Medium-Term Economic Prospect after the Election

There has been strong economic growth in the short run after the end of the conflict years, induced mainly by economic activities associated with donor-supported relief and reconstruction activities. However, it is very difficult at this stage to predict with any degree of confidence how the economic picture looks in the medium run, especially given the uncertainties over many non-economic factors such as security, institutional capacity and overall governance of the central and local authorities. Particularly important would be the future prospect of security improvement throughout the country, which remains to unfold over the course of the national elections up to 2005.²⁵ Medium-term economic projection requires simulations under scenarios with varied assumptions on key parameters. While only indicative, assuming an improvement in security and continued sound economic management, a strong growth scenario would translate into the GDP growth rates of about 10 percent annually in 2006—2010. Exports would grow gradually toward 14 percent of GDP by 2010. Government revenue would grow gradually from 3.3 percent of GDP in 2002 and 4.1 percent in 2003 to about 11 percent by 2010. A moderate growth scenario would translate into the GDP growth rates of 6-7 percent annually in 2006-10. Exports would grow gradually toward 12 percent of GDP in 2010. Government revenue would grow gradually to about 7 percent of GDP by 2010.²⁶

The government's own macroeconomic targets aim to achieve real GDP growth (excluding opium production, of course) of 15 percent in FY2004/05 and 11 percent annually during 2005/06-2007/08,²⁷ based on continued foreign assistance, improvement in business environment, and adequate security. Growth is expected to be driven mainly by diversification in agriculture, new initiatives in private sector manufacturing, and continued expansion of the services sector. To meet these objectives, the overall investment rate is envisaged to stabilize at about 22 percent of GDP during the same period. The average annual inflation rate is envisaged to be contained at 5 percent.²⁸

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