Afghanistan’s economy faced significant challenges in 2016, due to low economic growth, limited access to finance, increased unemployment, lack of security, political instability, weak governance, and corruption – all of which hampered economic activity. The country still relies on foreign donor grants.

The gross domestic product (GDP) in Afghanistan grew 2.10 percent last year. Annual GDP growth averaged 11.12 percent from 2003 to 2015, reaching an all-time high of 28.60 percent in 2003 and a record low of 2.10 percent in 2015.*

The inflation rate was 6.69 percent in October 2016. Average inflation was 4.12 percent between 2005 and 2016, reaching an all-time high of 13.97 percent in April 2011 and a record low of -18.39 percent in May 2009. Per capita income in 2016 was estimated at $623.90.

Banks’ lending to the private sector continued to decline over the past three years. Total banking sector loans dropped slightly to $613 million in December 2016 compared to $747 million in 2015, and $818 million in 2014. Banking sector lending is not projected to rise much faster as banks tighten credit standards in the face of a deteriorating economy. Meanwhile, the banking sector’s total deposits grew up to $3.82 billion compared to last year.

The exchange rate decreased in the first two quarters of the year by 3.8 percent and 0.3 percent respectively, followed by an increase of about 2.0 percent in the third quarter. Foreign exchange reserves declined throughout most of 2015, before increasing in the first half of 2016 to $7.4 billion (or around nine months of imports). This increase was largely due to the decline in imports, resulting from weakening demand.

Afghanistan secured its financial assistance for the next four to five years, with $3.5 billion per year pledged at the Brussels conference 2016. The government also received the same level of annual assistance from Tokyo ($3.9 billion per year) for Afghan economic reform, Afghan national development framework, rule of law public finance management and anti-corruption, regional efforts to support a political process towards peace, and cross-border economic cooperation with countries to enhance future relationships.

Afghanistan and Turkmenistan inaugurated the Lapis Lazuli railway in November 2016. This railway will improve freight links from Central Asia across the Caspian Sea to the Caucasus, Turkey, and Europe. The first freight train from China was welcomed into the northern rail port at Hairatan on 7 September 2016. The Afghan China Silk Road and internal train network are at tendering stage. This includes opening the Chahbahar port in Iran, making an excellent alternative trade route for Afghanistan trade and finance.

Along with the continuing deterioration of the security situation, the country is facing a humanitarian crisis. More than 5,000 displaced Afghans are returning from Pakistan every day, and in lower numbers from Iran and Europe, especially from Germany. Managing and protecting displaced populations is even harder in a country that lacks safety nets, and is also suffering from a severe economic crisis that has pushed at least 1.3 million additional Afghans into poverty.

Economic growth is expected to gradually pick up over the coming years, from 1.8 percent in 2017 to 3.6 percent in 2019. Stronger growth in future years is predicted with improvements in security, political stability, reform progress, and continued high levels of aid.

Sources:
1. World Bank database
2. Da Afghanistan Bank
3. IMF

* GDP Annual Growth Rate in Afghanistan is reported by the Central Statistics Organization.