Attachments
KEY HIGHLIGHTS
Economic Outlook: Afghanistan’s economy maintained modest momentum during the first half of 2025, despite risks stemming from humanitarian funding cuts earlier in the year. However, the recent recognition of the country by Russia may help support regional trade and economic growth. However, growth remains constrained by limited fiscal space, reduced foreign aid, high unemployment and structural weaknesses in public finance. Inflationary pressures began to build, driven by rising food and fuel costs, with the World Bank projecting inflation to hover around 5–6% in the coming years. The World Bank also warns that without major policy reforms and increased external support; economic growth will remain minimal, entrenching poverty and unemployment. Additionally, the IMF highlights slower regional recovery and "heightened uncertainty" due to trade frictions and sanctions.
Geopolitical Drivers: The escalation of conflict between Iran and Israel had immediate spillover effects on Afghanistan’s markets, particularly in the southern and western provinces that depend on trade routes through Iran. These areas experienced supply disruptions and increased transit risks, resulting in market panic, hoarding behaviour by suppliers, and temporary price hikes, especially for fuel and food items.
Additionally, the influx of returnees from Iran surged during the second half of June, placing further strain on local markets and public services. The conflict has intensified the pace of returns, with over 25,000 Afghan returnees assisted at border crossings with Iran as of June 25th which is a threefold increase compared to early June. Daily wage labourers are especially vulnerable, as increasing competition in the labour market may reduce wages while essential food items become more expensive.
Global Price Trends: The FAO Cereal Price Index averaged at 107.4 points, fell by 1.5% month-on-month and 6.8% year-on-year, despite a slight increase in wheat prices due to weather concerns in major producers. Other cereals like maize, sorghum, barley, and rice saw sharp declines. Moreover, the Vegetable Oil Price Index averaged at 155.7 points in June 2025, rose by 2.3% from May and was 18.2% higher year-on-year, driven by palm (+5%), rapeseed, and soy oil prices, while sunflower oil declined slightly.
The World Bank’s Fertilizers Price Index averaged at 142.9 points, increased by 7.3% MoM and 20.9% YoY. DAP prices rose 6.9% MoM and 32% YoY, while Urea prices climbed 7.3% MoM and 25% YoY. Despite global increases, Afghanistan’s domestic fertilizer prices remained relatively stable, supported by Afghani appreciation.
Domestic Market Prices: During June 2025, market prices experienced sudden increases in the prices of both food and non-food commodities, particularly in the third and fourth weeks. National average prices for key staples such as wheat flour, vegetable oil, rice, and sugar rose notably. Wheat flour prices increased by 7.4% in the fourth week of June compared to the first week, marking a reversal from the declining trend observed earlier in the year. Cooking oil also saw a price increase, breaking its downward trajectory that began after the peak point in January.
Non-food items also followed an upward trend. Diesel prices surged to AFN 68.6 per litre nationally in 4 th week of June, reflecting a 20% increase from first week of the month. Other fuels, including gas and petrol, experienced similar surges, largely due to disruptions in supply from Iran and higher transportation costs.
Inflation Trends: Afghanistan’s inflation rate, which had declined sharply in previous years, began rising modestly in early 2025. By May, the national inflation rate stood at 0.5%, up from -10.2% in January 2024. Food inflation increased from -15.1% to -1.7%, while non-food inflation reached 2.7%, mainly driven by a 11.7% increase in housing costs. This shift reflects a broader trend of growing economic pressure as rising costs erode purchasing power, particularly among vulnerable groups. Given Afghanistan’s heavy reliance on imported food and fuel, inflation remains highly sensitive to exchange rate movements, global commodity trends, and political conditions.
Currency Stability: The national average exchange rate stood at AFN 69.5 per USD in June 2025, showing relative month-on-month stability and a 2% appreciation compared to the same period last year. The Afghani has maintained its stability and remained strong against USD and other currencies with slight fluctuations over the past year. The Afghani appreciated by 12% against USD compared to the two-years average and the same period before the government transition in 2021. Nevertheless, political uncertainty and aid disruptions remain key risks to future stability