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Afghanistan economy under pressure as Pakistan shocks reshape trade flows
Afghanistan’s economy continued to face strong headwinds in late 2025 as concurrent shocks — including mass refugee returns, drought, earthquakes, and shifting regional dynamics — strained growth and weakened investment momentum, according to the latest Afghanistan Economic Monitor released by the World Bank.
The report says that while low inflation and stable revenues have supported modest economic expansion, rapid population growth driven by large-scale returns from Iran and Pakistan has outpaced job creation, limiting improvements in average household incomes.
Inflation eased slightly in September 2025, with the Consumer Price Index falling 0.4 percent month-on-month as food prices declined. Fresh and dried fruits dropped by 4.6 percent due to seasonal harvests, while small increases were recorded in vegetables and spices.
Non-food inflation rose marginally, with housing costs climbing 1.7 percent amid rising rents in Kabul and other major cities. Year-on-year inflation slowed to 2.1 percent, down from 3.1 percent in August.
The Afghani strengthened against the U.S. dollar in both monthly and annual terms, but lower domestic inflation offset much of the nominal gain. The Real Effective Exchange Rate fell 1.1 percent, helping maintain Afghanistan’s external competitiveness against its major trading partners.
Trade flows were significantly disrupted by the mid-October closure of the Durand Line crossings with Pakistan, historically Afghanistan’s largest trade corridor. Despite the disruption, exporters quickly rerouted goods through Iran and Central Asia. The trade deficit narrowed slightly to $0.88 billion, supported by a 13 percent rebound in exports to $267 million.
Food exports — now the backbone of Afghanistan’s export economy — surged, reaching $ 238million in October and rising more than 22 percent over the first seven months of FY2025. India emerged as Afghanistan’s top export destination, accounting for 50 percent of October’s shipments, while Pakistan’s share declined sharply due to crossing closures.
Imports rose 2 percent month-on-month to $1.15 billion but fell 4.5 percent year-on-year. A structural shift toward Iran and Central Asia accelerated, with Iran supplying 29 percent of Afghanistan’s total imports so far in FY2025, followed by the United Arab Emirates at 19 percent.
The report warns that Afghanistan’s increasing dependence on food exports and redirected trade routes leaves the economy vulnerable to climate shocks and further regional instability, underscoring the need for strengthened infrastructure, diversified markets, and increased investment.
Afghanistan’s Ministry of Interior Affairs says Sirajuddin Haqqani attended a graduation ceremony for more than 400 students of Noor-ul-Madaris Madrasa in Ghazni province.
The ministry said graduates from various departments of the madrasa received their graduation certificates at the ceremony.
According to the ministry, Haqqani highlighted the importance of education, good conduct and personal reform, while praising the contributions of religious scholars and clerics to the country’s academic and jihad-related efforts, as well as its reconstruction.
He also called on people to follow the teachings and example of religious scholars and predecessors and uphold their moral values and good conduct.
India has made it mandatory for Afghan Hindus and Sikhs who entered the country without valid travel documents to obtain visas to continue their stay.
The Indian Ministry of Home Affairs amended the Immigration and Foreigners (Exemption) Order, 2025, through a notification issued on Wednesday, The Hindu reported.
Under the amendment, Afghan Hindus and Sikhs who entered India on or before December 31, 2024, must obtain an appropriate category of visa to remain in the country.
The provision applies to those who entered India without valid travel documents or whose documents have since expired after seeking shelter due to religious persecution or fear of persecution.
The amendment retains an earlier exemption introduced on September 2, 2025, which allowed members of six non-Muslim communities from Afghanistan, Pakistan and Bangladesh to enter India without valid passports or visas. However, the latest notification requires them to obtain an appropriate visa after entering the country to continue their stay.
Afghanistan has the potential to generate up to 220 gigawatts of electricity from solar energy, yet it spends more than $280 million annually on electricity imports, the United Nations Development Programme (UNDP) says.
In a post on social media platform X on Thursday, UNDP said tapping into the country’s solar energy potential could reduce its reliance on imported electricity and expand public access to clean and sustainable energy.
According to the agency, more than 80 percent of Afghanistan’s electricity needs are currently met through imports, despite the country’s estimated solar power generation potential of up to 220 gigawatts.
Afghanistan imports most of its electricity from Tajikistan, Uzbekistan, Turkmenistan and Iran. Despite having considerable solar, wind and hydropower resources, the country has remained heavily dependent on foreign electricity supplies.
UNDP said that since 2021, its projects have helped more than 5.5 million people in Afghanistan gain access to clean energy.
The agency stressed the need for greater investment and cooperation among relevant institutions to harness Afghanistan’s solar energy potential and expand sustainable domestic electricity generation.
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