Afghanistan Economy Facts
Afghanistan has an artificial war economy, developed around the presence of foreign soldiers and the many international aid and development projects after the fall of the Taliban violence in 2001. This economy must be replaced with other industries if the country is to become independent of the outside world.
Traditionally, agriculture has been the backbone of the Afghan economy, but its importance has diminished during the many years of war, when parts of the countryside have been depopulated and the land damaged. However, about 60-80 percent of the working population in agriculture still accounts for more than one fifth of the country’s official GDP.
- Countryaah.com: Major imports by Afghanistan, covering a full list of top products imported by the country and trade value for each product category.
The foreign presence and migration into the cities during the 2000s and 2010s has meant that the emphasis in GDP has shifted from agriculture to trade and services, as well as construction and civil engineering.
But the official figures do not give the whole picture. A significant part of Afghanistan’s economy is based on opium cultivation, heroin trafficking and smuggling. The estimates of how much of the country’s real economy is based on opium shows how deficient all statistics in Afghanistan are. Numerous sources come from figures such as 13 percent, 25 percent and 33 percent.
- Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including AFG which represents the country of Afghanistan. Check findjobdescriptions to learn more about Afghanistan.
Chaotic war years
Afghanistan has always been poor, but by the end of the 1970s most people in the countryside still depended on what they could grow. In the cities, trade, crafts and industry flourished on a smaller scale. The social gaps were relatively small.
During the war years in the 1980s, the economy collapsed. By the time the Soviet troops returned home in 1989, food production had fallen to less than half before the war and the livestock population had fallen by perhaps a third. This was due both to the devastation of war and to the fact that large parts of the countryside had been emptied of people. Industry and crafts showed a corresponding decline.
After the fall of the communist regime, the economy was chaotic. During most of the 1990s, the country actually had several regional economies, which in some cases had their own currencies. The country’s outskirts were financially linked ever closer to their respective neighboring countries. After the Taliban’s takeover of 1996, contacts with Iran and most of Central Asia were broken without being replaced by new economic initiatives from Kabul.
Inflation was high during the communist era, but was still dampened by government price controls and subsidies. When these safeguards disappeared, the rate of increase in prices shot up to almost 200 percent per year. During the 2000s, inflation has been more manageable, with a peak of almost 30 percent in 2008.
High growth, continued poor
After the fall of the Taliban regime, Afghanistan experienced over a decade of strong economic growth, albeit from an absolute bottom level. Until 2012, GDP increased on average by just over 9 percent per year, sometimes significantly more, sometimes less. The fluctuations were mostly due to the outcome of agriculture, which is sensitive to variations in the weather. But growth was mainly dependent on international aid and money pumped into the country through the foreign soldiers and other foreign personnel. When the foreign presence of troops began to shrink a few years into the 2010s, GDP growth dropped rapidly to a much lower level.
Regardless of its growth, Afghanistan has remained one of the world’s poorest countries. The inflated, artificial economy has mainly benefited a domestic elite with good contacts with the international community. For example, housing demand has driven up rents in major cities to the Western European level.
Since 2001, multibillion amounts have been spent on rebuilding the country, primarily money from the United States, but significant sums have been lost through corruption or wasted on ill-conceived and poorly executed projects. And as usual when the rich countries gathered to pledge support to crisis-hit countries, large sums have never been paid.
One problem in the reconstruction work has been that most of the projects were driven by foreign forces, which made the work much more expensive than if domestic resources had been utilized. The buoyant wage situation of the foreign companies has also caused the Afghan government ministries and domestic companies to lose trained workers to these companies.
Concern for the future
In line with the declining foreign presence, investment has declined in the country and consumers have begun to hold more tightly in their wallets of concern for the future. In 2014, the finances deteriorated so much that the state found it difficult to pay salaries to public employees. Yet in 2018, almost half of the state budget was financed with aid.
There is also concern that many large-scale projects financed and built by the United States and other Western countries are likely to fall into disrepair if aid falls over the next few years, as the Afghan state will not be able to afford to pursue them and provide maintenance.
The collection of taxes and duties has improved since the beginning of the century, but must be even better if the country can stand on its own. One problem with getting companies and individuals to pay taxes is that they do not feel that they are receiving anything back. The roads are just as bad and the electricity outages are equally long regardless of how much they pay to the state.
Much of Afghanistan is beyond the control of the state. This is where the Taliban economy usually prevails. It consists of opium trade, taxation of private individuals and companies, gifts from sympathizers, and extortion and protection activities. In some places, the Taliban levy taxes on farmers’ harvest income and on wealth. Opium production is generating enough to finance the Taliban’s fighting against the government forces in the most important opium provinces in the south. There is also information that some of the aid money comes to the Taliban through extortion and threats.
In the fall of 2010, a scandal was revealed that caused the outside world to review its financial support for Afghanistan. When it emerged that the owners of Kabul Bank, which in many cases had close personal ties to the government, had granted themselves large loans virtually without collateral. Close to a billion dollars was suspected to have been used for private luxury consumption and daring investments.
Kabul Bank, which handled the salaries of the country’s thousands of public servants, was close to falling over before the Afghan central bank intervened and took it over for $ 820 million of its own reserves. The government and the central bank’s handling of the scandal, and their seeming reluctance to deal with the ills in the country’s financial sector, first got the UK and later in 2011 the IMF to withhold payments of several hundred million dollars in promised financial support.
In March 2013, two of Kabul Bank’s former top executives were sentenced to five years in prison and a total of more than $ 800 million in fines. The sentence was sharpened in November 2014 to ten years in prison.
Corona pandemic beats the economy
When the corona pandemic hit most of the world’s countries from the spring of 2020, it soon became clear that Afghanistan was at risk of becoming one of the worst affected, both health and economic. GDP shrank while unemployment and poverty increased. Rescue packages came in the spring from the World Bank, and the IMF contributed emergency loans.
Read more about the opium trade in Agriculture and Fisheries.
FACTS – FINANCE
GDP per person
US $ 521 (2018)
US $ 19,363 million (2018)
1.0 percent (2018)
Agriculture’s share of GDP
20.5 percent (2017)
Manufacturing industry’s share of GDP
11.1 percent (2017)
The service sector’s share of GDP
52.7 percent (2017)
2.6 percent (2019)
Government debt’s share of GDP
6.9 percent (2018)
US $ 2,552 million (2017)
US $ 784 million (2017)
US $ 7 024 million (2017)
– US $ 4 227 million (2017)
Commodity trade’s share of GDP
43 percent (2018)
Main export goods
opium (unofficial), fruits and nuts, carpets, wool, cotton, leather goods, precious stones
Largest trading partner
Pakistan, India, Iran, China (2017)
Isaf’s responsibilities are expanded
Isaf’s responsibilities are extended to the entire country, while 12,000 American soldiers are transferred to Isaf.
New government approved
Nearly a year after the parliamentary elections, the new government is ready, after Parliament rejected several of the presidential nominations.
Fighting is increasing in the south
Isaf commands all military operations in the southern provinces. New tough battles are being fought in strong Taliban strongholds.
Increased mission for the Swedish soldiers
Sweden’s Isaf force takes responsibility for four northern provinces.
$ 10 billion pledge
At an international donor meeting in London, more than $ 10 billion is promised in reconstruction support for five years.