The Coming Financial Crisis for the Taliban Economy

Is the Afghanistan economy only weeks away from an economic collapse? After 20 years and $2 trillion, the country rich in natural resources had become somewhat functional, equipped with infrastructure, health care, modern technology, and education. The nation failed to progress further due to political corruption, escalating violence, and, as the Special Inspector General for Afghanistan Reconstruction (SIGAR) wrote this past spring, the U.S. “pouring too much money, too quickly, into a country too small to absorb it.” Now that the Taliban has seized control of the government, Afghanistan is not only on the brink of brutality and bloodshed, but Kabul could soon be facing a financial reckoning.

The Afghanistan Economy: A Primer

GettyImages-1234004300 Afghanistan

(Photo by Haroon Sabawoon/Anadolu Agency via Getty Images)

Before the arrival of NATO forces in 2001, Afghanistan was extremely impoverished and depended on billions of dollars in foreign aid to survive. Despite maintaining ample levels of natural gas, copper, gold, gemstones, and so much more, neither the private sector nor the government could effectively exploit these products amid national instability. Still, the economy has been developing from where it was in 2001.

The gross domestic product (GDP) – in purchasing power parity (PPP) terms – is comparable to Turkey, generating $78.5 billion in goods and services and rising a commendable 2% per year. Exports total approximately $800 million, with the United Arab Emirates (UAE), Pakistan, and India accounting for about 80% of shipments. Its foreign exchange and gold reserves top $7 billion. Conditions have improved over the last two decades, turning into a larger and more urbanized market.

Overall living conditions have enhanced thanks to a double-digit boom in the 2010s. However, growth has stagnated in recent years due to waning international support and shrinking capital investment. This is anticipated to accelerate for the rest of the year as the Taliban takes over. Dr. Gareth Price, a senior research fellow at think-tank Chatham House, told the Financial Times that while Afghan society has “changed dramatically,” the country has failed at significantly tapping into the “main domestic generators of growth — notably mineral reserves.”

The Coming Financial Crisis?

With the Islamic movement thoroughly entrenched in the nation’s capital, the national economy is venturing toward an economic collapse, and the international community will be unable to bail out the country. The government’s finances are essentially held in abeyance, with assets put on ice, financial institutions shuttered, and critical foreign aid suspended. The afghani, the official currency, collapsed 8% against the U.S. dollar on Aug. 15, trading relatively sideways ever since. Experts are doubtful that the Taliban-led government will be able to turn Afghanistan around.

One of the most recent moves executed by the Taliban had been appointing Haji Mohammad Idris as the acting governor of Da Afghanistan Bank (DAB), the central bank. But Gul Maqsood Sabit, a former deputy finance minister, conceded he had never heard of the man before, telling NBC News:

“This person is someone who served on the Taliban Economic Commission. He was a teacher in a [religious school] in Pakistan, and that’s where he came from, so that’s all that we know about this person, and now he’s managing the central bank. He probably has no experience at all.

The Taliban cannot touch any of Afghanistan’s assets since they are concentrated in U.S. Treasury bonds and gold bullion. It is estimated that the new government would only have access to as little as 0.1% of the total reserves. That said, with no cash distribution, the economy is frozen. The only thing the Taliban can do is attain revenue from illegal mining, opium output, and trade routes. Could China also serve as a lifeline? Liberty Nation’s Dave Patterson recently reported on Beijing attempting to push Afghanistan into the multi-national economic Belt and Road Initiative (BRI), writing:

“The Chinese were first to take advantage of the deteriorating situation on the ground in Afghanistan, bringing second-order consequences for the United States. This is problematic because China made a concerted outreach to the new Afghan government even before the precipitous departure of the United States.”

For now, Afghanistan is bracing for a food crisis as political upheaval and a severe drought weigh on the nation’s agricultural supply. Even before the Taliban takeover, one in three Afghans had been at risk of severe or acute hunger, and half of all Afghan children under five suffer from malnutrition. The world will be watching a humanitarian calamity unfold in the Middle Eastern state in real-time.

The Afghan Endgame

Will ideology supersede the economy in a nation run by the Taliban? History has shown that authoritarian regimes emphasize their philosophy over economics, whether the Khmer Rouge in Cambodia or the Zimbabwe African National Union-Patriotic Front (ZANU–PF) in the southern African country. Western officials reportedly believe they can apply financial leverage on the Taliban to ensure Afghanistan does not descend into a wasteland of deprivation and despair. But can a repressive terrorist group be controlled that easily? Hunger could force any individual or government to abandon dogma.

The post The Coming Financial Crisis for the Taliban Economy was first published by Liberty Nation, and is republished here with permission. Please support their efforts.

Andrew Moran

Economics Correspondent at LibertyNation.com. Andrew has written extensively on economics, business, and political subjects for the last decade. He also writes about economics at Economic Collapse News and commodities at EarnForex.com. He is the author of “The War on Cash.” You can learn more at AndrewMoran.net.

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