Homeworld News

Explained: Afghanistan’s frail economy closer to collapse after Taliban takeover

This article is more than 10 month old.

Explained: Afghanistan’s frail economy closer to collapse after Taliban takeover


Afghanistan is largely dependent on foreign assistance and its illicit opium trade. Aid has fallen from 100 percent of GDP in 2009 to 42.9 percent of GDP in 2020. The Taliban’s return will further add to the economic meltdown.

Explained: Afghanistan’s frail economy closer to collapse after Taliban takeover
The long history of instability in Afghanistan’s political situation translates directly into an unstable economic situation. While the Afghan economy has seen bursts of modest growth, it remains fragile and aid-dependent.
GDP and US aid
As per data from the World Bank, the total GDP of Afghanistan in 2020 was just under $20 billion ($19.8 billion) with a GDP (PPP) worth about $70 billion. The GDP (PPP) per capita is around $2,000 with the population of the country at 39.7 million.
According to a report from the US Agency for International Development (USAID), the United States announced an additional $266 million in funding on June 4, 2021. As per the report, “total US humanitarian assistance for Afghanistan is more than $543 million since fiscal year 2020. This funding comes at a critical moment of rising humanitarian needs, as people continue to flee their homes due to conflict, and as COVID-19 has triggered an economic downturn that has led to rising food prices.”
But overall aid flows decreased from around “100 percent of GDP in 2009 to 42.9 percent of GDP in 2020.”
A lot has changed in Afghanistan since June. The Taliban’s return to power will bring its own set of problems for an economically impoverished country dependent on its illicit opium trade. 
Growth rate
Thanks to the constant influx of aid, mainly from the US and other global lenders since 2002, Afghanistan has witnessed rapid economic growth. Important social indicators for growth were met and Afghanistan’s economy grew steadily at around 9.4 percent between 2003 and 2012. This growth was attributed to a steady rise in the services sector combined with the strong performance of the agriculture sector.
Private sector
Most of the employment in the private sector is limited to low-productivity agriculture. According to data from the World Bank, 44 percent of the total workforce works in agriculture and 60 percent of households derive some form of income from agriculture.
A host of issues, like political instability, weak government institutions, lack of rule of law and general widespread corruption add to the difficulty of doing business in Afghanistan.
Import and export
In 2017, Afghanistan imported goods worth about $8 billion but exported only $784 million worth of products. Their main export was gold, accounting for more than 40 percent, followed by opium, grapes, fruits and nuts. They mostly imported wheat, petroleum, broadcast equipment and tobacco.
The lack of a robust institutional infrastructure combined with poor property rights is a major challenge to gaining financial access in Afghanistan. This has led to a lack of competition, which drives the trade deficit -- equal in value to 30 percent of Afghanistan’s GDP. In addition to financing 30 percent of the GDP, grants from wealthy expatriates and donor nations also account for 75 percent of public spending. The securities expenditure of the country is also high at around 28 percent of the GDP in 2019. In comparison, a developing low-income nation averages around 3 percent of the GDP for securities.
It should be noted that the illegal drug trade accounts for majority of production, exports and employment in Afghanistan. This includes illegal opium production and smuggling. Besides, there is also a thriving illegal mining sector.
next story

Market Movers