Economic Collapse

The Afghan economic and financial system is in a profound, irreversible structural crisis. The abrupt change of system in August 2021 radically exposed the country’s historical deficits and brought down a system sustained by external funds.

The collapse of the financial sector and monetary policy

The end of dollar subsidisation: Before the Taliban takeover, the system was entirely dependent on international aid – in 2020, aid funds accounted for around 43 % of gross domestic product (GDP). The US government continuously supplied the Afghan central bank (DAB) with foreign currency, which was auctioned in Kabul in order to artificially stabilise the value of the afghani (AFN).
Fragile dollar dependency: Around 60 % of all bank deposits were held in foreign currency (predominantly USD). With the freezing of these foreign exchange reserves and the halt of money flows in August 2021, this basis fell away.
Growth without prosperity (2026 context): Real GDP growth recently recorded a temporary, purely consumption-driven stabilisation of around 4.8 %. However, this effect is fizzling out completely, as economic growth cannot slow the continuing decline in real living standards in the face of rapid population dynamics.

Inflationary pressure and loss of purchasing power

Wave of price increases in 2026: After a temporary, deceptive phase of deflation, there was a drastic reversal. Exploding domestic demand, crop failures and the blockades at the borders with Pakistan are driving prices up uncontrollably.
Loss of purchasing power: While the inflation rate still averaged 3.6 % for 2025 as a whole, it had shot up to 7.6 % by March 2026. In summer 2026, prices for fuel and for essential staple foods such as bread and rice exploded once again, completely pulverising the remaining purchasing power of private households.

The collapsing labour market

Doubling of unemployment: The systematic dismissals of state employees and ethnic minorities and the almost complete exclusion of women from public space have nearly doubled general unemployment since 2021.
Mass deportations as a stress test: Between 2025 and mid-2026, more than 3.7 million displaced Afghans were forced to return from Pakistan and Iran. These people mostly arrive in the country completely destitute and irreparably overload the already saturated labour market.
Lack of prospects for young people: More than one in three young men aged between 14 and 25 finds no employment whatsoever. Women are pushed by the Taliban’s morality and virtue laws into the unpaid or minimally paid shadow economy in the domestic sphere (e.g. sewing or cooking).

Falling wages and declining per capita income

Reduced salaries: After months without pay, state salaries have been paid again since March 2022, but they have been cut massively. Leadership positions were deliberately filled with Taliban fighters; pension payments for former employees have been almost completely suspended.
Real income in free fall: Nominal per capita income shows a massive drop of 5.6 % compared with the previous year.
Missing the subsistence minimum: While unskilled day labourers earn an average of 305 AFN (approx. 4.19 USD) per day with a maximum of two working days per week, in 2026 even the salaries of skilled workers (average: 637 AFN / 8.45 USD) are far from sufficient to finance the Minimum Expenditure Basket required for a family’s bare survival.

Sources

BAMF – Bundesamt für Migration und Flüchtlinge (2024a): Länderreport 72 Afghanistan – Wirtschaftliche und humanitäre Lage, Stand 07/2024. bamf.de
UNDP – United Nations Development Programme (2026): Afghanistan Socioeconomic Review. Press release “Record population returns, drought and aid cuts push Afghanistan further into crisis”. undp.org
WB – World Bank (2026a): Afghanistan Development Update, Spring 2026. Press release “Afghanistan’s Economy Shows Resilience but living standards are falling”. worldbank.org