The Afghan economy is experiencing moderate growth, but challenges persist, according to the World Bank's latest Afghanistan Development Update. The report highlights fiscal constraints, trade imbalances, and limited public investment capacity as ongoing issues.
Afghanistan's economic recovery remains uncertain with a GDP growth of 2.7%, driven by private consumption. This growth has only recouped about 10% of past economic losses, indicating a slow and fragile recovery process.
Deeper structural issues and vulnerabilities continue to affect Afghanistan's economy. Addressing these will require enabling women's participation in the economy, strengthening domestic resource mobilization, maintaining price stability, and improving human capital deficits in education and healthcare.
"Afghanistan's long-term growth prospects depend on tapping into the substantial potential of the domestic private sector and improving the overall business environment," said Faris Hadad-Zervos, World Bank Country Director for Afghanistan. He emphasized the importance of increased investment and support for small businesses and women entrepreneurs to avoid prolonged stagnation.
The partial recovery has led to falling food prices and a gradual improvement in household welfare. However, many Afghan households still struggle to meet basic needs due to widespread poverty. Vulnerable groups such as women, children, and displaced populations are particularly affected by economic hardship due to inadequate social protection mechanisms.
Night-time lights data analysis reveals uneven economic recovery across regions. Provinces heavily reliant on foreign aid and security spending saw significant declines in economic activity from 2020 to 2021. By 2023, areas like Parwan, Kapisa, Zabul, and Kabul still showed lower levels of activity compared to their 2020 baseline.
Trade dynamics pose another challenge for Afghanistan. In 2023-24, while exports remained stable, imports surged leading to a widening trade deficit. The appreciation of the Afghani made imports cheaper but increased demand for foreign goods while reviving domestic industrial activity required more imported inputs.
The Afghanistan Development Update is part of the World Bank's Afghanistan Futures program which supports evidence-based policymaking through research and analytical reports on Afghan economy and society developments.