Afghanistan: Monthly Market Report: Issue 46 (March 2024 ...

HIGHLIGHTS

Economic Growth:

The economy of Afghanistan experienced its third consecutive year of contraction. However, with sustained humanitarian assistance and support for basic needs, the decline in real GDP eased from 20.7% in 2022 to 6.2% in 2023. The ongoing economic challenges and humanitarian crisis in Afghanistan have led to weak economic growth, causing uncertainty in the prices of essential food items. Furthermore, the return of more than half a million Afghan refugees has worsened the situation by putting additional pressure on already low employment opportunities, increasing the demand for food items, and creating fluctuations in price levels, particularly in eastern and southern provinces.

From Inflation to Deflation:

Following the August 2021 political changes, inflation surged, peaking at 18.3% in July 2022. However, it subsequently plummeted into deflation, reaching -9.7% in February 2024. Similarly, food inflation decreased from +26% in June 2022 to -14.4% in February 2024. This consistent deflationary trend stems from weak economic activity in the country. While deflation support low food prices, limited number of job opportunities and low wages will continue to weaken household purchasing power.

Global Fertilizer Prices:

The global fertilizer market is heavily influenced by key players such as China, Morocco, Saudi Arabia, Russia, and the USA, which collectively control 90% of global DAP imports. Despite disruptions caused by Russia's invasion of Ukraine in 2022, Russia managed to increase fertilizer exports in 2023. While fertilizer prices have decreased in 2024 compared to previous years, the dominance of major exporting countries and slow adoption of green alternatives leave import-dependent nations vulnerable to future trade shocks.

Exchange Rate:

After its surge in January 2022, the value of AFN started to consistently appreciate against the USD during the year 2023 and remains relatively stable, hovering around AFN 70-74 per USD since November 2023. The monthly average exchange rate between AFN and USD was recorded at AFN 71.4 per 1 USD.

Price of WFP Food Basket:

In March 2024, the price of the WFP’s in-kind food basket stood at AFN 5,337, reflecting a 1.3% decrease from the previous month. This decline was driven by decreases in the prices of wheat and the appreciation of the Afghani against the USD during this period. Although the price of the food basket decreased in terms of AFN, it led to an increase in terms of USD, indicating an inverse relationship. Among the surveyed markets, Nuristan emerged as the most expensive, with the food basket priced at AFN 6,565, while Baghlan represented the least expensive market, with the same basket priced at AFN 4,606.

Labour Market:

In March 2024, the availability of unskilled labour workdays per week increased by 5.8% (2.1 days per week on average), marking a rebound from a significant decrease experienced in December 2023 due to the impact of the winter season on the labour market. The national average expected monthly income for full-time casual labour workers is AFN 2,713, which can only afford 51% of the WFP's in-kind food basket (AFN 5,337).

Terms of Trade (ToT):

The nominal ToT for casual labour has improved by 3.5 percent as compared to February 2024, due to a 2% decrease in the national average price of wheat and nearly 1 percent increase in the casual labour wage. The livestock/wheat ToT was 289 Kgs of wheat against one-year-old alive female sheep in the month of March 2024. On average, improved slightly by 4.5 percent compared to the previous month.