Afghanistan: Economic and Political Overview

Economic Indicators

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Afghanistan's economic recovery came to an 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. Although the main global financial institutions do not provide official data, Afghanistan’s GDP is estimated to have contracted by 30-35% between 2021 and 2022 and is projected to move to a low growth path between 2-2.4% for 2023 and 2024 (World Bank), but downside risks persist, including increased instability of the banking sector, any potential reduction in aid from the international community, or worsening of the security and political situation.

The sudden halt in the flow of aid in the form of grants, including dollar banknotes (previously 40% of GDP) which followed the takeover of the Taliban has led to the Afghani depreciating against the dollar and an increase in the public deficit. The Taliban’s first national budget was announced in mid-2022: it amounts to AFN 231 billion (around USD 2.65 billion) with a budget deficit of AFN 40 billion. Nevertheless, there were no details as to what the priorities of the public sector are or how resources would be distributed among different sectors. According to the World Bank, the Taliban regime has collected AFN 144 billion (USD 1.64 billion) in revenues between December 22, 2021, and end-October 2022. Afghanistan continues to rely relatively heavily on revenue collected at the border: taxes at borders reached 59% of the total revenue collected up to October 2022, while an increase was recorded in ministries’ revenue due to a rise in coal mining royalties and fees. Overall, the public debt, which has been mainly external and very low, is expected to increase and could lead to a sovereign debt default. The latest data available from the World Bank show that the headline inflation in September 2022 decelerated to 13.6%, down from its peak of 18.3% in July 2022.

Afghanistan is one of the poorest countries in the world, with a GDP per capita (PPP) of around USD 2,456 (IMF – 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 2021 unemployment rate was equal to 11.7% 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 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), 20 million people are faced with acute hunger, including 6 million people at emergency levels.

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 peaked at 49.2% of GDP in 2018 before falling to 45.6% in 2019 (World Bank, latest data available), and it dropped further after the takeover of the Taliban in 2021. 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, textile and petroleum products. Although not officially recorded, opium remains the main export of the country, estimated to be worth between USD 1.7 to 2.5 billion in 2021 by the United Nations Office on Drugs and Crime (as of 2022, Afghanistan's harvest produced more than 90% of illicit heroin globally and more than 95% of the European supply).
 
Afghanistan usually trades with its neighbours, Pakistan being its major trade partner. Pakistan, along with India, receive around 75% of Afghan exports, followed by the United Arab Emirates, China and Turkey. Iran is the main supplier of goods in Afghanistan, followed by China, Pakistan and Kazakhstan. Pakistan achieved bilateral trade of USD 1.513 billion in 2022, according to the State Bank of Pakistan; while trade with India reached USD 45 million last year, data from the Indian Ministry of Commerce show.
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.

According to the latest available data from WTO, in 2021 exports edged up to USD 1 billion from USD 732 million a year earlier; whereas imports decreased to USD 5.5 billion (-22.2%). No data is available for 2021 trade in services. As can be seen from the above figures, Afghanistan has a structural trade deficit, which is expected to worsen following the establishment of the Taliban regime. Official statistics show that during the first half of 2022, the country imported merchandise worth USD 2.9 billion (10% lower than the comparable period one year earlier), while exports stood at USD 740 million (+21% - data World Bank).

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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