Afghanistan faces a grim economic future after Taliban takeover

The Taliban have taken over Afghanistan—that is yesterday's news. That thousands of distressed Afghans were crowding Kabul Airport to try and escape the country has also become an old fact. The Taliban have killed certain local liberal humanist Afghan writers and artists—that is also known to everyone. But now that the last US troops have officially left Afghan soil, marking the end of a 20-year war where the Taliban came out stronger, the most critical question is—what is the economic scenario for Afghanistan under Taliban rule?

The context of the question has two dimensions—domestic and international. In the aftermath of the Taliban takeover, the most important issues are: first, the domestic economy scenario of Afghanistan, and second, the role of the international community, particularly of the United States, in the process.

It goes without saying that the Afghan economy right now is in peril. Surely, this crisis has not been created in a day; rather, this is the legacy of past administrations over the years. The governments that came in after the fall of the Taliban in 2001 were weak, inefficient and vulnerable. The past two Presidents of Afghanistan were outsiders, having spent a large part of their lives in the US. As a result, the complex realities of Afghanistan were beyond their comprehension, and they did not have any real connection with life in Afghanistan and its people. Consequently, they could not build an effective administration in the country. During the past two decades, various regions of Afghanistan were disconnected from each other. In fact, the work of regional administration was carried out by a number of powerful warlords, making the central government of Afghanistan vulnerable and ineffective at the regional level.

Thus, things happened as expected. The Afghan economy continued to be depressed. Over the past years, what could have been attained was not achieved, as the data shows. Currently, the gross national product of Afghanistan is around USD 190 billion, just a little more than the USD 160 billion economy of Dhaka city. The country's legal exports of goods and services every year account for USD one billion, and, every year, it has been importing USD six billion worth of goods and services. The balance of payments deficit has been a lingering problem.

The production, sale and export of opium have been playing a major role in the Afghan economy. About 80 percent of world production of opium comes from Afghanistan. Every year, Afghanistan produces nearly 10,000 tons of opium and the revenue generated from it amounts to USD seven billion approximately. About 87 percent of the income of opium producing farmers comes exclusively from this single product. The illicit opium export by Afghanistan is worth USD two billion every year. Therefore, both at the micro and macro levels of the Afghan economy, the role of opium is significant.

The other element that is crucial for the Afghan economy is foreign assistance. Last year, the donor community promised to provide USD 20 billion as aid to Afghanistan. About 80 percent of public expenditure in this country is funded by grants. Since 2002, the World Bank has provided Afghanistan with a total of USD 5.3 billion as development and emergency relief assistance. The IMF has earmarked for Afghanistan USD 400 million in Special Drawing Rights (SDR) for combatting the Covid-19 pandemic in the country.

It is clear from the socioeconomic indicators of Afghanistan that the country is at a vulnerable stage. About 47 percent of its people live below the dollar-a-day poverty line. The percentage of working poor—those who work but live below the poverty line—is 33 percent in the country. If the poverty line is pushed to two US dollars a day, 90 percent of Afghans would be poor. The Multidimensional Poverty Index (MPI) of Afghanistan also indicates that 55 percent of its people are poor in multiple dimensions of deprivation. Even in this 21st century, the average life expectancy of an Afghan is only 64 years, and the mean years of schooling in the country is only four years. About 55 percent of Afghans are illiterate.

In Afghan society, the position of women remains the most vulnerable one. An Afghan woman, on average, can expect to live up to 64 years—their mean years of schooling is only two years. One out of five Afghan women participates in the labour market. The maternal mortality rate in Afghanistan is 638 per 100,000 live births.

It is under these circumstances that the Taliban have assumed power. The takeover of power by a group with such archaic and intolerant ideals and beliefs is not acceptable to the democratic world. As a result, Western countries and international organisations have been undertaking various economic measures to make the Taliban ineffective. Economic sanctions and impositions are some such measures.

The United States has frozen about USD10 billion worth of Afghan assets held at various banks in Afghanistan. The International Monetary Fund (IMF) has withdrawn the USD 400 worth of SDRs allocated earlier to Afghanistan for addressing the Covid-19 crisis. The World Bank has not said anything as of yet, but it may also put restrictions on its funding to Afghanistan. There has been a 20 percent decline over the past four years in the allocation of grants to Afghanistan by the donor community. Donors seem to be more interested in providing year-wise grants, rather than making any long-term commitments. In the context of all this, the current weak economy of Afghanistan may become even more vulnerable.

Because of all these sanctions and restrictions, it is the Afghan people who would be the hardest hit. Sanctions always negatively impact the poorest segment of a population. Afghanistan will not be an exception to this. There may also be inflations in the economy, and food shortages may emerge. The possibility of a famine cannot be brushed off.

Till the end of June this year, the Afghan central bank has had in its vault assets worth USD 10 billion, of which USD 366 million were in foreign exchange reserves, which is not much. This amount will not go far in meeting the import demands of Afghanistan. The income of the Taliban from different sources is estimated to be in the range of USD 300 to USD 1,600 million. It is not clear whether it will spend this money on the reconstruction of Afghanistan.

In the meantime, two other things may happen. First, because of the imposition of Western economic sanctions, the Taliban may encourage the production and export of more opium. Such an initiative may resonate well with Afghan farmers. Second, with the withdrawal of the SDR funding from the IMF, the Covid-19 situation may worsen in Afghanistan.

Ultimately, the economic situation in Afghanistan under Taliban rule is expected to be more vulnerable. The incidence and depth of poverty may enhance, the woes of the common people are likely to increase and infrastructure development is expected to be hampered. And the rights and lives of Afghan women are already taking a turn for the worse. Overall, the economic scenario of Afghanistan under Taliban rule does not look promising at all.

Selim Jahan is former Director, Human Development Report Office and Poverty Division, UNDP.