KEY HIGHLIGHT0S

Afghanistan’s economy remains under significant strain, constrained by limited fiscal space, declining humanitarian and foreign aid, high unemployment, and persistent poverty and food insecurity. Inflationary pressures, trade deficit, influx of returnees and natural disasters such as drought, floods and earthquakes are further compounding household vulnerabilities and limiting prospects for sustained economic recovery.

• Markets and external position: Regional tensions and unstable trade routes continue to pose price spikes and disrupt supply chains. The trade deficit widened by 47.6% in 2025 as imports demand increased while exports contract. A stronger Afghani resulted in cheaper imports in local currency while eroding the trade competitiveness of Afghan exports. Rising returnee inflows and climate-related shocks have further strained markets and food systems, intensifying pressure on household resilience.

• Inflation: Headline inflation reached 2.2% in July 2025, up from -10.2% in January 2024, marking the end of a prolonged deflationary period. Food inflation moved to 0.2%, with broad-based increases across oils, spices, fresh and dry fruits, cereals, dairy, and meat, while vegetables and sugar prices experienced declines. Non-food inflation rose to 3.9%, driven mainly by a 13.4% increase in housing costs. Although the overall inflation remains modest, it indicates rising cost-of-living pressures, particularly for low-income households.

• Exchange rate: The Afghani averaged AFN 68.5 per USD in August 2025, appreciating 0.7% month-on-month and 3.3% year-on-year. This stability, underpinned by strict monetary policies, limited liquidity of Afghani and regular USD injections by Da Afghanistan Bank, has reduced import costs but weakened export competitiveness. While the exchange rate remains 12% stronger than its two-year average, continued political uncertainty, reduced aid inflows, and regional instability, including restrictive trade policies, continue to pose risks to medium-term stability.
Global food and input markets show diverging trends, with cereals declining, vegetable oils rising, and fertilizers continuing their upward trajectory, while Afghanistan’s domestic markets remain relatively stable mainly supported by a stronger Afghani exchange rate.

• Cereals and vegetable oils: The FAO Cereal Price Index fell to 108 points in August 2025, down 0.8 percent from July and 4.1 percent year-on-year, driven by ample global supplies and subdued import demand, particularly in Asia and North Africa. In contrast, the FAO Vegetable Oil Price Index rose to 169.1 points (+1.4% m-o-m), its highest level since July 2022, fuelled by rising palm, sunflower, and rapeseed oil quotations.

• Fertilizers: The World Bank Fertilizer Price Index stood at 156.3 points in August (+1.1% m-o-m; +30% y-o-y), reflecting higher input costs, trade restrictions, and new EU tariffs on Russian and Belarusian nitrogen-based fertilizers. Urea and DAP prices surged by 48 and 46 percent year-on-year, respectively. Domestic fertilizer prices, however, remained broadly stable, supported by weaker farmer demand due to limited purchasing power, multiple source markets, and stable exchange rate.

• Domestic markets: National average food prices in August 2025 recorded a slight overall decline compared to July, mainly due to seasonal harvests that drove down vegetable prices, especially tomatoes. At the same time, staples such as wheat grain and low-price wheat flour increased month-on-month. Year-on-year, rice (Palawi) rose by 9 percent, cooking oil by 16 percent, and salt by 15 percent, whereas wheat grain, wheat flour, rice (Sholae), pulses, sugar, and bread prices declined. Non-food prices showed mixed movements: diesel rose by 3.6 percent compared to July and 6 percent year-on-year, while agricultural inputs and labour markets remained largely stable. Unskilled labour wages were unchanged month-on-month, though still lower than last year, keeping labour terms of trade below 2024 levels despite marginal recent improvements.