Afghanistan Economic Update, October 2013

Abstract

Uncertainty surrounding the political and security transition in Afghanistan has led to a slowdown in economic growth in 2013, following strong growth in 2012. After a decade of strong fiscal performance, revenue collection has weakened in 2013, potentially delaying Afghanistan's path toward self-reliance. In order to preserve fiscal sustainability, a concerted effort will be required going forward to improve revenue mobilization by strengthening tax and customs administration and by expediting introduction and implementation of the planned value-added tax. Afghanistan faces considerable expenditure needs in the areas of security, infrastructure development, service delivery, and operations and maintenance. Meeting these needs will also require significant grant assistance for the foreseeable future. In spite of the transition-related uncertainty and underperformance, Afghanistan will need to stay focused on its medium term structural reform goals. These include: (i) safeguarding sustainability by mobilizing revenue and securing grant assistance; (ii) supporting inclusive and job-creating post-transition growth by unlocking the potential of the agriculture and natural resource sectors and by tapping the potential of regional integration; (iii) improving upon the low levels of human capital and skills; and (iv) continuing to strengthen institutions and governance. This report is organized as follows: section one gives recent economic developments; section two presents economic outlook and medium term prospects; and section three presents structural policies for the medium term.