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Afghanistan flag Afghanistan:

Country risk of Afghanistan : Economy

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Afghanistan's economic recovery came to halt with the Covid-19 outbreak in 2020, weighing on 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 around one-fifth in 2021, with a negative outlook over the forecast horizon. Household consumption (80% of GDP) could contract by 40% as many Afghans are working for no pay, especially in the public sector.

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 by almost one-third between the end of 2020 and the end of 2021. Coface expects the currency value to fall further in 2022. The authorities intend to curb the rising budget deficit in 2022 by adopting a 10% rate of VAT. The majority of the new government’s revenues is coming from poppy cultivation and opiate trafficking (estimated at USD 6.6 billion in 2021). Humanitarian aid resumed by the end of 2021 (USD 280 million by the World Bank through the special fund for the reconstruction of the country, plus USD 10 million in debt service relief from the IMF). Meanwhile, following the U.S. decision to suspend and freeze foreign exchange reserves (estimated at over USD 9 billion) the country was forced to reduce its imports. Overall, the public debt, which has been mainly external and very low, is expected to increase and could lead to a sovereign debt default.

Afghanistan is one of the poorest countries in the world, with a GDP per capita (PPP) of around USD 2,474. 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).

 

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

 
 
Country Risk
See the country risk analysis provided by Coface.
Main Online Newspapers
Pajhwok Afghan News
Afghanistan News
Useful Resources
Ministry of Economy
Da Afghanistan Bank (Central Bank of Afghanistan)

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Latest Update: November 2022