Economic Instability and Uncertainty in Afghanistan after August 15

Economic Instability and Uncertainty in Afghanistan after August 15

Sep 9, 2021

Afghanistan teeters on the brink of  universal poverty. As much as 97 percent of the population is at risk of sinking below the poverty line unless a response to the country’s political and economic crises is urgently launched, according to a rapid appraisal released today by the United Nations Development Programme (UNDP).

The study, which analysed four potential scenarios of escalating intensity and isolation, indicates that real GDP could contract by as much as 13.2 percent, 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 modeling identified a worst-case scenario defined by a two-month interruption to trade with all major partners, a four percent 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 72 percent, to balloon.

In addition to a prolonged drought and the effects of the COVID-19 pandemic, Afghanistan is contending with the upheaval caused by the current political transition: frozen foreign reserves, collapsing public finances, increasing pressure on the banking system, and rising poverty.

 

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