Afghanistan’s Economy Once Again Nears the Precipice

The Taliban have claimed progress in countering corruption and revenue collection, yet Afghanistan is also one of the largest recipients of humanitarian aid. What is the Afghan economy’s capacity to provide for the needs of its people?

Byrd: Two recent World Bank reports — which were launched at a USIP event last week — lay out the landscape of the Afghan economy and the situation of Afghan households. Despite some signs of economic stability over the past year, the economy remains weak and unable to generate the jobs and livelihoods needed to accommodate the growing population — hence unemployment and underemployment are widespread and increasing. Poverty remains very high, and large numbers of Afghans are still unable to meet their basic food and non-food needs.

Moreover, there are storm clouds ahead — some but not all of which are noted in the World Bank reports. International humanitarian aid in 2023 will likely only amount to around half of its 2022 level, which was roughly $3 billion. The Taliban’s opium ban will also reduce the earnings of rural households by more than $1 billion per year without an alternative livelihood program for farmers, which will only further aggravate poverty and deprivation.

Meanwhile, Pakistan’s deportation of an estimated 400,000 Afghans (and counting) exacerbates the country’s financial woes at exactly the wrong time. Afghans should be working in other countries and sending back remittances. Instead, even more will now need to look for work in the already meager Afghan economy.

Macroeconomic factors are not promising either. Afghanistan is encountering disinflation, which the Taliban see as good news because it lowers prices. But in reality, this is bad news because it will shrink the value of the overall economy and lead to greater unemployment and lower government revenue.

Finally, Afghanistan’s export growth is weakening. Coal, for example, had exploded as an export good when Pakistan was facing a shortage and global prices were high in comparison. That seems to have plateaued now as the markets shift.

The Taliban’s ability to collect taxes effectively led to impressive revenue totals in the first two years of their rule. But this revenue growth will falter as long as the economy is stagnant.

How has women’s participation in the Afghan economy changed since the Taliban took over in 2021?

Ahmadi: During the Afghan Islamic Republic, government institutions put in place measures to encourage women to apply for vacant positions. While the environment was not always enabling — cultural norms, bad security caused by Taliban insurgency, and lower access to education often impeded female job applicants — women were willing to face these challenges to exercise their right to employment and to earn an income.

Both Afghan government policy and donor-funded programs were successful in building the female workforce of Afghanistan. More than 6,000 women served as judges, prosecutors, defense attorneys, police and army personnel. Government data counted about 10,000 women among the country’s doctors, nurses and health professionals. Schools and universities were the largest employers of women, with more than 68,000 women teachers, including 800 university professors, working in private and public institutions.

Since 2021, the Taliban have issued over 140 decrees, 90 of which specifically restrict the rights and movement of women and girls. In a particular blow to women’s economic freedom, the Taliban blocked women from working in the government and replaced the Ministry of Women’s Affairs and its related departments — which employed thousands of men and women — with the Ministry of Propagation of Virtue and Prevention of Vice.

Women are still employed as teachers, nurses and doctors, but in fewer numbers and with lower wages. Overall, the professional workforce that was once a source of economic growth, family welfare and vital services for women has shrunk dramatically. Many professionals are now struggling to make ends meet with small, in-home enterprises like sewing and mending, which does little to replace both the income and the dignity of a salaried, professional position.

Women face fewer official restrictions from the Taliban in the private sector, but the Taliban’s overall social policies and a vastly shrunken economy mean that women are much worse off as entrepreneurs and private sector employees than they were under the Republic.

In 2020, the Afghan Women Chamber of Commerce and Industries reported that there were 2,471 licensed and 54,000 informal/unlicensed businesses owned and operated by women, employing more than 130,000 people.

While the Taliban have not issued a formal decree banning women altogether from the private sector, their targeted decrees concerning beauty parlors in the summer of 2023 alone have left some 60,000 women out of job. Women have also been banned from parks where women had kiosks selling food, snack and handicrafts. Women have been banned from public baths, some owned by women. Other general restrictions such as the enforcement of segregated offices and work stations and mandates that women be accompanied by a mahram while outside their homes have had an enormous effect in pushing women out of the workforce in the private sector. Many employers have opted for replacing their female employees with men altogether to avoid being harassed by the Taliban’s religious police.

What can be done to improve the Afghan economy and reduce its need for a shrinking supply of international humanitarian aid?

Worden: There are no quick fixes to the Afghan economy, and the World Bank’s recent reports show that demographic pressures from population growth and the return of hundreds of thousands of refugees from Pakistan will likely outpace economic growth in the short term.

When it comes to maintaining — let alone increasing — Western donor assistance and removing the formal and informal sanctions that have been hindering the Afghan economy, the Taliban would have to moderate their severe restrictions against female education and women working, which seems most unlikely to happen in the light of past experience.

While Afghanistan’s banking sector has been largely moribund since the Kabul Bank crisis of 2010-2011, things have gotten even worse since the Taliban takeover. The banking sector cannot be fixed in the short run, but it is important to ensure smooth payments to facilitate trade, aid and — not least — remittances from Afghans in other countries.

One priority is to arrange for third-party monitoring for anti-money laundering and countering the financing of terrorism, which the Afghan Central Bank cannot handle — due both to loss of institutional capacity and to the potential conflicts of interest entailed by the Central Bank being currently led by sanctioned Taliban individuals.

Another potential option is to arrange for a portion of the $3.5 billion of Afghanistan’s frozen foreign exchange reserves funds that have been sequestered in the Swiss Afghanistan Fund to be returned to private sector commercial banks that had deposited extra amounts of their funds in the Central Bank, and then onward to private sector depositors in the commercial banks.

Increased agricultural production is key to improving livelihoods on a broad scale, but the opium ban increases the headwinds against the rural economy. Irrigation projects (one of which, Qush-teppe in northern Afghanistan, is currently underway) and expanding agricultural exports will be needed.

Over the medium term, increased regional trade could provide a boost to the Afghan economy if the Taliban are able to improve transportation infrastructure and manage Afghanistan’s borders in a way that gives neighbors greater confidence that refugees, terrorists and traffickers will not cross over from Afghanistan along with trade goods.

Ultimately, Afghanistan’s longer-term economic development will require political and policy choices the Taliban are unwilling to make. For example, no country can move up the scale of development as long as women and girls are categorically excluded from public life.