Afghanistan economic crisis
With decades of war already making Afghanistan Asia’s poorest country, the nation’s economy has plunged to new depths since the return of the Taliban last August.
Afghanistan’s economic woes can largely be attributed to the fact that foreign aid has dried up almost completely. Under previous administrations, money from foreign organisations and governments accounted for up to 80% of the country’s budget expenditure.
But immediately after the fall of Kabul, these organisations moved quickly to prevent money from falling into the hands of the Taliban.
The International Monetary Fund (IMF) paused over $400 million in funding, with the World Bank also preventing any of its resources from reaching Afghanistan.
Perhaps most significantly, the United States froze the reserves of the Afghan Central Bank, which are held in New York.
President Biden announced in February that half of the country’s $7 billion in reserves are to be used for humanitarian purposes, with the other half to be seized by the US government and distributed to the families of 9/11 victims.
Because of these measures, the Taliban has struggled to access cash. The country has also been completely frozen out of the global financial system and capital markets. As a result, public sector workers cannot be paid, public services cannot be sustained, and unemployment is rising drastically.
Especially because economies globally are now facing more challenging times, Afghanistan is finding itself in an ever-more dangerous position. Indeed, the IMF predicted that the Afghan economy will shrink by 30% in the aftermath of the takeover.
The United Nations Development Programme (UNDP) believes that annual per capita income will also drop by 30%, decreasing the average yearly wage to just $350.
This would mean most Afghans would be living considerably below the international poverty line of $1.90 a day. With incomes shrinking, the unemployment rate is predicted to rise to 40%, and with the war in Ukraine pushing up the prices of wheat and other grain, many are battling to purchase sufficient amounts of food.
Russia and China keeping channels open with the Taliban
As the West has cut ties with Afghanistan and isolated it economically and geopolitically, the Taliban is attempting to forge economic ties with Russia and China. Russia’s recent similar isolation by the West following the former’s invasion of Ukraine, and China’s tensions with the West in relation to Taiwan, both China and Russia could become even more willing to establish economic and geopolitical ties with Afghanistan ans pull it out of economic isolation.
While no country has formally recognized the Taliban’s rule, countries including Russia, China, Iran and Pakistan have kept their embassies open in Kabul.
For China’s government, a primary concern pertains to questions about how the Taliban will deal with armed Uighur groups which have a history of being based in Afghanistan in the 1990s.
China worries that the Taliban might give such organisations the freedom to operate against China. Beijing has offered the Taliban economic and development support on the condition that Afghanistan cooperates with China vis-à-vis such armed factions and avoids targeting Chinese interests, particularly the Belt and Road Initiative – a global infrastructure project funded by Beijing.
In April, Russia accepted their ambassadors, according to state-run RIA Novosti. Russia’s U.S. embassy issued a statement last week to its Telegram channel calling on the Biden administration to release the funds it said were needed to address Afghanistan’s ongoing humanitarian crisis.
“The population of Afghanistan is experiencing an unprecedented social and economic crisis,” the statement said. “Washington’s actions are exacerbating the suffering of innocent Afghans and provoking the largest humanitarian catastrophe in the Asian country.”
Days later, Russia’s state-run TASS news agency reported that Nooruddin Azizi, Afghanistan’s interim commerce minister, would travel to Moscow for meetings with Russian government officials and the Chamber of Commerce and Industry.
Meanwhile, in April, Russia accepted their ambassadors, according to state-run RIA Novosti.
Russia’s U.S. embassy issued a statement last week to its Telegram channel calling on the Biden administration to release the funds it said were needed to address Afghanistan’s ongoing humanitarian crisis.
“The population of Afghanistan is experiencing an unprecedented social and economic crisis,” the statement said. “Washington’s actions are exacerbating the suffering of innocent Afghans and provoking the largest humanitarian catastrophe in the Asian country.”
Days later, Russia’s state-run TASS news agency reported that Nooruddin Azizi, Afghanistan’s interim commerce minister, would travel to Moscow for meetings with Russian government officials and the Chamber of Commerce and Industry.
Can they pull Afghanistan out of economic crisis?
Unless the US unblocks Afghanistan’s foreign reserves, it will be very difficult for Russia and China to pull Afghanistan out of its economic crisis despite the latter two’s openness to developing economic ties. If the Taliban can somehow negotiate an agreement with the US to at least unblock its reserves, Russia, China and other countries in the region would most probably establish economic ties with the central asian state which would help it re-generate its economy, and make gradual steps towards exiting an economic crisis and avoiding a humanitarian disaster.
UNI reported that Russia said that as humanitarian aid was not enough to support Afghanistan, it was ready to develop economic relations and trade with Afghanistan.
The Taliban delegation led by acting foreign minister Amir Khan Muttaqi got the support it was looking for as Uzbekistan gave a call for unfreezing Afghanistan’s blocked foreign reserves. Afghan news agency Pajhwok reported that Uzbek Foreign Minister Vladimir Norov also appealed for unblocking Afghanistan’s foreign reserves which would enable the country to restart its economy.
Russia is more likely to establish strong economic ties with Afghanistan than China, as its own isolation as well as high tensions with the US would make its replacement of the latter as the main player in Afghanistan a major geopolitical victory that could help Russia regain a foothold in the ‘graveyard of empires’. Nevertheless, China would also be keen to establish ties if its differences with the Taliban could be negotiated. Afghanistan remains a potentially crucial element of the belt and road initiative due to its geographical placement and its large amount of natural resources.
For now, only coal is being used effectively to generate any significant profit, as thanks to the global surge in commodity prices amid the Ukraine war and coronavirus-related disruption, business is booming at Afghanistan’s coal mines. This gives the Taliban a crucial revenue stream as the militant group after seizing control a year ago seeks to revive an economy shattered by international isolation and sanctions.
