EXCLUSIVE JURIST – Law students and lawyers in Afghanistan file reports with JURIST on the situation there after the fall of Kabul to the Taliban. Here, a lawyer from Kabul presents his latest observations and his take on the country’s economic situation under the Taliban. For reasons of confidentiality and security, we retain his name and institutional affiliation. The text has only been slightly retouched to respect the author’s voice.
Finding a source of sustainable growth was and remains a major economic challenge for Afghanistan. In the past, this obstacle has been partially / fully removed / filled by major projects and the cooperation of entities such as the World Bank, Asian Development Bank (AfDB), USAID and many other donors / partners in Afghanistan. Almost all of these donors have left Afghanistan or have suspended projects in the country for the time being.
In light of that, here are some things that could happen in the not-so-distant future:
1: Afghanistan loses many of its strategic partners / donors through which the country has grown in agriculture, mining and energy, banking and finance, trade, transit , etc. Any suspension and / or closure of the activities of one or more of the aforementioned areas will lead to unemployment and lack of contribution to the economic growth of the country.
2: Afghanistan derives a large part of its income from agriculture and some of the largest agricultural projects have been financed by the World Bank, Asian Development Bank and other development banks as well as funds established during of the last 20 years in the country. Because the WB and the ADB have stopped financing projects for the moment, there will be no development projects concerning agriculture in Afghanistan.
3: Banking and finance: The banking system is formed and supervised by the central bank of Afghanistan. The central bank also determines the country’s financial and monetary policies. In addition, money service providers and traders also offer the services of a commercial bank, but in a more traditional way. The currency, the Afghani, experienced rapid inflation in the month before the Taliban’s second rise in the country. Only three months ago, 1 USD was AFN 77 and now AFN 88. This has resulted in a price increase, as almost all of the country’s needs are imported from abroad.
World Bank projects are handled by a specific division at the Central Bank of Afghanistan. This division is not working at the moment.
A UN sanction imposed on the Taliban government in 1999 froze government accounts abroad and closed the few branches of Afghan banks in other countries. Since 1999, a large group of Taliban leaders and their partners are still on the blacklist of the UN and many other international agencies. The US Federal Reserve also froze an amount of $ 9.4 billion used to invest in many sections that had benefited Afghanistan. This is because the Taliban are still on their sanctions list.
Large numbers of the Taliban, the Haqani Group, Al Qaeda leaders and others were on the Afghan central bank’s sanctions list, and suspicious transactions by commercial banks as well as monetary service providers were closely monitored for prevent money laundering and terrorist financing. This means that now that they have the government, they will have the power to control where to send money and who can or cannot do it. Domestically, nothing prevents them from doing so for the moment.
Regarding the supervision of commercial banks and the development of the banking sector in Afghanistan, it seems that they have no plans. There are many reasons for this. First, the governor of the central bank has no academic and professional experience. He was only the financial director of the Taliban. Neither the first deputy governor nor his second deputy governor has sufficient financial knowledge.
Another challenge is for the Taliban to remove some people who have worked for many years at the central bank and who have sufficient banking and financial capacity / skills. Personally, I don’t see any economist on their team.
4: Private sector: it is badly damaged and some of the biggest national and international companies have already left the country. The private sector is affected by insecurity, political instability, weak institutions, inadequate infrastructure, widespread corruption and a difficult business environment (Afghanistan was ranked 173rd out of 190 countries in the Doing survey Business 2020).
5: Legislative reform: Previously, the Afghan government initiated many legislative reform projects, but none of them are currently underway. I have had the honor of working with ____ on some major legislative reform projects through which we have renewed laws and regulations 40 to 60 years old in areas such as a) municipal law, b) mining law and its regulations, c) the Law on Hydrocarbons and its regulations, d) Code of Commercial Procedure, e) Law on State Companies, etc.
All of the above results in part and / or all of unemployment, disinterest of the private sector for investment, increased poverty and makes the economic sustainability of the country increasingly dependent on foreign aid. More importantly, as we are seeing right now, Taliban officials such as the governor of the central bank, the Minister of Industry and Commerce, etc. only know Islamic law and Sharia law, and I actually doubt that they have official Sharia certification. Therefore, the impact of international donors on the economic development of Afghanistan over the past two decades will be wiped out. The situation will worsen further due to a lack of human resources and expertise.