Islamic Republic of Afghanistan
Worsening security and the global downturn have made the socioeconomic situation even more difficult.
Severe drought caused a sharp fall in agricultural output and a slump in GDP growth in the licit (non-
opium) economy. Lower farm output and the escalation of global food and fuel prices pushed inflation
to its highest level in 5 years, but it began to moderate toward the end of the year. The challenges are
daunting, and, to name but a few, involve the need to strengthen security, rehabilitate basic infrastructure,
combat narcotics production, improve the rule of law, strengthen public policy management, and foster
private sector growth.
In FY2008 (ending 20 March 2009), drought hit agricultural production,
which represents about a third of licit GDP. Although continued
expansion in construction and services partly offset this decline, GDP
growth is estimated to have slumped to 3.4% (Figure 3.14.1).
The country experienced a serious food crisis in FY2008 owing to a
40% lower wheat harvest than in FY2007 (partly because of poor rainfall
that affected nonirrigated crops particularly); surging global prices of wheat
and other foods (combined with a high dependence on food imports); and
restrictions on wheat exports from Pakistan (the main source of supply).
As food accounts for three fifths of the consumer basket and as wheat
is the staple, the consumer price index for Kabul, which began rising in
late 2007, jumped by 43.2% year on year in May 2008 before falling to
22.7% in December. That month saw a 30.3% increase in food prices but an
easing in nonfood prices in the basket of 10.7% (Figure 3.14.2). For FY2008,
inflation averaged an estimated 28.3%, compared with 12.9% the prior year.
A combination of deteriorating security, the continued lack of basic
infrastructure (mainly power), and what is seen to be rampant corruption
has hampered government efforts to boost private sector investment.
Nongovernment investment was essentially unchange