A new SAARC report points to improving economic activity and banking stability in Afghanistan, but a widening trade imbalance, rising imports and declining exports continue to pose challenges.

Afghanistan’s economy has shown signs of gradual recovery with improved commercial activity and a relatively stable banking sector, but a sharp rise in imports and a decline in exports have widened the country’s trade deficit, according to a new report released by the South Asian Association for Regional Cooperation (SAARC).

The report indicates that Afghanistan’s imports rose by 37 per cent during the previous fiscal year, reaching approximately $11.7 billion. Exports, meanwhile, stood at $1.74 billion, reflecting a slight decline compared with the preceding year. The findings underscore the persistent structural weaknesses in Afghanistan’s economy despite indications of increased business activity and greater financial stability.

Trade Deficit Remains a Major Concern

The latest figures point to a substantial imbalance between imports and exports, leaving Afghanistan heavily dependent on foreign goods and vulnerable to external economic shocks. According to the SAARC assessment, the growth in imports significantly outpaced domestic export earnings, contributing to a widening trade gap.

Economic analysts say the trend reflects both growing consumer demand and the country’s limited industrial and manufacturing capacity. Afghanistan continues to rely heavily on imported fuel, machinery, construction materials, food products and consumer goods, while exports remain concentrated in agricultural products, dried fruits, carpets, coal and minerals.

Data from international trade monitors also show that Afghanistan’s imports have increased sharply in recent years while export growth has remained uneven. A recent trade profile noted that imports surged because of rising demand for transportation equipment, petroleum products, chemicals and food items.

The trade imbalance remains one of the biggest obstacles to long-term economic sustainability. According to World Bank-linked trade data, Afghanistan continues to record a large merchandise trade deficit, with imports substantially exceeding exports.

Banking Sector Shows Signs of Stability

Despite the challenges facing external trade, the SAARC report points to improvements in Afghanistan’s banking sector and broader economic conditions. The report suggests that commercial activity has increased compared with previous years and that financial institutions have demonstrated a degree of resilience amid difficult circumstances.

Since the political transition of 2021, Afghanistan’s banking system has faced liquidity constraints, sanctions-related challenges and reduced international engagement. However, local authorities have repeatedly reported gradual improvements in banking operations, electronic transactions and domestic financial services.

The relative stability of the banking sector is viewed as important for supporting business confidence, facilitating trade and encouraging investment. Economists note that a functioning financial system is essential for processing payments, extending credit and supporting entrepreneurship.

Regional Trade Opportunities Emerging

Recent developments suggest that Afghanistan may be finding new opportunities in regional markets. Trade with neighbouring countries, particularly Iran and Central Asian states, has shown signs of expansion.

In May, Iranian officials reported a dramatic increase in imports from Afghanistan, citing growing demand for Afghan products and the proximity of Afghan producers to Iranian markets. Imports from Afghanistan to Iran reportedly increased by more than 850 per cent during recent months.

Trade with Central Asian countries has also expanded. Earlier reports indicated that Afghanistan’s trade with the region exceeded $1 billion, although imports accounted for the overwhelming majority of the total volume.

These developments highlight the importance of regional connectivity for Afghanistan’s economy. Improved transport corridors, border facilities and trade agreements could help Afghan exporters access larger markets while reducing logistical costs.

Persistent Challenges to Export Growth

While regional opportunities are increasing, Afghanistan continues to face significant barriers to export expansion.

The country’s export sector remains heavily dependent on agricultural commodities and a limited range of products. Market access issues, transportation costs, border disruptions and insufficient processing facilities continue to constrain export competitiveness.

The World Bank’s Afghanistan Economic Monitor has warned that border closures and trade disruptions have increased transportation costs and created vulnerabilities for Afghan businesses. Alternative routes through Iran and Central Asia have helped maintain trade flows but often involve higher costs and longer delivery times.

Export performance has also been affected by changing demand patterns in neighbouring countries. International trade assessments indicate that some Afghan exports, including coal and textiles, experienced declines due to shifting market conditions and tariff-related challenges.

At the same time, sectors such as food products and agricultural exports have shown resilience, benefiting from improved market access and stronger regional demand.

Outlook for the Afghan Economy

Looking ahead, economists believe Afghanistan’s economic recovery will depend largely on its ability to strengthen exports, attract investment and diversify sources of growth.

The Asian Development Bank has projected that Afghanistan’s trade deficit could widen further in the coming years if imports continue to rise faster than exports. Increased household spending and greater economic activity may boost demand for imported goods, making export expansion even more critical.

Experts argue that investment in agriculture, mining, manufacturing and transport infrastructure could help improve export performance and reduce dependence on imports. Afghanistan possesses substantial natural resources and agricultural potential, but unlocking those opportunities will require improved infrastructure, market access and greater economic integration with neighbouring countries.

For now, the SAARC report paints a mixed picture: an economy showing signs of stabilisation and growing commercial activity, yet still grappling with a significant trade imbalance.

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Afghanistan imports surge 37 percent

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