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In the news: Afghanistan’s economy grows, but so does poppy production

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 2005
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After more than two decades of conflict, interspersed with earthquakes and drought, the economy of the Islamic State of Afghanistan has grown relatively strongly since 2001, albeit from a very low base, the IMF said in its annual economic assessment. Bad weather conditions have slowed agricultural output over the past 18 months, but other sectors, especially construction and services, have benefited from buoyant demand. Poppy production, however, continued to rise in 2004, and the Afghanistan component of illicit drug revenue is estimated at $2.8 billion, the equivalent of about 60 percent of the country’s nondrug GDP. The IMF’s Executive Board cautioned that this development could jeopardize security as well as macroeconomic stability and supported recent government and international efforts to develop a multipronged strategy to deal with the opium economy.

In 2004, the authorities started to implement a long-term strategy to build a financially self-sustaining state that could meet basic social needs and address poverty. Their medium-term objectives are to increase security, promote private sector-led growth, strengthen revenue efforts, eliminate the drug economy, and further institution building. The central bank’s flexible monetary policy approach, which relies on a managed float, has been largely successful in limiting inflation and exchange rate volatility.

The Board credited the current economic program, closely monitored by the IMF, with helping to maintain the reform momentum and lay the foundation for a possible IMF-supported program. Because the government’s reform strategy is predicated on continued donor support and well-coordinated technical assistance, the Board urged the donor community to fulfill its financial pledges.

Afghanistan2001/022002/032003/042004/05
EstimatesProjections
(percent)
Real GDP growth
(excluding opium). . .29.016.08.0
(U.S. dollars)
GDP per capita
(excluding opium)123.0182.0199.0228.0
(percent)
CPI (Kabul, annual change)-43.452.310.310.2
(percent of GDP)
Current account
(including grants)-2.1-1.8-3.4
Data: IMF staff report.
Data: IMF staff report.

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