Afghanistan’s Economic Freefall

KABUL—Since the Taliban takeover, Afghanistan has been plunged into an economic and financial crisis that has paralyzed banks and businesses, sent poverty and inflation rates skyrocketing, and threatens to undermine the new Taliban government almost from its inception.

Foreign aid, which previously made up about three-quarters of the government budget, has all but evaporated. The Taliban regime, still without international recognition, can’t manage access to $10 billion in assets held overseas by the Afghan central bank. The afghani, the local currency, has plummeted in value and has been displaced in many parts of the country by the more stable Pakistani rupee—previously used in many parts of eastern and southern Afghanistan. The country still needs to import billions of dollars’ worth of goods, but it has even fewer options to earn money from exports than before, and it has a hard time physically getting remittances from Afghans abroad.

Under the previous Taliban regime just over two decades ago, Afghans were thrown into economic turmoil, with many living on the brink of starvation as little aid trickled in. Experts now fear a repeat. Almost every Afghan could be at risk of sinking below the poverty line next year, the United Nations Development Program warned.

“Afghanistan is on the verge of becoming a failed state, and the Taliban—still under international sanctions—is sleepwalking into a crisis that is going to get them an irreversible outcome,” said Haroun Rahimi, an economist and assistant law professor at the American University of Afghanistan.

Afghanistan’s licit economy is dominated by services and agriculture—both of which have taken a hit already. Within a month of the Taliban takeover in August, more than 150 media outlets stopped operating, the local news channel Tolo reported, dealing a death blow to what had been one of the most vibrant media landscapes in the region. Many small businesses have folded, stung by banking sector paralysis, rising inflation, and difficulty acquiring cash. Agriculture, the biggest source of employment, has taken a double whammy from rampant insecurity in the countryside and widespread droughts.

On a busy, traffic-jammed Kabul road in late September, Ziaullah Hamdard was one of dozens of people selling off all their household possessions. Beggars roamed between the vendors, their hands extended, pleading for money and food. The Hamdard family’s cosmetic studio went out of business as customer numbers declined with the rise of the Taliban and as life in the capital turned too expensive. So the 18-year-old, together with his parents and siblings, decided to ditch Kabul for their native Laghman province, where the cost of living would be cheaper and where they might eke out sheer survival just a little longer. 

“Everything collapsed within the last month,” Hamdard said. “We have no money. If we stayed here, we’d soon be begging, too.”

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Taliban spokesperson Zabihullah Mujahid said the group was “working day and night” to address the country’s economic challenges. Recently, new appointments were made to fill positions at the ministries of finance, economic affairs, and commerce and industry, but funds are running dry. What remains in the Ministry of Finance’s treasury is an estimated 10 billion to 20 billion afghanis (worth something like $110 million to $220 million at current, highly variable, exchange rates), which is used to keep minimum services running and to pay civil servants, a government source speaking on the condition of anonymity said. The source added that domestic sources of revenue—such as customs, tax receipts, and people paying for government services—had dropped significantly since the Taliban’s takeover. While $1.2 billion in humanitarian aid has been pledged to Afghanistan, the funds would barely help the country’s economy recover, unless U.N. agencies and nonprofits would contract and pay local traders to deliver services instead of bringing in their own staff.

“Complete economic failure” is not the likeliest scenario, said an official at the Ministry of Finance. “We need the world—and especially the Western countries—to recognize the Taliban as a government. If that’s the case, our problems could be solved. Otherwise, we’re heading towards a deep recession.”

Children play on the hills above Kabul on Sept. 19. Stefanie Glinski for Foreign Policy

But international recognition—potentially unlocking access to frozen reserves and perhaps a resumption of more international aid—seems elusive. The group has already backtracked on promises it made before taking power. The all-male, nearly all-Pashtun government is anything but inclusive. Girls over sixth grade still haven’t been able to return to school. Journalists and women’s rights protesters have been beaten and tortured as anti-Taliban protests have been largely forbidden—they can only be held with permission from the Ministry of Justice.

“They are talking the good talk, which tells me that they know what they should be striving for, but they so far haven’t been meeting the demands made by the international community,” Hamdard said. “They have been fighting for a vision of victory that now has to be modified to govern. I’m not very optimistic their leadership has this autonomy without shedding fighters who might feel betrayed.” Disaffected fighters could join the ranks of the Islamic State or other transnational groups, which could further dampen the international community’s appetite to recognize the Taliban regime.

In the meantime, across the country, hard times await. Fuel prices have more than doubled, from just over 30 afghanis per liter to roughly 70. Food prices are jumping, too: Oil that fetched 450 afghanis for a 5-liter jug now goes for 1,100, while the price of flour has gone up 20 percent. But with many salaries unpaid, few people can make purchases, anyway. 

In the regional hospital in southern Kandahar province, the malnutrition ward is running over capacity, with more than 70 children admitted, according to Zainullah Zermal, a doctor at the hospital. “Cases are rising because people have no money,” Zermal said. 

Mothers sit watching their children attached to feeding tubes or oxygen tanks. Some of the children have died. Some mothers say they came from neighboring provinces, borrowing money to pay for the trip. Nasanine, a 50-year-old woman, who like many Afghans goes by only one name, arrived last week cradling her 7-month-old grandchild Setara, who was sick and undernourished. With no funds available, more than 2,000 health facilities throughout the country had to close in recent weeks, the Red Cross reported, meaning that people have to travel farther to seek even basic care.

Fifty-year-old Nasanine sits at Mirwais Hopsital in Kandahar with her 7-month-old granddaughter, Setara, on Sept. 25. Stefanie Glinski for Foreign Policy

In Kabul, even those who have savings barely have access to cash. Samiqullah Ahmadi, a 27-year-old owner of a cellphone shop, said he had been waiting since 8 a.m. outside Azizi Bank to withdraw money. At 5 p.m., he was told to return the next day. “You can’t get more than 20,000 afghanis [roughly $200] a week,” he said. “There are no purchases, no industry, no money. I want to stay in Afghanistan and make it work, but it’s tough.”

In the 1990s, the international community shunned the Taliban and cemented a pariah state. This time around, some experts are hoping against a repeat, believing the international community can’t risk leaving an impoverished and isolated Afghanistan to its own devices.

“They know too well that threats to international security are brewing in such environments, and realize that the consequences of failing Afghanistan—for the world and for the region—will be severe,” Rahimi said.