Economic and Political Overview

flag Afghanistan Afghanistan: Economic and Political Overview

In this page: Economic Indicators | Foreign Trade in Figures | Sources of General Economic Information | Political Outline | COVID-19 Country Response

 

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.

Main Sectors of Industry

Agriculture was traditionally a driving force of the Afghan economy. Prior to Taliban rule and decades of conflict, Afghanistan was not only able to produce enough food for its own population but also exported many agricultural products, such as almonds, pomegranates, pistachios, raisins, and apricots. Nevertheless, agriculture is now on the way to recovery, mainly through international aid, and continues to be the main source of income for many households. Nowadays, agriculture accounts for 33.6% of GDP and employs 47% of the labor force (World Bank, latest data available). Opium cultivation – concentrated in the southwestern parts of the country - is one of the main sectors; however, following the announcement of the ban on "Poppy Cultivation and All types of Narcotics" by the de-facto authorities in April 2022, there was a significant decrease in opium poppy cultivation and opium production in 2023. Based on the most recent available data from the World Bank, the primary sector experienced a year-on-year contraction of 6.6% in 2022.

Industry is still largely at its infant stage, and dependent on small-scale manufacturing (mainly textile) but also mining and energy production. Manufacturing is the only sector that employs predominantly women (prior to the Taliban’s takeover, 65% of all manufacturing workers were female). Industry as a whole accounts for 14.3% of GDP and employs 18% of the total workforce. The manufacturing sector’s share of GDP currently stands at 8%, a sharp decline from the 20% of 2002. The industrial sector contracted 5.7% in 2022 (World Bank).

After years of expansion, the services sector employs 35% of the workforce and accounts for 47.2% of the GDP. Community, social, and personal services take up a considerable share of the tertiary sector, followed by wholesale and retail trade. Financing, insurance, real estate, and business services are nearly non-existent and employ 1% of the workforce. It is important to note that official statistics do not take into account illicit activities, such as poppy culture, opium, and heroin trafficking as well as cross-border smuggling, which are thought to account for a significant share of the economy. It has also to be noted that, after the Taliban took power, businesses scaled back their operations by laying off employees, cutting down salaries, and relying more on cash (57%) and hawala transactions (31%), with the percentage of firms depositing money in banks dropping to just 12% (from 82% before August 2021 – data World Bank). According to the latest data available, the tertiary sector contracted by 6.5% year-on-year in 2022.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 46.0 18.5 35.5
Value Added (in % of GDP) 33.5 15.6 46.5
Value Added (Annual % Change) -2.8 -14.2 -32.7

Source: World Bank - Latest available data.

 

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Monetary Indicators 20162017201820192020
Afghanistan Afghani (AFN) - Average Annual Exchange Rate For 1 MUR 1.911.972.122.191.95

Source: World Bank - Latest available data.

 
 

Find out all the exchange rates daily on our service Currency Converter.

 
 

Country Risk

See the country risk analysis provided by Coface.

 

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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.

 
Foreign Trade Indicators 20182019202020212022
Imports of Goods (million USD) 7,4076,7776,5385,5505,762
Exports of Goods (million USD) 8758647771,035992
Imports of Services (million USD) 1,3671,2131,10500
Exports of Services (million USD) 73465270000
Trade Balance (million USD) -5,746-5,294-5,101n/an/a
Trade Balance (Including Service) (million USD) -6,378-5,855-5,507n/an/a

Source: WTO – World Trade Organisation ; World Bank , Latest Available Data

 

Main Partner Countries

Main Customers
(% of Exports)
2019
India 47.1%
Pakistan 34.3%
China 3.6%
Türkiye 2.9%
United Arab Emirates 2.9%
See More Countries 9.3%
Main Suppliers
(% of Imports)
2019
Iran 14.6%
China 13.9%
Pakistan 12.9%
United States 9.1%
Turkmenistan 8.1%
See More Countries 41.5%

Source: Comtrade, Latest Available Data

 
 
 
 

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Main Services

Source: United Nations Statistics Division, Latest Available Data

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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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Political Outline

Current Political Leaders
Supreme Leader of the Taliban movement: Hibatullah Akhundzada
Next Election Dates
TBD
Main Political Parties
Afghanistan had a multi-party system with numerous political parties before the takeover of the Talibans. The Taliban government enforces an authoritarian state and has banned other political parties.
Type of State
Dictatorial theocratic regime (since August 2021)
Executive Power
After taking power in August 2021, the Taliban established a regime that severely limited democratic freedom in the country. Most countries (including the G7) do not recognize the Taliban government.
Before the takeover, the president was both chief of state and head of government.
Legislative Power
Before the takeover of the Talibans in 2021, the legislative power was bicameral. The parliament, or the National Assembly, was composed of an upper and lower house. The lower house, Wolesi Jirga, was the more powerful of the two houses, and its members (no more than 250, the 2004 electoral law set the size of the house at 249 members) were elected by the people for a five-year term. The upper house, Meshrano Jirga, used to be composed of 102 seats and its members served 5-year terms.

The National Assembly was effectively dissolved on 15 August 2021 after the fall of Kabul.
 
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Not Free

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) undertaken by the Afghan government, please consult the section dedicated to Afghanistan in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

 

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Latest Update: April 2024