per cent in 1394 whereas it has reached 2.2 per cent in 1395. The report further estimates that the economic growth will reach 2.6 per cent in 1396 – it shows progress in financial state. The level of domestic revenue increased about 15 per cent in the fiscal year of 1395, which shows an increase of 5 per cent above that year's budget target. Within the two last years, there had been a considerable improvement in revenue collection and it is in contrast with 1394 – when revenues fell dramatically. The level of revenue collection is relatively lower than 10.5 per cent in comparison with the GDP rate. The government's income is estimated to reach 10.8 per cent GDP in the fiscal year of 1396.
Considering the report, it is likely that Afghanistan's economic growth will gradually reach 3.6 per cent up to 1399 (2020). However, this improvement depends on obtaining safe ground for economic growth such as better security situation, political stability and successful implementation of international continued assistance.
Economic growth in the fiscal year of 1395 as a result of improvement in agriculture is an important point in the report. The current statistics show that 78% workforce are engaged in agriculture. The ground for growth in agricultural sector seems safer in the country. The cheap and hardworking workforce, arable land in different parts of country and flowing and underground water are the factors that will facilitate growth in GDP.
Part 3 – Economic Motivating Factor
The report suggests, in its third part, how to provide economic motivating factor despite financial restrictions. Officials seek to catalyze financial growth so as to prevent from its slow process. Providing motivating factor on the one hand, and preventing the continued economic weakness on the other hand, is a real challenge. Afghanistan's financial resources are limited and the potential of increasing government's expanses or decreasing tax seems next to impossible.
To overcome this challenge, the government should take more initiative with the aim of promoting the effect of financial expanses on economic growth. The World Bank suggests the following items in this regard:
First: promoting the attraction of high-quality forces in the government will raise the quality and speed of investment.
Second: adopting and implementing policies, which leads to the development of competition in the banking and construction markets, will encourage the small and medium companies in the labor market.
Third: Policies to expand fiscal space consisting of a series of actions for the integration of internal resources and effective use of available funds will provide more resources.
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