Financial Crime World

Afghanistan’s Economy Still Reeling from Financial Crime Shock: New Normal Takes Hold, Report Finds

The Afghan economy is struggling to recover from a severe contraction and widespread deprivation caused by financial crime, according to a new report by the World Bank. The country’s gross domestic product (GDP) contracted by around 20% in 2021, with many businesses forced to close or scale down operations due to disruptions in the payment system and supply chain constraints.

Economic Impact

  • The economy is adjusting to a “new normal” characterized by reduced public spending, lower household incomes, and decreased consumption.
  • Real GDP is expected to fall by around 30-35% between 2021 and 2022.
  • Over three-quarters of businesses operational but working below capacity due to lack of access to credit, high inflation, and limited domestic revenue collection.

Challenges Ahead

  • The interim Taliban administration must take urgent action to address these challenges and unlock economic integration and opportunities for the private sector.
  • Key steps include:
    • Lifting restrictive gender policies
    • Increasing transparency in public finances
    • Enabling investments in critical areas of comparative advantage

Country Director’s Statement

“A range of economic and political scenarios is possible for Afghanistan’s future,” said Melinda Good, World Bank Country Director for Afghanistan. “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 administration to unlock much-needed economic integration and domestic opportunities for the private sector.”

Threats to Economic Recovery

  • Continued restrictive policies on women’s education and work
  • Increased instability of the banking sector
  • Potential reduction in aid from the international community
  • Worsening of the security and political situation

International Implications

  • Isolation from the international economy is a binding constraint to sustained stabilization.
  • The loss of correspondent banking relationships has significantly impacted international payments, leaving both private firms and aid organizations reliant on cash shipments and informal, unregulated, and opaque payment systems for domestic transactions.

Regional Context

The Afghanistan Development Update is part of the World Bank’s South Asia Economic Focus series, which examines economic developments and prospects in the region. The latest edition highlights the challenges facing South Asia, including:

  • Rising inflation
  • Global food and fertilizer shortages
  • The economic crisis in Sri Lanka