Why the Taliban's biggest problem may be Afghanistan's economic misery

Afghanistan's economy has almost tripled in size since they were last in power about two decades ago. Economic challenges remain. Failure to get their hands on funds may lead the already battered economy towards a crisis. The Taliban ruled Afghanistan with an iron fist from 1996-2001, enforcing a harsh version of Islamic law.

New Delhi: The Taliban may have occupied Afghanistan, but now there is a daunting task awaiting them. Manage a fragile and dependent economy and obtain funding for the country.

Although they dominate the countrys political arena, they cannot obtain billions of dollars in reserves. The Afghan economy they inherited this time is more urbanized, and its size has almost tripled since the last time they took power about two decades ago. However, economic challenges remain.

Failure to obtain these funds may push an already-battered economy into crisis, thereby exacerbating civilian problems. What was the economic situation in 1996-2001 The Taliban ruled Afghanistan with an iron fist since 1996In 2001, before being overthrown by the US-led army, it adopted strict Islamic law.

Several years of civil war completely destroyed the economy, the infrastructure was destroyed, the city was bombed and destroyed, and the central bank was almost inoperable for many years. The profits of commanders and businessmen are mainly invested in illegal activities such as drug tracing and cross-border smuggling.

Income is mainly obtained through looting, robbers, roadblocks, deprivation of assets, and illegally regulated trade. The first governor of the Taliban Central Bank, Ehsanullah Ehsan, a military chief, declared that the countrys (Afghanistan) currency was worthless and cancelled the order for new banknotes.

Afghanistans economy since 2002 According to World Bank data, since 2002, Afghanistan has seen an influx of international aid, helping it maintain rapid economic growth and improve social indicators. During 2003-2012, the average annual growth rate was 9.4%, mainly due to the aid-driven service sector-and the strong agricultural sector.

However, due to a number of factors, social and economic progress has slowed: since 2015-2020, the economy has grown by only 2.5% annually. The World Bank noted that aid flows have fallen from roughly 100% of GDP in 2009 to 42.9% of GDP in 2020, causing a contraction in the service industry, employment and declining income.

The situation before the Taliban struck again compared to 1996, Afghanistans economic situation in 2021 is better, with about $ 9 billion in foreign exchange reserves abroad. However, the economy remains fragile and heavily dependent on aid. According to the World Bank, 75% of public spending is financed through grants.

According to World Bank data, due to the narrow private sector, 40% of employment is concentrated in the agricultural sector, while only 60% obtain some income from it. Weak institutions and property rights limit financial inclusion and access to finance, and private sector credit only accounts for 3% of GDP.

Spending on security (national security and police) reached about 28% of GDP in 2019, while low-income countries averaged about 3% of GDP, bringing total public spending to about 57 % of GDP. According to the World Bank In the 2020 business environment ranking, the country is ranked 173 out of 190 countries, and its development is affected by insecurity, political instability, inadequate infrastructure and weak institutions.

Why did Afghan aid fall The Afghan economy is facing severe challenges, and international support began to weaken even before the Taliban took power. One of the main reasons for this decline is that the international force dropped from more than 130,000 in 2011 to around 15,000 in 2014.

The Congressional Research Service pointed out that 90% of the Afghan population this year lived on less than US$2 a year. It warned that the loss of US support would weaken one of the smallest economies in the world.

At the end of 2020, foreign donors gathered in Geneva pledged to provide Afghanistan with US$12 billion in aid over the next four years, a reduction of 20% from the previous four years. Some aid agencies have provided new conditions for funding based on the progress of human rights and the progress of peace negotiations between the government and the Taliban.

Can the Taliban obtain financial assets in Afghanistan According to a statement issued by the countrys central bank, Da Afghanistan Bank (DAB), as of June 21, the bank had assets worth 784.6 billion afghanis. Assets include gold reserves worth 102.7 billion Afghanis and foreign currency.

The cash reserves are worth 28.7 billion Afghans. In terms of overseas assets, DAB reserves of approximately US$9 billion are held in the form of treasury and gold, of which a considerable part is in the Federal Reserve Board of the United States. According to reports, in accordance with international standards. A tweet by DAB President Ajmal Ahmady. The United States has frozen all these reserves, making the Taliban inaccessible.

It also stopped shipping dollars to the country, which pushed the Afghan currency to historical lows. The DABs June statement also stated that the banks investment value was US$6.1 billion. The June report did not provide detailed information on these investments, but the breakdown in the year-end report-showed that most were in the form of U.S. Treasury bills and bonds.

This means that most of Afghanistans assets are abroad, and since the Taliban are on the international sanctions list, they will not be able to seize any of them. Therefore, we can say that the funds available to the Taliban may account for 0.1-0.2% of the total Afghans international reserves.

Ahmadi said that without the approval of the Ministry of Finance, it is unlikely that any donor will support the Taliban government. In addition, the International Monetary Fund (IMF) plans to pay Afghanistan next week about US$460 million in emergency foreign exchange reserves, the Special Drawing Rights (SDR). But after the Taliban took over, the transfer has stalled. As a general rule, if the government is deemed legal, it cannot use its new or existing special drawing rights.

At present, according to data from the International Monetary Fund, Afghanistan has 37.16 million special drawing rights, which is equivalent to more than 52 million U.S. dollars. How much Afghan resources can the Taliban obtain.