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Afghan economy posts second year of growth despite deep structural challenges

The recent uptick has been driven in part by increased demand linked to the return of more than two million Afghans from Iran and Pakistan, boosting activity in the services and industrial sectors.

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Afghanistan’s economy is set to record a second consecutive year of growth, supported by low inflation and stronger domestic revenues, but deep structural challenges continue to weigh heavily on the country’s long-term outlook.

According to the World Bank’s latest Afghanistan Development Update, cited by Himalaya Diary, gross domestic product is projected to expand by 4.3 percent in 2025, following an estimated 2.5 percent growth in 2024.

The recent uptick has been driven in part by increased demand linked to the return of more than two million Afghans from Iran and Pakistan, boosting activity in the services and industrial sectors.

Agriculture has shown relative resilience, with a record irrigated wheat harvest achieved despite severe drought conditions. Mining and construction have also contributed to overall output growth, helping sustain economic momentum.

However, the recovery has not translated into improved living standards. Rapid population growth, estimated at 8.6 percent in 2025, is expected to push GDP per capita down by around 4 percent. Inflation remains low at about 2 percent — among the lowest in the region — reflecting stable food prices and a stronger currency, but also highlighting Afghanistan’s reliance on imports and exposure to external shocks.

On the fiscal front, domestic revenues have improved, with tax collection projected to reach 17.1 percent of GDP in 2025 as enforcement measures tighten. At the same time, declining foreign grants are shrinking the overall fiscal space, increasing reliance on trade taxes and continued donor support.

The financial sector remains under strain. Banks face regulatory uncertainty, rising non-performing loans and weak credit growth, while liquidity pressures persist as more cash circulates outside the formal system. Limited access to banking services and the transition to Islamic finance have further constrained financial inclusion.

Labour market pressures are also mounting. Nearly one in four young Afghans is unemployed, and restrictions on women’s education and economic participation are undermining human capital and long-term growth prospects. These challenges are compounded by one of the largest return migration waves in recent years, with an estimated 4 to 4.7 million people returning between late 2023 and mid-2025, intensifying pressure on jobs and public services, particularly in urban and border areas.

The World Bank warns that sustaining the recovery will require reforms to attract private investment, strengthen the financial system and diversify exports. Improved governance, a more supportive business environment and stronger engagement with international partners will be critical if Afghanistan is to reduce its reliance on humanitarian aid and move toward more resilient and inclusive growth.

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500 Jeribs of land allocated for industrial park in Kandahar

The land, located in the Noda area of Daman district, was formally handed over to the Directorate of Industry and Commerce after the completion of all legal and administrative procedures.

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Five hundred jeribs of state-owned land have been officially allocated for the construction of an industrial park in Daman district of Kandahar province, based on a decree issued by the Islamic Emirate’s Supreme Leader decree.

The land, located in the Noda area of Daman district, was formally handed over to the Directorate of Industry and Commerce after the completion of all legal and administrative procedures.

The transfer was carried out by the General Directorate of Land Affairs of the Ministry of Agriculture, with technical cooperation from the Kandahar Department of Agriculture, Irrigation and Livestock.

Esmatullah Farhad, director of land transfer and distribution, said a standard industrial park will be developed on the site, providing space for industrial factories and contributing to the growth of industry and expansion of trade in Kandahar.

Officials say the move is part of broader efforts to strengthen economic infrastructure, support investment, and promote domestic production in the country.

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Afghanistan Chamber of Commerce officials meet FM Muttaqi to discuss trade issues

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Officials from the Afghanistan Chamber of Commerce and Investment (ACCI) met with Foreign Minister Amir Khan Muttaqi on Tuesday to discuss key issues related to trade, transit, and investment in the country.

During the meeting, Syed Karim Hashemi, head of the ACCI, highlighted the importance of attracting foreign investors to various economic sectors and called on the Ministry of Foreign Affairs to provide additional support and facilitation to encourage investment. He also addressed matters concerning the operations and development of the Chamber itself.

Minister Muttaqi welcomed the Chamber’s proposals and pledged full cooperation from the Ministry in trade and transit initiatives, particularly by creating enhanced facilities for foreign investors to promote economic growth in Afghanistan.

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Trump says nations doing business with Iran face 25% tariff on US trade

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President Donald Trump said on Monday any country that does business with Iran will face a tariff rate of 25% on any trade with the U.S., as Washington weighs a response to the situation in Iran which is seeing its biggest anti-government protests in years.

“Effective immediately, any Country doing business with the Islamic Republic of Iran will pay a Tariff of 25% on any and all business being done with the United States of America,” Trump said in a post on Truth Social, Reuters reported.

Tariffs are paid by U.S. importers of goods from those countries. Iran, a member of the OPEC oil producing group, has been heavily sanctioned by Washington for years. It exports much of its oil to China, with Turkey, Iraq, the United Arab Emirates and India among its other top trading partners.

“This Order is final and conclusive,” Trump said without providing any further detail.

There was no official documentation from the White House of the policy on its website, nor information about the legal authority Trump would use to impose the tariffs, or whether they would be aimed at all of Iran’s trading partners. The White House did not respond to a request for comment.

The Chinese embassy in Washington criticized Trump’s approach, saying China will take “all necessary measures” to safeguard its interests and opposed “any illicit unilateral sanctions and long-arm jurisdiction.”

“China’s position against the indiscriminate imposition of tariffs is consistent and clear. Tariff wars and trade wars have no winners, and coercion and pressure cannot solve problems,” a spokesperson of the Chinese embassy in Washington said on X.

Iran, which had a 12-day war with U.S. ally Israel last year and whose nuclear facilities the U.S. military bombed in June, is seeing its biggest anti-government demonstrations in years.

Trump has said the U.S. may meet Iranian officials and that he was in contact with Iran’s opposition, while piling pressure on its leaders, including threatening military action.

Tehran said on Monday it was keeping communication channels with Washington open as Trump considered how to respond to the situation in Iran, which has posed one of the gravest tests of clerical rule in the country since the Islamic Revolution in 1979.

Demonstrations evolved from complaints about dire economic hardships to defiant calls for the fall of the deeply entrenched clerical establishment. U.S.-based rights group HRANA said it had verified the deaths of 599 people – 510 protesters and 89 security personnel – since the protests began on December 28.

While air strikes were one of many alternatives open to Trump, “diplomacy is always the first option for the president,” White House press secretary Karoline Leavitt said on Monday.

During the course of his second term in office, Trump has often threatened and imposed tariffs on other countries over their ties with U.S. adversaries and over trade policies that he has described as unfair to Washington.

Trump’s trade policy is under legal pressure as the U.S. Supreme Court is considering striking down a broad swathe of Trump’s existing tariffs.

Iran exported products to 147 trading partners in 2022, according to World Bank’s most recent data.

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