ISLAMABAD: The United Nations Development Programme (UNDP) has feared that as much as 97 per cent of the Afghan population is at risk of sinking below the poverty line unless a response to the country’s political and economic crises is urgently launched.
A UNDP appraisal, while discussing different scenarios, placed emphasis on Afghanistan’s trade with Pakistan.
The study, which analysed four potential scenarios of escalating intensity and isolation, indicates that real GDP could contract by as much as 13.2 per cent, leading to an increase in the poverty rate of up to 25 percentage points.
The appraisal used a Computable General Equilibrium model for Afghanistan to simulate scenarios based on the latest available data (2018). The modelling identified a worst-case scenario defined by a two-month interruption to trade with all major partners, a 4pc decrease in capital spending efficiency, and disruptions in connectivity. According to the appraisal, this combination of factors could cause the baseline poverty rate, now at 72pc, to balloon.
Study places emphasis on Afghanistan’s trade with Pakistan
Under the first scenario assuming trade with Pakistan is interrupted for two to four months, there will be decrease of 3.6pc to 8pc in real GDP, while poverty impact will be around seven to 16 percentage point increase from 2020.
The second scenario assured trade with all major partners is interrupted for two months, real GDP to decrease by 12pc with poverty impact of around 23 percentage point increase from 2020.
The third scenario showing low-intensity crisis with fragmented economy and interruption to international trade with Pakistan only, assumed that trade with Pakistan is interrupted for two to four months with capital spending efficiency declining by 2pc, high cost for factors of production and connectivity is disrupted, the real GDP to decline by 5.5pc to 11pc, while poverty to increase around 10 to 20 percentage points from 2020.
The fourth scenario assumed trade with all major partners is interrupted for two months, resulting in a decrease of 13.2pc in the real GDP; this scenario raises the spectre of near-universal poverty of 97pc of the population.
The analysis predicts for the next fiscal year (June 2021-2022) GDP growth lower by 3.6 to 13.2 percentage points than the 4pc growth predicted before the fall of the government in August.
The UNDP analysis projecting an uncertain fiscal framework says even before the regime change, Afghan public finances were precarious and strained: In 2020, domestic revenue fell by 16pc compared to the previous year whereas spending rose to respond to Covid-19. The deficit was well within the target (2.3pc of GDP); excluding grants, however, the deficit in 2020 was 17pc of GDP — underscoring the importance of external funding.
The 2021 situation is likely to be bleak. Revenue ambitions for 2021 were already revised downward; with the added uncertainty and international stalemate, customs-based revenue is expected to fall sharply. Both current and development expenditures are also likely to collapse, with adverse impact on growth prospects in 2021 and beyond. The previous government relied heavily on donor support that funded more than three quarters of its expenditures.
Published in Dawn, September 13th, 2021