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, the situation in the country is widely reported to have worsened: a complete collapse of banking infrastructure alongside an increase in poverty and hunger has meant that the country is in dire need of humanitarian aid. Amidst uncertainty and a contraction of 25% since August 2021, the Afghan economy was projected to remain stagnant in 2023 as it adjusted to significantly reduced demand (World Bank).
According to the World Bank, during the initial ten months of FY2023-24 (March 22, 2023, to January 21, 2024), revenue collection reached AFN 171 billion, marking a 5.7 percent increase compared to the corresponding period in the previous fiscal year. Border taxes, constituting 54 percent of total revenue and collected by the Afghanistan Customs Department (ACD), experienced a moderate 4 percent growth despite a substantial 20 percent increase in imports. Several factors contributed to this sluggish growth, including the strong AFN appreciation, reduced import value in local currency, lower import tariffs on certain food items, decreased Business Receipt Tax on raw materials for manufacturing companies, and border closures. Inland revenues collected by the Afghanistan Revenue Department (ARD) showed better growth at 8.2 percent compared to the same period last year, attributed to the Small Taxpayer Office (STO) and Mostafiat (provinces collection). Dampened demand, improved supply conditions, and a strengthened currency led to a sharp decline in inflation from its peak of 18.3% last July, resulting in deflation since April 2023. While initial deflation may boost real wages, prolonged deflation could hinder business expansion and elevate unemployment rates. Risks to Afghanistan’s recovery include the potential reduction in international aid due to fiscal pressures in donor countries, as well as restrictive policies on women and girls. Concerns about the stability of the banking sector and dysfunction in the payments system further compound these risks.

Afghanistan is one of the poorest countries in the world, with a GDP per capita (PPP) of around USD 1,673 (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 2022 unemployment rate was equal to 14.1% of the total labor force (up by 2 percentage points year-on-year); 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 of women's employment imposed by the Taliban may inflict an additional economic loss estimated between 3 and 5% of GDP (Coface). According to the United Nations Office for the Coordination of Humanitarian Affairs (UNOCHA), 15.8 million people are faced with acute hunger, including 6 million people at emergency levels. Fragile economic conditions are anticipated to persist, exacerbating acute food insecurity in 2024. The humanitarian response plan for Afghanistan in 2024 necessitates USD 3.06 billion to deliver aid to 17.3 million individuals.

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 51% of GDP in 2021 (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 items of import 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 2023, Afghanistan's exports totaled USD 1.9 billion, marking a slight 0.4% increase from the previous year. Coal exports, which contributed significantly in 2022 with USD 476 million, experienced a notable 46% reduction to USD 257 million in 2023. Conversely, food exports grew by 13% to USD 1.3 billion, while textile exports surged by 46% to USD 281 million. Pakistan and India remained the primary export destinations, with shares of 54% and 31%, respectively. However, exports to Pakistan declined by 15% to USD 1.0 billion, with 70% of these exports comprising food and coal. Food exports to India saw a remarkable 43% increase, reaching USD 578 million in 2023, helping to offset the decline in exports to Pakistan. In 2023, imports surged to USD 7.8 billion, marking a significant 23% increase from the previous year's imports of USD 6.3 billion. Food imports, comprising 22% of the total, grew by 9% to USD 1.7 billion, including key items such as cereal, edible vegetables, malt, starches, inulin, wheat gluten, and tobacco. Minerals, contributing 20% to total imports, rose by 15% from USD 1.3 billion in 2022 to USD 1.6 billion in 2023, with fuel, mineral oils, salt, and sulfur being notable components. Textile imports increased by 11%, reaching USD 0.72 billion in 2023. Food, textiles, and minerals collectively accounted for over half of imports. Chemicals, machinery, and transportation products experienced significant import growth of 37%, 63%, and 85%, respectively, in 2023. Iran was the largest import origin country (23%), followed by Pakistan (19%), China (15%), and the United Arab Emirates (15%). The overall merchandise trade deficit for 2023 widened by 34% to USD 5.9 billion, compared to USD 4.4 billion in 2022.

The poor state of its infrastructure, a legal and business framework that is still under development, and continued insecurity act as de facto trade barriers. Nonetheless, at the end of 2015, Afghanistan's application to join the WTO was approved by its member states. The development of trade with Central Asia and Iran could increase exports along with the opening of a new railway linking China to Afghanistan via Kazakhstan, Uzbekistan, Kyrgyzstan, and Tajikistan. In February 2023, the main border crossing between Afghanistan and Pakistan has been closed.

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

Any Comment About This Content? Report It to Us.