The Afghan economy is adjusting to a “new normal” following the events of August 2021, which brought about a significant economic contraction and widespread deprivation, according to the World Bank’s new Afghanistan Development Update.
A sharp decline in public spending, lower household incomes, and reduced consumption caused aggregate demand to fall, while disruptions in the payment system and supply constraints further hampered private sector activities, initially forcing many businesses to close or scale down their operations. Preliminary statistics on the gross domestic product (GDP) show that the economy contracted by about 20% in 2021. Over the past one year, the resumption of off-budget international support for humanitarian needs and basic services helped mitigate some of the negative impacts. The report concludes that Afghanistan is a much smaller economy now. After contracting significantly, the economy has reached an inflection point and is likely plateauing around a low-level equilibrium.