Afghanistan Requires a Change from Humanitarian Business as Usual

By William Byrd


Thursday, March 30, 2023

International humanitarian aid is critical in responding to natural disasters and other short-term emergencies. But as the U.N. itself recognizes, such aid is not well positioned to respond to—let alone resolve—a prolonged economic crisis such as the one currently occurring in Afghanistan.

This is particularly true when humanitarian aid is a primary source of external financial support propping up the economy and when the national government—the Taliban regime—is at odds with donors and harms the welfare of its own population, especially women and girls, as evidenced by the Taliban’s bans on female education and women working in nongovernmental organizations (NGOs). Given these challenges and the myriad humanitarian needs elsewhere in the world, support for continuing massive aid to Afghanistan is slipping.

The current approach to humanitarian aid in Afghanistan helped prevent major loss of life in 2021 and 2022. But looking to the future, it is unsustainable given donors’ aid fatigue and the demands of the Ukraine war as well as other crises. The approach is also inefficient and not very cost-effective for the long haul. Furthermore, it does not exploit new technologies and aid delivery mechanisms as well as the potential of the Afghan private sector. From a macroeconomic perspective, current humanitarian aid—not least the roughly $40 million per week in U.N. shipments of U.S. dollars in cash—is so important to the country that it cannot be ignored. And finally, there has been too much focus on Taliban behavior and the international community’s unsuccessful efforts to influence the Taliban. Too little attention, meanwhile, has been devoted to aid agencies’ and donor countries’ own aid practices and performance and delivery modalities, which lie within their control.

A new approach is required in strategizing about, planning, organizing, and delivering international aid to Afghanistan, which is likely to be reliant on humanitarian support in the future. The new approach needs to encompass but also go beyond the core humanitarian objective of saving lives.

Incorporating a Macroeconomic and Sustainability Perspective

Humanitarian aid for Afghanistan, amounting to about $3 billion per year, is equivalent to approximately 20 percent of the country’s gross domestic product. This is less than half of the total annual civilian and security assistance in the several years that immediately preceded 2021 (which amounted to more than $8 billion annually) but fairly close to the level of civilian aid at that time. So current aid is macroeconomically quite important to the country: The U.N. humanitarian cash shipments ($1.8 billion over the past year), in particular, are propping up the Afghan economy and are essential for maintaining exchange rate stability and containing inflation. Thus, it is clear that the size and economic impacts of humanitarian aid need to be incorporated in macroeconomic modeling and forecasting.

Even more important, these macro implications must feed back into the planning and deployment of aid. Humanitarian donors, the U.N., and other aid agencies should program their assistance with a view to helping maintain macroeconomic stability. This implies that—just as the overall contours of the economic crisis in Afghanistan will not change suddenly—humanitarian aid needs to be reasonably steady moving forward, not hostage to the fluctuations of short-run funding availability and reactivity to Taliban actions.

Specifically, donors and aid organizations need to plan for a predictable, gradually declining glide path for aid to minimize further damage to the Afghan economy, not one subject to sudden ups and downs nor an extremely damaging abrupt cutoff or sharp drop. By all indications, international humanitarian aid to Afghanistan will decline in the coming years, and it is unlikely that such aid will be fully replaced by development assistance. A predictable, steady, and gradual reduction in total aid over the next three to five years will give the Afghan economy more time to adjust to lower levels of assistance. After the Taliban’s takeover in August 2021, the country was thrown into an economic tailspin by the abrupt aid cutoff and associated grievous harm to the Afghan people, a repeat of which must be avoided.

The U.N. cash shipments—originally seen as a temporary expedient—are both costly (with multiple fees and conversion charges by the U.N. and the Afghan private commercial bank concerned) and risky (one security incident could shut down this channel, at least for a while, wreaking havoc with aid delivery). Moreover, the Taliban reap economic benefits from the inflows of cash dollars: Even though the shipments do not go directly to the regime or to the Afghan central bank, some of the money does reach the latter’s coffers as a result of conversion into local currency either by the Afghan bank or on the local market. And the public optics of such large cash inflows—of a similar magnitude to the shipments of cash dollars into the country by the previous (pre-August 2021) government—are problematic and may further undermine international support for large-scale humanitarian aid to Afghanistan, as well as raising questions among many Afghans.

So, what should the international community do? First, consistent with planned reductions in overall humanitarian aid, it should preprogram a gradual decline in the amount of cash dollars brought in, either by reducing the size of each shipment or by stretching out the intervals between shipments. Second, aid organizations should develop other mechanisms for taking up some of the slack, discussed later, which would potentially enable U.N. shipments of cash dollars to decline faster than total aid.

Practicing Risk Management and “Do No Harm”

Donors and aid organizations should engage in risk management and risk minimization—not chimerical zero-tolerance risk avoidance—with regard to the Taliban benefiting from aid, and money laundering/terrorist financing risks. By propping up the Afghan economy, current humanitarian aid—including not least the U.N. cash shipments—indirectly benefits the Taliban regime. There is no escaping this effect. More generally, it is a fallacy to think that humanitarian aid provided through the U.N. system is somehow exempt from risks of money laundering and inadvertently funding terrorism, diversion from intended uses, corruption, and other financial risks. Within the humanitarian space, the idea that in-kind aid (for example, food) is somehow “safer” than cash assistance has been amply discredited in global experience.

The risks and benefits of different aid modalities and delivery mechanisms therefore need to be soberly assessed on a comparable basis, and decisions made accordingly. For example, the risks of diversion of in-kind aid, which are very real, need to be weighed against the risks of diversion of small-scale financial transfers, not just assuming that in-kind is acceptable but cash is not. A similar assessment is needed with regard to the risks of using cash versus digital currency transfers. Risks associated with relying more on Afghan private businesses to deliver aid need to be assessed against the risks of U.N. and other aid agencies doing so. And all of these risks need to be analyzed in relation to the different costs of aid modalities and delivery mechanisms. An approach that carries small increased anti-money laundering/countering the financing of terrorism (AML/CFT) risks, for example, should not necessarily be ruled out if it is an order of magnitude cheaper than the slightly less risky alternative.

More broadly, aid organizations should emphasize a “do no harm” approach and minimize the adverse side effects of large-scale, prolonged humanitarian aid. Many of the recommendations proposed in this article are also important in containing and reducing the well-known distortions that can arise from very large aid programs—including humanitarian ones, particularly if they are in place for an extended period of time.

Prioritizing How to Use Increasingly Constrained Funding More Efficiently and Effectively

In responding to a short-term humanitarian emergency such as a natural disaster, the speed and the sheer quantity of aid, and its widespread distribution, are aid organizations’ primary concerns. In the case of Afghanistan, however, where the humanitarian emergency is driven by a protracted economic crisis, aid effectiveness issues cannot be ignored. This requires focusing on cost-effectiveness and, where applicable, using cost-benefit criteria to prioritize where humanitarian aid is allocated. The former are commonly used in evaluating different health programs, specifically disability-adjusted life years saved in relation to costs, and this kind of framework can be expanded to other humanitarian assistance as well. For example, the cost per life saved from mine clearance (including unexploded ordnance and improvised explosive devices, or IEDs) can be compared to costs of other humanitarian interventions—keeping in mind that viewed narrowly in terms of saving lives, mine clearance can be quite expensive (though there are also development-related economic benefits from restoring land and infrastructure for productive use).

The scope of this prioritization should include both humanitarian activities and basic development programs (so-called humanitarian-plus). The distinction between these two categories of aid inevitably is fuzzy, and some of the concrete activities currently being funded by aid to Afghanistan (for example, basic health services beyond emergency life-saving support and some primary education) could be labeled as either, with the actual categorization depending on the source of funding and donors’ constraints such as unwillingness to provide much development-labeled aid to Afghanistan under the Taliban. Therefore, the sensible approach is to assess total aid to Afghanistan and prioritize accordingly, rather than using the lens of isolated, stove-piped buckets of money, which would detract from overall aid effectiveness and efficiency.

Aid organizations should additionally factor in the fungibility of funds and deploy aid accordingly. The Taliban have been collecting large amounts of revenue—as much as $2 billion per year—even in the face of the weaker Afghan economy. If international aid pays costs that otherwise would have been covered by domestic revenues, it frees up funds in the Taliban’s national budget for other uses, such as prisons, the emir’s office, and the security sector, where spending has been buoyant.

A notable example is the salaries of teachers in government schools (comprising the majority of teachers in the country), who are civil servants under Afghanistan’s education system. There has been some debate over whether international donors should pay salaries or top-ups to teachers, perhaps as an attempt to provide an incentive for the Taliban to restore girls’ education. Indeed, UNICEF in 2022 had decided to pay two months’ worth of salaries (approximately $100 per month) to some 194,000 primary school teachers, in addition to their regular salaries from the government. However, the Taliban administration recently announced that they would in response hold back two months’ worth of teachers’ salaries—in effect, reserving the same amount of funds provided by UNICEF for other purposes. This example well illustrates the perils of making decisions on aid that do not factor in fungibility issues.

This may not be the only area in which international aid could replace government spending, thus benefiting the Taliban. A possible example is the clearance of mines, unexploded ordnance, and IEDs on land needed for government infrastructure projects, all of which would have to be completed using Afghanistan’s domestic resources if not paid by foreign humanitarian aid. While it may be impossible to entirely prevent humanitarian aid from displacing Afghan budget spending, aid organizations should carefully review the major assistance programs and spending categories, flagging sizable expenditures that carry a significant risk of this happening, and deploy resources accordingly.

Shifting Aid to Cash and Using New Delivery Technologies

Based on global experience, there is a consensus in the humanitarian aid community and among economists that cash is better than in-kind aid (or noncash contribution of goods) so long as goods are available on local markets, as is the case in Afghanistan. Providing aid in the form of cash is cheaper than goods, and no more risky. Thus the policy prescription is to provide more aid in the form of cash, not in-kind. Nevertheless, a large proportion of humanitarian aid to Afghanistan—including food aid—continues to be provided in-kind. Shifting the composition of food aid progressively away from goods in favor of cash therefore should be a priority, and the same applies to many other relief goods as well.

Beyond the superiority of cash over in-kind aid, advances in technology have created the potential for better and more cost-effective ways of delivering purchasing power to those in need through mobile money and digital transfers. These mechanisms take advantage of a post-2001 success story in Afghanistan: the broad national coverage of mobile telecommunications networks and the widespread use of cell phones throughout the population. Electronic payment options can also help get around the current hobbling of the banking sector and de facto restrictions on international banking transactions. The expansion of HesabPay, for example, as well as a recent successful pilot program that seeks to deliver assistance directly to Afghan women through mobile phone accounts, each demonstrate the potential for digital transfers to enhance the population’s access to aid.

These e-money innovations are promising. Scaling them up will require one or more major aid donors, and/or large U.N. agencies, to take the lead in beginning to allocate sizable amounts of funds for e-money transfers. Safeguards can be put in place to minimize the risk of diversion of aid to the Taliban and AML/CFT risks. In any case, the risks associated with small transfers, spread out over multitudinous mobile phone accounts, are modest compared to the risks carried by other forms of aid.

Mobilizing the Afghan Private Sector

The international community should make much greater use of the Afghan private sector in the delivery of aid, which will reduce associated costs while providing a modest economic boost. There is a widespread consensus that humanitarian aid alone is not the solution to Afghanistan’s economic crisis, but unfortunately there is little prospect for traditional development aid to ramp up. Humanitarian aid faces clear limitations in its ability to stimulate economic recovery and growth beyond sustaining the current precarious degree of macroeconomic stability. Nevertheless, the economic stimulus from humanitarian aid needs to be enhanced to the maximum extent possible. Aid agencies should seek to rely mostly on procurement and contracting with the private sector, rather than on their own procurement and provision of goods and services.

Aid agencies can also support and further develop private-sector workarounds to restrictions on international financial transactions. The U.S. Treasury issued increasingly clear and elaborate clarifications—culminating in its General License 20 of February 2022—that existing sanctions against the Taliban and individuals in the movement do not apply to a host of financial transactions involving Afghanistan—both public (for example, payment of legally mandated taxes and fees) and private (trade, except for a few luxury items such as furs and yachts). Nevertheless, foreign banks remain extremely cautious and routinely turn down many, if not most, requests for transfers of funds into and out of Afghanistan, especially when a U.S. dollar-denominated transaction is involved. This continues to be a major hindrance to Afghan businesses, trade, and the adjustment of the Afghan economy to the new realities.

The U.N.’s proposed Humanitarian Exchange Facility was intended to ease these constraints by allowing what would be in effect swaps between aid agencies and Afghan importers, substituting payments to the latter’s foreign accounts for inflows of aid money, and correspondingly using receipts from sales of imported goods within Afghanistan to provide liquidity for aid agencies to cover local costs (salaries and other local expenses). The Humanitarian Exchange Facility, which may have been overly complex in its design and would have carried substantial overhead costs, did not get off the ground in the end.

However, a broadly similar idea has been implemented on a smaller but potentially expandable scale by the Afghan private sector. The tankhaa (which can be translated as “salary”) mechanism emerged from the exigencies post-August 2021, when NGOs could not bring in funds to pay their employees’ salaries and other local costs due to the stoppage of international financial transactions. A major Afghan company, which engages in imported food trade and manages the most important wholesale market for foodstuffs in Afghanistan, was accumulating sales proceeds, as were the numerous shops in the market, but they could not use these funds to pay for their imports since outward bank transfers also were stopped. As a practical solution, in line with the needs of the NGOs, the company provided them with local funds to pay their salaries and other local costs, which were then settled by the NGOs transferring funds from their foreign accounts to the Afghan company’s foreign bank account. That money in turn could be used to pay for the cost of the concerned food imports.

By making use of what otherwise would be idle cash, tankhaa keeps the costs of these transactions low, and unlike many other ways of bringing in and spending aid in Afghanistan, it does not need to involve the informal hawala system at any point. Though relatively small at present, amounting to several hundred thousand dollars per day, this scheme could be expanded over time if joined by additional NGOs and aid agencies, and through its extension to include exporters and remittances. Other similar “swap” arrangements could further ease constraints emanating from international banking restrictions.

The international community should also directly attack the blockages of international financial transactions, by providing even greater comfort to reluctant foreign banks. Afghan businesses—many of which are well aware of the U.S. Treasury’s clarification that sanctions don’t apply to the vast bulk of commercial transactions—claim that when they point this out to foreign banks, the banks are not interested in reading the General Licenses and associated Treasury explanations. These documents could be transmitted officially from the Treasury to banks, perhaps via the central banks of the countries concerned (the Federal Reserve, in the case of the United States) to further encourage them to allow Afghanistan-related transactions.

Beyond the sanctions themselves, banks are likely concerned about the more general AML/CFT risks associated with financial transactions involving Afghanistan, and the high costs of installing AML/CFT protections compared to the limited volume and profitability of these transactions under current conditions. While there are no easy solutions, encouraging a risk management approach would also make sense in this area—for example, allowing sensible thresholds in terms of transaction sizes or other similar expedients.

Coordination and Financing of Aid

Aid organizations should encourage the World Bank to support this new approach to humanitarian aid in Afghanistan, bringing to bear its comparative advantages. The World Bank and the Afghanistan Reconstruction Trust Fund (ARTF) that it administers have played important roles in Afghanistan over the previous 20 years, both financially and otherwise. The drastic changes in the situation brought about by the Taliban’s takeover call for strategic rethinking and changes, but the World Bank and the ARTF can continue to be highly effective in the country if reoriented and retooled. This would require a proactive World Bank stance—perhaps financial in the future, but crucially with the World Bank’s board of directors and leadership and ARTF donors authorizing it to play a more active role, now.

The World Bank, with its release of $280 million in ARTF funds in November 2021 for humanitarian purposes, immediately joined the ranks of the larger financiers of humanitarian assistance to Afghanistan, which provided an entry point for the bank’s engagement on humanitarian aid more broadly. And the subsequent ARTF-financed activities focused on basic needs and core services are along the fuzzy line of demarcation between humanitarian and basic development aid in the “humanitarian-plus” spectrum. So there is ample justification for the World Bank to become more engaged with humanitarian aid as a whole, in addition to its important nonfinancial roles.

Relatedly, aid agencies should rethink and strengthen the coordination of humanitarian aid, providing the clout to make coordination work better, which could be provided by pooled funding. Weak and ineffective coordination of off-budget development assistance prior to August 2021 unfortunately has been replaced by weak and ineffective coordination of humanitarian aid since the Taliban takeover. The sheer size of this aid, its major economic implications, and likely future constraints call for more robust and effective aid coordination, in which the World Bank should be engaged. The ARTF or a similar comprehensive trust fund encompassing humanitarian aid (not a number of separate, potentially competing trust funds) would give teeth to aid coordination, along with major donors working together—perhaps using the donor committee or board of the trust fund as a platform for better coordination extending beyond the funds directly managed by the trust fund itself.

Finally, the international community should explore ways to use the $3.5 billion of Afghan central bank reserves in the Afghan Fund in Switzerland to strengthen the country’s balance of payments and support the private sector, without directing these funds to the Taliban regime. Recent developments in New York—specifically the Feb. 21 decision in which a federal judge rejected an effort to use frozen funds from the central bank of Afghanistan to compensate 9/11 victims’ families and their lawyers—give grounds for hope that the more than half of Afghan central bank reserves remaining in the United States will eventually become available for Afghanistan.

In the meantime, the $3.5 billion that was already apportioned for the benefit of the Afghan people (and subsequently transferred to the Afghan Fund) is presently available to buttress macroeconomic stability in Afghanistan and indirectly backstop the private sector, including the commercial banking system. The Swiss fund could explore the possibility of leveraging its size and status to support trade financing and cooperative arrangements with state-owned banks of Afghanistan’s neighboring countries, promoting smooth cross-country commercial banking transactions, without necessarily using up significant amounts of the reserves for these purposes. And though rapidly dissipating this money, let alone using it for humanitarian purposes, is not an appropriate use of any country’s foreign exchange reserves, these funds could help smooth and dampen the adverse macroeconomic impact of declining humanitarian aid in the future.

Afghanistan Requires a Change from Humanitarian Business as Usual