Afghan Economy Takes a Nosedive after Taliban Takeovercreating difficulties for Pakistan

The Afghan economy flourished for nearly two decades as international aid poured into the country.

But after the Taliban takeover, Afghanistan faces a gathering economic storm complicated by a looming humanitarian crisis that threatens food security in the country of some 38 million.

Two weeks into the hard-line Islamist group’s second stint in power, the signs are ominous.

Afghans are reeling from rocketing inflation, rising poverty, and uncertainty. Asset frozen  by the United States and aid suspension by the International Monetary Fund and the World Bank cloud Afghanistan’s economic prospects as donors mull tying aid and assistance to the Taliban government’s behavior.

Across the country, economic worries are snowballing into a crisis. People are trying to sell their belongings and fleeing the country with queues at banks that are offering little cash and fewer services than before the takeover.

Residents of the southern Afghan city of Kandahar, say food inflation is their main worry months after suffering displacement and uncertainty as Afghanistan’s second city witnessed intense fighting in the run-up to its fall to the Taliban last month.

“Essential food items such as wheat, flour, sugar, and oil have become very expensive,”

Many of the hundreds of thousands of government employees have not been paid for months. Unemployment has risen sharply amid uncertainty over the country’s future.

Hundreds of thousands of government workers, security forces members, and those working for aid groups and media outlets are now without work.

After remaining closed for nearly two weeks, banks are allowing Afghan customers to withdraw just $200 a week, which is barely enough to meet the basic needs of large Afghan families as they struggle to keep up with rising prices.

A shopkeeper in Kandahar’s Hazarji Baba neighborhood, says the rapid depreciation of the Afghani, the country’s currency, has unleashed inflation as food and nonfood items are imported from neighboring Pakistan and elsewhere.

The Afghani jumped to 100 against the dollar last week. For most of this year, $1 fetched about 80 Afghanis. Fears over a dramatic slump in the Afghani has prompted Sarai Shahzada, the largest currency market in the country, to remain closed since the Taliban’s takeover on August 15.

“Most of the import transactions are carried out in Pakistani rupees or U.S. dollars,” They have gained value against the Afghani, which has devalued fast.

The Taliban’s economic policies, however, are still under wraps.

Individual leaders have vowed to continue everything that worked under the previous government, but the militants’ reported appointment of Gul Agha, a purported caretaker of Taliban finances who has been sanctioned by the UN, is unlikely to inspire confidence.

As the Taliban prepares to announce a new government, the Taliban’s previous stint in power from 1996 to 2001 offers little optimism.

It was a time of great economic distress for Afghans when the rag-tag militia failed to help impoverished Afghans reeling from droughts and war. Millions fled their country after natural disasters, persecution, and violence made it difficult to eke out a living from farming, animal husbandry, or trade.

A looming humanitarian crisis could quickly turn economic distress into a major disaster.

Now Taliban’s are Saying China Will Be ‘Main Partner’ To Rebuild Afghanistan.

According to the UN, nearly half of Afghanistan’s 38 million people are already grappling with hunger, displacement, and malnourishment as an ongoing drought has reduced this year’s crop harvest by nearly half.

The incoming Taliban government will have few resources to fight off any economic or humanitarian crisis. Washington froze more than $9 billion of the Afghan central bank’s assets and is denying the Taliban access to more than $450 million in IMF funds. The World Bank has also suspended disbursements to Afghanistan.

“Coupled with the long drought, Afghanistan will face financial and economic collapse,” warns Atta Nasib, former head of the Investment Facilitation Unit in the Afghan government. “Displaced communities need immediate relief and food supplies are short. If not controlled early on, there will be strife and starvation, and when the cold sets in displaced people will need fuel, food, water, shelter, and medical care.”

Nasib says that to reboot the Afghan economy the Taliban needs to act quickly.

The central bank and the Finance Ministry have been sapped of technical expertise,” he noted. “With donors boycotting the Taliban takeover, these financial institutions will not self-sustain,” he added. “The Taliban must prove a change in behavior to win back donor support and bring in experts to handle monetary policy.”

WeedaMehran, an Afghanistan expert at Britain’s University of Exeter, says the economic crisis is set to worsen under the Taliban. She says that while the Taliban encourages civil servants to return to their jobs, it offers no guarantees of paying their salaries.

“Already 75 percent of Afghanistan’s estimated $5.5 billion annual budget was funded by international aid,” she says “We see that the annual economic growth for Afghanistan was 9.4 percent from 2002 to 2012, which dropped significantly from 2015 to 2020 when it was 2.5 percent,” noting that most of the growth was spurred by international aid as Kabul struggled to raise domestic revenues and attract foreign investment.

Mehran says the absence of international aid will have an immediate impact across Afghanistan, depriving communities of clean drinking water, food aid, health care, and sanitation.

“If the Taliban government is sanctioned and the aid doesn’t flow to the country, then people will suffer quite a lot,” she said.

Across Afghanistan, people are already feeling the fallout.

Abdul Latif, 38, had been able to feed his family of nine working as a day laborer in the northeastern city of Kunduz. He used to earn $5 per day on average but now even finds it difficult to scrape together $2.

“We have nothing. There is no work,” he told Radio Azadi.

Observers in Kabul and Washington have also held that Pakistan’s security establishment considers a Taliban victory in Afghanistan to be in Pakistan’s strategic interest.However Taliban takeover doesn’t reduce the threat level in Pakistan. Pakistan’srelationship with its own religious groups just goes more complicated. Relations with Washington also become more complicated for Pakistan. Pakistan won’t find it easy to attract economic investment. Pakistan may become home to even more Afghan refugees. It is also unlikely that the Taliban would officially recognize the international border between the two countries, a point of contention between Pakistan and Afghanistan that has complicated efforts to police the cross-border movement of people and goods.