Afghanistan flag Afghanistan: Economic outline

Economic Outline

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.

 
Monetary Indicators 20162017201820192020
Afghanistan Afghani (AFN) - Average Annual Exchange Rate For 1 GBP 91.6387.5596.1797.0098.41

Source: World Bank, 2015

 

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Latest Update: April 2024

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