Afghanistan shows signs of economic recovery, with GDP projected to grow 4.3% in 2025, up from 2.5% in 2024, the World Bank reports.
This economic boost is supported by stable low inflation at 2% and rising demand in the services and industry sectors from over 2mn returnees from Iran and Pakistan. However, rapid population growth, a fragile banking sector, high unemployment, and the exclusion of women from economic and educational opportunities continue to pose challenges for Afghanistan’s development.
While Afghanistan maintains one of the lowest inflation rates in Central Asia, averaging 2% in 2025 due to stable food prices and currency appreciation, the economy remains heavily dependent on imports and vulnerable to external shocks. Rapid population growth is projected to reduce GDP per capita by 4%.
Domestic tax revenues are expected to reach 17.1% of GDP this year, supported by stronger enforcement and compliance measures. Nevertheless, declining external grants leave the country reliant on donor support and trade-related taxation. The banking sector remains fragile, grappling with regulatory uncertainty, rising non-performing loans, and limited lending, while the transition to Islamic finance and restricted access to formal banking continue to constrain financial inclusion, particularly for recent returnees.
Unemployment affects one in four Afghan youth, and limitations on women’s education and economic participation further undermine human capital development. The World Bank emphasizes that sustaining Afghanistan’s recovery will require reforms to boost private investment, diversify exports, expand financial access, and create jobs for returnees, alongside strengthening governance and attracting foreign investment to reduce reliance on humanitarian aid.
International support is also playing a key role in Afghanistan’s recovery. On December 11, the European Union (EU) has pledged €25mn to Afghanistan via the United Nations World Food Programme (WFP) to enhance community resilience and improve nutrition. In addition, Uzbekistan will continue supplying electricity to Afghanistan in 2026, following the signing of a contract securing ongoing cooperation in power transmission and infrastructure development.
