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, Afghanistan has faced a range of socio-economic challenges, including a significant drop in international aid, frozen foreign reserves, ongoing deflation, a widening trade deficit, and restrictive laws—especially those impacting women’s rights. Human capital remains low, private consumption is limited, and nearly half the population lives in poverty. Employment opportunities have declined, with youth and women particularly affected by rising unemployment and a lack of quality jobs. Nevertheless, in FY2023–24, Afghanistan’s GDP grew by 2.7%, marking a partial recovery from the 27% contraction that followed the Taliban’s return to power. However, overall growth remained limited due to reduced investment and declining exports, which constrained aggregate demand. According to the World Bank, economic activity in Afghanistan is expected to grow modestly over the medium term, with an average annual growth rate of 2.75% from 2024 to 2026. Agriculture is projected to grow at a faster pace than the rest of the economy during this period.
Afghanistan's current account deficit rose to 13.5% of GDP in FY2023-24, driven by a growing trade deficit and declining foreign aid. Despite an increase in remittance inflows, total income from abroad decreased by approximately two percentage points of GDP, dropping to 33.7%. Financing the current account deficit has been challenging due to limited foreign direct investment and borrowing capacity. While domestic revenue mobilization improved, the fiscal deficit (on a cash basis) widened to 1.4% of GDP in FY2023-24. Operating expenditures rose by 0.3 percentage points to 15.6% of GDP, while development expenditures increased from 0.8% of GDP in FY2022-23 to 1.3% in FY2023-24. The fiscal deficit was likely financed through a reduction in deposits at the central bank. The fiscal deficit is expected to narrow to 0.7% of GDP in FY2024-25, with a balanced budget projected for FY2025-26 and FY2026-27. Revenue collection improved in the first four months of FY2024-25, reaching AFN 69.7 billion—an 11% increase from the previous year, mainly driven by higher non-tax revenues. Given borrowing constraints, the revenue increase is expected to be offset by a corresponding rise in expenditure (data World Bank). Headline inflation decreased in April 2023 and remained negative throughout FY2023-24, with domestic prices falling by an average of 7.7%. Core inflation, excluding volatile food and energy prices, was also negative, declining by about 3% by the end of the fiscal year in March 2024. A high current account deficit puts pressure on foreign reserves, and with limited financial options, the central bank faces challenges in maintaining currency stability, which could potentially lead to inflation.
Afghanistan is one of the poorest countries in the world, with a GDP per capita (PPP) of around USD 1,992 (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 2023 unemployment rate was equal to 14% 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 on women's employment imposed by the Taliban may inflict an additional economic loss. According to the latest estimates from the World Bank, monetary poverty stands at 48.3%, marking a 4-percentage point decrease compared to 2020. Poverty in urban areas continues to rise, driven by a lack of quality job opportunities. In contrast, improvements in security, better access to markets, and a strong agriculture season have contributed to a reduction in poverty in rural areas.
Agriculture has traditionally been 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 34.5% of GDP and employs 45.5% of the labour force (World Bank, latest data available). Afghanistan’s arable land makes up nearly 58% of its total land area, amounting to approximately 37,910 hectares. 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 and 2024. According to FAO data, in 2024, total cereal production was estimated at 6 million tonnes, 10% above average. Wheat led with 5 million tonnes, up 13% due to favourable weather and strong yields, while rice output reached 640,000 tonnes, also above average, driven by increased area and yields.
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 13.5% of GDP and employs 18.4% of the total workforce. The manufacturing sector’s share of GDP currently stands at 8%, a sharp decline from the 20% of 2002. According to the Asian Development Bank, the industrial sector contracted by 5.6% in 2023, as activity shifted toward resource-intensive primary industries like mining and quarrying, which grew by 4.1%. This shift away from more diversified, skill-intensive activities was driven by brain drain, weak governance, policy uncertainty, macroeconomic instability, chronic liquidity shortages, and high-risk premiums in formal finance.
After years of expansion, the services sector employs 36.1% of the workforce and accounts for 46.5% of the GDP. Community, social, and personal services take up a considerable share of the tertiary sector, followed by wholesale and retail trade (according to the Ministry of Commerce and Industries, 80% of small and medium enterprises in Afghanistan are involved in trade and retail services). 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 and hawala transactions. According to the latest data available from the Asian Development Bank, in 2023, the services sector in Afghanistan contracted by a further 6.5%, following a 30.1% decline in 2022, due to sharp reductions across all major service industries. Wholesale and retail trade shrank by 8.6%, finance and insurance by 6.6%, health and social services by 5.9%, real estate by 5.2%, restaurants and hotels by 4.9%, and post and telecommunications by 4.7%. Education was the only sub-sector to record growth, with a modest increase of 0.7%.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 45.5 | 18.4 | 36.1 |
| Value Added (in % of GDP) | 34.5 | 13.5 | 46.5 |
| Value Added (Annual % Change) | 2.1 | 2.6 | 2.3 |
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: May 2025
