Diverging Growth and Welfare in Afghanistan: Why Are Families Not Better Off?

Maryam Motamedi, a senior economic affairs expert, writes in an exclusive commentary for IRAF that Afghanistan’s latest development report, prepared by the World Bank, presents a mixed picture of the country’s economy. On the one hand, Afghanistan’s economy showed considerable resilience in the face of regional tensions and border closures, with gross domestic product (GDP) growing by 4.8 percent in 2025. On the other, that growth has not translated into improved living standards or higher incomes for citizens.

The mechanism that links economic growth to household welfare usually operates through higher household incomes or consumption. In other words, growth in GDP per capita can lead to increases in household income or consumption. A study covering 123 countries found that, on average, a 1 percent increase in household income or consumption was associated with roughly a 2 percent reduction in the poverty rate.

That effect, however, is not the same everywhere. Research on sub-Saharan African countries, for example, has found that the poverty-reducing impact of economic growth in the region is significantly weaker than in other parts of the world. This suggests that the relationship between economic growth and household welfare is complex and non-linear, shaped by a range of intervening factors.

Since the early 1990s, the world has made significant progress in reducing extreme poverty. The global extreme poverty rate, measured against the World Bank’s poverty line of $2.15 a day in 2017 purchasing power parity, fell from 38 percent in 1990 to less than 9 percent by 2022. But that progress has not been replicated in countries that have experienced decades of severe poverty and insecurity.

Growth Without Better Living Standards in Afghanistan

The World Bank’s latest Afghanistan Development Update, published in May 2026, presents a mixed picture of the country’s economy. On the one hand, Afghanistan’s economy showed considerable resilience in the face of regional tensions and border closures, with GDP growing by 4.8 percent in 2025. On the other, that growth has not translated into improved living standards or higher incomes for citizens.

Put simply, while the economic “pie” has grown, the number of people who must share it has increased even faster. This is the main reason for the divergence between economic growth and household welfare. The return of around 3.7 million Afghans and an approximately 11 percent increase in population resulting from those returns have offset the benefits of economic growth, reducing per capita income by 5.6 percent. At the same time, inflation rose from an average of 3.6 percent to 7.6 percent in March 2026, further weakening the purchasing power of Afghan households.

The key point is that a larger economy does not necessarily mean a better standard of living for each person. When population growth outpaces economic growth, gains in total output can be diluted, leaving households with little or no improvement in their incomes.

What GDP Measures—and What It Misses

In economics, economic growth refers to an increase in a country’s ability to produce goods and services over a given period. It is primarily a quantitative measure, usually assessed through GDP.

GDP represents the market value of all final goods and services produced within a country’s borders during a specified period, typically a year or a quarter. In the World Bank’s report, the period under review is the Afghan economy in 2025. To calculate real economic growth, the effects of inflation are removed from GDP to identify changes in actual output.

Alongside GDP, there is GDP per capita, calculated by dividing GDP by the country’s population. This is a more useful measure of the relative living standards or welfare of individuals within a country.

It is precisely at this point that Afghanistan’s economic growth reveals a divergence between macroeconomic performance and household livelihoods. Factors such as population pressures, rising inflation, declining foreign aid, heavy dependence on imports, and structural constraints on the private sector have eroded the gains from economic growth.

The central question, therefore, is why GDP growth alone cannot demonstrate an improvement in people’s lives—and how population growth can neutralize economic gains.