Fitch: Afghanistan GDP to Contract by 20% as Taliban Sweeps into Power

Fitch Solutions said Friday that Afghanistan's economy could shrink by up to 20% this year, and its currency could depreciate more than it already was in the wake of the Taliban takeover.

"The economy is likely to contract sharply this year," Anwita Basu, head of Asian countries risk management at Fitch, told Reuters.

"The Taliban won't be poor - a UN report estimated that they earn up to USD 1.6 billion a year, mostly through illicit channels, which they can institutionalize very well," Basu added.

Basu pointed out that foreign funds and aid will dry up significantly this year, due to risks posted in the country.

“Figures from the United Nations (UN) indicate that aid would have been at least 20% lower than 2020 levels in 2021 after the departure of the United States, but that did not take into account the Taliban takeover,” she added.

Basu said the Afghani currency, which has already fallen more than 7% this month against the US dollar, could fall further due to the freezing of most state-owned assets abroad to prevent the Taliban from accessing, adding that 'hyperinflation cannot be ruled out.

Also, rating agency Moody's has warned of the geopolitical and economic risks to the region.

“The immediate risk to the credit profiles of political uncertainty in Afghanistan is related to a potentially large influx of refugees. Pakistan could see the largest influx of refugees," Moody's added.

Afghanistan is rich in resources such as copper, gold, oil, natural gas, uranium, bauxite, coal, iron ore, and others, which may attract major powers such as China to secure resources.