The World Bank said in it’s latest Afghanistan Development Update report that the country’s economy is adjusting to a “new normal” following the collapse of the former government and take over by the Islamic Emirate of Afghanistan (IEA).

According to the report, 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.

The report noted that preliminary statistics on the gross domestic product (GDP) show that the economy contracted by about 20 percent in 2021.

However, the resumption of off-budget international support for humanitarian needs and basic services helped mitigate some of the negative impacts over the past year.

The report concludes that Afghanistan’s economy is now much smaller than before after contracting significantly. The economy has now reached a point where it is likely to plateau.

The World Bank stated that while inflation remains high, some indicators have improved: exports have increased, exchange-rate volatility has reduced, and domestic revenue collection is relatively healthy.

In addition, private businesses are adjusting to the new operating environment.

“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,” said Melinda Good, World Bank Country Director for Afghanistan.

“Living conditions showed slight improvements in the past few months, but deprivation remains very high across the country, and persistent inflation might further erode any welfare gains,” she added.

The report projects that the real GDP in 2022 will contract further, with an accumulated contraction of close to 30-35 percent between 2021 and 2022.

“A range of economic and political scenarios is possible for Afghanistan’s future. While all scenarios depend on continued off-budget aid from the international community, a more upside and sustainable trajectory requires actions by the interim Taliban (IEA) administration to unlock much-needed economic integration and domestic opportunities for the private sector to create jobs for the Afghan people,” added Good.