Afghanistan's economy and the Taliban

Various speculations on what may happen in the Afghan economy from here on

 Afghanistan's economy and the Taliban

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• The story: It's one thing to be a revolutionary, another to be good at managing the economy. With the Taliban in charge of Afghan capital Kabul, questions are being raised about the ability of the insurgents-turned-rulers to run a modern finance ministry and central bank.
• Basic questions: Will foreign donors trust them with aid? Can they do business with investors interested in the country’s mineral wealth? Do they understand the nitty-gritty of how finance and economics work?

1. Till date, a group of Afghan technocrats that were either Western-educated or trained, ran the show. Despite the Taliban’s promise of “amnesty” for anyone who worked with the deposed government, most will want to move abroad now.
2. But it is also true that in the past 20 years, the Taliban generated enough resources to maintain an insurgency, mostly from the drug trade, illegal mining and donations from supporters abroad. They also earned from taxes and rents in areas under their control. The Taliban’s revenues amounted to upwards of $1 billion annually!

• Size of Afghan economy: The Afghan budget is more than five times that size. The country’s GDP is estimated at $22 billion, having grown nearly threefold since the Taliban were driven from power in 2001. The economy has been in bad health for some years now, propped up only by foreign aid. Three-fourths of the government’s budget is funded by international donors, mostly the U.S. So for the Taliban, the urgent economic challenge is the skills deficit in government ministries and departments. Where are the ministers and administrators that foreign donors and investors can trust?
• Frozen stiff: The Biden administration has frozen $9.5 billion in the Afghan central bank’s assets and halted shipments of cash. The European governments have suspended development aid, and the International Monetary Fund (IMF) has cut off access to Afghanistan’s special drawing rights.

1. Western governments, multilateral agencies and donors will slap strict conditions on the resumption of funding.
2. Aid will come only if the Taliban allow many of the freedoms — especially for women — and on preventing the resurgence of terrorist groups such as al-Qaeda.
3. Western investors will toe the line their governments take. Anyone dealing with the Taliban is likely to face severe backlash.

• What about China: Some thing that China and Russia may fill the vacuum created by the American withdrawal. China may have its eye on Afghanistan’s mineral deposits, worth anywhere from $1 trillion to three times as much. Both Russia and China have security concerns about Afghanistan that will motivate them to engage closely with the Taliban-led government. However, actual investments is something else.

1. Chinese banks and companies are less risk-averse, but they tend to be leery of unstable economies. The experience of Venezuela, where Chinese loans are having to be renewed simply to avoid huge writedowns, is a cautionary tale.
2. The biggest Chinese venture, a $2.8 billion copper project funded by the state-owned Metallurgical Corporation of China at Mes Aynak, near Kabul, has stalled.

• Infra problem: Afghanistan severely lacks in transportation networks, so getting the minerals out of the ground and into China requires investments of a magnitude larger than the Mes Aynak project. Chinese investors think there are better options elsewhere. So the Taliban will be competing with African governments, while getting Chinese aid.
• Atmanirbhar Afghanistan: Local businesses that depend neither on foreign investment nor foreign markets can look forward to a relatively stable environment and more access to entire countrym that was not possible earlier due to fighting between the insurgents and government forces.
• Summary: The biggest drawback now will be the absence of women from the workforce (unless the Taliban change their views). And the Talibanis themselves may begin extorting, soon enough.

#GovernanceandInstitutions #WorldEconomy #Markets #Afghanistan #Markets #Taxation #Terrorism

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