As Taliban fighters captured the capital city of Kabul on Sunday at an astonishingly swift end to Afghanistan’s 20-year war, the country, one of the world’s poorest, now faces a downward spiraling economy. In just ten days, after the withdrawal of Western troops, the Taliban captured city-by-city without resistance. However, they failed to enjoy the support of the world community, causing most countries to withdraw financial aid and halt development projects in Afghanistan.
The Taliban have promised to improve Afghanistan’s economy, but to do so the new regime will have to rely largely on foreign aid, which is hard to come by as some global donors have withheld their support. Washington-based crisis lender IMF said on Wednesday it has decided to withdraw its aid to Afghanistan amid uncertainty over the leadership position in Kabul.
The Afghan economy had already been hit during the Covid-19 pandemic, and the currency fell sharply with the takeover by the Taliban.
Apart from the cash in their hands, the Taliban may have some other money to attract. The Taliban will not have access to most of the country’s cash and gold stocks. Taliban will not have access to most of the country’s cash and gold reserves
The majority are in the United States, where President Joe Biden’s administration said the Taliban would not have access to them. And Western Union announced it was temporarily cutting wire transfers into the country — another important source of cash for people.
Ahmadi said the US Federal Reserve has $7 billion in reserves, including $1.2 billion in gold, while the rest is in foreign accounts.
According to the most recent World Bank estimates from May, remittance flows abroad from Afghanistan were estimated at $789 million in 2020.
Some major global donors have halted their support for the country, one of the world’s poorest, including the IMF, which announced on Wednesday it would halt aid to the country amid uncertainty over the government’s recognition. The World Bank may follow suit.
“Afghanistan is largely dependent on foreign aid. Foreign aid is about 10 times or even more than what the Taliban receives from its own finances,” said Wanda Felbab-Brown, an Afghanistan expert at the Brookings Institution, a Washington think tank.
International economic aid and access to the International Economic Fund are vital to the economy of Afghanistan. In 2020, aid flows represented 42.9 percent of Afghanistan’s $19.8 billion GDP, according to World Bank data.
The reception the group received after its abrupt takeover of the capital, Kabul, appears to be less reserved than it was in its first term in power.
Russia, China and Turkey have all welcomed the rebels’ first public statement. However, many donor countries, starting with the United States, are wary. Washington has insisted that it expects the Taliban to respect human rights, including those of women.
Canadian Prime Minister Justin Trudeau said his country had “no plans” to recognize the Taliban. Germany on Monday announced the suspension of its development aid. Berlin was going to provide 430 million euros ($503.1 million) in aid this year, including 250 million euros ($292.5 million) for development.
It is unclear whether neighboring China, which has the world’s second largest economy, will fill the void if ties with the West remain cold.
The IMF has also announced that it will stop aid to Afghanistan. The aid includes access to the existing $370 million loan program, as well as reserves in the form of special drawing rights (SDRs), the lender’s basket of currencies. Ahmadi said the IMF is set to distribute SDR 650 billion to all eligible members on 23 August, of which Afghanistan’s share was valued at around $340 million.
In June, the IMF released the latest tranche of a $370 million loan approved in November to Afghanistan and is aimed at helping support the economy amid the COVID-19 pandemic.
The World Bank has over two dozen development projects underway in the country and has provided $5.3 billion since 2002, most of it in the form of grants.
The status of those programs is unclear as the development lender works to drive employees out of the country.
Afghanistan’s currency has declined after the Taliban returned to power and prompted its central bank governor to flee. The unit settled at 86 afghani per US dollar on Tuesday, a decline of six per cent from last Friday, when it was 80 afghani per dollar.
Afghanistan’s central bank governor Ajmal Ahmadi revealed on Monday that it had stopped receiving dollar deliveries last Friday. By that time, the Afghan currency was relatively stable, despite the Taliban’s advances in power. “Currency rises from stable 81 to almost 100 and then back to 86,” Ahmadi tweeted in reference to the recent volatile price action. Ahmadi left Kabul airport in a military plane on Sunday night after news of President Ashraf Ghani’s departure.
The United Nations World Food Program warned that the combined effects of war and drought linked to global warming put one-third of Afghanistan’s population – 14 million – at risk of severe or acute hunger. “2021 is an extraordinarily difficult year for Afghanistan,” AFP quoted WFP representative and country director Mary-Ellen McGorty as saying.
He said the war-torn country is facing its second severe drought in three years on top of fighting and displacement of people. Wheat production has fallen 40 percent after one of the driest periods in nearly 30 years. “It has also had a devastating effect on livestock,” McGarty explained.
“As the conflict escalates across the country, farmers unable to harvest the land are running away from their homes,” she said. Civil infrastructure such as bridges, dams and roads, as well as orchards in some areas, have been destroyed.
The combined effect of the conflict with the drought is driving up food prices. The cost of a sack of wheat today is 24 per cent higher than the five-year average.
According to a May 2020 report by the United Nations Security Council’s Sanctions Committee, the Taliban derive most of their revenue from criminal activities such as drug trafficking, along with the cultivation of poppy seeds used to make heroin and opium. .
The extortion of businesses as well as ransoms from kidnappings also provides income, with reports estimating the group’s revenue from $300 million to $1.5 billion a year. The Taliban are adept at taxing everything from government projects to goods, in areas under their control.
The international community has spent billions of dollars over the years to help Afghanistan eliminate opium cultivation, but the country still produces more than 80 percent of the world’s opium. The industry employs hundreds of thousands of people in a country with high unemployment after 40 years of struggle.
The Taliban has admitted that it cannot improve the situation without foreign aid. “We have spoken to many countries. We want them to work on our economy. We want them to help us,” Taliban spokesman Zabihullah Mujahid said on Tuesday. However, as they did when they ruled the country from 1996 to 2001, the group will ban opium production, he said.