Afghanistan’s economy is experiencing growth for the second consecutive year, according to the World Bank’s latest Afghanistan Development Update. The report highlights that gross domestic product (GDP) is expected to increase by 4.3 percent in 2025, following a 2.5 percent rise in 2024. This economic expansion is mainly attributed to demand generated by over two million returnees from Iran and Pakistan, which has stimulated activity in both the services and industry sectors.
The agriculture sector has demonstrated resilience with a record irrigated wheat harvest despite ongoing drought conditions. Mining and construction also continue to contribute to economic output.
However, rapid population growth remains a challenge. The population is projected to expand by 8.6 percent in 2025, resulting in an estimated 4 percent decrease in GDP per capita. Inflation remains low at an average of 2 percent for the year, aided by stable food prices and appreciation of the national currency. While this stability provides some relief for households, it underscores Afghanistan’s reliance on imports and vulnerability to external shocks.
On fiscal matters, domestic tax revenues are forecasted to rise to 17.1 percent of GDP due to improved enforcement and compliance measures. Nonetheless, a reduction in external grants continues to limit overall fiscal resources, leaving Afghanistan dependent on donor support and trade-related taxes.
The country’s banking sector faces persistent difficulties including regulatory uncertainty, increasing non-performing loans, restricted lending activity, and liquidity pressures as more cash circulates outside formal financial institutions. The transition towards Islamic finance and limited access to formal banking services pose additional obstacles for financial inclusion—particularly affecting recent returnees.
“While Afghanistan’s economy is showing signs of recovery, it continues to face significant fiscal challenges, with domestic revenue mobilization proving insufficient to offset the decline in aid,” said Faris Hadad-Zervos, World Bank Country Director for Afghanistan. “Compounding these challenges is the substantial influx of returnees over the past two years, which has further expanded the pool of unemployed youth and deepened existing fragilities. This underscores the critical importance of private-sector-driven job creation—particularly for youth and women. Advancing policies that enable such sustainable employment is closely tied to the broader dialogue with the international community.”
Youth unemployment remains high with nearly one in four young Afghans out of work. Restrictions on women’s participation in economic activities and education continue to hinder human capital development and future prospects for growth.
Between September 2023 and July 2025, Afghanistan has seen an estimated return of between four million and 4.7 million individuals from abroad—the largest wave of returns in recent history for the country. Returnees bring diverse skills but many lack education or resources; their arrival puts pressure on local labor markets and public services especially near borders or within urban areas.
According to the World Bank report, sustained recovery will require reforms aimed at boosting private investment, strengthening financial intermediation, diversifying exports, and turning increased demand from returnees into productive employment opportunities. Improvements in governance alongside measures encouraging private sector development and foreign investment are identified as essential steps toward reducing dependency on humanitarian assistance while achieving resilient growth.
The Afghanistan Development Update forms part of ongoing research efforts by the World Bank intended to inform policy decisions based on evidence as well as keep international stakeholders updated about economic developments within Afghanistan.