Afghanistan's economy may contract up to 30% this year: IMF

By Ovunc Kutlu

ANKARA (AA) - Afghanistan's economy may contract up to 30% this year with falling imports, a depreciating Afghani, and accelerating inflation, the International Monetary Fund (IMF) said in a report on Tuesday.

"Afghanistan has sustained multiple shocks in the aftermath of the Taliban’s return to power," the IMF said in Regional Economic Outlook for Middle East and Central Asia.

"With nonhumanitarian aid halted and foreign assets largely frozen, Afghanistan’s aid-dependent economy faces severe fiscal and balance-of-payments crises. Cash shortages and the loss of correspondent banking relationships have crippled Afghan banks," it added.

The IMF said the turmoil in Afghanistan, coupled by the pandemic and drought, has pushed the country's fragile economy into a crisis that includes a falling output, paralyzed banks, and rising poverty.

It warned that the drop in living standards threatens to push millions into poverty and it could lead to a humanitarian crisis.

"The crisis in Afghanistan is impoverishing millions, especially women and vulnerable groups and has already displaced thousands of Afghans internally. This can set off a wave of refugees, the main channel of outward spillovers to the region," the report said.

"The turmoil in Afghanistan is expected to generate important economic and security spillovers to the region and beyond. It has fueled internal displacement and could trigger a surge in refugees to neighboring countries, Turkey, and Europe," it added.

The IMF has also increased its growth outlook for the Middle East and North Africa (MENA) region, which is now forecast to expand 4.1% in 2021 and 2022 – up 0.1 and 0.4 percentage points, respectively, from its previous projections made in April.

It estimates inflation in the MENA region to average 12.9% this year and 8.8% next year – also up 0.1 and 0.2 percentage points, respectively, from April projections.