Afghanistan Faces Economic Shock as Sanctions Replace Foreign Aid

“The withdrawal of U.S. troops or reductions in international grant support to the Afghanistan security forces would have a range of unpredictable impacts on security, political cohesion and the economy,” the World Bank wrote in its Afghanistan Development Update, published in April. “Fiscal space remains tightly constrained in the context of weakened revenue performance and declining international grants.”

Although Afghanistan’s budget deficit has been relatively low as a share of its economy, the World Bank warned that the country was at “high risk of external and overall debt distress” because of its reliance on foreign grants and low exports.

The World Bank, which has provided more than than $5.3 billion for development and emergency reconstruction projects in Afghanistan since 2002, evacuated members of its staff and their families from the country to Islamabad, Pakistan, this week. A World Bank spokesman had no comment on the future of its work in the country.

Paul Cadario, a former World Bank official, suggested that a key issue was whether the Taliban would be able to deliver on the infrastructure projects that foreign development groups had been funding and to maintain public services to create a functioning economy. However, he said, it remains uncertain whether the Taliban will allow the work on projects related to public health and education to continue, and the status of basic institutions like tax administration remains in limbo.

“Presumably some of what the government does will be paid for by the Taliban with money from other sources of income like opium,” said Mr. Cadario, who is a fellow at the University of Toronto’s Munk School of Global Affairs and Public Policy.

A United Nations report in June underscored the Taliban’s lack of economic credibility, detailing how their financing is derived from criminal activities such as drug trafficking, opium poppy production, extortion, kidnapping for ransom and mineral exploitation. It estimated that the group’s revenues from those practices amounted to somewhere between $300 million and $1.6 billion a year.

Article source: https://www.nytimes.com/2021/08/21/business/afghanistan-economy.html