Afghanistan: Economic and Political Overview
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Afghanistan's economic recovery came to an 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. Although the main global financial institutions do not provide official data, Afghanistan’s GDP is estimated to have contracted by 30-35% between 2021 and 2022 and is projected to move to a low growth path between 2-2.4% for 2023 and 2024 (World Bank), but downside risks persist, including increased instability of the banking sector, any potential reduction in aid from the international community, or worsening of the security and political situation.
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 and an increase in the public deficit. The Taliban’s first national budget was announced in mid-2022: it amounts to AFN 231 billion (around USD 2.65 billion) with a budget deficit of AFN 40 billion. Nevertheless, there were no details as to what the priorities of the public sector are or how resources would be distributed among different sectors. According to the World Bank, the Taliban regime has collected AFN 144 billion (USD 1.64 billion) in revenues between December 22, 2021, and end-October 2022. Afghanistan continues to rely relatively heavily on revenue collected at the border: taxes at borders reached 59% of the total revenue collected up to October 2022, while an increase was recorded in ministries’ revenue due to a rise in coal mining royalties and fees. Overall, the public debt, which has been mainly external and very low, is expected to increase and could lead to a sovereign debt default. The latest data available from the World Bank show that the headline inflation in September 2022 decelerated to 13.6%, down from its peak of 18.3% in July 2022.
Afghanistan is one of the poorest countries in the world, with a GDP per capita (PPP) of around USD 2,456 (IMF – 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 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). According to the United Nations Office for the Coordination of Humanitarian Affairs (UNOCHA), 20 million people are faced with acute hunger, including 6 million people at emergency levels.
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 33.5% of GDP and employs 43% of the labour force (World Bank, latest data available). Opium cultivation – concentrated in the southwestern parts of the country - is one of the main sectors: in 2022, opium output increased by 32% over the previous year to 233,000 hectares – making the 2022 crop the third-largest area under cultivation since monitoring began.
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 Talibans’ takeover, 65% of all manufacturing workers were female). Industry as a whole accounts for 15.6% of GDP and employs 19% of the total workforce. The manufacturing sector’s share of GDP stands at 9% (World Bank).
After years of expansion, the services sector employs 72% 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. 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).
| 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) | 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: September 2023
