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Afghanistan's economy is on the verge of a collapse



Power vacuum looms over Afghanistan as UN delays the date for announcing the result of presidential elections to mid-September despite Karzai's plans to leave office next week. Afghan President Hamid Karzai, who came to power after the US-led invasion that toppled the Taliban in 2001, has set a deadline for a new president to take office, but a clear winner has yet to emerge after two rounds of voting.  If this happens the country will be literally headless. But during this time of crisis when country's economy is crumbling and a strong leadership is required for drawing down a plan to save Afghan economy from going into deep depression.

Our President just wants to wash out his hands from his responsibility and wants to live in comfort and luxury.  
It's a known fact that Afghanistan's heavy reliance on foreign aid made it slowdown. With the fall in grants, not to mention the absence of consumption generated by the foreign presence, the high growth seen in recent years is unsustainable. Afghanistan's economy has been vastly supported by international military spending and aid since the 2001. Since the US-led war began, Afghanistan's economy has been boosted by foreign spending.
The World Bank has said about 97 per cent of Afghanistan's gross domestic product is derived from spending linked to foreign forces and the donor community.

Let's take into account some of the figures and report in relations to Afghan economy. The new Business Tendency Survey Report, released by the Afghanistan Chamber of Commerce and Industries (ACCI) in August, points to a clear worsening of the situation: business conditions have deteriorated rapidly, orders are contracting, firms are closing shop, and layoffs are becoming more widespread.

The more troubling revelation is that the degradation is widespread and not concentrated in any particular region or sector.

The most prominent indicator of rapidly declining confidence was business contraction, with many companies interviewed in March now having closed shop entirely or downsized significantly.

This retreat was reflected in the unprecedented level of layoffs recorded by ACCI — one in ten managers reported cutting the workforce size in the last three months, and that too in a season traditionally known for more hiring.

New firm registrations fell by 38 per cent between 2012 and 2013, reaching the lowest levels seen since 2008. Foreign and local fixed investment also slowed last year, while real estate prices dropped considerably. 

Moreover, according the World Bank Enterprise Survey, 2014, employment growth dropped to 4.9 per cent, almost one-third of the 2008 rate.

Afghan elites lack confidence in the state's ability to provide effective security once foreign forces leave, and they are increasingly shifting assets and investments to safer destinations like the UAE. Even government employees nervously wait for payday, worried the next might be delayed. Due to declining economic opportunities Afghanistan's farmers have been hedging their bets by ratcheting up poppy cultivation since last year.

According to US State department, output rose from 2012 to 2013, reaching an estimated 5,500 tons. Based on UN estimates, this was nearly a 50 per cent increase since 2012. In addition to output, farmland used for growing poppy expanded as well.

According to UN estimates, there was 36 per cent one-year increase in areas used for poppy cultivation in 2013.

It is estimated that this year's production will stay on par with 2013 levels, if not exceed it. This is a major worry as opium money has been found to fuel insurgency.

People are hoarding their money out of fears of having to flee the country as they fear outbreak of a civil war which gored Afghanistan 1992. This all is because of the political impasse that stares large on the Afghans.

But this down slide of the economy can be arrested and more sustainable levels of growth can be achieved, provided there is political and policy stability and the government can credibly ensure security against the Taliban as well as other factions jockeying for control as foreign forces depart.

Without a secure political environment, stabilising the economy will be nearly impossible. Moreover, the situation in Afghanistan can exacerbate or deteriorate if the new government cannot offer its people the security and stability they are so badly in need of now.

This may lead to a situation where the government might find its legitimacy lost which will certainly encourage people to indulge in activities which will only pull the country down to a pit from where it may not be possible to re-emerge any time soon.

The author is a Sydney based Afghan physician. All the views and opinions expressed in the article are solely those of the author and do not reflect those of Times of Oman.



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