2021 Index of Economic Freedom

Afghanistan

OVERALL SCORE53.0
WORLD RANK146
Rule of Law

Property Rights30.3

Judicial Effectiveness25.7

Government Integrity29.1

Government Size

Tax Burden91.1

Government Spending76.1

Fiscal Health99.9

Regulatory Efficiency

Business Freedom53.9

Labor Freedom59.9

Monetary Freedom80.8

Open Markets

Trade Freedom68.6

Investment Freedom10.0

Financial Freedom10.0

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Quick Facts
  • Population:
    • 38.0 million
  • GDP (PPP):
    • $76.6 billion
    • 3.0% growth
    • 2.3% 5-year compound annual growth
    • $2,294 per capita
  • Unemployment:
    • 11.1%
  • Inflation (CPI):
    • 2.3%
  • FDI Inflow:
    • $38.5 million

Afghanistan’s economic freedom score is 53.0, making its economy the 146th freest in the 2021 Index. Its overall score has decreased by 1.7 points, primarily because of problems related to the rule of law. Afghanistan is ranked 33rd among 40 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.

After a modest increase in 2020, economic freedom in Afghanistan has slumped, and the economy is more firmly entrenched in the ranks of the mostly unfree. Economic growth remains impeded by the dangerous security environment and unstable political situation. Insecurity has also suppressed business freedom and investment freedom. To reverse course, Afghanistan needs stability, security, and stronger rule-of-law institutions.

IMPACT OF COVID-19: As of December 1, 2020, 1,797 deaths had been attributed to the pandemic in Afghanistan, and the economy was forecast to contract by 5.0 percent for the year.

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Background

President Ashraf Ghani Ahmadzai was reelected in 2019 after defeating Chief Executive Abdullah in an election marred by low turnout because of Taliban violence and controversial results that led to both candidates declaring victory. After much political wrangling, Ghani and Abdullah agreed on a power-sharing deal in which Ghani remains president, Abdullah leads future peace talks with the Taliban, and members of Abdullah’s team are included in Ghani’s cabinet. International military and economic assistance accounted for an estimated 19.37 percent of gross national income in 2017, and the country’s living standards are among the lowest in the world. Legal exports include table grapes and raisins, but the economy remains heavily dependent on the illicit cultivation of opium.

Rule of LawView Methodology

Property Rights 30.3 Create a Graph using this measurement

Judicial Effectiveness 25.7 Create a Graph using this measurement

Government Integrity 29.1 Create a Graph using this measurement

The majority of real property owners have only customary title. Surveys are rare. Overall, the weakness of property rights protection is due in part to the lack of comprehensive land titling and to slow-moving commercial courts. The judicial system operates haphazardly through a mix of legal codes overseen by inadequately trained judges and local elders. Corruption permeates society and hampers economic development. Reforms to reduce corruption remain stalled.

Government SizeView Methodology

The top individual income tax rate is 20 percent, and the top corporate tax rate is 20 percent. The overall tax burden equals 9.3 percent of total domestic income. Government spending has amounted to 28.2 percent of total output (GDP) over the past three years, and budget deficits have averaged 0.04 percent of GDP. Public debt is equivalent to 7.3 percent of GDP. Lingering security challenges continue to be a source of fiscal vulnerability.

Regulatory EfficiencyView Methodology

The costs involved in starting a business, dealing with construction permits, and obtaining electricity have all increased, diminishing business freedom. Labor freedom has decreased relative to the rest of the world. Job creation has been anemic. There is an acute shortage of skilled labor. The government has limited influence on monetary policy because of the severely underdeveloped financial system.

Open MarketsView Methodology

Afghanistan has two preferential trade agreements in force. The trade-weighted average tariff rate is 5.7 percent, and 22 nontariff measures are in effect. Foreign investment in some sectors is restricted, and security obstacles limit investment inflows. Enforcement of regulations governing the financial system is ineffective. The central bank is focused on achieving price stability, and there have been no liquidity pressures in the banking sector.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Singapore89.70.3
2New Zealand83.9-0.2
3Australia82.4-0.2
4Taiwan78.61.5
5Malaysia74.4-0.3
6Japan74.10.8
7South Korea740.0
8Kazakhstan71.11.5
9Thailand69.70.3
10Indonesia66.9-0.3
11Brunei Darussalam66.60.0
12Philippines64.1-0.4
13Kyrgyz Republic63.70.8
14Mongolia62.46.5
15Fiji62.2-1.2
16Samoa61.9-0.2
17Vietnam61.72.9
18Vanuatu60.5-0.2
19Papua New Guinea58.90.5
20China58.4-1.1
21Uzbekistan58.31.1
22Bhutan58.3-3.8
23Tonga57.5-1.3
24Cambodia57.30.0
25Bangladesh 56.50.1
26India56.50.0
27Solomon Islands56.53.6
28Sri Lanka55.7-1.7
29Tajikistan55.23.0
30Burma55.21.2
31Maldives55.2-1.3
32Laos53.9-1.6
33Afghanistan53-1.7
34Pakistan51.7-3.1
35Nepal50.7-3.5
36Micronesia50.4-1.6
37Turkmenistan47.40.9
38Timor-Leste44.7-1.2
39Kiribati44.4-0.8
40North Korea5.21.0
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