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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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Economic Commission approves expansion of Sher Khan port to boost regional trade

The commission also approved extending the port’s operating hours in coordination with Tajikistan to facilitate the movement of a greater number of commercial vehicles and improve cross-border trade.

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Afghanistan’s Economic Commission has approved a series of measures to expand the capacity of Sher Khan Port in an effort to strengthen trade with Tajikistan, Kyrgyzstan, and China.

The commission, chaired by Deputy Prime Minister for Economic Affairs Mullah Abdul Ghani Baradar, met on Tuesday to review proposals submitted by the Ministry of Transport and Civil Aviation aimed at increasing regional trade through the northern border crossing.

According to the approved plan, the Ministries of Finance, Interior, and other relevant institutions will develop new infrastructure at Sher Khan Port and expand existing facilities to accommodate growing trade volumes.

The commission also approved extending the port’s operating hours in coordination with Tajikistan to facilitate the movement of a greater number of commercial vehicles and improve cross-border trade.

In addition, the Ministry of Finance was instructed to allocate funding for the construction of a logistics center at Sher Khan Port. The facility will provide customs services, warehousing, cargo handling, and freight-loading operations to streamline trade activities.

The meeting also directed the Ministry of Public Works to construct the necessary railway infrastructure inside Afghanistan to activate the ECO railway corridor, a regional transport initiative linking Iran, Afghanistan, Tajikistan, and Kyrgyzstan under the framework of the Economic Cooperation Organization (ECO).

Separately, the commission decided that several state-owned entities will transfer their scrap iron to the National Development Company, which will process the material into standard steel reinforcing bars (rebar) for use in major government infrastructure projects.

The commission also endorsed 37 national standards and 12 testing methods proposed by the National Standards and Quality Authority. The standards cover agricultural products, food items, pharmaceuticals, construction materials, telecommunications and electrical equipment, chemicals, plastics, medical equipment, and several other sectors. Officials said the standards were developed in line with Afghanistan’s current needs and international benchmarks.

The meeting concluded with the presentation of follow-up reports on a number of ongoing issues, and relevant institutions were given the necessary directives. All decisions adopted during the session have been forwarded to the Office of the Supreme Leader for final approval.

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Afghanistan, Uzbekistan sign $50 million worth of trade agreements at Mazar-e-Sharif forum

The business forum reflects ongoing efforts by both countries to deepen commercial ties and promote regional economic integration through increased private-sector engagement.

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Afghanistan and Uzbekistan signed 25 cooperation agreements worth $50 million during a bilateral business forum held in the northern city of Mazar-e-Sharif, officials said.

Faiz Ahmad Khawafi, Deputy for Provincial Affairs at the Afghanistan Chamber of Commerce and Investment, said the agreements were signed in the presence of 130 Uzbek businessmen and investors, the governor of Uzbekistan’s Fergana region, as well as Afghan local officials and private sector representatives.

According to Khawafi, the agreements aim to expand bilateral trade, boost investment, and strengthen economic cooperation between Afghanistan and Uzbekistan.

The business forum reflects ongoing efforts by both countries to deepen commercial ties and promote regional economic integration through increased private-sector engagement.

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Iran seeks to establish free trade zone with Afghanistan and China

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Iranian officials have announced that they are pursuing a plan to establish a trilateral free trade and industrial zone between Iran, Afghanistan, and China aimed at expanding economic cooperation, attracting foreign investment, and strengthening transit routes.

Morteza Zakarian, Director General of Economic and Financial Affairs of Iran’s South Khorasan Province, said the proposal was put forward based on the geographical, mining, and transit capacities of the three countries, and that administrative and expert reviews of the plan are ongoing.

Speaking at a meeting with a Chinese economic delegation at the South Khorasan Special Economic Zone, Zakarian said the Iran-Afghanistan-China route could serve as a secure and sustainable corridor, creating opportunities for expanded trade and economic cooperation among regional countries.

He added that the proposal to establish the trilateral free trade zone was presented by the provincial governor during the Iranian president’s visit to South Khorasan in 2025.

Zakarian stressed that the implementation of the project should not rely solely on government resources, adding that the private sector, particularly Chinese investors, could play an important role in making the plan a reality.

The Director General of Economic and Financial Affairs of South Khorasan highlighted the province’s border location with Afghanistan, mineral resources, workforce, available land for economic projects, and position along major transit routes as key advantages.

He said Afghanistan’s mineral resources, rare elements, and transit position, along with China’s investment capacity, financing potential, and technological expertise, could contribute to this economic cooperation model.

Zakarian also noted the growing presence of Chinese investors in South Khorasan, saying that 12 investment projects by Chinese nationals have so far been approved in the province, with more than half receiving approval over the past two years.

 
 
 
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