Afghanistan’s currency declines against major currencies, exports drop in January: World Bank

Photo: Reuters. File photo.

The World Bank reported a significant decline in Afghanistan’s exports and a depreciation of the Afghan currency against major currencies in January.

According to its Afghanistan Economic Monitor report, the country is experiencing deflation amid weak economic activity.

In 2023, the Afghan currency appreciated by 27 percent against the US dollar, supported by about $1.8 billion in UN cash shipments and an estimated $2 billion in remittances. These inflows compensated for a roughly $3.5 billion trade deficit, resulting in a surplus in the local forex market and a strengthening of the Afghan Afghani (AFN). However, at the start of 2024, the AFN depreciated against all major currencies.

By the end of February, the AFN had fallen by 5.4 percent against the US dollar, 5.0 percent against the euro, 13 percent against the Chinese yuan, 5.2 percent against the Indian rupee, and 6.3 percent against the Pakistani rupee.

The World Bank noted a sharp decline in headline inflation, which reached -10.2 percent year-on-year in January 2024. This drop was attributed mainly to significant price decreases in both food (-15.1 percent YoY) and non-food categories (-4.8 percent YoY). Core inflation, excluding the volatile food and energy sectors, also fell into negative territory, recording a rate of -6.5 percent YoY.

Afghanistan’s exports decreased by 5 percent year over year to $140.5 million in January 2024, down from $148.1 million the previous year. Coal exports saw an 87 percent reduction to $3.9 million as Pakistan turned to its cheaper domestic coal. However, the decline in exports was offset by increases in food and textile exports, with food exports rising by 7 percent and textiles by 52 percent, driven by higher exports of fruits, nuts, and cotton.

Food exports to India increased by 22 percent, while those to Pakistan fell by 18 percent. Pakistan and India remained the top export destinations in January 2024, accounting for 45 percent and 34 percent of total exports, respectively.

The report also highlighted a growth in imports in January 2024, reaching $830 million, a 37 percent increase from $600 million in January 2023. Iran was the main source of imports, accounting for 32 percent, followed by the UAE with 27 percent, Pakistan with 14 percent, and China with 5 percent. Afghanistan’s actual imports are estimated to be around $5.5 billion, resulting in a trade deficit of approximately $3.5 billion.