Is the Poverty in Afghanistan Reducing or Increasing - Assignment Example

Is the Poverty in Afghanistan reducing or increasing? And why? of the of the Introduction Afghanistan is a landlockedcountry which is officially known as the Islamic republic of Afghanistan. The country is situated within Central Asia and South Asia. Afghanistan has a population of around 31 million people and covers a geographical territory of 652000 square kilometers. Afghanistan is the 41st largest country in the globe in terms of land spread. Also, the country is the 42nd ranking country in the world in terms of population. Afghanistan is bordered by Pakistan, Iran, Tajikistan, Uzbekistan, Turkmenistan and China. Afghanistan is one of the poorest countries in the world. The country has been characterized by three long decades of instability, destructive wars and high levels of political issues. In the process, the nation has lost all kinds of soft and hard resources including employment, security, industrial growth, financial markets, agriculture, education, commerce labor market, government structure, public health system, infrastructure and so on, all of which have be severely damaged due to the external political and social disturbances experienced by the country over years. Thus, the issue of poverty has remained a main threat and challenge for the country since its history. Country Profile As of the year 2014, the Gross Domestic Product (GDP) of Afghanistan is USD 45.3 billion. The Gross domestic product per capita for the country is USD 1100 and the exchange rate of the currency value is USD 2065 billion. The exports of Afghanistan are valued at USD 2.8 billion as of 2014. The unemployment rate in Afghanistan is alarming at 35% and it is also recorded that around 40% of the citizens of the nation belong to the below poverty line group of a society. Around 42% of the overall population of Afghanistan lives on an amount of lesser than USD 1 per day. The country has less than USD 1.5 billion of external debt and has the scope of improving if proper assistance is provided to the economy by the different entities existing in the world community. The current account deficit of Afghanistan is financed through donor investments and only a minor portion of this deficit is provided to the government budgets. The other parts of the current account deficit are provided to the donor designated initiatives and the non-budgetary expense made by the non-governmental entities and the United Nations system in the Afghan economy. The Afghan Ministry of Finance concentrates on improving the public sector expenditure formats and on the revenue collection systems functional in the nation. For example the government revenues of the country have increased by 31% from 2013 to 2014 due to the expenditure disciplined initiatives taken by the Afghan Ministry of Finance. Research Question This paper is aimed at examining the economy of Afghanistan from the perspective of poverty level, issues and causes of the same. The different reasons which have added to and are still contributing to the poverty increase or decrease in the nation are identified and the ways in which the poverty issues in the nation can be mitigated are recommended. In relation to these, the political changes and strategy formulation aspects that are relevant to the country are also considered in the discussion. Thus, the main research question formulated for the study is given as follows: “Is the poverty level in Afghanistan increasing or decreasing and what are the main drivers of the increase or decrease in poverty levels?” Poverty statistic and data The poverty rate of Afghanistan is 76% as of 2014 making it one of the most impoverished and poor countries in the Asian region and in the world. Poverty is the most concerning and threatening factor in the country, especially in the rural regions of Afghanistan. Illiteracy and unemployment rates are exceptionally high in Afghanistan, with the illiteracy rate being 76% and the unemployment rate being 36% as of 2014 (Redaelli and Olinto, 2014). Most of the employment sources in Afghanistan are concentrated in the agricultural sectors because the agricultural segment forms the backbone of the Afghan economy. Poverty whether increasing or decreasing? Why? 300 Afghanistan is one of the least developed nations in the globe and is characterized by impoverishment in almost all aspects of the economy. The lack of institutional and individual foreign investments, large scale and consistent political disturbances and the instability in the society of the country are identified as the two prime reasons due to which the country has continued to remain one of the poorest nations in the world. The poverty concerns in Afghanistan seem to be in a way of solution. The economy of Afghanistan has shown higher growth level and stability since the year 2002. This growth and stability has been instigated by the infusion of foreign investments provided by the international institutions like the World Bank and the International Monetary Fund (IMF). Also, the remittances provided by the Afghan expatriates have contributed significantly to the economic wealth and growth of the nation (Heshmati, 2005). Figure 1: Real GDP Growth of Afghanistan as compared to World standard and south Asian economy standard (Source: World Data Bank, 2015). Real GDP Growth (%) Aggregates/Economies 2013 2014e 2015f 2016f 2017f Aggregates World 2.5 2.6 2.8 3.3 3.2 Developing economies 5.1 4.6 4.4 5.2 5.4 South Asia, excl. India 5.7 5.8 5.7 5.8 5.9 South Asia 6.3 6.9 7.1 7.3 7.5 Economies Afghanistan 3.7 2 2.5 5 5.1 Nepal 3.8 5.5 4.2 4.5 5.5 Maldives 4.7 5 5.3 5 5 Pakistan 4.4 5.4 6 3.7 4.5 Bangladesh 6.1 5.6 6.3 6.7 6.7 Sri Lanka 7.3 7.4 6.9 6.6 6.5 India 6.9 7.3 7.5 7.9 8 Figure 2: GDP growth of Afghanistan compared to neighboring economies (Source: World Data Bank, 2015). The recent improvements noted in the economy are also driven by the significant improvements seen in the agricultural production systems of the country. the ends of a four year long period which was negatively impacting the agricultural production of Afghanistan is one more reason as to why the country has started showing considerable improvement in fighting poverty and unemployment in the different sections of the society. Figure 3: Afghanistan unemployment rate (Source: Trading Economics, 2015) The economy has been improving in consistency, stability and growth over the last decade. The growth is primarily driven by the infusion of high volumes of remittances and international monetary and non-monetary aids provided to the economy by the different Afghan Expats. The growth rate of the economy is noted to be around 10% in the past 10 years. Also, the improvements and advancements made in the infrastructural system, agricultural sectors and transportation system of the country have also contributed to the growth of the economy. The key economic indicators and their values for Afghanistan are given in the table below. Figure 4: Economic indicators for Afghanistan (Source: The World Bank, 2015) Afghanistan as an economy is majorly dependent on the agricultural production and transportation systems. As such, the investments made by the world community and Afghan Expats in these sectors have definitely resulted in noticeable growth in the Afghan economy. Investment and employment are also two key factors that impact the poverty level in an economy to a large extent. As such, these two factors also hold profound importance in the poverty Issus experienced by the country of Afghanistan (Schiller, 2004). The fall of the many identified terrorist groups stemming from Afghanistan in the year 2002, marked the beginning of an era in the country that is expected to bring about significant growth in the economy. The fall of the terrorist groups like the Taliban has led to the creation of considerable amounts of political stability in the country and has opened the doors for foreign assistance. Thus, it is expected that the country would be able to combat the poverty and other social, political and economic issues prevailing in the nation through the external assistance and aids provided by the international authorities functioning in the global community. These international authorities include the World Bank, The United Nations and the International Monetary Fund (IMF). The International Monetary Fund (IMF) has already set up the Afghanistan Investment Support Agency (AISA) as a venture of the organization to provide adequate level of assistance to the economy and the people of Afghanistan (Gereffi, 2005). Figure 5: IMF projections for economic growth in selected countries (Source: International Monetary Fund, 2015). The most challenging problems that are likely to be faced in the area of reduction and elimination of poverty in Afghanistan are corruption, weak legal system, insecurity, weak governance structures and systems and lacking regulatory systems and policies in the country (Cordesman and Mausner, 2010). The absence of sufficient provision of social services, resources and food are key issues associated with poverty and have to be addressed in order to raise the living standards of the people in the country. The economy of Afghanistan has been much damaged by the decades of social and political conflict, wars, destructions, drought and instabilities existing from 1999 to 2001. Nevertheless, in the last 10 years, the country has been much successful in eliminating many crucial problems from the most affected sectors of the nation by the formulation and implementation of strung governance mechanisms, reforms in the business sectors and financial markets and through the access of external help from the international institutions and developed nations. Currently, the country seems to have improved to a great extent and has become much empowered and capable of fighting against the key challenges of illiteracy, unemployment and poverty that it has been facing since decades of its existence. (Source: Afghanistan Investment Support Agency (AISA) survey, 2012) As per the records of the Afghanistan Investment Support Agency (AISA) published in the year 20102, there are more than 26,940 international companies that are invested in different sectors of Afghanistan. These sectors employ a total of 600,000 people. The estimation of the results of cluster and strata (in thousands of USD) are given in Table 1. Recommendations for overcoming poverty in Afghanistan The problem of poverty in Afghanistan needs immediate solutions. Since, the poverty concerns are engraved in almost all sectors of the country and are identified to have stemmed from basic social constructs and policy formulation, therefore, removing or reducing poverty in the country would not be an easy task. The addressing of the poverty issues faced by the people of Afghanistan has to be comprehensive, all inclusive and carefully framed. Considering the disturbed economic and political situations of the country, it can be inferred that the poverty removal initiatives and actions would call for considerable time and high volumes of investments. As such, the initiative needs to be backed up by multiple entities, including both individual and institutional entities that would be able to provide suitable monetary and non-monetary assistance to the country. In this respect, it can be said that both Foreign Direct Investment and Foreign Institutional Investments need to be brought into the economy. For this purpose, solving the economic issues and creating a resolution for the disturbed and instable political scenario of the country would be a major task that should immediately be worked upon by the government of Afghanistan (Bradley, Huber, Moller, Nielson and Stephens, 2003). Figure 6: Human development Index in Afghanistan (Source: United Nations Development Program, 2015) The human rights deficit and high level of conflicts in the intra and inter nation formats of the country make the economy more vulnerable to issues like poverty, unemployment and illiteracy. The human rights deficit in Afghanistan encompasses problems like inadequate investment and widespread immunity and lack of attention towards the human rights. Other than these, the conditions of patronage, impunity, corruption and extreme focus given on the short term objectives rather than on the long term growth of the economy have been playing an exacerbating role in further aggravating the poverty conditions among the rural and urban areas of the country. Suggestions related to Policy Recommendations The underlying reasons for the growing poverty level in Afghanistan can be identified to be unemployment, illiteracy, political and economic instability and insecurity. As such, the country must focus on enhancing the way the different sectors function and the existing industrial systems prevailing in Afghanistan. The infusion of higher volumes of assistance from the international entities and the world community are other factors that are necessary to improve the economic conditions of Afghanistan. For ensuring prosperity and growth in the economy, the government of Afghanistan should also make key changes on the political structures and the regulatory constructs established in the country. It can be easily being identified that the alarming rate of poverty in the country has been driven by the highly inefficient and non-sustainable economic structures and political system prevailing in Afghanistan since years of its existence. As such, solving the political issues, wars and conflicts with other countries should be a main motive of the government of Afghanistan. Conclusion The poverty reduction initiatives in Afghanistan should be started with the provision of better access to education and employment. The creation of new employment sources is also necessary to bring about significant improvements in the economic scenarios of the country. Also, the government of Afghanistan should reformulate the regulatory policies in a manner such that the insecurity and instability existing among the people of the nation can be controlled if not removed completely which would provide the necessary platform for addressing the poverty issue. References Afghanistan Investment Support Agency (AISA) survey. (2012). Estimating business fixed investment in Afghanistan. Kabul: AISA. Bradley, D., Huber, E., Moller, S., Nielson, F. & Stephens, J. D. (2003). Determinants of relative poverty in advanced capitalist democracies. American Sociological Review. Vol. 68 (3), pp.22–51. Cordesman, A. H. & Mausner, A. (2010). Is a population centric strategy possible? Retrieved from http://csis.org/publication/agriculture-food-and-poverty-afghanistan. Gereffi, G. (2005).The global economy. Cambridge: John Wiley and Sons. Heshmati, A. (2005).The relation Income Inequality, Poverty, and Globalization. New York: United Nations University WIDER International Monetary Fund (2015). Regional economic outlook: Sound Policies Soften Crisis Impact on Middle East. Retrieved from https://www.imf.org/external/pubs/ft/survey/so/2009/CAR101109A.htm. Redaelli, S. & Olinto, P. (2014). The challenge of poverty reduction in Afghanistan. World Bank Group. Retrieved from http://www.artf.af/images/uploads/Poverty_ARTF_Nov_5(_ARTF_Strategy_Group).pdf. Schiller, B, R. (2004). The economics of poverty and discrimination ninth edition. New Jersey: Pearson Prentice Hall. The World Bank. (2015). Economy and region specific forecasts and data. Retrieved from http://www.worldbank.org/en/publication/global-economic-prospects/data?region=SAS. Trading Economics (2015). Afghanistan unemployment data. Retrieved from http://www.tradingeconomics.com/afghanistan/unemployment-rate. United Nations Development Program. (2015). Eradicate extreme hunger and poverty. Retrieved from http://www.af.undp.org/content/afghanistan/en/home/mdgoverview/overview/mdg1.html. World Data Bank. (2015). Global economic Data for Afghanistan. Retrieved from http://databank.worldbank.org/data/reports.aspx?source=global-economic-prospects#. Read More