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IMF: Afghanistan’s economic collapse could prompt refugee crisis

A boy walks along the roadside in Qala-e-Naw in Badghis province on Oct 16, 2021. (HOSHANG HASHIMI / AFP)

ALMATY – Afghanistan‘s economy is set to contract up to 30 percent this year and this is likely to further fuel a refugee crisis that will impact neighboring countries, Turkey and Europe, the International Monetary Fund said on Tuesday.

With non-humanitarian aid halted and foreign assets largely frozen after the Taliban seized power in August, Afghanistan’s aid-reliant economy “faces severe fiscal and balance-of-payments crises”, it said in its regional economic outlook update.

With non-humanitarian aid halted and foreign assets largely frozen after the Taliban seized power in August, Afghanistan’s aid-reliant economy “faces severe fiscal and balance-of-payments crises”, the International Monetary Fund said

“The resulting drop in living standards threatens to push millions into poverty and could lead to a humanitarian crisis.”

The IMF said the turmoil in Afghanistan was expected to generate important economic and security spillovers to the region and beyond and was “fueling a surge in Afghan refugees”, although it gave no estimates of potential numbers.

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“A large influx of refugees could put a burden on public resources in refugee-hosting countries, fuel labor market pressures, and lead to social tensions, underscoring the need for assistance from the international community,” it said.

Assuming a million more Afghans flee their homeland and settle in other countries in a way that is proportional to the existing spread of Afghan refugees, the annual cost of hosting them would amount to $100 million in Tajikistan (1.3 percent of gross domestic product), about $300 million in Iran (0.03 percent of GDP) and more than $500 million in Pakistan (0.2 percent of GDP), the IMF said.

Tajikistan said last month it could not afford to take in large numbers of refugees unless it received international financial assistance. Other Central Asian nations have also said they have no plans to host refugees.

Another channel through which Afghanistan’s economic troubles could affect its neighbors is trade.

“Exports to Afghanistan are macroeconomically and socially relevant for Iran, Pakistan, Turkmenistan, and Uzbekistan,” the Fund said.

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Afghanistan previously served as a source of cash dollars, through both legitimate and possibly illicit cross-border flows, due to its status as a beneficiary of large donor funds, but now even larger amounts of dollar banknotes could start flowing into the country due to its shortages, the IMF said.

The goods they are exchanged for are likely to raise new concerns over money laundering and the financing of terrorism, it added.

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