Don’t abandon Afghanistan’s economy too

As Western powers pull out of Afghanistan, they have begun to ask themselves what their remaining sources of leverage over the Taliban are. In forums like the G-7 meeting chaired by the United Kingdom, conversations rapidly turn to the possibility of using funding as a means of pressure. This is a dangerous approach.

Afghanistan is critically dependent on foreign aid. In recent years, it was not unusual for it to have received aid amounting to 43 percent of its GDP. That flow of funds has now been suspended, giving the West leverage. But if the West exercises pressure indiscriminately, it will pull Afghanistan's last remaining support at the same time it's abandoning the country. The Taliban may threaten Afghanis' freedom and rights, but it is the abrupt end to funding from the West that jeopardizes their material survival.

The single clearest index of this dependence-based relationship is its balance of trade. Afghanistan is in deficit to the tune of 25 to 30 percent of its GDP. At $7 billion in 2020, Afghanistan's imports exceeded its exports of $1.7 billion by a factor of four.

This is not by itself surprising. Afghanistan is very poor. Poor countries have a bottomless hunger for foreign goods. But the poor countries' problem, by definition, is they have little to trade in return. Otherwise, they would not be poor. How much a poor county can satisfy its appetite for imports depends on the external funding it can find. It is not by accident that Afghanistan's huge trade deficit first emerged after 2001, when the country was taken over by Western powers, or that the deficit reached its maximum during then-US President Barack Obama's military surge in 2012 and 2013. Imports are a direct function of foreign aid.

Like much of the military spending in Afghanistan, aid dollars flowed in and then flowed out in payments to contractors and in the capital flight of the corrupt elite. Giant flows of foreign money created an entire parallel economy, part civilian, part military. If that funding melts away at the same time as many of the people who benefited from it flee to the airport, it is tempting to shrug. Easy come, easy go. The West exits, and Afghanistan retreats to its earlier self-sufficient state. If the Taliban want the money to start flowing again, they should accept Western conditions.

Such a policy would be cynical, superficial, and dangerous. To view funding as a favor—to be granted or withheld funding depending on Taliban compliance with Western expectations—denies the existence of the Afghanistan that has come into existence as a result of the last 20 years of intervention. It may not have been a viable state or a battleworthy military, but it was a new society critically dependent on external funding. If the West wants to assist in ensuring at least a minimum continuity of life in Afghanistan, an ongoing flow of funds is essential.

As partial as the modernization of Afghanistan since 2001 may have been, it was real, and it was critically dependent on imported money and goods. Education at all levels expanded, attracting heavy funding from abroad. In the past 20 years, life expectancy has increased dramatically. Infant and maternal mortality have plunged, all thanks in considerable degree to a medical system funded from the outside.

Cellphone and internet usage are widespread. Electronics are from abroad. Afghanistan's electric power consumption has increased more than tenfold. Seventy percent of that power is imported, to the tune of about $280 million each year. The number of registered motor vehicles has more than doubled since the early 2000s; not only the vehicles themselves but also the petrol and diesel they run on have to be imported. In 2002, Afghanistan got by on 280 barrels of imported oil per day. In 2018, it needed 13,300 barrels.

Most critical of all is food. Since 2001, Afghanistan's population has doubled. Food balance is precarious. Among Afghanistan's imports, at $760 million in 2018, is flour. Most countries import grain and mill their own. Flour is relatively expensive to purchase from abroad and fragile to transport. Afghanistan imports flour because it does not have the milling capacity to grind its own.

If Afghanistan had to cut its imports to the level that could be financed by its exports—assuming it can continue to export—they would have to fall by 75 percent. That would be a savage blow.

Of course, Afghanistan's official export figures do not count its most profitable source of export revenue: opium. As the world's premium supplier, one would imagine Afghanistan would be fabulously rich. But the Afghans do not control marketing in the manner of Colombian cartels. The United Nations estimated revenue by Afghan opium farmers in 2019 to be between $1.2 and $2.1 billion. The benefits are highly unevenly distributed in Afghan society, and they are already fully spoken for. Through one channel or another, the money already flows into the Afghan economy and pays for both domestic and imported purchases, many of which may be smuggled in exchange. Global drug markets are rebounding from their pandemic lows, but it would be truly perverse for Western powers to count on soaring heroine prices to bail out starving Afghanistan.

A country under siege may also turn to its foreign exchange reserves to pay for imports. Afghanistan has accumulated $9.4 billion, enough to cover almost 18 months of imports. Ajmal Ahmady, former Afghan President Ashraf Ghani's man at Afghanistan's central bank, tweeted when he exited the country that the Taliban had come looking for the reserves. To their dismay, they discovered the funds were not held in Kabul but at the US Federal Reserve in New York. They are now blocked by Treasury sanctions. Likewise, the International Monetary Fund (IMF) has decided not to distribute to Afghanistan the $440 million in special drawing rights it is entitled to under the $650 billion global allocation.

How then will the Afghan economy continue to function? Westerners who have attempted to give economics training to the Taliban remark they seem to assume funding will come from either Pakistan or China. Pakistan, itself under an IMF program, does not have the resources to cover Afghanistan's deficit. Although China may be amenable, it has so far made no commitments.

Already before the current crisis, the World Food Program classed half the Afghan population as facing food shortages. That was while aid was still pouring in. Over 3 million Afghan children are facing severe malnutrition. Drought stalks the land destroying 40 percent of the crop this year. Most vulnerable of all are the 3.4 million who are internally displaced. Cold weather will arrive in a matter of months. Food prices in Kabul and other major cities are already spiking.

Although it may be the only lever left to the West, playing politics with the external funding on which life in Afghanistan has been built over the last 20 years would be to compound the callous withdrawal in a truly inhuman way. What Afghanistan needs is an amply funded multilateral humanitarian effort to ensure life can continue as far as possible and millions of people are preserved from disaster. Not for nothing, the slogan adopted by Isabelle Moussard Carlsen, head of the U.N. Humanitarian Office in Afghanistan, is #StayAndDeliver. It is right.

Adam Tooze is a columnist at Foreign Policy and a history professor and director of the European Institute at Columbia University. His latest book is Crashed: How a Decade of Financial Crises Changed the World, and he is currently working on a history of the climate crisis. Twitter: @adam_tooze

Disclaimer: This article first appeared on Foreign Policy, and is published by special syndication arrangement.