The World Bank’s new Afghanistan Development Update said that the aggregate demand fell as a result of a sharp decline in public spending, falling household incomes, and decreased consumption.
Afghanistan’s economy has been facing significant challenges as it adjusts to a “new normal” since the Taliban assumed power. This has caused a significant economic contraction, making Afghanistan a “much smaller economy now,” the report said.
Supply constraints and payment system problems also hindered private sector activity, at first forcing many businesses to close or scale back their operations, significantly affecting the cash flow and the Afghan economy as a whole.
Melinda Good, World Bank Country Director for Afghanistan said that “while there are signs of economic stabilization and resilience of Afghan businesses, the country continues to face enormous social and economic challenges that are impacting heavily on the welfare of the Afghan people, especially women, girls, and minorities.”
The economy shrank by about 20% in 2021, according to preliminary GDP statistics the World Bank report assessed. The economy has reached an inflection point after experiencing a significant contraction and is probably losing momentum around a low-level equilibrium.
Even though inflation is still high, some measures have improved: exports have grown, exchange rate volatility has decreased, and domestic revenue collection is still generally strong.
According to the report, the real GDP will continue to shrink in 2022, with a cumulative downturn of nearly 30–35 percent between 2021 and 2022.
The World Bank report comes at a time when over two-thirds of families in Afghanistan still struggle to pay for necessities and put food on the table, indicating that poverty is still pervasive.