The COVID-19 pandemic has left its mark on all aspects of life throughout the world, including Afghanistan. In addition to affecting health of millions and causing thousands of lives in Afghanistan, the pandemic has slowed down economic growth, affected businesses, and has pushed larger number of the population to below poverty line. For Afghanistan, which faces daunting vulnerabilities, it is critical to strengthen public health systems, address the challenges posed by global economic slowdown, and implement reforms that will support strong and sustainable growth once the health crisis abate.
To this end, UNDP is producing a series of Country Notes that examine the likely effects of the corona virus outbreak in Afghanistan. The notes are prepared using Computable General Equilibrium Models developed by the UNDP for Afghanistan. These notes are intended to provide the policy makers with the tools to better understand the trade-offs, and provide policy recommendations to mitigate the social and economic impacts of the pandemic. The first Country Note was developed on mid-April 2020, here, we present updates and propose Social Protection measures in alleviating the immediate adverse impact of COVID-19.
This second note comprises of an evidence-based analysis where we combined an economy-wide analysis (Global Trade Analysis Project model for Afghanistan) with infection transmission scenarios developed by the Ministry of Public Health. Under the assumption of a Medium Transmission scenario of the virus (around 190,000 cases), our economic impact analysis suggests for 2020:
(i) a decline in growth around 9 percentage points (pre-pandemic era Afghan economy was predicted to grow 3%, we predict a contraction by around -6% GDP)
(ii) a 13 percentage points increase in the Poverty rate (from 55 percent and 68 percent)
(iii) an additional contraction in the economy of around -2% GDP if the cost of combatting the pandemic $250 million is funded from the current government budget by cutting other expenditure items.
Socio-economic cost of the pandemic in Afghanistan largely exceeds the health care cost. The Government needs to finance social protection measures made necessary regarding livelihoods that are lost; families also bear costs of care, transport, isolation of family members who may have been in contact with confirmed cases.
To support even part of the social costs for a limited time, it would require funds far beyond the reach of the government budget. For example, a Universal Basic Income (UBI) scheme:
(i) to compensate citizens for even a small loss in consumption (around 700 Afghanis per month) for only 6 months would require a fiscal outlay of nearly 10% of GDP
(ii) to compensate with similar terms only working age adults (15-65 years) would cost around 6% GDP
Measures that are more within the government’s fiscal reach would include:
(i) income support to elderly only (“social pension”) for 6 months (around 1000 Afghanis per month) would require a fiscal allocation of around 0.25% GDP
(ii) income support with similar terms for the Internally Displaced Persons (IDPs) and Returnees would entail around 0.5% GDP
(iii) Introducing civil works for 100 days at a wage (of 1000 Afghanis) to the unemployed would only cost around 1% of GDP.
These affordable options, better targeted interventions for the Government of Afghanistan to consider as short-term social policies.
The pandemic hit all countries. The global economy is expected to shrink by -5% in 2020. As part of the “Global reset”, the current crisis is the opportune moment to fundamentally transform and strengthen the economy.
Domestic revenue mobilization is unlikely to tackle the economic hardship caused the Pandemic in Afghanistan. Hence, there is need for radical choices in saving resources from non-optimal pre-virus policies and reallocate these funds (on-budget and off-budget) to a carefully calibrated “stimulus package”. Reducing waste and allocating it for purposes that favor all citizens, safeguarding activity levels and livelihoods, would contribute to reducing suffering and social tensions.
The government should also explore ways to promote trade and regional cooperation to increase revenues. An economic gain equivalent to 4% GDP is achievable in the short-term by promoting trade with SAARC (South Asia Association for Regional Cooperation) countries.
While, peace and security expenditures are paramount for effective recovery and development in Afghanistan, innovative finance, private and public investments, support to small and medium enterprises, digital technologies (starting with telemedicine) and job opportunities for youth are essential for recovery and development. UNDP is proposing to play a catalytic role in all these areas.