Afghanistan confronts economic meltdown after Taliban takeover

Prices of everyday essentials such as flour, cooking oil and fuel have surged. Salaries have stopped being paid. Residents in pursuit of cash queue outside banks and at automated teller machines.

Since the Taliban took power earlier this month, Afghans have struggled through an economic meltdown, which analysts and aid groups say could spiral into financial collapse and widespread hunger.

The landlocked, import-dependent nation is cut off from the world: its borders are mostly closed and its new Islamist rulers are unable to access about $9bn in frozen foreign currency reserves.

Donor countries including the US and groups such as the IMF and World Bank have stopped funding to Afghanistan, where foreign aid accounts for more than 40 per cent of gross domestic product. The afghani, the country’s currency, has dropped about 10 per cent, as physical shipments of US dollars that supported its value ground to a halt.

In Kabul there are signs frustration is rising: protesters, including some government employees, took to the streets on Saturday to demand banks reopen and that they be paid salaries that are months overdue in some cases.

Afghanistan is suffering from “the abrupt end of a multibillion-dollar war economy”, said Graeme Smith, a senior consultant at the International Crisis Group (ICG). “There’s a huge yawning gap,” Smith said. “That’s causing some panic.”

Anwita Basu, head of Asia country risk at Fitch Solutions, warned that Afghanistan’s gross domestic product could contract between 10 per cent and 20 per cent in the next two years.

That “is roughly the scale of contraction experienced by economies that have faced similar political collapse such as Syria, Lebanon and Myanmar”, she said, adding that hyperinflation “cannot be ruled out” if the currency continues to weaken.

 

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