Executive Summary

Short to Medium-Term Economic Prospects

10 There may be decent prospects for a strong economic recovery in the short run, provided certain preconditions are met, principally on Executive Summary security improvements, the government’s continued commitment to sound economic management, and continued donor support. There are positive factors that will contribute to a strong recovery: (i) a sharp rebound can be expected once investments flow in; (ii) returning Afghans can bring in skills and entrepreneurship; and (iii) reconstruction activities will generate substantial demand and provide business opportunities. If the preconditions are met, economic growth in 2003-2005 could be above 10 percent.

However, it is very difficult to predict at this stage with any degree of confidence how the macroeconomic picture would look in the medium run, especially given the uncertainties over many noneconomic factors such as security, institutional capacity and overall governance of the central and local authorities. Projecting economic performance for any period beyond the coming few years would require simulations under scenarios with different assumptions on key parameters. While only indicative, a strong growth scenario translates into GDP growth rates of perhaps 21 percent in 2003, 18 percent in 2004, 15 percent in 2005 and 10 percent in the period 2006-10. Under this, the economy could rebound beyond the 1998 level (estimated at $6.74 billion) by 2005. Exports will grow gradually toward 13.6 percent of GDP by 2010. Government revenues will grow from 3.3 percent of GDP in 2002 and 4.1 percent in 2003, and gradually increase to 10.6 percent in 2010. A moderate growth scenario translates into GDP growth rates of 12 percent in 2003, and a gradual slowing to 6.3 percent a year in 2006-10. Exports will grow gradually toward 12 percent of GDP in 2010. Government revenues would increase gradually to 7.2 percent by 2010.