The Impacts of Coronavirus (COVID-19) lockdown on Afghanistan’s Economy

By: Noman Shadab

The world economy is facing a historical disruption with the outbreak of COVID-19 since December 2019. The world trade centers postponed their activities, and all other commercial activities are reduced around the world in meantime the world health organizations (WHO) announced emergency situation all over the world. World’s largest economies (USA, China, European Union), are negatively impacted by the outbreak of the COVID19. According to a  report for the Center for International Development with the outbreak of SARS epidemic in 2003 the Chinese economy faced a loss of $25 billion while other researchers in the Griffith university of Australia indicated that the world economy experienced $30 to $100 billion indemnity. In short term the statistics shows that COVID-19 will have far more bigger impact on world’s economy then SARS epidemic. The United Nations (UN) indicates that we might see a $2 trillion shortfall in our global income and a $220 billion hit to developing countries because of the COVID-19.

Political instability and Coronavirus (COVID19) are all among those factors that are going to affect the unstable economy of Afghanistan in 2020. the Asian development outlook (ADO) 2020, predicted that Afghanistan’s economy will grow at 3.0% same as the last year the prediction depends on political stability and security issues.

Afghanistan is one of the poorest countries in the world, Recent report of the world food program (WFP) in 2020, shows that 54.5% of Afghanistan’s population is living under national poverty line. Afghanistan is foreign aid depended country whereas the country can’t afford to cover it’s daily expenditures by itself, the annual GDP of Afghanistan is around $20 billion in which a big sum belongs to foreign aids. Afghanistan is mostly depend on its private sector, according to World Bank 80 percent of the population is self employed.

Private Sector, small and medium-sized enterprises (SME’s) are the main factors of economic growth of developing countries. Afghanistan’s 1/3 of the labor force is employed by private sector and the country highly depend on its private sector, with recent peace agreement between USA and Taliban there were new hopes for the private sector as the economists predicted there will be more investment opportunities for the investors, unfortunately the outbreak of the COVID-19 impacted the process in negative manner.

With the outbreak of COVID-19 in the country economic activities are impacted schools, government offices, foreign organizations postponed/reduced their activities. People insists on keeping the distance and trying to buy and complete their daily needed groceries.

SME’s Within the country are harmed by the pandemic their daily activities are stopped and they are affront against financial crisis, some are reducing the work force, and some stopping their whole businesses. In this troubling situation people are losing jobs and they are facing financial problems.

The economy of Afghanistan is already depressed and with the outbreak of the pandemic the  economy will be further dent. Afghanistan is a highly import depended country with annual $7 billion imports and around $1 billion exports despite the huge trade imbalance which impact the economy in a negative manner it’s a big source of revenue for the government as last year customs department revenue contributed 40 percent to the whole country’s revenue.

Lockdown in the borders with neighboring countries is casing problems for the country, a large amount of raw materials for the local industries (Manufacturing, Construction, Services) are imported from other countries, it’s casing these local industries to lockdown and reduce their activities, which is giving a big blow to the country’s revenue, after the customs these industries are The major contributors to the government revenue.

The unemployment rate in the country is above 40 percent, the lockdown and reduction of the activities in private sector will rise the unemployment rate in the country, this will cause reduction in consumption and it will push the economy to a further downfall.

Afghanistan is seen as an agricultural country, with a 30 percent contribution to the total annual GDP of the country agricultural sector is considered as a major contributor to the government revenue. The sector employees 70 percent of the total population mostly in rural areas. The unemployment will lead to reduction in demand for local vegetables and fruits, which will give a big blow to the farmers whom depends on the income which is generated by the sales of their products. As the COVID19 momentum continues it will cause a demand reduction in foreign markets for fresh and dry fruits, and it will directly impact the Afghan exports in a negatively.

To conclude, the situation points out to a big recession in the corner. A simple response for this situation is fiscal fillips, the government should push the aggregate demand in the country by raising the government expenditure, reduction taxes and interest rates although it will have it’s side effects but it looks suitable in these contingency situation of the country. A similar approach was adopted by India and USA as the US government announced $2 trillion stimulus package.

The author is founder & CEO of The Student Magazine. Student at: Kandahar University, Economics Faculty

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