Afghan Economy Expands Amid Persistent Challenges

KABUL, December 11, 2025 - Afghanistan's economy is expanding for the second consecutive year, supported by low inflation and stronger revenues. However, rapid population growth, a widening trade deficit, and persistent poverty continue to weigh on the country's outlook, according to the World Bank's latest Afghanistan Development Update. The report provides a comprehensive assessment of recent economic developments and the medium-term outlook, with a special focus on return migration and employment.

Afghanistan's GDP is projected to grow by 4.3 percent in 2025, following growth of 2.5 percent in 2024. This expansion is largely driven by demand from more than two million recent returnees from Iran and Pakistan, who are stimulating activity in the services and industry sectors. The agriculture sector remains resilient, achieving a record irrigated wheat harvest despite severe drought conditions, while mining and construction continue to support economic output.

Despite overall growth, rapid population expansion estimated at 8.6 percent in 2025 has led to a projected 4 percent decline in GDP per capita. Inflation remains among the lowest in the region, averaging 2 percent in 2025, supported by stable food prices and currency appreciation. While this price stability offers short-term relief for households, it also reflects Afghanistan's heavy dependence on imports and exposure to external shocks.

Fiscal conditions are improving on the revenue side, with domestic tax revenues expected to rise to 17.1 percent of GDP in 2025 due to stronger enforcement and compliance measures. However, declining external grants are shrinking the overall fiscal envelope, leaving the country heavily dependent on donor support and trade-related taxation.

The banking sector remains fragile, marked by regulatory uncertainty, rising non-performing loans, and constrained lending activity. Liquidity pressures persist, with much of the recent increase in cash circulating outside the formal banking system. The transition to Islamic finance and limited access to formal banking remain key barriers to financial inclusion, especially for recent returnees.

"While Afghanistan's economy is showing signs of recovery, it continues to face significant fiscal challenges, with domestic revenue mobilization proving insufficient to offset the decline in aid," said Faris Hadad-Zervos, World Bank Country Director for Afghanistan. "Compounding these challenges is the substantial influx of returnees over the past two years, which has further expanded the pool of unemployed youth and deepened existing fragilities. This underscores the critical importance of private-sector-driven job creation-particularly for youth and women. Advancing policies that enable such sustainable employment is closely tied to the broader dialogue with the international community."

Nearly one in four young Afghans is unemployed, while restrictions on women's economic participation and education continue to undermine human capital development and future growth prospects.

Afghanistan is experiencing one of its largest waves of returns in recent history, with an estimated 4 to 4.7 million individuals returning between September 2023 and July 2025. The socio-economic profile of returnees is highly varied, with some bringing valuable skills and assets, while many remain vulnerable due to lack of education and limited resources. Local labor markets and public services is under strain, especially in border districts and urban centers.

Sustaining recovery will require reforms to boost private investment, deepen financial intermediation, diversify exports, and translate returnee-driven demand into productive employment opportunities. Strengthening governance, enabling private sector development, and attracting foreign investment will be critical to reducing Afghanistan's dependence on humanitarian aid and achieving resilient, inclusive growth.

About the Afghanistan Development Update

The Afghanistan Development Update is part of the World Bank's ongoing research, monitoring, and analytical work on Afghanistan's economy and society. It aims to support evidence-based policymaking and inform the international community on economic developments in Afghanistan.