Taliban macroeconomic management has been better than expected, as evidenced by the stable exchange rate, low inflation, effective revenue collection and rising exports. There is no comparison at all with their non-management of the economy during the Taliban’s previous 1996-2001 rule. That regime had no control over the afghani currency and there was
hyperinflation; government revenue was negligible; the
Afghan economy was largely moribund, especially after the Taliban’s first opium ban in the year 2000; people’s incomes were
less than $200 average per-capita; and
social indicators such as maternal and child mortality were terrible.
This time around, the Taliban have benefited from learning while facing adversity during their nearly 20 years as an insurgency. For example,
they collected significant revenue in competition with the previous government, provided transporters tax receipts to prevent multiple taxation at their various road checkpoints, and issued mining and other permits.
With their unexpectedly rapid takeover, the Taliban inherited functioning government macroeconomic management institutions, namely the Ministry of Finance and the central bank (Da Afghanistan Bank, or DAB). This contrasts sharply with the 1990s, when government institutions had been largely destroyed by years of destructive civil war. Moreover, the Taliban have tried to
maintain some capacity in agencies whose work is seen as beneficial for the regime (for example, revenue and budget), while discarding others like justice institutions and the Ministry of Women’s Affairs.
By all indications, the magnitude of
corruption has been reduced, particularly in customs where there has been a crackdown on smuggling and bribery, as well as abolition of the separate trade levies previously imposed by the Taliban insurgency. More generally, the stoppage of most aid after August 2021 removed large amounts of money that had been vulnerable to corruption.
Relatedly, they have clamped down on the rampant capital flight that occurred under the Islamic Republic (as much as
$5 billion per year or
even more), by means of strict enforcement of rules against export of cash as well as tougher regulation of the
hawala informal money market. As a result, the Taliban must have built up modest reserves in DAB, and they have held
foreign currency auctions to stabilize the afghani.
The Taliban faced enormous macroeconomic problems when they took power. The abrupt cut-off of nearly all aid, amounting to some $8 billion per year (equivalent to around 40 percent of GDP) precipitated a
huge economic shock that no country in the world could have managed without severe consequences. The shock was exacerbated by the stoppage of international financial transactions, ongoing collapse of the banking system, existing U.S. and U.N. sanctions against Taliban leaders, and the freezing of Afghanistan’s some $9 billion of foreign exchange reserves. Especially considering the headwinds and problems they faced, Taliban economic management has exceeded expectations.
Afghanistan’s GDP is hard to measure, but it is estimated to have
dropped by around 20 percent in the aftermath of August 2021, further increasing hunger and privation in an already very poor country.
After a few months of free-fall, the economy showed signs of stabilizing at a lower level of activity, reflecting in part
U.N. cash shipments to pay for humanitarian assistance averaging some $40 million per week that started at the end of 2021, but also Afghan government restrictions against smuggled imports and capital flight, limits on banking transactions to prevent banks from collapsing, tight macroeconomic management, and some adjustment away from the aid- and service-dominated economy.
Most recently there have been some signs of
modest economic revival, most notably the 36 percent increase in imports in the first five months of 2023, suggesting that there may be some recovery of demand in the economy. However, the current equilibrium remains fragile, precarious and subject to severe downside risks. Moreover, it is a
“famine equilibrium” that leaves most Afghans falling short of their subsistence needs, necessitating large amounts of humanitarian assistance to prevent an actual famine from materializing. U.N. cash shipments, which fund humanitarian programs in the country,
reached $1 billion in the first half of 2023, compared to $1.8 billion in all of 2022.
The current low-level macroeconomic equilibrium is gravely threatened by two shocks:
- Declining humanitarian assistance, which in 2023 is expected to fall by at least $1 billion from last year’s level of $3 billion; and
- The Taliban’s successful opium poppy cultivation ban — resulting in something like an 80 percent reduction in acreage, which is depriving rural Afghans of $1 billion in incomes (though trade in opium continues, with associated incomes to large landowners, drug traders, processors and exporters).
These twin economic shocks — likely amounting to a double-digit loss for GDP if the opium ban continues to be enforced — will further worsen poverty and hunger.
---
Most of the problem lie not with Afghanistan or the Taliban but with the initial and continuous blocking of Afghan foreign exchange reserves, amounting to $9 Billion. Not to mention the stoppage of international financial transactions and existing U.S. and U.N. sanctions against Taliban leaders, as mentioned above.
