Understanding Afghanistan's Unique Gdp Landscape

Afghanistan's GDP is calculated as the sum of gross value added by all resident producers in the economy, plus any product taxes, and minus any subsidies not included in the products' value. In 2024, Afghanistan's GDP was $6.81 billion, with a GDP per capita of $200. The country's economy has been improving due to several factors, including the influx of expats, the establishment of more trade routes, and the expansion of the agriculture, energy, and mining sectors. However, Afghanistan still faces challenges such as high unemployment and poverty rates, with about half of its population living below the poverty line. The country's GDP is expected to continue facing uncertainty, with a potential decline in international aid and restrictive policies impacting its growth prospects.

The impact of the Taliban on GDP

Afghanistan's economy has been in a state of flux since the Taliban takeover in August 2021, with the country facing an economic crisis characterized by a severe contraction in GDP, a decline in aggregate demand, and disruptions to public services. The loss of access to the international banking system and foreign exchange reserves, coupled with the freezing of central bank assets, led to a sharp decline in investment confidence and an exodus of skilled Afghans from the country.

The Afghan economy contracted by 20.7% in 2021 and a further 6.2% in 2022, with the agricultural, industrial, and services sectors all experiencing significant declines. The Taliban's restrictive policies on women's education and work, coupled with lower demand, higher prices, reduced employment, and disruptions to services, have severely impacted the country's growth prospects.

The Taliban's macroeconomic management has been better than expected during their second stint in power, with a stable exchange rate, low inflation, effective revenue collection, and rising exports. However, their complete lack of transparency on budget expenditures and misguided efforts to control the foreign exchange market have drawn criticism. The Taliban have also imposed bans on female education and prohibited women from working in certain sectors, which will have disastrous long-term economic and social consequences.

The abrupt cutoff of civilian and security aid, amounting to more than $8 billion per year or 40% of Afghanistan's GDP, has exacerbated the economic woes. Sanctions, the freezing of foreign exchange reserves, and reluctance of foreign banks to do business with the country have further compounded the problems. The economy has shrunk by 20-30% since the Taliban takeover, with most Afghans unable to afford food and other necessities.

The Taliban's unexpected rapid takeover allowed them to inherit functioning government macroeconomic management institutions, such as the Ministry of Finance and the central bank. They have shown a more positive approach to the private sector, successfully negotiating tax rates and other business issues. Revenue collection at border crossings has been remarkable, and they have reduced corruption in customs and at road checkpoints.

However, the Taliban's complete control over the country has resulted in a loss of aid, causing a fiscal collapse and affecting the ability to pay civil servants' salaries. The dissolution of the Afghan national security forces has also imposed a significant economic shock, as hundreds of thousands of army and police personnel lost their incomes.

The future of Afghanistan's economy remains uncertain, with the threat of stagnation looming. The country's long-term growth prospects rely on shifting from reliance on international aid to a private sector-led economy that capitalizes on its inherent strengths, particularly in agriculture and extraction.

The role of agriculture

Agriculture is the backbone of Afghanistan's economy, with 60-80% of the population working in this sector. It is the main source of livelihood for over half of Afghan households, and 68% have some type of livestock. The agricultural sector contributes about a quarter of Afghanistan's GDP, although it accounts for less than a third of GDP due to insufficient irrigation, drought, lack of market access, and other structural impediments.

Afghanistan's agricultural products include wheat, milk, grapes, vegetables, potatoes, watermelons, melons, rice, onions, apples, barley, peaches, and a variety of other fruits and vegetables. The country also has the potential to increase its output of cereals, fruits, nuts, and vegetables, and to develop supply chains for higher-value-added products.

The United Nations reports that nine out of ten people in Afghanistan do not have enough food to eat, and extreme poverty is near-universal. USAID assistance in the agricultural sector aims to improve food security and nutrition, increase domestic production, and relieve economic stress on vulnerable households.

The agricultural sector in Afghanistan is entirely run by private enterprises, including farmers, cooperatives, input suppliers, herders, agribusiness processors, and exporters. The sector has good growth potential and high influence in reducing poverty and creating jobs.

To increase the rate of agricultural growth, investments are needed in irrigation infrastructure, land tenure security, research, and market access to enhance agricultural productivity and resilience.

International aid and investment

Afghanistan has long been reliant on international aid, which accounts for more than 90% of the national budget. However, the country's economy and living standards have not improved despite the sizable foreign donations and investments. Donor countries include the United States and Canada, and the aid is known as Official Development Assistance (ODA).

The World Bank, in coordination with development partners and the Afghanistan Resilience Trust Fund (ARTF) donors, is unlocking ARTF funds to support the Afghan people and deliver critical health, education, and livelihood support. Since the Taliban takeover in August 2021, the World Bank has provided more than $1.7 billion in support. The funds provided have remained outside the systems and control of the Interim Taliban Administration (ITA) and have focused on service delivery for women and girls.

USAID and its humanitarian partners are also providing lifesaving food, shelter, livelihood opportunities, essential health care, and water, sanitation, and hygiene services to better respond to the humanitarian needs generated by conflict, drought, and the COVID-19 pandemic.

However, there are problems with how the given aid is utilised. A form of phantom aid is conditional aid or tied aid, which happens when aid is tied to the purchase of products such as armaments. Expenditure on foreign technical assistance, inflated salaries of foreigners working in Afghanistan, and home office expenses in the US are other examples of how aid has been mislabeled.

Moreover, private enterprises from donor countries have been looting much of the aid, resulting in the bad usage of 35 to 40% of total international aid. Dictation by foreign institutions, such as the World Bank, IMF, and UNDP, and donor countries on how aid should be spent has led to the democratically elected Afghan government losing control over aid distribution.

The effect of conflict

Afghanistan has been in a state of continuous conflict since the Soviet invasion in 1979. The civil war that followed destroyed much of the country's infrastructure and disrupted normal economic activity. The country's GDP has fallen substantially since the 1980s due to the disruption of trade and transport, as well as the loss of labour and capital.

The Taliban's takeover of Afghanistan in 2021 further exacerbated the country's economic woes. The abrupt cutoff of civilian and security aid amounting to more than $8 billion per year (equivalent to 40% of Afghanistan's GDP) dealt a severe blow to the economy. This was compounded by sanctions, the freezing of Afghanistan's foreign exchange reserves, and the reluctance of foreign banks to do business with the country. The economy contracted by 20.7% in 2021 and a further 6.2% in 2022.

The Taliban's policies have also negatively impacted the economy. Their ban on female education and restrictions on women working in NGOs and the UN will hinder Afghanistan's long-term economic and social development, accelerating the "brain drain" of educated women and men. The ban on opium poppy cultivation has resulted in a loss of income of around $1 billion per year for rural households.

However, the Taliban have taken some positive steps towards economic management. They have reduced corruption, particularly in customs and at road checkpoints. They have also clamped down on capital flight and maintained a responsible macroeconomic and monetary stance.

The outlook for Afghanistan's economy remains uncertain. Structural deficiencies in the private sector, coupled with waning international support, are expected to impede economic progress. The absence of GDP growth and declining external financing avenues paint a bleak picture. Afghanistan's long-term growth prospects rely on a shift from reliance on international aid and consumption-driven growth to a more resilient, private sector-led economy.

Afghanistan's GDP compared to other countries

Afghanistan's GDP is ranked 155th in the world in terms of nominal gross domestic product (GDP) and 137th in terms of purchasing power parity (PPP). The country's GDP stands at $6.81 billion as of 2024, with a GDP per capita of $200. This makes Afghanistan one of the poorest countries in the world in terms of GDP per capita.

In comparison to other countries, Afghanistan's GDP is significantly lower than that of many developed nations. For example, the United States, the largest economy in the world, has a GDP of over $25 trillion. Even when compared to other developing or emerging economies, Afghanistan's GDP is relatively small. For instance, India, with a population of over 1.4 billion people, has a GDP of over $3 trillion.

Afghanistan's economy has faced numerous challenges, including political instability, conflict, and a lack of foreign investment, which have deterred business investors and hindered economic growth. The country also has a high unemployment rate of over 23% and a poverty rate of around 54.5%.

However, there are positive signs for Afghanistan's economy. The country has seen an influx of expats, established more trade routes with neighbouring countries, and experienced growth in its agriculture, energy, and mining sectors. Additionally, Afghanistan holds over $1 trillion in proven untapped mineral deposits, which could significantly boost its economic prospects if properly utilised.

In recent years, Afghanistan's GDP has fluctuated. In 2020, the country's GDP was $20.14 billion, but it declined by 27.6% in 2021 to $14.58 billion. This sharp contraction was largely due to the political events of 2021, including the return to power of the Taliban, which disrupted the economy and led to a freeze on international aid and assets. As a result, Afghanistan's GDP contracted further by 6.2% in 2022.

Despite these challenges, there are efforts to support Afghanistan's economy. The World Bank, in coordination with international partners, has provided over $1.7 billion in support to the Afghan people since 2021. These funds have been used to provide critical health, education, and livelihood services, as well as humanitarian aid.

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