KABUL - While Afghanistan’s economic growth slowed in 2014, real GDP growth is projected to increase in the next two years, according to a World Bank report.

The World Bank’s bi-annual Afghanistan Development Update covers recent economic developments and the medium-term outlook for Afghanistan.

The country’s economic growth slowed to 1.3 per cent in 2014, down from 3.7 per cent a year earlier. At the same time, real GDP growth is projected to increase to 3.1 and 3.9 percent in 2016 and 2017 respectively, conditioned on improvements in the security environment and strong reform momentum, which could help restore confidence in the economy.

Looking back, the report noted that frequent incidences of violence, along with delays in the election process and cabinet formation continued to fuel uncertainty and affected investor confidence in 2014 and the first half of 2015.

“Unlike in previous years, agriculture did not contribute much to growth in 2014,” noted the report, adding that growth was mainly driven by a slight expansion of services and industries.

According to the report, growth – projected at 1.9 percent in 2015 – will likely remain sluggish in light of a further deterioration in security over the first three quarters in 2015.

Domestic revenues increased over the first eight months of 2015 as a result of improvements in customs and tax administration. The most recent projections indicate that domestic revenues will reach Af 114.2 billion (equivalent to 9.8 percent of GDP) by the end of 2015, falling behind the initial target of Af 120 billion.

The report stressed that Afghanistan faces significant financing shortages for both civilian and security spending. Securing continued high levels of donor financing over the coming years is of critical importance for fiscal stability.

The report concludes that the fragile security environment and financing constraints, compounded by weak governance capacity, pose serious challenges to service delivery in Afghanistan. Any setback in reform implementation would further slowdown the pace of human capital accumulation in Afghanistan and reduce future prospects of growth and poverty reduction.