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

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Afghanistan's economic recovery came to halt with the Covid-19 outbreak in 2020, weighing on 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 around one-fifth in 2021, with a negative outlook over the forecast horizon. Household consumption (80% of GDP) could contract by 40% as many Afghans are working for no pay, especially in the public sector.

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 by almost one-third between the end of 2020 and the end of 2021. Coface expects the currency value to fall further in 2022. The authorities intend to curb the rising budget deficit in 2022 by adopting a 10% rate of VAT. The majority of the new government’s revenues is coming from poppy cultivation and opiate trafficking (estimated at USD 6.6 billion in 2021). Humanitarian aid resumed by the end of 2021 (USD 280 million by the World Bank through the special fund for the reconstruction of the country, plus USD 10 million in debt service relief from the IMF). Meanwhile, following the U.S. decision to suspend and freeze foreign exchange reserves (estimated at over USD 9 billion) the country was forced to reduce its imports. Overall, the public debt, which has been mainly external and very low, is expected to increase and could lead to a sovereign debt default.

Afghanistan is one of the poorest countries in the world, with a GDP per capita (PPP) of around USD 2,474. 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).

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. Agriculture accounts for 27% of GDP and employs 42.5% of the labour force (World Bank, latest data available). The 2021 aggregate cereal production was estimated at 4.8 million tonnes by FAO, more than 20% below the 2020 harvest and 12% below average.

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 (65% of all manufacturing workers are female). Industry as a whole accounts for 12.5% of GDP and employs 18.5% of total workforce. The manufacturing sector’s share of GDP stands at 7.6%.

After years of expansion, the services sector employs 39% of the workforce and accounts for 56.1% of the GDP. Community, social and personal services take up a considerable share of the tertiary sector, followed by whole 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.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 42.5 18.5 39.0
Value Added (in % of GDP) 27.0 12.5 56.1
Value Added (Annual % Change) 5.3 -4.2 -4.8

Source: World Bank - Latest available data.

 

Find more information about your business sector on our service Market Reports.

 
 
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 has very few commercial barriers for imported products, and customs duties have 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). 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 (as of 2021, 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, with 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. 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. Furthermore, the IMF and Afghanistan have been working to establish economic policies to improve the country's trade balance. 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.

According to the last available data from WTO, in 2020 exports edged down to USD 732 million from USD 864 million a year earlier; whereas imports increased to USD 7.1 billion (+5.8%). Concerning services, imports stood at USD 1 billion in 2020, while exports reached USD 597 million (-10.1% and +18.4%, respectively). 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.

 
Foreign Trade Indicators 20162017201820192020
Imports of Goods (million USD) 9,1507,5807,4076,7777,171
Exports of Goods (million USD) 520780875864732
Imports of Services (million USD) 1,1821,0541,3111,1601,042
Exports of Services (million USD) 431253621504597
Trade Balance (million USD) -5,595-5,932-5,721-5,294-5,103
Trade Balance (Including Service) (million USD) -6,191-6,804-6,374-5,855-5,507

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

 
 
 
 
 

To go further, check out our service Import Export Flows.

 
 

Main Services

Source: United Nations Statistics Division, Latest Available Data

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Political Outline

Current Political Leaders
Hibatullah Akhundzada is the leader of the Taliban movement
Prime Minister: Mullah Mohammad Hassan Akhund
Next Election Dates
TBD
Main Political Parties
Afghanistan had a multi-party system with numerous political parties before the takeover of the Talibans.
Type of State
Dictatorial 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.
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 by 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

COVID-19 epidemic evolution
To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in Afghanistan, please visit the U.S.A Embassy in Afghanistan website. To discover the regional segmentation you can also check the national covid-19 tracker.
For the international outlook you can consult the latest situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.
Sanitary measures
To find out about the latest public health situation in Afghanistan and the current sanitary measures in vigour, please consult the Emergency Response and Health Systems Preparedness Project including the up-to-date information on the containment measures put in place and public health recommendations.You can also find more information on the Afghanistan COVID19 Emergency Response.
Travel restrictions
The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.

The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.
Import & export restrictions
For the information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), please consult the website of the Afghan Customs.  
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Afghanistan on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
To know about the economic measures taken by the Afghan government to address the impact of the COVID-19 pandemic on the national economy, the World Bank Country Update provides a good insight.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Afghan government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Afghanistan in the IMF’s Policy Tracker platform.
Support plan for businesses
The country's government official sources do not provide yet information with regards to specific schemes in support of business or exporting companies following the coronavirus epidemic outbreak. For the updated information please visit the website of the Afghan Ministry of Economy.
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the World Bank's Map of SME-Support Measures in Response to COVID-19.
Support plan for exporters
The country's government official sources do not provide yet information with regards to specific schemes in support of business or exporting companies following the coronavirus epidemic outbreak. For the updated information please visit the website of the Afghan Ministry of Economy.
 

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Latest Update: November 2022