Afghanistan Economic Monitor

Overview & Synopsis

This report covers developments through May 2026, highlights that Afghanistan’s economy continues to recover modestly, supported by stronger domestic demand, relative price stability, and improved revenue mobilization. However, rapid population growth driven by the return of millions of Afghans has outpaced economic growth, resulting in declining per capita incomes and continued pressure on household welfare. The report notes that inflation eased in May 2026 as improved food supplies and the domestic harvest season reduced food prices, although housing and healthcare costs remained elevated. The Afghani appreciated against major currencies, while lower inflation relative to trading partners improved external competitiveness. Trade activity remained constrained by the closure of key border crossings with Pakistan and ongoing regional geopolitical tensions, prompting a shift toward alternative transit routes through Iran and Central Asia. Exports and imports both declined during the month, although the trade deficit narrowed. The report also highlights Afghanistan’s continued dependence on a narrow export base and limited transit corridors, increasing vulnerability to external shocks. Despite a sharp decline in customs revenues caused by trade disruptions, strong non-tax revenue growth helped support overall fiscal performance, while public expenditure increased following delayed budget approval. The report concludes that although economic recovery is continuing, persistent structural weaknesses, limited investment, trade disruptions, and population pressures continue to constrain living standards and long-term development prospects.