KEY HIGHLIGHTS
Key Economic Developments
• Afghanistan’s economy remains entrenched in a low-growth, high-vulnerability environment, constrained by sustained returnee inflows, recurring climate-related shocks, and persistent regional trade disruptions. Although macroeconomic stability has been supported by rising inflation, improved domestic revenue performance, and exchange rate stability, structural challenges—particularly weak private investment, rapid population growth, and restricted trade access continue to suppress productivity, impede job creation, and weigh on per capita income growth and household livelihoods.
• Inflationary pressures continued to rise year-on-year, reflecting broader price increases across both food and non-food categories. Headline inflation rose to 7.7 percent year-on-year in January 2026, compared to –0.8 percent in the same period last year, indicating a continued upward trend in consumer prices. Food inflation increased to 8.1 percent, driven mainly by higher prices for fruits, bread and cereals, oils and fats, and meat. Non-food inflation rose to 7.3 percent, largely driven by rising health expenses and housing costs due to increased demand from returnees.
• The Afghani appreciated further against the USD in February 2026, averaging AFN 64.0 per USD, representing a 3.3 percent appreciation month-on-month and 13 percent stronger year-on-year. The sustained appreciation of the Afghani reflects continued foreign currency inflows, improved liquidity management, and regular market interventions by the DFA. A stronger Afghani has helped moderate the cost of imported goods, particularly food and fuel, contributing to relatively stable domestic market conditions despite ongoing regional trade disruptions and global price volatility.
• Persistent border closures with Pakistan continued to impede trade activity, limiting cross-border flows and raising logistical costs. While shipments have been partially rerouted through Iran and Central Asia, these alternative corridors entail higher transportation costs, longer delivery times, and operational inefficiencies. Overall trade activity has consequently declined, with exports particularly affected due to elevated transit costs and logistical delays. Imports have shown relative resilience, supported by sustained domestic demand linked to returnee inflows, though they registered a month-on-month decline in January. Iran continues to consolidate its position as Afghanistan’s principal import partner, with the Iran trade corridor now handling approximately 60 percent of total routed imports, underscoring a structural shift in trade routes away from Pakistan and rising external vulnerabilities. (World Bank – Afghanistan Economic Monitor, January 2026).
Global and Domestic Market Conditions
• Global commodity markets showed upward trends in February 2026. The FAO Cereal Price Index averaged 111 points, up 1.1% m-o-m but 3.5% below last year, supported by rising wheat prices (+1.8%) due to frost risks in Europe and the US, logistical disruptions in Russia, and continued tensions in the Black Sea region. The FAO Vegetable Oil Price Index rose to 174.2 points (+3.3% m-o-m; +13% y-o-y), led by higher palm, soy, and rapeseed oil prices amid seasonal supply slowdowns, while sunflower oil prices eased slightly. Global fertilizer prices increased further to 214 points (+6.5% m-o-m; +9% y-o-y), driven by high input costs, energy prices, and ongoing geopolitical uncertainty. Urea and DAP prices rose by 13.6% and 1.2% m-o-m, respectively.
• National average food prices moderated in February, with most staples recording marginal declines, although pressures on imported commodities persisted. Wheat flour prices decreased by nearly 1%, reversing last month’s trend, while cooking oil prices fell by 2.6% m-o-m, aligning with improved global availability. However, rice prices continued their upward trajectory (Palawi
+ 2.9%; Sholae +4.1% m-o-m). Pulses, sugar, bread, and salt recorded negligible changes. Seasonal effects of easing winter conditions have yet to fully translate into increased domestic supply, keeping market availability constrained and dependent on imports.
• Diesel prices declined further in February, falling by 3.6% m-o-m to AFN 59.7/litre, the lowest level since October 2024, driven by Afghani appreciation and stable import flows from Central Asian countries, thereby easing transportation and production costs.
• Labour market conditions remained weak in February, with unskilled wages declining to AFN 294/day (–0.6% m-o-m) and labour availability stagnating at 1.6 days per week, reflecting winter-related slowdowns in agriculture and construction activities in colder parts of the country, compounded by pressure from returnees entering the daily labour market.
• Terms of Trade (ToT) remained fragile despite slight improvements. Real unskilled labour ToT rose marginally to 2.4 kg of wheat flour (+1.3% m-o-m), though it remains 29% below last year. Pastoralist ToT also saw a slight uptick to 266 kg of wheat flour per one-year-old female sheep (+1.0% m-o-m). High unemployment and rising staple prices continue to limit both labour- and livestock-dependent households’ ability to meet basic food needs.