Afghanistan: Economic and Political Overview

Economic Indicators

Afghanistan's economic recovery came to a halt with the COVID-19 outbreak in 2020, weighing on an already fragile consumer and investor sentiment and slowing trade flows on the country's borders. Furthermore, since the Taliban regained power in August 2021, Afghanistan has faced a range of socio-economic challenges, including a significant drop in international aid, frozen foreign reserves, ongoing deflation, a widening trade deficit, and restrictive laws—especially those impacting women’s rights. Human capital remains low, private consumption is limited, and nearly half the population lives in poverty. Employment opportunities have declined, with youth and women particularly affected by rising unemployment and a lack of quality jobs. Nevertheless, in FY2023–24, Afghanistan’s GDP grew by 2.7%, marking a partial recovery from the 27% contraction that followed the Taliban’s return to power. However, overall growth remained limited due to reduced investment and declining exports, which constrained aggregate demand. According to the World Bank, economic activity in Afghanistan is expected to grow modestly over the medium term, with an average annual growth rate of 2.75% from 2024 to 2026. Agriculture is projected to grow at a faster pace than the rest of the economy during this period.

Afghanistan's current account deficit rose to 13.5% of GDP in FY2023-24, driven by a growing trade deficit and declining foreign aid. Despite an increase in remittance inflows, total income from abroad decreased by approximately two percentage points of GDP, dropping to 33.7%. Financing the current account deficit has been challenging due to limited foreign direct investment and borrowing capacity. While domestic revenue mobilization improved, the fiscal deficit (on a cash basis) widened to 1.4% of GDP in FY2023-24. Operating expenditures rose by 0.3 percentage points to 15.6% of GDP, while development expenditures increased from 0.8% of GDP in FY2022-23 to 1.3% in FY2023-24. The fiscal deficit was likely financed through a reduction in deposits at the central bank. The fiscal deficit is expected to narrow to 0.7% of GDP in FY2024-25, with a balanced budget projected for FY2025-26 and FY2026-27. Revenue collection improved in the first four months of FY2024-25, reaching AFN 69.7 billion—an 11% increase from the previous year, mainly driven by higher non-tax revenues. Given borrowing constraints, the revenue increase is expected to be offset by a corresponding rise in expenditure (data World Bank). Headline inflation decreased in April 2023 and remained negative throughout FY2023-24, with domestic prices falling by an average of 7.7%. Core inflation, excluding volatile food and energy prices, was also negative, declining by about 3% by the end of the fiscal year in March 2024. A high current account deficit puts pressure on foreign reserves, and with limited financial options, the central bank faces challenges in maintaining currency stability, which could potentially lead to inflation.

Afghanistan is one of the poorest countries in the world, with a GDP per capita (PPP) of around USD 1,992 (World Bank – latest data available). The population faces unemployment, poor sanitary conditions, weak basic infrastructures (health, water, electricity), and insecurity. According to the World Bank database, the 2023 unemployment rate was equal to 14% of the total labour force; however, it should be noted that the undeclared employment rate is higher. Although an Afghan middle class had begun to emerge - primarily composed of expatriates who grew up in Iran or Pakistan - they tend to be discouraged by the economic and political situation in the country. As such, immigration to Western countries increased significantly in recent years and constitutes a major risk for the country's long-term development. Moreover, the restriction on women's employment imposed by the Taliban may inflict an additional economic loss. According to the latest estimates from the World Bank, monetary poverty stands at 48.3%, marking a 4-percentage point decrease compared to 2020. Poverty in urban areas continues to rise, driven by a lack of quality job opportunities. In contrast, improvements in security, better access to markets, and a strong agriculture season have contributed to a reduction in poverty in rural areas.

Foreign Trade in Figures

After the collapse of the Taliban Government in 2001, Afghanistan opened up to international trade. The state had very few commercial barriers for imported products, and customs duties had been kept flat given weak imports. The share of trade was estimated at 67% of GDP in 2023 (World Bank, latest data available). Afghanistan traditionally exports items with low value, such as dried fruit, carpets, cotton, cereals, and non-alcoholic beverages. Its main imports include wheat, peat, textiles, and petroleum products. Although not officially recorded, opium remains the main export of the country, but its production was drastically reduced in 2023.

According to the World Bank, in 2024, Afghanistan’s trade deficit widened by 59% year-on-year to USD 8.9 billion, equivalent to 44% of GDP, up from USD 5.6 billion (32% of GDP) in 2023. The expansion was driven by a stronger Afghani, increased foreign currency inflows, ongoing trade disruptions with Pakistan, and a likely gradual rise in aggregate demand. Exports declined by 12% to USD 1.9 billion, largely due to a 64% drop in coal exports to USD 92 million, as Pakistan resumed sourcing from traditional suppliers. Textile exports also fell by 14% to USD 242 million, reflecting currency appreciation, softer global demand, and higher Pakistani tariffs. In contrast, food exports rose by 4% to USD 1.31 billion, supported by China’s tariff exemptions and improved trade flows with Pakistan in late 2024. Imports surged by 40% to USD 10.8 billion in 2024, compared to USD 7.8 billion in 2023. The growth was fuelled by higher demand for transportation goods, mineral products (notably petroleum and cement), and chemicals. Transportation imports saw the sharpest increase, up 86% year-on-year, followed by mineral products (up 56%), chemicals (up 51%), and food products (up 28%). As a share of total imports, transportation goods rose from 7% in 2023 to 10% in 2024 (USD 1.04 billion), mineral products from 20% to 22% (USD 2.41 billion), and chemicals and related products from 7% to 8% (USD 0.84 billion).

Pakistan remained Afghanistan’s largest export destination, though its share fell from 54% in 2023 to 45% in 2024. India’s share rose to 34%, driven mainly by food exports. Meanwhile, trade diversification efforts saw Iran, Kazakhstan, and Uzbekistan each contribute about 3% of exports. Overall, food and textiles accounted for 82% of total exports, up from 71% the previous year. On the other hand, Iran remained Afghanistan’s top import source, accounting for 30% of total imports—a rise of 84% year-on-year—as trade increasingly shifted away from Pakistan amid restrictions and higher tariffs. The UAE followed with a 19% share, while Pakistan and China accounted for 16% and 7%, respectively, reflecting Afghanistan’s shifting trade dynamics within the region.

Sources of General Economic Information

Ministries

Ministry of Economy

Statistical Office

National Statistics and Information Authority

Central Bank

Da Afghanistan Bank (Central Bank of Afghanistan)

Stock Exchange

There is no stock exchange in Afghanistan

Search Engines

Afghana Search Engine
Google Afghanistan

Economic Portals

Economic news from the Central Bank of Afghanistan
Pajhwok Business News Portal
Afghan Online News Portal - Economic News

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