Afghanistan’s GDP growth is weak, but the people have suffered a loss of 5.6% income per capita. The World Bank’s latest Afghanistan Economic Monitor says economic recovery is not keeping up with the rapid population growth, largely due to the return of millions of Afghans who need relief from international bodies such as the United Nations

Resilient domestic demand, stable prices and higher domestic value-added tax collection have supported the recent economic growth, the report adds. This growth rate, however, is still not enough to enhance the standard of living and households are increasingly being pushed into financial difficulties..

Despite the step down in headline inflation to 7.6% YoY in June, from 8.0% YoY in May, underlying pressures are still high. Food inflation slowed to 7.2% with the onset of the rainy season and the expected harvest of foodstuffs despite the trade disruptions in the region. Meanwhile, the underlying inflation rate, which excludes food and energy, rose to 8.3%, driven primarily by increases in housing and healthcare prices. This means that households are still struggling with increased costs of living and have to pay more for food despite the lower prices.

Trade Shifts and Currency Fluctuations

In June, the Afghan currency lost ground slightly, falling 1.6% from the previous month’s rate to 64.4 afghanis to the dollar, although some of the monthly gains were offset. The month’s decline did little to move the currency back from a year ago level, however, as there was continued demand and a lack of liquidity within the country.

The trade deficit in Afghanistan increased sharply in the month of June, growing by 11% from the month before and by 19% compared to the same month of the previous year, driven by exports falling short of imports, reaching $984.3 million. The geopolitical tensions and the closing of important crossing points with Pakistan have had a significant effect on trade, with businesses increasingly using the Central Asian trade routes.

At present, 48% of imports are transiting through the Central Asian routes while 46% are transiting via Iran and few imports are transiting via Pakistan. Total imports rose 10% in the month following a rise in demand for basic commodities and raw materials. The share of capital goods was only 8% of total imports, reflecting ongoing slow down in investment. Iran continued to be the biggest source of imports, followed by the U.A.E, China, and Uzbekistan.

June exports rose 19% from a year ago but fell 2% from May and reached $77.7 million. Textile exports, which were diverted to China through Central Asia, surged by a massive 67% in the month, offsetting some of the lower food exports. Since the closure of the border crossings with Pakistan, coal export continued to be negligible. Food products continued to be the largest share of exports at 61%, with India remaining the country’s largest exporter market, followed by Iran, Uzbekistan, and China.

Despite some signs of economic resilience and increased domestic revenue than last year, the World Bank states that Afghanistan remains at a high risk. Regional instability, border closures, reduction of humanitarian assistance and limited private investments are all hampering the chances of achieving durable improvements in the lives of Afghan people.