Afghanistan’s Fragile Economic Stabilisation
Afghanistan’s Fragile Economic Stabilisation
Five years after the Taliban returned to power, Afghanistan’s economic and international position is far more contradictory than either the word of collapse or consolidation suggests. The economy has returned to growth after the shock that followed 2021. The Taliban administration has improved domestic revenue collection, dramatically reduced opium poppy cultivation, sought foreign investment in the country’s mineral resources and promoted regional infrastructure projects that could eventually turn Afghanistan into a transit state between Central and South Asia.
Yet none of this amounts to sustainable economic convergence. Growth is coming from a very low base, GDP per capita is falling, external financing remains constrained and private-sector development is held back by structural problems ranging from poor access to credit to inadequate electricity supply. The same contradiction defines Afghanistan’s international position. Formal diplomatic recognition of the Taliban government remains the exception. Practical engagement with it increasingly does not. Afghanistan has not become a fully accepted member of the international system, but it is gradually becoming impossible to ignore.
Afghanistan’s economic trajectory since 2021 can broadly be divided into two periods. The change of regime was followed by a severe economic contraction as foreign assistance collapsed, international financial links were disrupted and access to Afghan central bank assets held abroad was restricted. Over the two years following 2021, the economy contracted by more than a quarter. A gradual recovery has since begun. According to the World Bank’s May 2026 estimates, Afghanistan’s real GDP grew by 4.8 per cent in 2025. At first sight, this appears encouraging. But the headline figure conceals a much less favourable underlying picture. Domestic demand was boosted in part by the return of millions of Afghans from Iran and Pakistan. The World Bank estimates that around 3.7 million people returned, while Afghanistan’s population increased by approximately 11 per cent in 2025. As a result, GDP per capita fell by 5.6 per cent. In other words, Afghanistan’s economy expanded in aggregate while economic output per person deteriorated. What the country is experiencing is therefore better described as “macroeconomic stabilisation” than economic recovery in the broader developmental sense.
One of the Taliban administration’s clearest achievements has been revenue mobilisation. Domestic revenues reached an estimated 19.8 per cent of GDP in 2025, helped by tighter tax and customs collection. Yet declining external assistance continues to limit the state’s capacity to invest. Afghanistan’s external position is also extremely fragile. Meanwhile, insufficient electricity supply, limited access to finance and the scale of the informal economy continue to restrict private investment and productivity growth. The past five years should therefore be understood neither as a story of continuing economic collapse nor as a Taliban economic success story. The authorities have restored parts of the state’s revenue-collecting machinery and prevented the contraction of 2021-22 from continuing indefinitely. They have not yet created the investment and productivity dynamics necessary to produce sustained improvements in living standards.
Another mentionable thing is maybe the most striking economic intervention of the past five years concerned an illegal industry. In April 2022, the Taliban leader ordered a ban on opium poppy cultivation and narcotics production. By 2023, enforcement had produced a reduction a very few experts had anticipated. According to the UN Office on Drugs and Crime, the area under poppy cultivation fell from around 233,000 hectares in 2022 to just 10,800 hectares in 2023 – a decline of 95 per cent. Farmers’ estimated income from opium sales collapsed from $1.36 billion to around $110 million. The decline has largely persisted. After a limited rebound in 2024, poppy cultivation fell again to roughly 10,200 hectares in 2025, with potential opium production estimated at 296 tonnes – a fraction of pre-ban levels. From a narcotics-control perspective, this is arguably the Taliban government’s most impressive demonstration of administrative enforcement capacity. Economically, however, the picture is considerably more complicated. Opium supported an extensive rural economic ecosystem encompassing landowners, sharecroppers, seasonal labourers, traders and transport networks. Poppy was attractive not only because of its profitability, but also because it was relatively drought-resistant, easy to store and readily marketable in a country where access to irrigation, formal credit and reliable markets remains extremely limited.
The problem, therefore, is not the elimination of poppy cultivation itself, but what has followed it. No legal alternative of comparable scale has emerged to replace the income generated by the opium economy. At the same time, the sharp decline in poppy cultivation has not meant the disappearance of Afghanistan’s illicit drug economy. Production has increasingly diversified towards other substances, most notably methamphetamine, suggesting that parts of the narcotics economy have adapted rather than disappeared. This exposes a broader weakness in Afghanistan’s economic transformation. Suppressing an illegal economy does not automatically create the institutions of a functioning legal one. Farmers need access to credit, irrigation, processing facilities, markets and agricultural value chains capable of generating viable incomes. Afghanistan still lacks these at sufficient scale.
The absence of valid alternatives in the rural economy is part of a broader challenge: Afghanistan still lacks enough legal sources of income, investment and export revenue to replace what has been lost. With aid flows reduced and export revenues limited, Afghanistan’s mineral resources have become increasingly central to the Taliban’s economic strategy. The country possesses significant deposits of copper, iron ore, gold, zinc and lead, alongside potential lithium and other minerals important to modern industry. Yet claims about Afghanistan’s vast underground wealth require caution. Turning mineral deposits into export earnings requires operating mines, reliable electricity, transport infrastructure, financing, security and a legal framework in which investors are willing to make commitments lasting decades. The gap between potential and reality was illustrated by a series of mining agreements announced in August 2023. Kabul presented seven contracts covering iron, gold, lead and zinc extraction in several provinces, with proposed investment valued at roughly $6.5 billion. Afghan companies involved in the agreements had partners from countries including China, Iran and Türkiye. But contractual investment commitments should not be treated as realised foreign direct investment. Mes Aynak provides the clearest example. China’s Metallurgical Corporation of China and Jiangxi Copper secured the rights to develop the giant copper deposit in Logar province in 2008. Estimated to contain more than 11 million tonnes of copper, it is one of Afghanistan’s most important potential mining projects. Yet commercial extraction failed to begin for more than fifteen years because of infrastructure constraints, security concerns and the archaeological heritage located at the site. Road construction linked to Mes Aynak began in 2024, suggesting that both Kabul and the Chinese side remain interested in moving the project forward. According to the Afghan foreign ministry, Beijing also signalled in 2025 that it wanted to deepen practical mining cooperation and encourage Afghanistan’s closer participation in the Belt and Road Initiative. Russia occupies a different position. Russian firms have explored possible cooperation in mining, energy and infrastructure, and Moscow has repeatedly expressed interest in joint extraction projects. So far, however, Russia’s economic role has been more tangible in trade, energy supply and prospective infrastructure cooperation than in large-scale metals production.
The difficulties surrounding mineral development point to Afghanistan’s deeper structural problem: it is landlocked, its transport infrastructure is fragmented and its railway network remains extremely limited. For that reason, regional connectivity may ultimately prove more transformative than any individual mining concession. The most ambitious proposal is the Trans-Afghan Railway linking Uzbekistan to Pakistan through Afghan territory. Its strategic logic is straightforward. It would give double-landlocked Uzbekistan – and potentially Central Asia more broadly – a shorter southern route towards Pakistani ports, while turning Afghanistan into an important transit corridor between Central and South Asia. The project moved forward in July 2025 when Afghanistan, Uzbekistan and Pakistan signed an agreement to prepare a joint feasibility study. Uzbekistan subsequently approved the necessary domestic implementation procedures in February 2026. The railway has therefore moved beyond being purely a political vision, but it remains far from construction. The obstacles are substantial: Afghanistan’s difficult terrain, the need for multibillion-dollar financing, different railway gauges between Central and South Asia, and, above all, political and security risks. Relations between Kabul and Islamabad have deteriorated significantly, with Pakistan accusing the Afghan authorities of failing to act against the Pakistani Taliban. If built, however, it could fundamentally reshape Afghanistan’s economic geography. Transit revenues, logistics investment and new export opportunities could emerge around the corridor, while lower transportation costs could also make some mining projects more commercially viable. Central Asia, meanwhile, would gain another potential route towards the Arabian Sea.
Yet even if projects such as the Trans-Afghan Railway eventually improve Afghanistan’s regional economic position, they do little to resolve the more immediate question of how ordinary Afghans are living. The contrast between improving headline economic indicators and conditions at household level remains stark. According to UNDP’s 2026 socioeconomic assessment, around 74 per cent of Afghans – roughly 28 million people – were still unable to meet their basic subsistence needs in 2025. More than 80 per cent of households were in debt, while nearly three quarters relied on negative coping strategies to cover essentials such as food, housing, healthcare and heating. Restrictions on women add another structural constraint to both household incomes and the wider economy. Women are barred from many forms of employment and face severe restrictions on education, mobility and economic participation. In 2024, only around 24 per cent of Afghan women participated in the labour force, compared with almost 90 per cent of men, while nearly four in five young women were neither in education, employment nor training. UN Women estimates that the economic exclusion of women alone could cost Afghanistan around $920 million between 2024 and 2026. These restrictions are often discussed primarily as a human-rights issue, which they undoubtedly are. But they are also an economic one. In a country where household incomes are already under severe pressure, excluding a large share of the adult population from education and meaningful employment reduces earning capacity, shrinks the pool of skilled workers and makes it harder for families to absorb economic shocks.
This is perhaps the clearest contradiction in Afghanistan’s economy five years into Taliban rule. The government has become better at collecting revenue and enforcing its decisions, but this has done little to improve the economic situation of its citizens. Afghanistan may be more economically stable than it was in 2021 or 2022, but for a large part of its population, stability still falls far short of prosperity.
Author: Blanka Benkő-Kovács, advisor - LCTS, LUPS
Image source: telepolis.de