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The World Bank has been closely monitoring the evolving economic situation in Afghanistan and has been regularly producing economic monitoring reports.
The World Bank Afghanistan Economic Monitor provides a summary of the latest economic developments and key economic indicators. Drawing from a range of data sources, including real-time data collection by the World Bank’s Third-Party Monitoring Agent, the Economic Monitor provides up-to-date information on trends in prices, exchange rates, availability of key household items, and the operations of financial sector institutions. The Economic Monitor will be published monthly (or more frequently as developments warrant) and may be useful to all audiences seeking to understand current economic conditions and trends across the Afghan economy.
HIGHLIGHTS
After peaking in Mid-2022, inflation turned into deflation since April 2023, driven by the easing of supply constraints and wider availability of goods in markets. About two-thirds of Afghan households face challenges in maintaining livelihoods and consumption.
The latest official statistics show that year-on-year headline inflation hit -9.1 percent in July 2023, driven by -12.6 percent deflation in food and -5.0 percent in non-food segments. Core inflation also fell to -2.8 percent in June 2023. As the economy settles toward a structurally lower aggregate demand, easing global supply challenges associated with high international prices might be responsible for recent price dynamics, which are also supported by exchange rate appreciation. Although we don’t have enough data to make a definitive statement, the possibility of a further decline in overall demand cannot be ignored. A recent survey by the Bank reveals that surveyed companies report a continued drop in demand compared to the summer of 2022. The Bank's Third-Party Monitoring Agent (TPMA) survey reveals that major markets nationwide continue to have sufficient essential food and non-food commodities. The preliminary results from the recently conducted 3rd round of the Afghanistan Welfare Monitoring Survey (AWMS) are concerning. About two-thirds of Afghan families face significant challenges in maintaining their livelihoods. Households have responded to the economic downturn by increasing the participation of household members typically on the margins of the labor market, such as youth and women.
Despite the widening merchandise trade deficit, the Afghani has appreciated against major currencies from January to August 2023.
Between the start of CY2023 and August 24, 2023, the Afghani (AFN) appreciated against major trading currencies. It rose by 41.2 percent against the Iranian toman, 29.3 percent against the Pakistani rupee, 7.3 percent against the US dollar, 6.0 percent against the Chinese yuan, and 4.9 percent against the Euro. It remained stable against the Indian rupee. By August 24, 2023, the AFN-to-USD rate was 83.1, marking a 3.7 percent increase since August 15, 2021. The AFN's gains stem from the ban on foreign currencies for domestic transactions, limited domestic money supply, higher remittances, and UN dollar shipments. In 2023, UN inflows were around US$1.12 billion, complementing the US$1.8 billion received in 2022.
The forex market appears balanced without signs of a parallel exchange market, implying possible unidentified external financing sources to address the trade deficit's forex gap
Improved bank deposits may have resulted in better access to their pre-August 2021 deposits for both firms and individuals.
Starting in May 2023, the central bank raised the weekly withdrawal cap for individuals with pre-August 2021 deposits to AFN 50,000 from AFN 30,000, although actual withdrawals remain below the legal limit. Likewise, from May 2023, companies can now withdraw up to AFN 4.0M per month from AFN 2.5M. Recent TPMA data indicates better deposit access for firms since June 2023. Although data is limited, anecdotes suggest that the increase in bank deposits since Q1-2023 may have contributed to this improvement.
Telephonic interviews indicate that public servants continue to receive their salaries.
Around 1,200 male and 340 female public employees were interviewed by phone. Almost all civil servants got paid in July 2023. About 90 percent received salaries via bank accounts, but 44 percent faced withdrawal challenges, although this improved compared to June— complaints centered on crowded bank branches, poor-quality banknotes, and limited availability of funds.
The availability of work for skilled and unskilled laborers has improved since March 2023.
Starting in March 2023, job opportunities surged for skilled and unskilled workers, following a seasonal drop during the winter. Favorable 2023 weather boosted harvests, income, and labor demand in agriculture and non-agricultural sectors, especially for unskilled labor. Nominal and real wages rose slightly due to increased demand. Afghan households responded to economic hardship by involving more women and youth in work.
There is a shortfall in revenue compared to the targets due to the underperformance of inland revenue collection.
In the first five months of FY2023, revenue totaled AFN 76 billion, up 8 percent compared to the same period in 2022. However, it fell short by 7.0 billion from the target. Customs Duties and Business Receipt taxes drove this growth, rising 13 percent from FY2022's initial five months. Increased merchandise imports were key contributors. Notably, the Afghanistan Customs Department (ACD) accounted for about 60 percent of total revenues, mainly from crossings with Iran and Pakistan. Conversely, Inland Revenue collection saw a mere 0.9 percent uptick year-on-year. The underperformance of non-tax revenues (NTR) was the primary reason, dropping 34 percent below the target, mainly due to weak collection by the Ministry of Mines and Petroleum, a significant NTR contributor.
During Jan-Jul 2023, merchandise exports showed moderate growth over the same period in 2022. The monthly export data indicates a decline in trend since February 2023.
Unofficial customs data for Jan-Jul 2023 reveals exports reached US$ 0.91 billion, a three percent rise from the same period in 2022. Key growth factors include a 49 percent surge in textile exports (16 percent share) and a two percent increase in food exports (56 percent share). Conversely, coal exports (22 percent share) declined 12 percent during this period. Export trends have consistently declined since February 2023, with a notable 82 percent drop in coal exports' value in June 2023 versus May 2023. Afghanistan's prime export market is Pakistan (59 percent of total exports), followed by India (24 percent). Exports to Pakistan, mainly food and coal, dropped by 3 percent due to substantial declines in food and coal exports (19 percent and 12 percent, respectively). Conversely, food exports to India (contributing 42 percent) increased by 17 percent, lifting overall food exports.
From Jan-Jul 2023, Afghanistan's import growth exceeded exports, leading to a wider trade deficit than in Jan-Jul 2022.
From Jan to July 2023, imports reached US$ 4.4 billion, marking a 32 percent increase compared to 2022. All import groups saw growth. Leading the way, the food, minerals, and textile imports—constituting over half of the total imports—rose by 4 percent, 31 percent, and 35 percent, respectively. Chemicals, machinery, and transportation imports also surged. Primary import sources include Iran (21 percent), China (18 percent), Pakistan (17 percent), and the United Arab Emirates (14 percent). This period saw the trade deficit widen to 3.5 billion from US$2.4 billion in Jan-Jul 2022.
The Afghanistan Reconstruction Trust Fund-backed Health Emergency Response Project continues to provide critical health services for mothers and children.
Health Management Information System (HMIS) data reveals 5.4 million antenatal care (ANC) visits at 2,300 Health Emergency Response (HER) facilities from Jan 2022 to July 2023. Yet, July 2023 recorded 6 percent fewer ANC visits than the prior month, although there's a 16 percent rise since Jan 2023. Additionally, HER-backed facilities have aided approximately 1.1 million births since Jan 2022.