Afghanistan Economic Monitor (August 23, 2022)


SUMMARY: Global food and energy prices continue to impose upward pressure on basic household prices in Afghanistan. Work availability for skilled workers increased marginally in July; however, for unskilled workers, it has declined slightly from its peak in May 2022. Total revenue collection for the first eight months of the current fiscal year is at par with pre-August 2021 levels, however, with a greater reliance on trade-related taxes and non-tax revenue sources. Since end-June 2022, the Afghani has depreciated against major currencies; as of Aug 11, 2022, it is trading close to 89.91 AFN per USD, 4.2 percent below its August 15, 2021 value. Recent data (July 2021-June 2022) from Pakistani authorities shows that Afghanistan now has a trade surplus of US$79 million.

Prices of basic food and fuel items rose significantly in June 2022. Increasing global energy and food prices (about half of the country’s imports) and the impact of the drought on agriculture continue to drive inflation in Afghanistan. In July 2022, except for the price of high-quality wheat flour, which declined by around four percent, prices increased for: (i) diesel (26 percent), (ii) high-quality rice (3 percent), (iii) sugar (5.5 percent), and (iv) bread (3 percent) resulting in 43.4 percent year-on-year (y-o-y) inflation for basic household goods—a slight decline in percentage point increase from 50 percent in June. Recently published National Statistics and Information Authority (NSIA) price statistics for June 2022 shows headline consumer price index inflation at 17.5 percent, mainly driven by 26 percent Y-o-Y inflation in the food segment. Non-Food segment Y-o-Y inflation for June 2022 was recorded at 8.7 percent. Survey data shows a general availability of basic food and non-food items in the markets.

The Afghani (AFN) depreciated against major currencies in the last six weeks. Data issued by the Da Afghanistan Bank (DAB) show that, between the end-June and mid-Aug, the AFN depreciated by 2.4 percent against the United States dollar (USD), 2.3 percent against the Chinese yuan, and 0.7 percent against the Indian Rupee. However, AFN gained by 1.9 percent against Euro and 2.1 percent against the Pakistan Rupee). The last USD auction by DAB was held on March 23, 2022. In the absence of central bank liquidity management, the Money Service Providers (MSPs) continue to report some foreign exchange shortages in the open market as the Interim Taliban Authorities (ITA) are trying to exert more robust controls in the foreign exchange market, including by regulating the MSP sector and prohibiting the use of foreign currency (for example, to buy or sell a house, apartment, or other commodities and in housing rental transactions).

Cash withdrawals from banks remained regulated for both firms and individuals. Individual withdrawal of both USD and AFN and businesses withdrawal of USD remains almost the same as last month, although still below statutory limits. However, AFN withdrawals by firms are reported to have declined by 22 percent in July compared to June 2022. Firms still report that the accessibility is much lower than the allowed limit.

Work availability for unskilled workers declined slightly in July. In a relatively unchanged environment, work opportunities are primarily seasonal and dependent on agriculture. With the end of the harvest season in most of the country, demand for non-skilled labor has declined. This includes some of the provinces in the southern and central regions of the country, such as Helmand, Kandahar, Wardak, etc. In some southeastern provinces, unskilled labor demand increased in July 2022 compared to the previous month.

Revenue collection surpassed last year’s performance. As of August 16, 2022, overall revenue collection reached AFN 100 billion since December 22, 2021, compared to AFN 98.8 billion last year. Taxes at borders continue to contribute higher than in-land revenues, reaching AFN 57 billion (or 57 percent of the total). Reflecting a compressed economy, revenue from in-land sources reached AFN43 billion (or 43 percent of the total), of which revenue from non-tax sources remains the highest. Revenue from ministries is AFN 22.7 billion, of which more than AFN 5.8 billion are from the Ministry of Mines and Petroleum, mainly from coal mining and exports. Revenues from provincial offices totaled AFN 7.4 billion in FY1401 compared to AFN 8.6 billion in FY1400. Revenues from tax sources continue to fall short of previous years. Total revenue from LTO, MTO, and STO reached AFN 13.6 bn as of August 06 compared to AFN 26 billion last year.

Afghanistan registered a merchandise trade surplus with Pakistan. The Q2-2022 trade data from Afghan Authorities is not available yet. However, mirror trade data for July 2021 to June 2022 from Pakistan authorities shows that Afghanistan has a trade surplus of more than US$ 79 million. From July 2021 to June 2022, total imports to Pakistan from Afghanistan were US$ 796.4 million, while Pakistan’s exports to Afghanistan were US$ 717 million. The exports are driven by mineral fuel, oils, and products, including the recent surge in coal exports. Other Afghan export items are textile and food items such as fruits and vegetables. Afghanistan’s main imports from Pakistan are food products, followed by pharmaceutical products and wood.