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What Future does Afghanistan Economy hold?

What Future does Afghanistan Economy hold?
So, what does the Taliban's takeover means for the Afghanistan economy? If we look at the current scenario then it's clear that Afghanistan formal economy is likely to crash. This would obviously lead to a humanitarian crisis, a refugee crisis and political instability that is far worse than what we have already seen. And that's for some major reasons one of them, one of the key reasons being that Afghanistan's economy is heavily dependent on foreign aid. Nothing will make up for the sheer volume of funding that the western countries have been providing Afghanistan for the last 20 years.

Right now, Afghanistan is staring right at the liquidity crisis, almost 80% of Afghanistan's government budget was being funded by the USA and other western institutions. Around 40% of the Afghanistan GDP came from foreign aid that was being provided. Most importantly almost 4% of Afghanistan GDP comes from remittances and that's the money from overseas workers that gets sent back.

That's one of the highest rates in the world and those remittances have not been able to reach Afghans in the country who need it. The US government under Joe Biden froze all of Afghanistan's foreign assets that are in the US and that includes more than 7 billion dollars of the Afghan central bank's 9 billion dollars.

This would leave the Taliban to impose capital control. Capital controls are the regulations taken by the government or central bank to limit how much money actually enters or leaves the country. These include the restriction on money transfers and cash withdrawal limits at banks. Losing access to foreign currency is a big deal because Afghanistan's economy is heavily import-dependent.

Afghanistan's currency has fallen to record lows, the prices of basic commodities like flour and gas spiked up to almost 50% within two weeks of Kabul's fall to the Taliban. Also, International organizations like The World Bank and the International Monetary Fund also pulled funding from Afghanistan. 12 billion dollars of foreign aid from more than 60 countries were also under scrutiny.

Afghanistan's financial future depends heavily on whether or not the Taliban government gets internationally recognized or not. And that will depend on what concessions it is willing to give to the international community, whether it is on human rights guarantees, like guarantees that will not harbour terrorist groups as it did in the 1990s.

As Afghanistan is on the verge of an economic collapse, what does it mean for its citizens? Almost 70% of Afghanistan's population is below the age of 25, which means an entire generation of Afghans has grown up not knowing Taliban rule. So, this is an entire generation of young Afghans, tens of millions, who grew up being able to play soccer, being able to work in media, also women being able to participate in politics, in the private sector, in art, entrepreneurship, in international organizations, international business. The United Nations have also called women's rights in Afghanistan on a fundamental red line.

While female presence in the workplace has still not been huge, what the country risks losing is not just the progress that has been made in the last 2 decades but the future productive potential that would be lost if it chooses to lock half of its population out of the economy. And to take this away from all of these people, first of all, it's devastating for the people who have enjoyed these rights and who also have experienced this freedom for the last 20 years.

According to the World Food Bank, it needs nearly around 200 million dollars by the end of the year to aid millions of Afghans who are facing the risk of starvation. In a country of almost 39 million people, nearly half of the Afghan population lived below the national poverty line last year.

It is a perennial dilemma for countries that provide aid, when the government of those countries and committing abuses related to human rights. Do you cut off funding to ensure that the government itself does not get to enjoy these funds? Or do you continue funding to support the people who will likely be hurt the most? And that is continuing to be deliberated and probably will be deliberated for quite some time.

Most of their independent funding comes from criminal activities. So, the Taliban for decades funded itself illicit opium trade, on extortions, kidnappings, there is illicit timber trade, illicit mining activities going around the country. The point is they were able to fund themselves, they were able to fund an insurgency for many years. Their net opium revenue was from between 40 million dollars to 400 million dollars in recent years.

The question is whether we would see a lot more of these activities to fund Taliban operations in Afghanistan? The funding of the Afghan government budget in the last year was 5.3 billion dollars. So that's an enormous difference and there is no way from all the analysts, economists' point of view that there is no way that the Taliban can fill that enormous gap, with the activities it has been partaking in the last 20 years to fund itself alone.

Afghanistan's strategic landlocked location has also brought up the discussion of its potential, especially with geopolitical interest. Economists say that Afghanistan has more than 1 trillion dollars in untapped mineral wealth, that's everything from copper and iron ore, gold, gemstones, to lithium, which is exploding in price on the market today because of the demand for electric vehicles.

Now China is working on to becoming a world leader in electric vehicles. And this is something very interesting to them. However, Afghanistan is very underdeveloped in terms of infrastructure. So, it's going to take a while before Afghanistan as a country can take advantage of these minerals and the natural resource wealth it has. It simply doesn't have the volume and the scale of roads, railroads, power lines, infrastructure, in general, to move this kind of technology around the country.

Despite, Afghanistan having a very strategic location for the expansion of China's belt and road initiatives, the security situation on the ground has always been the number one for any investor.

The Taliban doesn't necessarily control the whole country, there are tribes, there are other militia groups, militants, that are in control of other parts of the country. So, the Taliban even if they tried to guarantee security for an investor like China, they can't really guarantee it on the ground. And remember that parts of the country are still laden with IEDs, with landmines, and the fact that you also have the potential in the coming years for renewed civil war in the country.

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