Afghanistan finds itself in a complex and dire economic predicament. Nearly five years after the Taliban returned to power, the South Asian nation continues to struggle with deep-rooted domestic structural challenges that coincide with persistent regional geopolitical constraints.

While discussions about Afghanistan’s economic difficulties under the Taliban often focus on sanctions, frozen assets and diplomatic isolation, these external factors tell only part of the story.

Domestic structural weaknesses — including weak institutional capacity, a narrow economic base, a human capital deficit, poor infrastructure, fiscal constraints, poverty and unemployment — are equally significant.

When combined with international isolation, the suspension of development assistance, sanctions-related constraints and worsening regional trade ties — especially with Pakistan, a major trading partner — these challenges continue to hinder economic development and prospects for recovery.

The economy was already fragile when the Taliban seized power, and its Islamic Emirate of Afghanistan has further mishandled the situation.

Although the Taliban has achieved a measure of fiscal stability by increasing customs revenues and improving tax collection through levies on transport, mining and other activities, the gains have not addressed the deeper structural problems that prevent sustainable growth.

A key structural economic challenge is the weakness of financial institutions due to the rising exodus of competent and capable human capital. The Taliban has replaced professionals from the previous ousted regime with its own loyalists, resulting in massive brain drain.

In the capital and provinces, almost all administrative bodies are led by Taliban members, many of them more qualified to fight an insurgency than manage a modern economy.

The Taliban have disproportionately marginalized communities such as Hazaras, Shia Muslims and other non-Pashtun groups, who are all systematically excluded from positions of power and public service.

Furthermore, the Taliban’s restrictive Islamic policies, especially toward women, are undermining national human capital development.

Restrictions on girls’ and women’s education and work are costing Afghanistan an estimated US$84 million each year in lost economic output, with those losses expected to grow. Pushing women out of the workforce has been a key driver of Afghanistan’s economic stagnation since 2021.

The economy’s weak and narrow base is another pressing challenge. Agriculture remains the primary source of livelihood for approximately 80% of the population, but it has been badly affected in recent years by decades of conflict, climate-related shocks and a sharp reduction in international assistance.

Recurring drought, underground water depletion and the degradation of agricultural land have severely impacted millions of Afghans, exacerbating poverty, food insecurity and displacement among the rural population.

Thirty Afghan provinces are experiencing moderate to severe drought due to a sharp decline in rainfall and the early depletion of snow reserves. The Taliban clearly lacks the capacity, technical skills, machinery and funds to cope with such a multidimensional crisis.

The financial sector is equally fragile. Limited access to credit, weak banking practices and lacking investor confidence restrict entrepreneurship and business expansion. Small and medium-sized enterprises, which often drive employment and innovation in developing economies, face significant obstacles in securing financing.

Approximately 85% of Afghan adults lack a bank account. This low level of financial inclusion limits savings mobilization, reduces access to formal credit and constrains private-sector growth.

Approximately 28 million people in Afghanistan were living in poverty in 2025, with the situation compounded by refugee returns, worsening drought and shrinking foreign aid. The return of at least 2.61 million Afghans in 2025, with other estimates substantially higher, has placed additional strain on already fragile local communities and their economies, particularly in rural districts.

Most returnees arrived involuntarily and without assets or documentation, intensifying competition for employment, land, housing and water. The nongovernmental organizations that previously formed the backbone of the country’s social safety net were forced either to shut down or to leave Afghanistan after the Taliban’s takeover, leaving returnees with nowhere to turn for assistance.

Afghanistan also faces substantial regional and international constraints. The Taliban government remains largely dependent on international humanitarian aid for its budget.

In 2026, the Humanitarian Needs and Response Plan received $269 million against a requirement of $1.71 billion, leaving a funding gap of $1.44 billion. Some international humanitarian aid is directed through the Taliban’s Islamic Emirate of Afghanistan, with little to no transparency on how funds are actually allocated.

As a landlocked country, Afghanistan depends heavily on neighboring states, particularly Pakistan, for access to seaports, trade corridors and regional and international markets.

But the Taliban’s persistent refusal to eliminate Tehrik-e-Taliban Pakistan (TTP) militants operating from Afghan territory — a key security concern for Pakistan and a major point of contention between Kabul and Islamabad —has steadily worsened bilateral relations.

Since the closure of the Afghanistan–Pakistan border in October 2025, cross-border trade has largely halted.

The Taliban’s restrictive policies toward women and minorities have deepened the West’s reluctance to diplomatically recognize the regime, notwithstanding this week’s meeting with the EU to discuss refugee returns. The lack of formal diplomatic recognition, coupled with reduced foreign investment and assistance, has pushed Afghanistan to an economic tipping point.

Without meaningful policy reforms at home and greater international recognition and cooperation predicated on implementing those reforms, Afghanistan will slip deeper and deeper into economic and humanitarian crises with no end in sight.

Sadia Sulaiman, PhD, is an associate professor at the Area Study Center for Africa, North and South America at the Quaid-i-Azam University in Islamabad, Pakistan. She is the author of “Post-Conflict Reconstruction: From Extremism to Peaceful Co-Existence” (SAGE, 2020); “The CPEC and SDGs in Pakistan: Measuring the Impact on Common Lives” (Palgrave, 2024); and “US-Pakistan Relations: Away from the Shadow of Geopolitics” (Routledge, 2025).