ADB portrays black picture of Afghan economy after Taliban taking over

Business

ISLAMABAD (Eshfak Mughal):- The Asian Development Bank has portrayed plack picture of Afghan economy after taking over of the Taliban from mid August. The bank has published it’s report, Asian Development Outlook (ADO) 2021 today in which it has tried to tell that the country has no future without international assistance.

In April, ADB estimated in ADO 2021 that GDP growth would recover to 3% in 2021 and improve further to 4% in 2022. But the new report said these forecasts have been irrelevant after withdrawal of International forces and taking over control by Taliban in the country in the last month.

“Afghanistan has long depended heavily on grant inflows, which equaled 43% of GDP in 2020 and funded 56% of the budget but are
now suspended by most development partners. With the freezing of over $9 billion in Afghan assets abroad, foreign reserves that recently covered 15 months of imports now cover only days” the report said.

The afghani has depreciated significantly, spurring inflation such that the price of flour has risen by
an estimated 11% since mid-August and the price of rice by 9%. Falling government revenue has disrupted the delivery of government services.

The report said the Afghan economic prospects will depend on the policy choices of the new administration and how the international community responds.

Looking ahead, ADB distinguishes three scenarios for the Afghan economy,
simulating the economic impact using a computable general equilibrium model, the results subject to wide margins of error given data limitations and general uncertainty.
In the first scenario, the economy would severely contract under prolonged suspension of development and humanitarian assistance, frozen foreign reserves, and economic sanctions. Against a base scenario of business as usual with no takeover, real GDP could contract by up to 30% and unemployment increase by about 43%, dramatically increasing the poverty rate to as high as 97%, based on a United Nations estimate. Potentially significant refugee outflow could impose difficulties on neighboring countries.

In the second scenario, according to the Bank, the provision of humanitarian aid and limited bilateral assistance could have mitigating economic impact. While adversity
would still be significant—with real GDP contracting by up to 20% against the base scenario, household consumption by about 27%, and government expenditure by 30% humanitarian support and some resumption of economic activity would avert a crushing humanitarian crisis. Afghanistan’s economic ties would likely be strengthened with countries formally recognizing the new government, and some foreign investment would
arrive, particularly into utilities and mining.

According to the ADB, In the third scenario, sanctions are lifted, multilateral assistance resumes, and access to external reserves and international markets is unlocked. Afghanistan could then resume development and perhaps even improve its trajectory. A peace dividend with better security could enhance the investment environment, catalyzing foreign direct investment and economic activity. With help from development partners, the government would be able to deliver basic services and build on development gains achieved during the past 20 years. Economic growth could accelerate in line with an annual growth rate of 4%, as projected by
ADB prior to the takeover.

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