Afghanistan's Economic Future​

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By Curtley Bale​


The Story

The fall of Kabul to the Taliban and the fleeing of President Ghani signalled the end of Afghanistan’s fledgling democracy. Whilst the Taliban seek to retain a veneer of democracy, freedom and normality, the country's economic future is highly uncertain.

Prior to the Taliban invasion, Afghanistan’s economy had begun to stagnate following reports of corruption and governmental failures. Still, the country’s economic output was 50% greater than when the Taliban was first in charge in the late 90s and early 2000s (IMF).

Since then, businesses in Afghanistan have been looking to benefit from a surge in foreign investment and disposable capital. Women had also become an integral part of the workforce, with 22% of eligible women working; a number up from close to zero during previous Taliban rule (World Bank).

However, the small country remains reliant on foreign aid and foreign direct investment. Indeed, the World Bank's 2019 figures show "development aid was equivalent to 22% of gross national income" (BBC). Whilst this figure is half of what it was a decade prior, it is still an irreplaceable sum that is likely to be absent during the Taliban’s reign over Afghanistan. Similarly, to put the country’s reliance on international donors into perspective, the country legally exported just $1 billion worth of goods in 2020, yet received over $4 billion in foreign aid (World Bank).

This suggests that the economy is not self-sufficient, and instead relies on foreign aid to fund the country. If foreign aid is withheld or suspended, the quality of life for many Afghans could decline further.

What It Means For Businesses And Law Firms

Several embargoes have been introduced against Afghanistan, motivated by a reluctance to do business with the Taliban, a group associated with terrorism, fear and a lack of rights for women. The US has already frozen $9.5 billion of Afghan international currency held with the Federal Reserve, whilst the IMF has suspended COVID-19 relief packages worth around $450 million (BBC).

The consequences of this may be severe. Between 2016 and 2020, foreign donors contributed $15 billion to the economy - with grants funding 75% of all public expenditure (Financial Times). Projects such as roads, dams, and clean water were amongst those funded by the international community, and are amongst those which are likely to be hit as the Taliban takes over.

Countries such as India have been supporting Afghanistan’s development for a number of years, contributing $3 billion of funding for over 400 projects (Hindu Business Line). It is yet to be seen whether the Taliban will manage to forge relationships with other countries, or whether their governance will signal a return to the poor economic conditions seen under their previous leadership.