One year after the fall of the Taliban, how has Afghanistan’s economy fared?
In 2020, Afghanistan had a GDP of close to $20 billion. However, since the Taliban takeover of the country in August of last year, the country’s foreign reserves have been frozen and foreign aid has significantly declined. As a result, the country’s GDP is estimated to have declined by close to 30% or more in the past year. The poverty rate has increased to more than 95% – almost the entire population.
In regards to the country’s international reserves, Afghanistan’s former central bank governor Ajmal Ahmady noted that most of the approximately $9 billion was held at the Federal Reserve Bank of New York. Furthermore, Governor Ajmal Ahmady stated that the U.S. government halted shipments of dollars to keep cash out of the Taliban’s hands.
Without such reserves, Governor Ajmal Ahmady also noted in the New York Times that inflation would likely rise. Since last year, inflation has indeed risen, and is now estimated at close to 40%. Prices from everything to wheat to flour to cooking oil have all increased by double digits, hurting the poor.
As a result of the deteriorating economic climate, the international community therefore began a response. Former Governor Ajmal Ahmady foresaw this when he said that “Humanitarian assistance not only needs to remain, but needs to increase over the next few days and months,” he said. “Let’s not wait until another crisis hits.”
The international community has responded. On September 13, 2021, a pledging conference was convened in Geneva by U.N. Secretary Guterres. The conference was able to raise $1.2 billion for humanitarian assistance to Afghanistan. A second international conference was held on March 31, 2022, where the U.N. was able to raise $2.4 billion.
All of this aid will be directed towards the United Nation agencies and large international non-governmental organizations (NGOs), and stay out of Taliban hands. The Taliban themselves claim that they are have been able to collect sufficient taxes to fund their domestic expenditures.
This seems true to some extent. The Taliban claim to have generated collected approximately $1 billion in domestic revenues, or 20% of the more than $5 billion of the previous government collected annually. However, on the positive side, the Taliban have fewer expenditures given that they will maintain a much smaller army. Perhaps they only need to collect $2-3 billion to fund their smaller government and will be able to reach this amount over the coming years.
But what are the broader economic plan of the country? With international reserves frozen and international aid arriving in much lower amounts – and with few exports and less economic activity – what are the options for the Taliban government?
It is likely that the country will continue on a low growth trajectory until international pressure forces the Taliban government to make some policy changes. This will hopefully allow at some point for higher amounts of international aid to enter the country – eventually. But for this to occur, the Taliban must make some policy changes, including allowing women to return to school and work – something for which they don’t yet seem to be ready. Until then – for the people of Afghanistan – the economy will unfortunately remain in a standstill.