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Chaotic US withdrawal likely to 'collapse' Afghanistan's economy

The country's real gross domestic product is expected to shrink by 9.7% this financial year, with a further drop of 5.2% seen next year, says credit ratings agency Fitch Group.

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Taliban fighters atop Humvee vehicles prepare before parading along a road to celebrate after the US pulled all its troops out of Afghanistan, in Kandahar on September 1, 2021.

Afghanistan's economy is likely to collapse following the rapid withdrawal of US forces and the Taliban's return to power, Fitch Solutions has said in a report.

Fitch now expects the country's real gross domestic product (GDP) to shrink by 9.7% this financial year, with a further drop of 5.2% seen next year. It had previously forecast growth of 0.4% for this year.

"The highly disruptive manner in which the US's security forces left the country and the Taliban takeover will mean that the economic pains for the country will be felt acutely over the short term," said analysts in a report from Fitch Solutions on Thursday, the research arm of credit ratings agency Fitch Group.

"The risks to these forecasts are weighted to the downside, given that other economies that have faced similar types of political shocks that have also led to institutional collapse."

Growth depending on international recognition

In the longer term, Fitch Solutions' base case is slow growth averaging 1.2% from 2023 through to 2030 - far behind the 6% growth averaged from 2002 until 2020.

Foreign investment would be needed to support a more optimistic case, Fitch said.

"An alternative and more positive economic scenario would entail Afghanistan's growth averaging around 2.2% in 2023-2030, which assumes that some major economies, namely China and potentially Russia, would accept the Taliban as the legitimate government of Afghanistan and begin major investment projects."

Access to roughly $10 billion in assets in doubt

Two weeks since the Taliban's sweep into Kabul brought a chaotic end to 20 years of warfare, it has yet to name a new government or reveal how they intend to rule.

In an administrative vacuum, prices have soared and crowds have gathered at banks to withdraw cash.

Taliban leaders have called on Afghans to return home and help rebuild. They have promised to protect human rights in an effort to present a more moderate face than their first government, which enforced a strict rule, including banning women from education and employment.

But their more immediate concern is staving off economic collapse. Afghanistan desperately needs money, and the Taliban is unlikely to get swift access to the roughly $10 billion in assets mostly held abroad by the Afghan central bank.

SOURCE: Reuters