Afghans face economic turmoil if west fails again

After making a mess of the military management of Afghanistan, the west must make sure it prevents the economy returning to the medieval age – or reverting to the narcotics trade, writes Phil Thornton

Afghans queue to collect money from an ATM in front of a bank in Kabul after the Taliban takeover (AFP/Getty)

Amid the chaos, crisis and calamity in Afghanistan, it may seem too early to think about the economics of the benighted country. But history tells us it is never too soon.

While the political debate is still rightly focused on the failure of intelligence, the abandonment of Afghan friends and allies, and the failure to establish a Nato or UN force, policymakers must look forward rather than back.

At some point, both the international financial watchdogs and the western powers will have to start thinking of Afghanistan’s economic outlook under the control of the Taliban.

Even before the Islamists took control, Afghanistan’s prospects were dismal despite two decades of American control either in coalition with the UK or alone.

A good place to start is to look at the factors that make up the United Nations’ June assessment of its sustainable development goals. It found Afghanistan faced challenges in 13 out of 17 targets, there were no data for three, and a good rating in just one (climate action).

Almost 30 per cent of the population suffers from undernourishment and almost a third (32.9 per cent) lack basic drinking water services. The maternal mortality rate is 638 per 100,000 live births.

This was not due to a lack of money going into the country. The US has injected an eye-watering $1 trillion (£723bn), but as Columbia University professor Jeffrey Sachs has pointed out, the vast majority of that was the cost of the military occupation.

According to the latest “cost of war” assessment by the US Department of Defence, as of 30 September 2020, its cumulative obligations for Afghanistan had reached $815.7bn, but the money going towards reconstruction and related activities since the first full year of occupation in 2002 was $143.3bn, according to the special inspector general for Afghanistan Reconstruction.

But the breakdown shows $86bn went to the Afghanistan Security Forces Fund and emergency response, and almost $9bn on anti-narcotics measures. Just $30bn was devoted to “governance and development”, or $1.5bn a year for a population of 38 million people.

Since April 2002, the World Bank has committed nearly $5.3bn for development and emergency reconstruction projects.

The bank is in the process of evacuating its staff and families. “Given the rapidly deteriorating security conditions in Afghanistan, the World Bank Group’s foremost priority is to keep our staff and their families safe,” a spokesperson told The Independent.

In a frank Twitter thread, the former Afghan central bank governor Ajmal Ahmady said its $10bn of reserves were in international accounts that have been frozen. Following the IMF statement, he said his “base case” was that the Taliban would impose capital controls, depressing the currency, driving up inflation and “hurting the poor as food prices increase”.

The question is where Afghanistan will get money from. In 2019, World Bank figures show development aid was equivalent to 22 per cent of gross national income. While that benefited the government of ex-president Ashraf Ghani, this was not the case in areas controlled by the Taliban.

According to analysis by the development think tank ODI of revenues raised by the Taliban and the Afghan government in Nimroz province, taxes on development aid monies provided $500,000, or less than 1 per cent, of revenue raised by the Taliban last year (even the local government only received $20m or 1 per cent of the national aid budget).

And despite the public perception that the Taliban relies on money from illegal drugs, that only made up 9 per cent of their tax revenue. The bulk of 79 per cent came from taxing goods and fuel entering Afghanistan from Iran, accounted with another 8 per cent from taxes on legal goods.

So, with its assets frozen, aid payments in doubt and the threat of inflation, the Taliban may disregard their stated ambition to be a “narcotic-free country”. That really would add to the dismal legacy of the US occupation and withdrawal.