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.