Chaotic U.S. exit likely to crush Afghan economy

Chaotic U.S. exit likely to crush Afghan economy


© Reuters. FILE PHOTO: Afghans line up outside a bank to take out their money after Taliban takeover in Kabul, Afghanistan September 1, 2021. REUTERS/Stringer

SINGAPORE (Reuters) -Afghanistan’s economy is likely to collapse following the rapid withdrawal of U.S. forces and the Taliban’s return to power, Fitch Solutions 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 U.S.’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, 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.”

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.”

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