Afghanistan flag Afghanistan: Economic and Political Overview

The economic context of Afghanistan

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. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Country Risk

See the country risk analysis provided by Coface.
 

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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
Economic Portals
Economic news from the Central Bank of Afghanistan
Pajhwok Business News Portal
Afghan Online News Portal - Economic News
 

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Latest Update: September 2022

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