Afghanistan: Economic and Political Overview
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.
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. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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Latest Update: April 2024
