The Taliban reclaimed power in Afghanistan on August 15, 2021, after a U.S. pullout. At this point, the country was reeling from COVID-19, decreasing humanitarian aid, and capital flight, among others. In a short period of time, the Taliban regime lost 40% of its GDP to losses in civilian and security aid. It also faced steep economic sanctions, like freezes on foreign exchange reserves. Together, these factors crippled the Afghan economy and forced the country into an ever-worsening humanitarian crisis.
Interestingly, in the immediate aftermath, the economy stabilized, job loss decreased, and wages stopped decreasing. However, the macroeconomy still took a huge blow. While the economic free fall stopped, the Afghan economy shrunk by 20-30% between August 2021 and August 2022. Furthermore, as high as 70% of Afghans are still unable to afford basic necessities like food and water.
The Taliban seem to be the key variable here, but why? Interestingly, the regime is responsible for prudent monetary policy, weeding out of corruption, and maintenance of friendly relations with the private sector. However, the regime has also mismanaged the macroeconomy by keeping women out of the workforce, allocating high amounts of funds to security, and attempting to control the foreign exchange market. This, coupled with Afghanistan's two decades of dependence on humanitarian aid, makes for a poor economic outlook.
The Taliban's ascension to power is marred by economic mismanagement, which is a leading cause of the current humanitarian crisis. Because of the regime's failures, Afghans still depend heavily on foreign aid, and the country's GDP remains low. In order to remedy the situation, Afghanistan will have to become more economically independent while also improving output, but the choice is up to Taliban leadership.
https://www.usip.org/publications/2022/08/one-year-later-taliban-unable-reverse-afghanistans-economic-decline
It seems like international donors, etc. are put in a very difficult position with helping to find a "long-term" solution that won't result in total dependence on the aid currently provided. What should they do to alleviate the shrinking economy? How should the Taliban regime continue, without harming its own people?
ReplyDeleteThere is also definitely a "humanitarian crisis" with about half the population being marginalized.
Really interesting view and perspective on the positives and negatives for the micro and macro economy being run by a terrorist organization. Obviously human rights and the citizens of Afghanistan lose here unfortunately and we see what the Taliban have done to the overall economy, but still interesting to see how it played out in the micro economy.
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