Afghanistan will fall into a deep recession this year due to the coronavirus outbreak, the World Bank said on Saturday.
Afghanistan’s economy is expected to contract between 3.8 and 5.9 percent this year, the World Bank said in its South Asia Economic Forecast report. The bank had forecasted 3.3 percent growth for Afghanistan in 2020 at the beginning of the year.
According to the report, population will grow 2.3 percent in Afghanistan, which implies a dramatic drop in per capita income.
“The COVID-19 pandemic is expected to have major negative impacts on growth over 2020, due to border closures, reduced remittance flows, and economic disruptions associated with social distancing measures,” the report said on Afghanistan.
“Medium-term prospects remain highly vulnerable to political instability, worsening insecurity, and rapid declines in international grants,” according to the report. “Political negotiations with the Taliban present upside potential over the medium-term.”
Based on the report, fiscal pressures will increase as international grants decline gradually over time and due to the short-term impacts of the COVID-19 virus. Under baseline projections, the fiscal deficit for 2020 is projected to widen to 2.9 percent of GDP from 1.1 percent in 2019, due to increased public health expenditures and negative revenue impacts from COVID-19 related economic disruptions.
Recent announcement of a $1 billion reduction in grants from the United States present additional risks to fiscal sustainability and the capacity of government to maintain security and service delivery, the report said.
In a scenario where COVID-19 is not effectively brought under control (allowing for the movement of goods and people in and out of the country to resume normally in the second half of the year), GDP could decline by 5.9 percent in 2020, the bank said.
Overall, South Asia will show economic growth of 1.8% to 2.8% this year, the worst in four decades.
“The priority for all South Asian governments is to contain the virus spread and protect their people, especially the poorest who face considerable worse health and economic outcomes,” said senior World Bank official Hartwig Schafer.
