Aftershocks: Afghan economy crumbles as disaster strikes

Reuters/Ali Kara

• Country needs disaster relief but investors fear Taliban money grab
• Calls for targeted sanctions to allow urgent foreign aid to return
• 600,000 Afghans to reach working age without economic prospects 

The Taliban spent two decades fighting and brokering with Western powers to secure their demands for US-backed troops to leave Afghanistan after the 2001 invasion.

But after storming back to power with a rapid military campaign in August 2021, the Islamist group has turned to the same governments with an urgent appeal for aid after at least 1,000 people were killed in a devastating earthquake yesterday.

The 6.1 magnitude disaster has left thousands more injured, ripping through the south-east of the country – predominantly in the especially poor Paktika province – where heavy rainfall has hampered the technologically limited Taliban rescue efforts.

• Heavy rain and floods in Afghanistan kill 22

Tremors were felt in Kabul, India, and Pakistan’s capital, Islamabad, but the aftershocks will continue to rock the country.

Before the Western-backed Ghani government fell, foreign aid made up over three-quarters of Afghanistan’s public spending, roughly 40 percent of its gross domestic product (GDP), and approximately 19 percent of gross national income (GNI) in 2017, with the country’s living standards languishing at the bottom of global leaderboards. 

When the Taliban embarrassed foreign policy leaders the world over, they reacted by pulling their aid, citing the Islamist group’s human rights abuses and its failure to commit to maintaining the country’s civil reforms, especially the rights of women and girls. 

With this funding disappearing, Afghanistan’s economy could shrink by as much as 30 percent every year.

Valle Riccardo, a researcher who specialises in Afghanistan, told AGBI: “The overriding problem for Afghanistan is the fact that the Taliban is struggling to transition from an insurgency to a government.

“They keep thinking as an insurgent group and not as governing administration. 

“They have symbolic policies that appease sections of the Taliban by imposing Islamic codes but alienate the international community.

“At the same time, no serious policy has been issued by the new government.

“The most important need for Afghanistan is unfreezing the money in foreign banks and allowing foreign aid to continue to be sent.

“Even though the government has changed, the basic needs are the same. 

“I keep seeing people who are trying to rebuild the country saying that developmental foreign aid inflows must return.”

Reuters/Fayaz Aziz

Pakistan offers help

However, Riccardo said this was unlikely and there are political reasons that will prevent an increase in foreign aid.

While there might be some sort of ad hoc foreign aid response to the earthquake, in the long-term it is unlikely to return to previous levels of support.

“Pakistan will help more because they are closely connected, but I do not expect many other countries to support the new government,” said Riccardo.

As the international community holds firm in their opposition to the Taliban’s severe policies, GDP currently sits just under $20 billion, with FDI inflows accounting for as little as $13 million. 

The education sector was the biggest employer, but the country’s 200,000 teachers are still waiting for a Taliban spending plan that will secure their livelihoods. 

Many have accepted that their jobs will never return, as the Islamist government has refused to reopen girls’ schools in half of the country’s provinces, alienating development groups who will not support any education plans that discriminate against women and girls.

A World Bank report in April noted that per capita incomes were likely to have fallen by around one third over the last months of 2021, warning that this could eradicate economic progress achieved since 2007. 

With some 600,000 Afghans reaching working age every year, the diminishing economic opportunities have left many hopeless.

Kyle Orton, an independent geopolitical analyst, said: “The Afghan economy has virtually ground to a halt.

“The state was significantly reliant on foreign assistance to function, with so much of it made up by external aid. 

“Because of the political and legal issues about financing the Taliban this money has been cut off, and the estimates are that the economy will not grow until it returns.

“It is very unlikely in the short-term that any kind of systematic aid will be restored to a Taliban-ruled Afghanistan. 

“Nobody recognises the Taliban government so it is very difficult for the UN and NGOs to have relations with it.

“There is the legal problem of the sanctions and the terrorism laws: designated international terrorists hold official posts in the Taliban’s declared regime, which makes giving them money a dubious proposition.”

This dire situation has spawned the world’s largest humanitarian crisis. But as the Ukraine crisis rattles on and famine creeps into the Horn of Africa, there is a serious risk that the UN’s warning that 97 percent of Afghans could fall into poverty this year will go unheard.

The appalling situation is unprecedented for Afghanistan, which has endured near-ceaseless violence and turbulence for decades. 

Food shortages return at a time of relative peace

After finally achieving relative military security at the end of last year, almost half of Afghans were suddenly facing extreme levels of food insecurity; the highest level ever recorded in the country. 

Food insecurity rates spiked by 37 percent compared to six months earlier, the period just before the Taliban took over. 

Some nine million people were forecast to face food emergency levels this year, which is just one step before famine conditions.

The international community is continuing to support Afghans through direct life-saving aid, mostly with urgent food and medical supplies, but little is being done to ensure Afghans can reach a state of providing for themselves.

Amid the economic catastrophe, experts and international observers in Kabul and across the country have detailed the grave lengths that Afghans are taking to ensure survival. 

Crisis Group’s senior Afghanistan consultant Graeme Smith told a US Congressional Committee in February that “people are so desperate that they are selling their own daughters, anything to survive.”

“The US and the UN have taken steps to easing the sanctions, as recommended by Crisis Group, and we have urged them to go further,” Smith said.

“But the real problem is that the Taliban have not made themselves popular with the international community by banning millions of teenage girls from education or forcing women across the country to cover their faces. It has made this situation politically difficult”.

Smith pointed to some positive movements, including the US Treasury’s announcement of new sanctions exemptions. 

But he believes it does not go far enough and it is still difficult to transfer money, even to help disaster victims, because no banks want to do business with Afghanistan while the country remains affected by sanctions. 

“Sanctions are a broad, blunt tool and it is difficult to calibrate them in such a way that you send a message politically but don’t hurt the people,” he added.

“Economic revival is a matter of life and death in Afghanistan. So many people are so poor.

“Crisis Group has been advocating for central bank assets that remain in limbo to be returned to use for development, but how that happens remains highly contentious and in dispute.”

But how could the Taliban promote economic revival in a situation where more assets are returned to Afghanistan? 

Smith said: “The signals are mixed so far. The biggest positive has been the sweeping crackdown on corruption. 

“The Taliban have done away with the system that existed under the previous government, where local officials preyed upon truck drivers and any form of commerce travelling through their area. 

“They have dismantled checkpoints and cleaned up customs checks, saving hundreds of millions of dollars from going into corrupt pockets. This is an astonishing positive of the new system.

In order for Afghanistan to flourish, however, the country will need to do more than just obtain foreign aid. 

Its own business community must have an opportunity to remain and invest in the country, and they need incentives to do so. 

“Afghan businessmen are sophisticated, the real heavyweight CEOs and executives want their girls to go to school, so if the Taliban insist on banning teenage girls from secondary school, that is going to prevent investors from coming back,” Smith said.

The Taliban’s failure to lure the business community into engaging with the country extends far beyond their civil liberties’ policies. 

“In any poor country you have a plan to revive the economy but in Afghanistan there isn’t even a paper. The international community and the Taliban are quite literally not on the same page,” Smith said.

“The Taliban are dreaming big. They want to dust off old plans for regional connectivity that could revive the economy not just in Afghanistan but also south and central Asia. 

“Central Asia has vast energy reserves and very little access to markets. South Asia has a dramatic thirst for energy and Afghanistan could connect the two.

“You could see the CASA-1000 scheme of electrical grids connecting the regions, or the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, that has been long envisioned and never realised.

“These projects are not new, but they are now feasible for the first time because there is now security.”

Reuters/Fayaz Aziz

The global dilemma: to aid or not to aid

Before the Taliban can realise their dreams, more basic demands must be fulfilled. 

Approximately half a million government employees are not being paid, and the essential services that were formerly supported by US-led Western aid, such as education, sanitation, agriculture and power, have disappeared. 

Billions of dollars were poured into these areas to sustain the economy after 2001 but the plug was pulled before self-reliance could be achieved, sending the country into a financial spiral. 

Western sanctions and asset freezes, justified by the Taliban’s severe restrictions on civil liberties for women and girls, have limited hopes that these dollars can return soon.

“Sanctions are very heavy for the Afghan people. I am sceptical about sanctions in general and, in particular for Afghanistan, but there are issues and worries about money flowing to Taliban factions or groups such as Al-Qaeda or the TTP,” Riccardo said. 

“These concerns are legitimate, but, in the end, the problem is that they target the Afghan people more than the Taliban and other groups.

“The way out of this situation must be targeted sanctions, specific to certain sectors and groups, to allow foreign aid and development to return. 

“After the earthquake, and now that there is no war, this is the perfect time to do this.

“Afghanistan is much more peaceful than it has been at any point since 2001, there is no battleground, so they must be ready to send back funds. 

“But the Taliban, with their anti-women and girls’ policies, are sustaining these actions and failing to appease the international community.”