The multi-dimensional challenges of resuscitating the Afghan economy
The USA observed the 20th anniversary of the 9/11 attacks on September 11, 2021, on the same day the Taliban raised its white flag on the Presidential Palace in Kabul to celebrate their victory. Regardless of its act of defiance, the new government of Afghanistan has at the same time appealed for assistance from the global community to feed its starving millions, and to put the Afghan economy on an even keel. Meanwhile, international aid agencies are gearing up to send food, health supplies and other essential items to a country where, after 20 years of war, peace might finally be on the horizon. While some major regional powers including Russia, China, and neighbouring Pakistan are also sending material support to Kabul, it is not clear what role the USA will play as the latter struggles to find its own footing in the global geopolitical setup.
The composition of the new government has been a disappointment for the USA, UK, Germany, and other donor countries. Not a single country has so far recognised the new regime. The Taliban were forewarned that if they go back to their old style of governance, that would bring "an Afghanistan that is kept backwards, ridden with obscurantism, bereft of civilisation and art, devoid of unity and solidarity, and a country that is forced into economic and political isolation." These strong words did not come from the US president, but from one of Afghanistan's well-known politicians, Ahmed Massoud, who is the founder of the National Resistance Front of Afghanistan.
Aid agencies in Afghanistan are now in a terrible fix. They must decide how to help the country without abetting the Taliban. The challenges are enormous. The heads of UN agencies and international aid groups appealed last week for more humanitarian funding for Afghanistan as they pledged to stay, warning that they were at least USD 800 million short of what was needed. Even during the Ghani regime, salaries of doctors, nurses, teachers, and civil servants were overwhelmingly subsidised by the World Bank. More than 70 percent of the government's non-military budget was financed by the donors.
The UN Office for the Coordination of Humanitarian Affairs sent out a "Flash Appeal" or request for emergency aid for USD 606 million to assist nearly 11 million Afghans with critically needed food and "livelihood assistance" for the four remaining months of 2021 amid warnings of drought and starvation. This money will also fund essential health services for 3.4 million Afghans, treatment for acute malnutrition for more than 1 million children and women, water and sanitation for 2.5 million people, and protection for 1.5 million people including children and survivors of gender violence. The UN took up this funding request on Monday and the UN Secretary General announced an agreement to fund Afghanistan to the tune of USD 1 billion.
There have been voices of dissent from some aid agencies stationed in Kabul. They were hoping that the new Taliban government would be inclusive and be formed after consultation with the various rival factions operating in Afghanistan. All these expectations have now been dashed. Religious minorities, particularly the Hazaras, women, and various ethnic groups were left out.
Former Irish president Mary Robinson, who heads the group of prominent former leaders founded by Nelson Mandela (Elders), called on China and Russia especially to tell the Taliban that participation of women in Afghan society and the education of girls are "non-negotiable and must be respected." Now, aid groups may try to bypass the Taliban, who are still under international sanctions.
The new government is pushing back and even seeking to capitalise on the division between the superpowers. "Afghanistan needs help," said Zikrullah al-Hashemi, a Taliban aid official. "But this is my suggestion for the Western countries: The conditions will not work with the Afghan people. If you want to help us, do not put the conditions forward. If you put pressure, they will not accept." For many Afghans, more pressing than the composition of the Cabinet was the economic fallout of the chaos triggered by the Taliban's conquest. Concerned observers abroad are still struggling to come to terms with the urgency and importance of foreign aid for the new Afghan government as it tries to revive the economy.
What does Afghanistan need now?
Two issues have emerged as of paramount importance for policymakers in the West: how important is foreign aid for the survival of the Afghan economy and secondly, how much leverage can the US and its allies exercise by maintaining sanctions and other forms of economic warfare against the new government.
Unquestionably, the new Afghan acting Prime Minister, Mullah Hassan Akhund, and his team will need to face the challenge of reviving the economy head-on, and brace themselves to combat steep inflation, food shortages exacerbated by drought, and the prospect of international aid being slashed as countries distance themselves from the Taliban.
Many Western observers are puzzled and asking, "Where are Taliban officials getting the money to run Afghanistan?" The World Bank (WB) has painted a bleak picture of Afghanistan's economic scenario. It describes Afghanistan's private sector as narrow, characterising its economy as "shaped by fragility and aid dependence". The BBC called it "desperate and uncertain".
Interestingly, two researchers for the Overseas Development Institute (ODI) present a different picture of the resilience of the informal economy. Graeme Smith, author of "The Dogs Are Eating Them Now: Our War in Afghanistan," and David Mansfield, author of "A State Built on Sand: How Opium Undermined Afghanistan," contend that only a small proportion of Taliban revenues from trade involves opium, hashish, methamphetamines, and other narcotics. Based on their fieldwork in the province of Nimruz, they found that even more lucrative is the legal movement of ordinary goods, such as fuel and consumer imports.
One reason foreign donors inflate their own importance in Afghanistan is that they do not understand the informal economy, and the vast amounts of hidden money in the war zone. In Nimruz alone, Smith and Mansfield estimated that informal taxation—the collection of fees by armed personnel to allow safe passage of goods—raised about USD 235 million annually for the Taliban and pro-government figures. By contrast, the province received less than USD 20 million a year in foreign aid.
Nonetheless, UN Security Council resolutions imposing sanctions and other restrictions on the Taliban for terrorism-related actions will prevent the Central Bank of Afghanistan from receiving new paper Afghan currency, which is printed in Europe.
Greg Ip of the Wall Street Journal questions the effectiveness of sanctions. "The last American soldier had barely left Afghanistan when President Biden pledged that pressure on the Taliban would continue through other means, in particular what he described as economic tools," i.e. sanctions. Cornell University's Nicholas Mulder in his forthcoming book, "The Economic Weapon: The Rise of Sanctions as a Tool of Modern War," uses historical data to document the failure of sanctions to counter authoritarian regimes.
In the context of the new Afghanistan, the complex set of sanctions that the UN Security Council previously imposed on the Taliban, as well as those imposed by the US, EU, and many governments, should be reviewed to ensure that they do not complicate the delivery of humanitarian assistance by NGOs.
Dr Abdullah Shibli is an economist and IT consultant. He is also Senior Research Fellow at International Sustainable Development Institute (ISDI), a think tank based in Boston.