Direction (Qs.1 to 10): Read the following passage carefully and answer the questions given below them. Certain words are given in bold to help you locate them while answering some of the questions.

Afghanistan experienced remarkable economic growth for about 10 years leading up to 2012. Average economic growth was recorded at 9.4 percent annually in the period from 2003 and 2012. Per capita income increased more than threefold over the same period, growing from a mere $200 to $670. Since 2012, however, economic growth has dropped to an average yearly rate of 2.6 percent, with per capita income falling to an estimated $590 in 2017. As a result of this economic slowdown, the poverty rate increased from 36 percent in 2011-12 to 39.1 percent in 2013-14. The World Bank expects that poverty will prove to have further sharply increased through 2017, though the results of the latest household survey (2016-17) are yet to be released by the government.

The period from 2012 to 2014, which marked a turnaround in the economic performance of the country, coincided with a number of important developments. First, security responsibilities were transferred from international security troops to Afghan forces. This security transition started in 2012 and concluded in 2014. Second, as a result of the security transition, overall foreign aid is estimated to have declined from an annual average of $12.5 billion over 2009-2012 to around $ 8.8 billion in 2015. Third, a political transition also took place in 2014, where the election process leading to the establishment of the National Unity Government lasted for about six months. While the decline in foreign aid since 2012 may have well contributed to the slowdown in economic growth, it’s not the only factor. The low economic recovery since the conclusion of the security and political transition in 2014 seems to be suggesting that political developments are exerting a substantial impact on the economy.

The Survey of Afghan People indicates that the percentage share of people who are optimistic about the country’s situation has fallen since its peak in 2013 to a record low in 2016. Likewise, the percentage share of people who think that things in the country are going in the wrong direction has increased since 2013 reaching a record high in 2016. Though these two indicators show the public’s perception of the current state of affairs, they also reflect the public’s confidence in future outcomes. A decrease in public optimism reflects increased uncertainty in the country. Further, the Political Stability Index of the World Governance Indicators has fallen to the lowest level since 2003.

Uncertainty suppresses business sentiments and affects consumer confidence. The uncertainty that has been built up since the start of the security and transition process in 2012 and has subsequently been fueled by growing insecurity has significantly lowered economic growth in Afghanistan. It seems that the high growth experienced prior to 2014 will likely be difficult to achieve, unless the security environment improves and political stability is strengthened. Economic policy at times of political uncertainty is often ineffective, and does not lead to desired outcomes. Thus, a policy response in dire economic situations does not remain limited to only pure economic policy measures but should also include political resolutions and initiatives. Decisions which lead to exacerbating political instability must be avoided. Rather than investing political capital into decisions that weaken political stability and increase uncertainty, it should be invested into policy initiatives that help restore confidence in the economy.

Further, it is important that the government maintain realistic expectations around what and how much it can do to bring about growth, generate employment, and reduce poverty. The government needs to ensure that policy measures are designed based on realistic projections for economic growth, rather than overly optimistic growth forecasts. This helps policy measures achieve their expected results, and ensures that economic management remains sound and effective. It may also help avoid unintended adverse distributional impacts of policy measures. Finally, communicating realistic growth expectations and delivering achievable promises to the public would help build credibility for public policy. Credibility is found to be the single most important factor for the effectiveness of economic policy.