Afghanistan faces economic implosion after political collapse

Afghanistan faces economic implosion after political collapse

Afghanistan faces economic implosion after political collapse
A young Afghan boy in the Alishing district of Laghman province, Afghanistan July 8, 2021. (Reuters)
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Amid the millions of words that have spilled out across newspapers, social media feeds and news sites regarding the implosion of Afghanistan, Ajmal Ahmady, the recently departed governor of the central bank, may have offered the most pithy and accurate.
“The Taliban won militarily — but now have to govern. It will not be easy,” he tweeted.
Even if the Taliban manage to temper the chaos they have unleashed, they will need to manage and revive an economy in free-fall. Unless we are dealing with a new Taliban (don’t bet on it), they will be entirely unprepared to do so. As a result, we can expect Afghanistan’s coming economic implosion to be possibly even more devastating than the events of the past week have been.
To be sure, the Taliban will be inheriting a far from healthy economy and one that remains far too dependent on foreign aid. All told, about 75 percent of the government’s budget is underwritten by donors, according to the World Bank. The global lending body also has noted that public spending accounts for about 57 percent of gross domestic product — an immensely top-heavy structure that feeds into other aspects of the economy, from services to agriculture to industry.
What is more, the World Bank also noted that the illicit economy — opium production, smuggling, illegal mining and the like — account for “a significant share of production, exports and employment,” and we have all heard the stories on state corruption. Afghanistan ranks near the bottom of Transparency International’s Corruption Perception Index.
Afghan President Ashraf Ghani, who fled the country last week, is a former World Bank senior official who co-authored a book on how to fix failing states. Afghanistan’s economy under Ghani was not failing, but it was flailing, and laced with corruption and mismanagement.
Still, before anyone gets into moral equivalency arguments about corrupt mismanagement by Afghan presidents from Hamid Karzai to Ghani and the corruption of the Taliban, let us remember that there is no comparison: The Taliban’s thuggery is uniquely cruel, no matter what smiling face the “Doha Taliban” chooses to present to the world.
It may also be fashionable to dismiss the past 20 years as a failure — the $1 trillion the US spent and the total collapse of the Afghan defense forces is exhibit A — but the reality is that life was indeed improving for ordinary Afghans, especially women. Yes, progress was painfully slow and, yes, Western-backed Afghan leaders delivered far less than what Afghans deserved, while taking far more for themselves than they deserved. But the government had functioning institutions — Ahmady’s central bank was one of them — and plenty of good people trying to do the right thing.
Now, the Taliban or some coalition led by them will be governing the country. Hollywood could hardly have written this script. On the 20th anniversary of the 9/11 attacks, the Taliban are back in power. But while pundits and columnists will write of the tragic symmetry and bookends of the past two decades, the people of Afghanistan will begin to wonder how they are going to survive the next few months, possibly even the next few days.
Afghanistan will likely face sharp and painful economic challenges over the next few months: A falling currency, rising inflation and unemployment, power shortages and a massive cash crunch as aid dries up. After all, it is one thing for a government aid agency in Norway or Japan to offer assistance to the NATO and UN-backed government of Afghanistan but quite another to offer direct government aid to the Taliban.

Winning the war may have been the easy part. Governing will be hard, and the Taliban offer the world little hope that they are up to the task of leading competently and justly to improve the lives of the Afghan people.

Afshin Molavi

A scheduled payment of nearly $500 million to Afghanistan’s Treasury from the IMF has been halted. Meanwhile, Washington has frozen $9.5 billion of Afghanistan’s funds located in the Federal Reserve and other US financial institutions. It has also halted all dollar shipments to the country.
Make no mistake: Afghanistan faces massive state failure, a particularly tragic prospect for a people and country that have suffered for far too long. The Taliban are hardly well-prepared to manage the deluge they — and the hasty US withdrawal — have created.
The militants have demonstrated a canny ability to make money over the years through extortion, drug-running, kidnapping and other illicit means. One UN report said that the Taliban generate anywhere from $300 million to $1.5 billion from this line of business plus aid from wealthy donors.
But we have seen what happens to corrupt, badly managed states with deep ties to drug and criminal networks. Look no further than Venezuela, which has been imploding for the past few years, with massive refugee flows, wrenching poverty and devastating social breakdown. And lest we forget, Venezuela has the largest proven oil reserves on earth.
Ahmady was right. Winning the war may have been the easy part. Governing will be hard, and the Taliban offer the world little hope that they are up to the task of leading competently and justly to improve the lives of the Afghan people.
The coming economic implosion may not make for compelling television, but it will be just as consequential and painful for the people of Afghanistan.

  • Afshin Molavi is a senior fellow at the Foreign Policy Institute of the Johns Hopkins School of Advanced International Studies and Editor and Founder of Emerging World newsletter.
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