WHAT DOES THE TALIBAN TAKEOVER MEAN FOR AFGHANISTAN’S ECONOMY?


It took a mere 10 days for the Taliban regime to assume full control of what was once the free country of Afghanistan. On 15 August, Kabul fell, and with that fell the hope of many citizens for a free and democratic country. While, on the geopolitical front, the rapid change of command is expected to create a dark cloud over the country’s future massively, it doesn't look particularly bright on the economic end either.


“Afghanistan's economy is shaped by fragility and aid dependence"

  • The World Bank (Overview of Afghanistan’s economy)

This statement by the World Bank sums up the troubling state that the country’s economy is facing. It also gives a frightful idea of the kind of future which awaits it, especially in a time like this when economic prospects are much bleaker and future financial support is shrouded in doubt. This article will attempt to analyse Afghanistan’s current economic condition and its subsequent future, post the takeover by the Taliban.

THE PROBLEM AT HAND AND THE CONDITION OF AFGHANISTAN’S ECONOMY

So far, the economy of Afghanistan has relied on foreign help. The Islamic country's private sector has been relatively small, with 44% of the total workforce employed in agriculture, according to the World Bank. The growth of the domestic private sector has been undermined by insecurity, political instability, poor institutions, insufficient infrastructure, rampant corruption and a challenging business climate. The Afghan country placed 173rd in the Doing Business Survey in 2020, according to the World Bank.


According to Bloomberg, the Afghan currency has dropped to unprecedented depths. The lowest per capita GDP in the area is that of Afghanistan. Poverty is chronic and prevalent in the country, and backward parts of this society are the most vulnerable to Afghan Taliban's recruitment. GDP per capita is incomprehensibly low due to the dearth of female workforce involvement. The Afghan GDP is an acknowledgement of the US and its allies' alleged attempts to mainstream the disadvantaged sections of the Afghan populace, which can explain why the economy hasn't been able to become economically independent.


In July of this year, when the Ashraf Ghani government lost control of the country’s seven customs ports to the Taliban, the country lost about $33.5 billion in customs income and $57.5 million in customs revenues. Now that the Taliban has complete control of the country’s capital Kabul, international commerce and business have started collapsing as soon as exporters quit working with the nation in an uncertain environment. If this continues, the people will soon suffer a critical deficit.

The trade imbalance in Afghanistan was over 30 per cent and almost wholly funded through grant inflows of its Gross Domestic Product (GDP), while, International funds were utilised to support 75 per cent of the country's governmental spending. In 2019, the country's security expenses were high at around 28% of GDP. Compared to other low-income nations, where the average security spending was about 3%, this was significantly greater.



WHAT DOES THE FUTURE LOOK LIKE?



“Afghanistan’s economic and development prospects remain highly uncertain, and the country has no domestic debt market, and debt sustainability concerns constrain future external borrowing.”

  • The World Bank (Overview of Afghanistan’s economy)

As the country plunges into further chaos, the economic outlook and future will change rapidly. It is pretty clear at this point that, post the takeover, all international help to the country will halt, and it will now be exceedingly difficult for the country to attract any good foreign direct investment. Aid funding is currently anticipated to decrease in the prior commit period by about 20% but might drop even less if criteria are not satisfied or large donors significantly cut their commitment levels in the context of domestic budgetary difficulties. Given growing political uncertainties, a decline in foreign backing and ongoing insecurity, Afghanistan today confronts significant hurdles to preserve recent development achievements.


The policy alternatives are restricted in the setting of a reduction in fiscal space and inadequate monetary transmission mechanisms, by weak implementation capabilities of government agencies, reflecting Governance limits and tightly constrained macroeconomic policy options.


The reduction of economic activity will continue as foreign embassies, non-governmental organisations in the nation, and other reconstruction organisations rescue their employees amid political instability and worries about security. The current upheavals are expected to accelerate illegal and criminal money inflows in and out of Afghanistan.


Afghan civilians, especially women who suffered horrendous human rights abuse, would be the primary victims of financial consequences in Afghanistan. This is because the smoothness of the situation might potentially lead to an employees' exodus and a full Taliban takeover may cause half the country's workers to be expelled, especially because it is likely that women will not be allowed to work. Additionally, young Afghans who grew up following 9/11 will bear the worst price.


As mentioned before, Afghanistan’s economy was heavily dependent on the grants it received from other countries. This means that the takeover will automatically undermine all the financial and strategic investments made by those countries in Afghanistan. One of the biggest examples of this is India, which has invested more than $3 billion in the war-torn country over the past two decades. Post the Taliban Takeover, India stands to lose not just all its financial investments but its diplomatic ones too, as Afghanistan provides for a key strategic ally for India in South Asia in terms of military assistance and air space. Similarly, countries like the United States and Canada also stand to lose major financial and strategic investments in Afghanistan.


In a nutshell, the takeover can levy some heavy and serious tolls on not just Afghanistan’s finances but also the finances of many of its investors and allies. It is abundantly clear that the Taliban’s takeover would easily result in the suppression of a very crucial part of the working population. It can also seriously endanger the financial stability of not just its current citizens but also the financial stability of the generations to come. The international community must take steps to ensure that this doesn't happen. Every major player of the community or the world financial market must join together to oust the Taliban and help restore peace in the region.


REFERENCES

  • https://www.worldbank.org/en/country/afghanistan/overview

  • https://www.timesnownews.com/business-economy/world-news/article/the-fate-of-afghanistan-economy-under-taliban-rule/799681

  • https://www.nbcnews.com/business/business-news/afghanistan-braces-even-greater-financial-disaster-n1277032

  • https://www.documentcloud.org/documents/21044078-s_2021_486_e#document/p14/a2050927

  • https://www.thenationalnews.com/business/economy/2021/08/16/as-taliban-seize-control-afghanistans-economy-teeters-on-collapse/

  • https://economictimes.indiatimes.com/news/international/world-news/afghan-economy-heads-towards-crisis-following-taliban-capture-of-border-trade-points/articleshow/84939692.cms

  • https://www.dawn.com/news/1640891/focusing-on-afghan-economy

  • https://www.bbc.com/news/business-58235185

FURTHER READING



Written By: Shubhi Pandey (shubhi221199@gmail.com)

Edited By: Priyanshi Kapoor