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Afghanistan Faces Complex Web of Economic Crises


Taliban fighters on a pick-up truck move around a market area bustling with local shoppers, in Kabul, Afghanistan, Aug. 17, 2021, following the insurgent group's takeover of the country.

Steering Afghanistan's economy would be a formidable task for anyone, which is why economists and other experts expressed dismay this week when the country's Taliban leaders named Mohammad Idris, a relatively obscure figure from within the movement, to head Da Afghanistan Bank, the country's central bank.

Taliban spokesman Zabihullah Mujahid said on Twitter that Idris would "address the looming banking issues and the problems of the people." But experts said it is unclear whether Idris, or any of the Taliban leadership, appreciates the economic peril that the country now faces.

Ajmal Ahmady, the former governor of the central bank, who fled the country a day ahead of the Taliban's entry into Kabul, told Bloomberg that the Taliban have not articulated any coherent approach to dealing with the country's economy.

"They never once talked about … what their economic policy (will be), what their macroeconomic stance is," he said. "Those types of questions were never asked and … never considered."

He added, "I've never heard of an economist on their team."

Interwoven economic crises

"They will have a problem managing the economy," agreed Gul Maqsood Sabit, who has served in multiple roles in Afghanistan's Ministry of Finance, most recently as deputy finance minister for customs and revenue from 2013 to 2015.

Sabit, who is now a lecturer at Ohlone College in California, told VOA this is especially true "if they appoint people who do not have the right skills and expertise."

What the Taliban now face is a complex web of economic crises that could interact and become worse.

People queue as they wait for their turn to withdraw money from an ATM in front of a bank along a roadside in Kabul, Afghanistan, Aug. 21, 2021.
People queue as they wait for their turn to withdraw money from an ATM in front of a bank along a roadside in Kabul, Afghanistan, Aug. 21, 2021.

International aid money, which accounted for 75% of public spending in the country, has dried up, including a $440 million installment due this week from the International Monetary Fund that the institution refused to disburse to the Taliban. But that is far from the only challenge facing the country.

Another major source of funds, remittances from Afghans living and working abroad, amounted to an average of nearly $800 million per year before the Taliban took over. However, the two largest money transmitters operating in the country, Western Union and MoneyGram International, have both suspended operations in Afghanistan, cutting off that source of funds as well.

Further complicating matters is that the foreign governments and nongovernmental organizations now fleeing Afghanistan employed many thousands of local people and purchased goods and services. Their disappearance blocks yet another route by which money flowed into the Afghan economy.

Currency crisis expected

Banks, which have largely been closed since the Taliban took over, are slowly beginning to reopen, but as they do, Afghans are rushing to convert money they hold in the local currency, afghanis, into U.S. dollars. This is driving the value of the afghani down and pushing the prices of everyday goods higher.

In the years before the Taliban's takeover, the Afghan central bank managed a carefully choreographed dance with the currency markets to keep the afghani stable.

Every week, the bank would auction off about $20 million U.S. dollars in cash. The goal was to create a public understanding of what the afghani was worth relative to the dollar. Because Afghans understood that their country's paper money could be reliably exchanged for dollars at a predictable rate, the afghani retained a stable value.

Burqa-clad women shop at a market in Kabul, Aghanistan, Aug. 23, 2021, following the Taliban's takeover of the country.
Burqa-clad women shop at a market in Kabul, Aghanistan, Aug. 23, 2021, following the Taliban's takeover of the country.

Impact on trade

The steady flow of dollars into the Afghan economy also allowed merchants who imported goods from abroad to settle their purchases in dollars, as many of their suppliers were unwilling to accept afghanis as payment.

Now, however, the shipments of physical U.S. dollars that helped keep the wheels of the Afghan economy spinning have stopped, and the results, said Sabit, are predictable.

"Many people are going to start converting their afs (afghanis) into dollars as soon as possible because they know afghani values will depreciate significantly, and then they're going to hold on to dollars," he said.

Dollars remaining in circulation will likely be scooped up by merchants who need them to pay foreign suppliers, further reducing supply and driving down the value of the afghani. And eventually, people holding dollars will be forced to spend them, Sabit said.

Reduced government revenue

"I think dollars will disappear from the market, mostly," Sabit said. "And then that is going to affect the trade too, because … banks will not have that much money, in terms of dollars, to pay internationally on behalf of the traders."

Most of the Taliban's revenue, now that the group has taken over the country, will come from taxes and customs duties. However, with so much foreign money suddenly disappearing from the country, there will be far less economic activity to tax. And as inflation rises and dollars disappear from the economy, imports are likely to decline drastically as well.

"Overall, I think both customs and tax revenues will significantly decline for them," Sabit said. "And that's the only source they will have for now."

Shopkeepers display used household items to sell at a market in Kabul, Aug. 25, 2021. They purchased the items earlier from people who faced financial hardships and those who fled the country after the Taliban's takeover of Afghanistan.
Shopkeepers display used household items to sell at a market in Kabul, Aug. 25, 2021. They purchased the items earlier from people who faced financial hardships and those who fled the country after the Taliban's takeover of Afghanistan.

'An incentive to cooperate'

One variable that could ameliorate some of the problems facing Afghanistan is the ultimate shape of the country's new government. The Taliban have been meeting with some officials of the former government, and there have been suggestions that the group is interested in some sort of power-sharing arrangement that might make it possible for foreign nations to recognize the country's leadership as legitimate.

International recognition could restart some of the aid flow into Afghanistan and might give Western Union, MoneyGram and other companies enough comfort to resume operations there.

"The stakes are high, but the fact that the stakes are high for this new government is a reason to be optimistic, because it gives them an incentive to cooperate," said Darryl McLeod, a Fordham University professor of economics who has studied economies in crisis.

"The potential adjustment costs are high, and that makes it more likely that the government will try to cooperate and do things … not to be ejected from the community of nations."

Common people hurt

Some experts are urging the international community to hold back on punitive action if the Taliban cannot secure widespread recognition.

"I think it would be very important for the world to recognize the needs and the pains of the people when they impose sanctions on the country," Sabit said.

"I understand the political aspect of it. And I understand the pressure they want to apply to the Taliban," he said. "But this fight between the international community and the Taliban — this economic war — will affect common people."

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