Afghanistan’s Economic Outlook: Modest Growth Amid Deep Structural Challenges

The World Bank attributes the growth to a rebound in key sectors such as agriculture, mining, construction, and commerce.

Afghanistan's economy is continuing on a path of modest recovery, with the World Bank’s latest Afghanistan Development Update revealing a 2.5 percent increase in gross domestic product (GDP) for 2024. This marks the second consecutive year of economic expansion following a period of acute instability. However, the overall economic landscape remains precarious due to a mix of fiscal vulnerabilities, a widening trade deficit, and persistent poverty and food insecurity.

Key Drivers of Growth

The World Bank attributes the growth to a rebound in key sectors such as agriculture, mining, construction, and commerce. These sectors have benefited from favorable weather conditions and increased local demand. Despite these gains, Afghanistan’s manufacturing and services industries continue to struggle. Barriers to exports, a challenging business environment, and a sharp decline in foreign aid have compounded the difficulties in these sectors.

The recovery has been accompanied by modest improvements in private consumption and real estate investment. However, these gains have been overshadowed by a surge in imports, leading to an expanding trade deficit. This imbalance has further exposed the country to external economic shocks and increased its vulnerability to foreign exchange risks.

Persistent Poverty and Human Development Challenges

Despite the uptick in GDP, Afghanistan’s economic gains have not translated into improved living standards for its population. Rapid population growth has meant that per capita income remains stagnant. Poverty and food insecurity continue to afflict a significant portion of the population, exacerbated by high unemployment rates and severe restrictions on women's participation in the workforce.

The situation is especially dire for Afghan youth. The World Bank notes that nearly one in four young Afghans is unemployed. Women and youth are largely confined to the informal sector, where employment is irregular, poorly paid, and often mismatched to their education levels. Many young women are particularly excluded from the economy due to ongoing limitations on their mobility, education, and workforce participation.

Fiscal Constraints and Revenue Shortfalls

A key area of concern highlighted in the report is Afghanistan’s fragile fiscal situation. Domestic revenue mobilization remains weak and insufficient to offset the sharp decline in international aid. According to Faris Hadad-Zervos, World Bank Country Director for Afghanistan, “While Afghanistan’s economy is showing signs of recovery, it continues to be held back by significant fiscal challenges, with domestic revenue mobilization proving insufficient to offset a decline in aid.”

The April 2025 South Asia Development Update—a companion report—adds context by revealing that many South Asian economies face similar constraints. However, Afghanistan’s challenges are more acute due to its unique political and institutional context. The report’s regional focus underscores the urgency of domestic resource mobilization reforms, particularly in countries with low tax-to-GDP ratios despite relatively high nominal tax rates.

Banking Sector and Investment Environment

Afghanistan’s banking sector remains fragile. Non-performing loans are on the rise, and regulatory uncertainties continue to stifle lending. Liquidity concerns persist, deterring investor confidence and hampering economic diversification. A lack of financial reforms and limited credit availability are also restricting the private sector's ability to expand and create jobs.

Policy Recommendations and Long-Term Outlook

The report emphasizes the need for comprehensive policy interventions to stabilize the economy and lay the groundwork for sustainable growth. Reforms to strengthen the financial sector, support private sector development, and create inclusive employment opportunities—especially for women and youth—are critical.

“Young people—including women—who are in the workforce are working in the private sector. They are working fewer hours for less money, and they are in jobs that do not match their education levels. Policies and programs that support the private sector are essential to create more and better jobs,” Hadad-Zervos said. He added that “policies that limit women's participation in the workforce and girls' access to post-primary education will affect the country's human capital development, long-term growth, and foreign aid prospects.”

The Afghanistan Development Update is part of the World Bank’s Afghanistan Futures program, a long-term research and monitoring initiative designed to support evidence-based policymaking and provide insights into the country’s socio-economic landscape. The program is intended not only to guide domestic reforms but also to keep the international community informed about Afghanistan’s development trajectory.

Regional Perspective and Future Risks

On a broader scale, the World Bank’s regional outlook, presented in the Taxing Times edition of the South Asia Development Update, projects that growth in South Asia will slow to 5.8 percent in 2025, before rebounding slightly to 6.1 percent in 2026. The regional outlook remains uncertain due to global economic headwinds and domestic constraints such as limited fiscal space and underperforming tax systems.

For Afghanistan, the path forward remains steep. Without significant reforms and an inclusive approach to development that brings youth and women into the economic mainstream, the country risks falling into a prolonged period of stagnation.