JAKARTA – In the crowded markets of Kabul, a troubling paradox unfolds daily. Store shelves remain stocked with essential goods, yet customers are increasingly scarce. Merchants watch as commodity prices drop while sales plummet, forcing many to operate at losses simply to keep their businesses alive. This scene captures the essence of Afghanistan’s economic condition in 2025—a nation caught between statistical improvement and widespread hardship.

The Numbers Tell One Story

Official economic indicators present a picture of cautious stabilization. The World Bank projects Afghanistan’s GDP will expand by 2.2% in 2025, following 2.5% growth in 2024. Inflation has virtually disappeared, registering just 0.3% in February as food prices actually declined over the previous year. For a nation that experienced complete governmental collapse in 2021, these figures suggest avoidance of economic catastrophe.

However, these statistics mask a more troubling reality beneath the surface.

The Human Cost Remains Severe

Nearly half of Afghanistan’s population survives below the poverty threshold, while unemployment has roughly doubled since 2020. Youth unemployment affects one in four young people, creating a generation without economic prospects. Humanitarian organizations report that over 14 million Afghans face food insecurity, with nearly five million women and children experiencing acute malnutrition.

These challenges have become embedded in the fabric of daily Afghan life, representing not temporary setbacks but persistent structural problems.

The Aid Withdrawal’s Lasting Impact

Afghanistan’s economic transformation began with the Taliban’s return to power in August 2021, triggering three critical changes: the cessation of international assistance, global financial isolation, and fundamental shifts in trade patterns.

For twenty years, foreign aid sustained Afghanistan’s government operations, financing approximately 75% of public spending. When this support ended abruptly, government revenues contracted by more than half practically overnight. The loss of international recognition severed Afghanistan from formal investment channels and credit systems.

The central bank lost access to over $7 billion in overseas reserves, primarily held in the United States. While $3.5 billion was later placed in a Swiss-based trust fund managed by international trustees, this arrangement provides limited functionality compared to normal central bank operations. The Taliban government cannot directly access these funds, and disbursements focus on technical payments rather than comprehensive monetary policy.

Currency and Trade Imbalances

Despite these constraints, Afghanistan avoided the hyperinflation that many predicted. Continued dollar imports for humanitarian operations, combined with strict currency controls, initially strengthened the afghani. However, this strength hurt exporters while benefiting consumers.

In 2024, reduced dollar inflows caused the currency to weaken, yet this depreciation failed to revive export competitiveness. Instead, the trade deficit expanded dramatically from $6.3 billion in 2023 to $9.4 billion in 2024.

While imports of food, fuel, textiles, and machinery remain essential, exports have struggled. Coal shipments to Pakistan declined due to weakened demand and increased tariffs. Textile exports also dropped significantly. Agricultural products and dried fruits showed modest improvements, but these gains were insufficient to offset losses in other sectors.

The Opium Ban’s Economic Earthquake

Perhaps no single policy has reshaped Afghanistan’s economy more dramatically than the Taliban’s 2022 prohibition on opium cultivation. For decades, poppy production provided reliable rural income, employing hundreds of thousands and supporting entire provinces.

The first year following the ban saw cultivation collapse by over 95%, with planted area falling from more than 200,000 hectares in 2022 to just 10,800 in 2023. This dramatic reduction eliminated over $1 billion in farm income, devastating rural households that depended on seasonal poppy harvesting for cash wages.

While cultivation partially recovered to about 12,800 hectares in 2024, production remains a fraction of previous levels. Government efforts to promote alternatives like wheat, cotton, and saffron have not compensated for lost opium revenues. Farmers describe struggling to finance basic family needs—weddings, medical expenses, education—without their former primary cash crop.

The ban’s effects rippled throughout the economy, affecting transport workers, traders, and cross-border operators who previously benefited from the opium trade. Urban markets dependent on rural purchasing power have also suffered.

Employment Crisis Deepens

Labor market disruptions reflect these broader economic challenges. World Bank data shows unemployment has nearly doubled since 2020, with women and youth bearing the heaviest burden. Among people aged 15-29, approximately 25% lack employment. For young women, employment restrictions in education and other sectors have created even bleaker prospects, reducing household income sources.

Men also struggle to find work beyond agriculture, construction, and small-scale trading. Businesses complain of limited credit access and reduced consumer demand. The banking sector, constrained by sanctions and low confidence, provides minimal support. With few formal loans available, expensive informal lenders often fill the financing gap.

Urban graduates describe months of unsuccessful job searching, while rural opportunities have become even scarcer since the opium ban. Many depend on seasonal agricultural work that has significantly diminished.

Food Security Deteriorates

Food insecurity represents perhaps the clearest indicator of Afghanistan’s economic distress. Approximately 14.8 million people—more than one-third of the population—experience acute food insecurity in 2025, with nearly 4.7 million women and children suffering acute malnutrition.

International aid that once cushioned these shocks has declined substantially. The World Food Program, which previously assisted over 20 million Afghans, has reduced operations due to donor fatigue and competing global priorities. By late 2024, the agency warned of severe ration cuts, leaving many families without food assistance.

Health clinics report increasing cases of underweight children as diets narrow to bread, tea, and potatoes. Meat has become increasingly unaffordable, and families often skip meals to ensure children can eat.

Government Finances Stabilize but Remain Limited

Despite international isolation, Taliban authorities have achieved some fiscal stability. Domestic revenue collection has improved, particularly through customs duties at border crossings. Civil servant salaries are paid more regularly than in 2021, and the government manages a small fiscal deficit.

However, the budget remains severely constrained. Without international grants, development spending has virtually disappeared. Infrastructure projects once funded by donors remain unfinished, while health services depend primarily on aid agencies rather than government resources.

Regional Trade Challenges

Afghanistan’s geography makes it heavily dependent on neighboring countries, with Pakistan serving as the primary trade partner and transit route. However, border closures at key crossings like Torkham and Chaman in 2024 disrupted commerce, costing traders millions. Changes in Pakistani tariff policies have particularly hurt coal and textile exports.

Efforts to diversify trade routes through Central Asia and Iranian ports like Chabahar have progressed slowly due to infrastructure limitations and financing constraints. Afghanistan remains vulnerable to Pakistani policy shifts, creating ongoing uncertainty for traders and farmers.

Climate and Migration Pressures

Environmental challenges compound economic difficulties. Recent droughts have reduced harvests, while flash floods have destroyed farmland in northern regions. As one of the world’s most climate-vulnerable countries, Afghanistan lacks the resources for effective adaptation. Irrigation systems are outdated, storage capacity is minimal, and insurance markets are nonexistent.

Forced migration has added new economic pressures. Pakistan’s late-2023 decision to expel hundreds of thousands of Afghan refugees returned families to provinces with limited job opportunities and services. Iran has also tightened border enforcement. This influx of returnees has increased demand for housing and employment in already struggling communities.

The Human Capital Challenge

Afghanistan’s young population represents its greatest potential asset, but without education and employment opportunities, this demographic advantage risks becoming a burden. Restrictions preventing women from accessing schools and workplaces further reduce the country’s capacity for economic growth. Economists broadly agree that sustainable recovery requires full participation from both men and women in the economy.

Looking Ahead: Cautious Uncertainty

The economic outlook for 2025 depends on several key factors. Limited external financing could ease liquidity shortages and stabilize the banking system. Continued humanitarian funding could prevent food insecurity from worsening. Practical trade agreements with Pakistan and Central Asian neighbors could improve commercial flows. Investments in climate resilience and rural development could help offset lost opium income.

However, the most critical factor remains human capital development, which faces significant policy constraints.

A Country in Economic Limbo

Afghanistan’s economy in 2025 exists in an uneasy balance between collapse and recovery. The country has avoided free fall but lacks the dynamism for broad-based growth. Agriculture provides some resilience but remains vulnerable to climate shocks. Trade continues but faces political constraints. The financial system functions but remains weak. Poverty and unemployment have become entrenched features of economic life.

Neither collapse nor prosperity defines Afghanistan’s current economic reality. Instead, the country remains suspended in an uncomfortable middle ground where modest stability coexists with widespread deprivation. The coming years will test whether limited policy options, regional trade relationships, and humanitarian assistance can maintain this precarious balance, or whether deeper structural challenges will overwhelm these fragile gains.

For now, Afghanistan’s economy continues to function at a basic level—markets operate, currency circulates, goods move—but without the confidence or momentum needed to lift people out of poverty. Statistical recovery continues alongside harsh ground-level realities, defining a nation caught between survival and genuine economic progress.

Original article:

halaltimes.com. (n.d.). What is the State of the Afghan Economy in 2025?. Retrieved August 25, 2025, from https://www.halaltimes.com/what-is-the-state-of-the-afghan-economy-in-2025/