Can the Taliban Manage a Tanking Economy?

By Ricky Browne

The Taliban now has control of Afghanistan – but after 20 years of fighting the world’s greatest military powers, it now faces a new challenge that could defeat the best educated and most sophisticated governments.

How is it to rule a divided country without access to funds?

Afghanistan depends on international funding to stay afloat – but that funding is now non-existent.

The country does have about US$10 billion in reserves – but the US has closed access to much of that money, which was based in the United States.

So how will it pay civil servants? How will it prevent the value of the Afghani currency from crashing through the floor – something that is already happening. How will it prevent the masses from going hungry if there is no food to buy and no money to buy it with?

The sale of some of the military equipment that the United States thoughtfully left behind could be a stop gap – even if American troops did try to disable as much as they could.

But how long can that shore things up?

Shah Mehrabi, a senior board member of the Afghanistan central bank, who is based in the United States and is not a member of the Taliban, has called for the US Treasury and the International Monetary Fund (IMF) to allow the Taliban government to access its reserves to avoid economic disaster, according to a report from Reuters.

Afghanistan faces an “inevitable economic and humanitarian crisis” if its interational reserves remain frozen, Mehrabi told Reuters.

But who in the United States government cares about whether or not a Taliban-led Afghanistan should face economic disaster or not?

US President Joe Biden’s administration has said any central bank assets the Afghan government have in the United States will not be made available to the Taliban, and the IMF has said the country will not have access to the lender’s resources, Reuters says.

“If the international community wants to prevent an economic collapse, one way would be to allow Afghanistan to gain limited and monitored access to its reserves,”Mehrabi told Reuters.

“Having no access will choke off the Afghan economy, and directly hurt the Afghan people, with families pushed further into poverty,” he said.

But it is not only access to its reserves that has been frozen. The flow of money that would ordinarily come in has also been frozen, according to Ajmal Ahmady the Governor of the Afghanistan Central bank who is now in exile in an unknown location.

Ahmady says Germany has frozen US$300 million in aid, the EU has frozen US$1 billion and the World Bank has frozen their portfolio, he said in an interview with GZero Media.

But it doesn’t mean that a Taliban government can ‘t survive, even with a failed economy.

Almady retweeted Alberto Miguel Fernandez, a retired US diplomat, to make the point.

“One of the challenges of revolutionary regimes is to actually have to rule, especially in the field of economics. That is a big challenge for the #Taliban. Doesn’t mean they’ll lose power though, #Cuba has been an economic disaster for 60 years and the same regime still rules,” Fernandez tweeted.

FAILING ECONOMY

Meanwhile, the Afghan economy is already showing signs of failure – with long lines outside of banks, ATM’s running out of cash, and the currency depreciating fast. The afghani is now worth about 86.88 per US dollar – compared to about 80 to one before the Taliban took over Kabul two weeks ago.

That is the lowest value it has ever held.

The resulting Inflation is also putting pressure on people. It is believed that basic food essentials like flour and oil have increased by more than 35 percent since the Taliban took over.

On the plus side, Western Union said yesterday that it is resuming money transfer services to Afghanistan.

“Starting September 2, 2021, Western Union is pleased to announce that it is resuming its money transfer services into Afghanistan, enabling customers from 200 countries and territories to once again send money to their loved ones in the country,” the company said via Twitter.

Remittances to Afghanistan reached $789m in 2020, approximately four percent of the country’s gross domestic product, the World Bank estimated, down from $829m in 2019, according to Al Jazeera.

NEW GOVERNOR

Meanwhile, with Harvard-educated Almany safely out of the country, the Taliban government appointed a new acting governor for the central bank on August 23.

He is Mohammad Idris. Little is known about him or his qualifications for the job, except that he headed a financial group within the Taliban known as the economic commission. It is believed that he has no financial training or any higher education.

Taliban spokesman Zabihullah Mujahed said on Twitter that Idris would “address the looming banking issues and the problems of the people”. Idris is believed to be a religious mullah of Pakistani origin who worked as a teacher in a madrasah in Rawalpindi in Pakistan for 20 years.

As a mullah, Idris will be learned in Islamic theology and sacred law. And teaching that at a madrasa for two decades means he should be well up on that knowledge.

But how useful that will be to try and manage an economy that is tanking at a rapid rate remains to be seen.

And how much respect he will get, if any, from the international financial community, also remains to be seen.

FOREIGN AID

The country may depend on aid from neighbours such as Iran and China. Iran has already started to supply the country with oil again – so that is a possible step in the right direction.

The Koran, like the Bible, may offer some views and principles on how to manage an economy. But will that be enough to equip the Afghan Central Bank with the knowledge it needs to successfully manoeuvre through this period?

Fortunately, on the face of it, the pandemic seems to have died down in Afghanistan, with low rates of new infection and low deaths.

But that is only on the face of it – as it is likely that testing for the disease is not a priority for anyone in Afghanistan at the moment – resulting in the lower figures.

How will the country be able to manage a new wave of the Delta variant, assuming that it isn’t already in the process of being hit.

ECONOMIC LANDSCAPE

Afghanistan has a population of about 38 million people. It has one of the youngest populations in the world – with a median age of about 19.5 years – ranking it the 201 out of 227 countries. It has the youngest population outside of Africa (Niger has the youngest population with a median age of 14.8 years).

A total of 62 percent are under the age of 24 years.

That means that the majority of Afghanistan’s population were born after the Taliban were removed from power, and so they have no recollection of that period. That could be to the advantage or disadvantage of the Taliban. It also means that many of their supporters and soldiers have never lived under Taliban national rule.

The average life expectancy of an Afghan is 53 years, according to the World Factbook.

Afghanistan’s economy grew by 3.9 percent in 2019, but has contracted by at least five percent since the outbreak of the coronavirus in 2020.

The economy is highly dependent on grants and aids, which have now dried up.

With a per capita income in 2019 of US$2,065 according to the World Factbook, Afghanistan was the 213^th poorest country in the world, ranking just below Burkina Faso – but above countries like North Korea, Libya and a large group of African countries. Burundi ranked as the poorest in the world, with a per capita income of US$752.

Haiti, by comparison — the poorest country in the Americas — ranked 198, with a per capita income of US$2,905 per year.

Afghanistan is the world’s largest producer of opium and is believed to have had some 328,000 hectares under poppy cultivation in 2017.The Taliban is known to support the opium trade, and it could rely on this illegal crop to help fund itself and the country.

So that is the economy that the Taliban has to work with.

FOREIGN AID

It will probably need assistance from somewhere if it is to remain in power. That somewhere could be China, which will want to ensure that an unstable Afghanistan doesn’t destabilize its Muslim minority population – particularly the Uighur in the Xinjiang province which borders Afghanistan.

Afghanistan’s mineral wealth may also be of interest to China.

But China, having viewed the fate of both Russia and now the Western powers led by the United States, will want to avoid getting involved in Afghanistan on a military basis.

Iran too seems willing to get engaged with the Taliban government, having resumed sales of oil to Afghanistan in August. Though how much oil Afghanistan will be able to buy from Iran or anywhere once it runs out of cash, is another matter.

Pakistan, long seen as a covert supporter of the Taliban, is likely to seek covert ways of supporting the Taliban government if it feels it is in its interest. The new Central Bank governor is proof of the close relations that the Taliban has with Pakistan.

The Taliban could try to use its leverage of having hundreds if not thousands of US and other Nato citizens to get access to its reserves abroad. But that is a high risk game – which could impel the United States to attack Afghanistan again, if only by drone.

Meanwhile, the Taliban will also need to continue to feed its citizens while managing the pandemic crisis. It’s a tall order, and the number of Afghans that want to flee the country to Europe, Turkey or the United States is likely to increase as the situation gets tougher – not even taking into account the terrible human rights record of the Taliban.