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Afghanistan’s struggling economy sparks deflation, soaring poverty

AT News

KABUL – A new World Bank report unveils the dire economic situation in Afghanistan, saying the nation’s feeble economy has led to deflation and increasing poverty. The report reveals a persistent deflationary trend since April 2023, triggered by a variety of factors such as currency appreciation, depleting savings, reduced public spending, and the ban on opium cultivation affecting farmers’ income.

Afghanistan witnessed a staggering -9.7% year-on-year headline inflation in December 2023, with both food and non-food inflation plummeting. This economic downturn has resulted in a spike in unemployment, pushing half of the population into poverty and leaving 15 million people grappling with food insecurity.

Notably, the report highlights a significant shift in exports, with coal exports plummeting by 46% to $257 million in 2023. Meanwhile, food and textile exports experienced growth, with India offsetting the decline in exports to Pakistan. Imports, however, outpaced exports, leading to a widening merchandise trade deficit of $5.9 billion in 2023.

Despite the trade deficit, the Afghani appreciated against major currencies in 2023, signaling challenges in understanding the monetary policy stance of Da Afghanistan Bank. Recent trends show a reversal, with the Afghani depreciating against major currencies in January 2024.

Revenue collection also fell short of targets, with both domestic revenue and border taxes underperforming. The report underscores the challenges in implementing rigorous tax collection measures in a constrained economic environment, warning of potential adverse impacts on growth, poverty, and businesses.

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