Despite sitting on mineral resources estimated at $ 1 trillion, Afghanistan, which was heavily dependent on foreign aid, will face financial challenges as prospects under the Taliban rule seem uncertain.
After the swift and shocking takeover of the Afghan government by the Taliban, how they are viewed by the rest of the world will have a big impact on the country’s future financial aid revenues.
Amid the political chaos, some major donors have already halted support for the country.
The European Union has said that not a single euro of the billion euros allocated in development aid will go to a country that violates the rights of women and girls.
Canada has “no intention” of recognizing the Taliban and Germany has suspended development aid.
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However, some prominent countries like Russia, China and Turkey hailed public statements by the Taliban as insurgents pledged to improve the Afghan economy.
The conundrum leads to inevitable questions: What tools do they have and do they have the skills to run a country? How will a group of insurgents, with armed men roaming the streets, promise a stable society? Will they have the confidence of foreign investors?
Here’s an in-depth look at what we know about the Afghan economy and future economic prospects, a country of just under 40 million people and ranked among the poorest nations in the world.
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After the Taliban were ousted from power in 2001, the Afghan economy was growing steadily. A Bloomberg report said the country’s gross domestic product, estimated at $ 22 billion, has nearly tripled since 2001.
After the exit of the Taliban, the economy was run by experts, technocrats, some of whom were educated or trained in the West.
But the question is, will they stay in the country now? And how will talentless Taliban leaders run the economy?
In 2020, aid flows accounted for 42.9 percent of Afghanistan’s $ 19.8 billion GDP, according to World Bank data.
Trillions of dollars of minerals
A report published in 2010 found that Afghanistan is based on mineral deposits worth nearly $ 1 trillion. Data from U.S. military officials and geologists has determined that vast reserves of iron, copper, gold, and rare earth minerals are scattered across the country. The value of mineral deposits will be higher now compared to what was estimated in 2010.
Reports also indicated that Afghanistan could be home to one of the largest lithium deposits in the world. It is an essential but rare component required in rechargeable batteries and other technologies vital to tackle the climate crisis, such as solar panels and wind farms.
Copper, which is needed to make electrical cables, has become a hot commodity this year as prices have climbed to over $ 10,000 per tonne.
Global lithium demand is expected to increase more than 40 times by 2040, according to the International Energy Agency.
In 2010, Jack Medlin of the US Geological Survey told a Pentagon briefing that “This is not a quick win” because converting the potential of mineral wealth into real income takes years and huge investments.
In an attempt to extract the minerals, the Taliban will face security concerns and a lack of infrastructure, but these precious minerals could attract foreign players despite the chaos.
Afghanistan’s potential wealth has the potential to make for a brighter future, but other countries could try to exploit it, even if internal corruption poses a greater threat.
Opium and taxes
According to a May 2020 report by a UN Security Council sanctions committee, the Taliban derive much of its income from criminal activities such as growing poppies used to make heroin and opium, as well as drug trafficking.
Corporate extortion, as well as ransoms resulting from kidnappings, also provide income, according to the report which estimates the group’s income at $ 300 to $ 1.5 billion a year.
It is imperative to note that the international community has spent billions of dollars over the years to help Afghanistan eradicate poppy cultivation, but the country still produces over 80% of the world’s opium.
The industry employs hundreds of thousands of people in a country with high unemployment after 40 years of conflict.
However, the Taliban have promised to end the drug industry in Afghanistan.
But is it really possible?
Watch: Who Created the Taliban?
Since the Taliban took control of the Afghan capital, it seems they want to be recognized by the international community as a legitimate government. In a recent interview with ABC News, US President Joe Biden said the Taliban was going through a sort of “existential crisis”.
Despite their promises to run the country smoothly, the “positively different” insurgents who have become leaders have received a mixed response. Some countries have responded based on how the Taliban’s reputation precedes them, but some foreign donors trust the group.
As mentioned earlier, Russia, China and Turkey all welcomed the insurgents’ first public statements. However, the United States is wary.
Canadian Prime Minister Justin Trudeau said his country “had no intention” of recognizing the Taliban.
Germany has announced the suspension of its development aid because it will provide $ 503.1 million in aid this year, including $ 292.5 million for development.
China, however, can play a huge role here as some of the political experts have indicated China’s substantial interest in the Afghan economy at this time. However, it is not clear whether he will fill the void if relations with Western countries remain cold, especially with the United States.
According to the most recent World Bank estimates from May, remittances to Afghanistan from overseas were estimated at $ 789 million in 2020.
How much money does the country have?
Amid the uncertainties, international organizations are unwilling to trust the Taliban as the International Monetary Fund (IMF) announced it would freeze aid to the country.
In addition to the IMF, the Biden administration froze the assets of the Afghan central bank and halted cash shipments to the country.
Central Bank Governor Ajmal Ahmady said on Twitter that Da Afghanistan Bank (DAB) has around $ 9 billion in reserves, but most of it is held abroad, beyond the reach of the Taliban.
“In accordance with international standards, most of the assets are held in liquid and safe assets such as treasury bills and gold,” Ahmady said.
The US Federal Reserve holds $ 7 billion of the country’s reserves, including $ 1.2 billion in gold, while the rest is held in foreign accounts, including the Basel-based Bank for International Settlements, Ahmady added.
Also note that Western Union has also said it is temporarily cutting wire transfers to the country – another vital source of money for the population.
The World Bank has more than two dozen development projects underway in the country and has provided $ 5.3 billion since 2002, mostly in the form of grants. The status of these programs is unclear as the development lender is trying to remove staff from the country.
Impact of the COVID-19 pandemic
The coronavirus has also had an impact on the faltering Afghan economy, and the Taliban have recognized they cannot improve the situation without foreign aid.
(contributions and quotes from agencies)