Attachments
KEY HIGHLIGHTS
Key Economic Developments
- Afghanistan’s economy continues to operate in a low-growth, high-vulnerability economic environment shaped by sustained returnee inflows, climate-related shocks, natural disasters, and prolonged regional trade disruptions. While macroeconomic stability has been supported by moderate inflation, improved domestic revenue performance, and continued exchange rate stability, structural constraints, particularly weak private investment, rapid population growth, and restricted trade continue to suppress productivity, limit job creation, and weigh on per capita income growth and household livelihoods.
- Inflationary pressures strengthened year-on-year, continuing the upward trend from its peak deflation during 2024. Headline inflation rose to 5.7 percent year-on-year in December 2025, compared to –1.8 percent in the same period last year, driven by increases across food and non-food categories, with food inflation reaching 5.5 percent and non-food inflation 5.9 percent. The rise in housing, health and transportation costs are the main contributors to non-food inflation.
- The Afghani remained stable and relatively strong in January 2026, averaging AFN 66.3 per USD, helping to contain imported inflation despite rising domestic prices. Continued exchange rate resilience, supported by prudent monetary and liquidity management, has limited price volatility for key imported food and non-food commodities and supported generally orderly market conditions; however, any sudden depreciation would pose a significant risk to domestic prices given Afghanistan’s high import dependence and market-determined exchange rate.
- Trade conditions remained constrained by the prolonged closure of the border with Pakistan, with cross-border flows below normal levels and traders incurring losses on both sides. According to the World Bank, traders have partially mitigated trade disruptions by rerouting shipments through Iran and Central Asia; however, elevated transportation costs and logistical delays along alternative routes continue to constrain trade flows. Exports remain subdued due to elevated transit costs and delays, while imports have shown relative resilience, supported by sustained domestic demand linked to returnee inflows. Iran continues to consolidate its position as Afghanistan’s principal import partner, underscoring a structural shift in trade routes away from Pakistan and rising external vulnerabilities (World Bank – Afghanistan Economic Monitor, December 2025).