Beyond Humanitarian Aid: Predicting Taliban’s Initiatives To Stabilise Afghanistan’s Economy For 2024-25 – Analysis
By IFIMES
By Anant Mishra and Prof. Dr. Christian Kaunert
Introduction
Before US invasion, Afghanistan’s relative GDP growth rate stood at 8%. Experts argue, Afghanistan’s economy was stabilizing in 2001 but by 2003 it had taken a dip and continued to struggle during the US invasion. From the Taliban’s subsequent rise to power in August 2021 until today, it is on the verge of total capitulation (in its current shape of a dependent economy), immensely consuming and dependent on imports of goods from neighbouring states and mostly on foreign aid.
After the Taliban completing two years of reign, it will not be incorrect to state that Afghanistan’s economy is surviving on the critical assistance of neighbouring states and sustained trade with economic giants including China and Russia, without which, the Afghan’s economy would have surely collapsed. It is drought stricken, with sustained loss of crops, internal migration due to ethnic discriminatory practices (often dictated by provincial governors exercising instructions relayed from the Rahbari Shura), continued suspension of international aid, devoid of financial relationship with global market economies, chronic sanctions, severe stress on certain ethnicities, growing insecurity, along with frequent earthquakes with remnants of impact from Covid, which clubbed together, has created immense stress on local masses, longing for food in a deserted local market economy.
As the world transitions into 2024, the Taliban’s rule has a chronic impact on local markets, small business households, large scale industries with a dipping unemployment rate, desertion of the upper and middle class within Afghan society, a decline in domestic produce, small scale investments, all pointing towards a potential decrease in Afghanistan’s GDP for 2024-25, when compared to 2023.
The Taliban’s Approach to Afghanistan’s Economy
When the Taliban came to power in 1990, they employed destruction as a pattern of governance, which was reflected in its economic policy. But it appears, the old patterns seem to fade away, with young cadres exercising greater influence on the leadership. This new generation of Taliban commanders (most born after the first Taliban rule) have forced battle hardened Islamist fighters (now exercising command) to alter their perspectives on Afghan’s national economy (even if it means seeking assistance from sympathetic nations such as Qatar, UAE, Turkey & Saudi Arabia) stabilising it enough to seek lucrative opportunities from greater economies (China & Russia) and regional neighbours in South East/Central Asia, potentially putting an end to global market isolation.
For 2024-25, the authors have identified three key hurdles, rendering its domestic economic policy ineffective:
- The Taliban have made no efforts to institute economic reforms
- The Taliban have no dedicated economic policy (even after two years of governing)
- The Taliban have no economic plans
Taking the aforementioned hurdles into account, it is evident that for the Taliban, economic reforms/policy or any prospective plans have taken a backseat, directly affecting their ability to govern.
That said, the Emir Hibatullah Akhundzada, has issued decrees for the economic sector, providing an easing to local/small business households, better terms for local industries in terms of hiring labour, domestic trade, in an effort to achieve self-sufficiency. In hindsight, the decree reinforces efforts undertaken by Mullah Abdul Baradar, holding critical political appointments including the Acting Deputy Prime Minister for Economic Affairs, principally tasked to revive Afghanistan’s economy. Yet, no real impact is reflected in Baradar’s economic policies or strategies implemented which largely appear effective on paper. With Mullah Baradar in-charge, one may argue that the economy appears to be one of the significant pillars in the Taliban’s model of governance, yet continued differences between Mullah Baradar and Emir Akhundzada render any progress in this regard ineffective.
To that end, the Rahbari Shura stands divided on revising Afghanistan’s domestic sector. The Mullah Baradar camp aims to revive existing tax collection (implementing a Qatari revenue model) by streamlining customs management and paperwork for tax collection whereas the Emir Akhundzada opines on curbing corruption at provincial/trading routes, explicit control over exchanging currency and increase in domestic production. In 2023, the World Bank released a report citing some decrease in inflation, Afghanis being stable, stable cash flow (delivery of salaries to all officials in time), increase in bank deposits, and stable increase in cash management, pointing towards a positive impact from existing revenue policies. But in late 2023, the Rahbari Shura appeared conflicted on curtailing revenue shortfalls, with Mullah Baradar and Emir Akhundzada disagreeing on methods to curb corruption of public officials (at provincial levels) and policies for the private sector and foreign entities participation.
In 2023, the authors witnessed a steady flow in humanitarian aid, domestic business houses participating in production activities, strictly using Afghanis for trading (Mullah Baradar prohibited the use of foreign currencies), the Taliban exercising explicit control over the entry and the exit of US dollar from Afghanistan, criminalisation of online trading, resulting in the stability of the Afghani in the first half of 2023. Mullah Baradar implemented fiscal management, witnessed by the authors for the first time over decades. This resulted in the Taliban earning a revenue of over US$2.2 billion, between March 2022-23, reflecting effective taxation policy.
With some successes, a tussle between Mullah Baradar and Emir Akhundzada was reflected in Rahbari Shura in the latter half of 2023, which stood divided on the imposition of restrictions on smuggling routes/trade outposts, large scale bank transactions, restructuring of the Da Afghanistan Bank, revival of macro-economic policy (Emir aims to adapt erstwhile Afghan republic model), indicating continued disagreement even in 2024. The Emir however accepted Baradar’s decision to exercise greater regulation on price control for all food and raw materials, reduction in tax for all food imports (50% till date), encouraging farmers to sow food crops, both refraining on any policy for opium cultivation.
Taliban on infrastructure development
Since coming to power in 2021, the Taliban have initiated numerous infrastructure projects, such as the 10-megawatt solar power generation project in Surobi (near Kabul) among six other energy-based projects with an estimated cost of over US$75 million. Additionally, the Taliban have signed numerous MoUs with institutions to upgrade the recently inaugurated Salang Road, a vital tunnel network passing through the Hindu Kush, along with the Jabal al-Sarraj cement plant, with Qatari business houses investing over US$200 million. Tracing the infrastructure growth, productivity for FY 2024-25 appears to double.
With this momentum, the Taliban could potentially complete the construction for the Qosh Tepa Canal, one of the largest canals built to divert water from the Amu Darya, by the end of 2024 or by beginning of 2025, at best. The main canal stretches to over 285 km long, estimated to convert 550,000 hectares of desert suitable for farming. It begins in Balkh Province passing through Jawzjan, resting at Faryab with a completion timeline for 2028. This ambitious canal project is equipped to provide over 20 billion cubic meters of water transfer capacity, fulfilling Afghanistan’s agrarian requirements.
In addition to this, Islamabad became the host to the First Trilateral Meeting on Trade & Transit between Pakistan, Afghanistan, and Uzbekistan in November 2023 to discuss the ambitious Uzbekistan-Afghanistan-Pakistan transit rail project. It project covers the 760km route starting from Termiz in Uzbekistan via Mazar-e-Sharif, reaching the port city of Karachi. Taking the Taliban’s relationship with Islamabad into account, the future of the project remains unclear.
Although an Iranian initiative, the construction of the third section of the Khaf-Herat railway is almost complete, according to one Iranian official (who spoke to the authors on the promise of anonymity), pointing towards earlier completion than the estimated date.
On completion, the railway line will connect Chabahar port in southeastern Iran, with Afghanistan, enabling the Taliban to expand trade not only with Central Asia but also with Russia, Turkey, crossing over Europe through the greater Mediterranean Sea.
Taliban on Foreign Investment
Leading the initiative (also a point of contention with Emir Akhundzada) Mullah Baradar is keen to employ lucrative mechanisms in an effort to attract foreign investment. He aims to engage private sector/business houses to invest in domestic projects, with intent to influence cadres of private investors loyal to the Taliban.
From the context of foreign investment, an official close to the Baradar camp confirmed interests of over 37 foreign investors which were formally registered in 2023, with four potential investors keen to register by the end of January 2024. Mullah Baradar aims to connect Afghanistan with China’s Belt & Road Initiative, a vision that is not shared by many in the Rahbari Shura. He has been delegating representatives from various public offices to attend trade forums in China and Russia. These negotiations may have played a critical role for the Taliban to engage economic policy centric discussions within the Rahbari Shura, painted as Baradar’s initiative; the discontent within the two top leaders is likely to grow in 2024.
That said, Mullah Baradar is keen on removing Western US economic sanctions, aims to seek more humanitarian aid, and to engage with as many foreign investors as possible in an effort to reverse the impact of climate change, an alternative way to seek the Taliban’s legitimacy in the international corridors. However, many do not share his ambition with the Emir facilitating loyal Taliban leaders to seek Beijing’s opinion (regularly engaging with the Chinese Ambassador) and gauging its commitment to Afghanistan in accordance with the Belt & Road Initiative, the scope of the Pakistan-China CPEC and its implications on existing (future) infrastructure projects in Afghanistan.
What to expect for the FY 2024-25?
With Afghanistan formally part of the BRI, Beijing might evaluate existing opportunities but the Taliban may not share a similar enthusiasm, potentially directing Beijing owned enterprises to focus on the Amu Darya Project, which is going to generate over $7 billion for Afghanistan, which stands delayed. The Taliban have been discussing with numerous Beijing owned enterprises to build a direct road between China and Afghanistan crossing through the Wakhan corridor, which it may propose in the second half of 2024.
For the Taliban, the Belt and Road Initiative holds greater significance for Afghanistan, providing a gateway to connect with regional economies, opening doors to potential partners with intent to stabilize its sinking economy. Additionally, the Taliban are likely to identify/expand their trade with Beijing, especially after launching of a dedicated air corridor between China’s Urumqi and Kabul.
That said, the clouds over the international recognition (of the Taliban) will continue to persists throughout 2024, as internal tussles, ethnic discriminatory practices, systematic violence induced against ethnic minorities, women and children, continue to persist. With the Taliban not willing to discuss or even mention intra-Tribal dialogue, the fate of Afghanistan’s political landscape will continue to create insecurities within foreign entities/investors and domestic business houses. The Taliban strongly disagree with the sheer context of inclusivity, which means international recognition will be hard to win, forcing it to operate in the grey zone (at least in 2024), providing limited opportunities to engage with international actors amidst internal political tussle.
Conclusion
With Taliban focused primarily on securitization (one pillar of governance), its policies are devoid of basic welfare (for the public), skill development, creating employment, attracting minimal to no domestic investors. With that, the Taliban remain unrecognized as a legitimate entity, continuing to govern with an authoritarian approach instilling fear rather than confidence. With high unemployment (experts estimate to over 30%) crippling the domestic economy, followed by external pressure induced by Pakistan’s expulsion of Afghans on the border, internal migration, local Afghans choose to depart from the country than face an existential crisis that is potentially growing. This has brought the Taliban under extreme internal and external pressure, forcing even the most loyal members of the Shura to protect their own interests. It will not be incorrect to state that, for 2024, the Taliban may experience greater internal rather than external pressure.
In 2024-25, the authors predict no drastic change to Afghanistan’s economy. It continues to remain fragile. However, if the Taliban are able to rally the support of small to medium private enterprises, business houses (irrespective of their loyalties to the Taliban), some respite to the economy may be achieved. Furthermore, any decision to re-structure or re-activate Da Afghanistan Bank with the help of private entities, may garner positive support.
About the authors:
- Anant Mishra is a visiting fellow at the International Centre for Policing and Security, University of South Wales.
- Dr. Christian Kaunert is Professor of International Security at Dublin City University, Ireland. He is also Professor of Policing and Security, as well as Director of the International Centre for Policing and Security at the University of South Wales. In addition, he is Jean Monnet Chair, Director of the Jean Monnet Centre of Excellence and Director of the Jean Monnet Network on EU Counter-Terrorism (www.eucter.net).
The views expressed in this article are the author’s own and do not necessarily reflect IFIMES official position.