World Bank sees Afghan economic growth tumbling 10 percent in 2013

KABUL Fri Oct 11, 2013 5:38pm EDT

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KABUL (Reuters) - Afghan economic growth, largely reliant on international aid and security spending, will tumble more than 10 percent this year as foreign troops withdraw and endemic corruption and violence sap development, the World Bank said.

Afghanistan ranks among the most corrupt nations in the world and international aid donors have threatened to cut funds unless there is a crackdown.

Norway has already announced a reduction in its planned aid over Kabul's failure to tackle graft and violence against women.

President Hamid Karzai's government also faces a deteriorating security situation ahead of elections next April that is hindering plans to develop Afghan natural resources, the World Bank said in its South Asia Economic Focus report.

"Afghanistan sticks out in terms of the size of its slowdown... mainly driven by increased uncertainty stemming from the political and security transition," the report said.

"Continued violence, economic crime and systemic corruption also have undermined progress."

Economic growth is expected to reach 3.1 percent this year and 3.5 percent in 2014, down sharply from 14.4 percent in 2012, the report said.

In a major blow to Afghan hopes for economic independence, Chinese investors have demanded a review of a landmark three billion dollar deal to produce copper amid security concerns.

A smaller but symbolically important oil project in northern Afghanistan has also ground to a halt.

The government's failure to improve tax collection is also a major factor behind the weakening economy, the World Bank said.

At a donors' conference in Tokyo last year, the Karzai government promised to increase tax revenues by about five percent to 15 percent of national output by 2016.

"The current decline in revenue therefore poses risks not only to long-term fiscal sustainability but also to the achievement of the Tokyo... targets," the report said.

Delegates from 80 nations and international organisations pledged in Tokyo 16 billion dollars in aid over four years, but tied the funding to a much stronger effort to combat corruption.

Another threat to growth is a deteriorating outlook for agriculture, a key sector which accounts for a quarter of the Afghan economy and which benefited from an especially strong harvest last year.

Most foreign forces are due to withdraw from Afghanistan by the end of 2014, leaving security entirely in the hands of Afghan forces.

Rising casualties among the Afghan forces and a high desertion rate have cast doubt over their ability to manage on their own.

(Reporting by Jessica Donati, Editing by Gareth Jones)

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