Afghanistan’s trade deficit surges amid economic uncertainty

Afghanistan’s economy showed growth in 2023-2024, but high poverty, unemployment, and weak demand persist. Inflation rose in December, while the trade deficit surged by 54% to $9 billion. Despite improved food exports, declines in textiles and coal exports signal ongoing economic challenges.

According to the World Bank’s recent report, Afghanistan’s economy showed growth in 2023 and 2024 period, but this growth has not been sufficient to improve key social indicators.

The outlook remains uncertain, with policy instability, financial isolation and a lack of resources holding back progress. High poverty, unemployment and limited resources continue to leave many people vulnerable, while the economy remains weak. Low demand for goods and services slows down growth and a sharp drop in foreign aid could worsen the situation by further reducing demand amd increasing economic pressures.

Compared to November 2024, in December 2024, food prices rose by 1.4 percent. Harsh winter conditions further disrupted harvests, leading to higher costs for essential items like edible oils, fats, vegetables, dairy and spices.

During the same period, prices in the non-food sector increased for items such as clothing, furniture, household goods, as well as for health services and education.

Although prices rose in December compared to November, overall prices in December 2024 were 1.8 percent lower than the previous year, thanks to a stronger Afghani currency and improved agricultural supply, despite weak exports.

In 2024, food prices fell by 4.5 percent, driven by higher imports and improved harvests. Meanwhile, non-food prices increased by 0.98 percent compared to 2023. Overall, domestic prices in 2024 were 6.5 percent lower than in the previous year.

Afghanistan’s trade deficit saw a sharp rise in 2024, increasing by 54 percent to reach 9 billion USD—equivalent to 45 percent of the country’s GDP. In contrast, the deficit stood at 5.9 billion USD, or 34 percent of GDP, in 2023. This surge was largely driven by the Afghani’s appreciation, influenced by unexplained foreign currency inflows, shifts in government policies, and intermittent border closures with Pakistan, Afghanistan’s primary export destination.

In 2024, food exports grew by 4 percent, reaching 1.3 billion USD, driven by Chinese tariff exemptions and improved trade relations with Pakistan. In contrast, textile exports declined by 14 percent to 242 million USD, while coal exports plummeted by 64 percent to 92 million USD as Pakistan sought alternative suppliers. As a result, total exports fell by 5 percent, settling at 1.8 billion USD.

In 2024, Afghanistan’s food exports increased, driven by improved trade agreements with China and Pakistan, creating more opportunities for local farmers and businesses. However, textile and coal exports declined, potentially impacting employment in these sectors. As a result, the overall drop in total exports could have broader economic consequences, influencing job availability and the cost of goods.

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