Economic Stagnation Looms for Afghanistan: New Report Recommends Shift to Private Sector-Led Economy

Despite the threat of stagnation looming for at least 2025, Afghanistan’s economic outlook remains uncertain, according to a new report by the World Bank. The report, titled “Navigating Challenges: Confronting Economic Recession and Deflation,” highlights a 26 percent contraction in real GDP growth and a decline in external financing avenues for off-budget expenditures. These challenges are compounded by structural deficiencies in the private sector and decreasing international support for essential services, which are expected to hinder any significant economic progress.

The economic standstill is likely to worsen poverty and unemployment, with half of the population already living in poverty and 15 million people facing food insecurity. To address these challenges, the World Bank recommends shifting from consumption-driven growth and international aid reliance to a more resilient, private sector-led economy. This shift should focus on addressing harmful gender policies, investing in health and education, and capitalizing on Afghanistan’s strengths in agriculture and extractive sectors.

Agriculture has the potential to drive growth, reduce poverty, create jobs, and improve income distribution. To unlock this potential, strategic investments are required in irrigation infrastructure, land tenure security, and market access to enhance agricultural productivity and resilience. The Afghanistan Development Update is part of the World Bank’s Afghanistan Futures program, which produces research, monitoring, and analytical reports on the country’s economy and society. Through this program, the World Bank aims to support evidence-based policymaking and provide insights to the international community on economic developments in Afghanistan.