Nearly 40 years of civil war, corruption, international military intervention and insurgency have left Afghanistan's economy in shambles. With a fragile $19.8 billion GDP, Afghanistan has long been listed by the United Nations as among the least developed in the world.
According to the World Bank, 75 per cent of the government's budget was provided by international donors. After the capture of power by the Taliban on August 15, it became clear that much of the international aid that propped up the economy would stop. The US had already pulled the plug and other donors are also closing their purse strings. So what are the prospects for the Afghan economy under a Taliban-led administration?
Things look grim in short-term for the Taliban
Post the Taliban coup, the US has frozen nearly $9.5 billion in assets of Da Afghan Bank (DAB), the Afghan central bank, and stopped shipments of cash to Afghanistan.
The IMF too was quick to take action, blocking access to SDRs and other resources, a statement issued Wednesday said. "As is always the case, the IMF is guided by the views of the international community. There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access the Special Drawing Rights (SDRs) or other IMF resources."
Amjad Ahmady, the last governor of DAB, who has now fled the country, tweeted that these measures would frustrate the Taliban but also hurt the most vulnerable sections in Afghanistan.
"…my base case would be the following: - Treasury freezes assets - Taliban have to implement capital controls and limit dollar access - Currency will depreciate - Inflation will rise as currency pass-through is very high - This will hurt the poor as food prices increase."
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Only Pakistan, UAE, Turkmenistan and Saudi Arabia recognise the Taliban administration in Afghanistan. China and Russia have expressed a desire to have friendly ties with the new dispensation in Kabul.
Unless these countries bail out the Taliban regime with a cash infusion, the international economic sanctions would add to the woes of the Afghan people. They may not hurt the Taliban as much.
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The Taliban not a fund starved insurgent group
According to a June 2021 UN report, the Taliban generates up to $ 1.6 billion in revenues each year. The report adds the primary sources of Taliban financing remain criminal activities, including drug trafficking, opium poppy production, extortion, kidnapping for ransom, mineral exploitation and revenues from tax collection in areas under Taliban control or influence.
UN member states have told the UN's 'Analytical Support and Sanctions Monitoring Team' that external financial support, including donations from wealthy individuals and a network of non-governmental charitable foundations, also account for a significant part of the Taliban income.
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Post-August 15, opportunity to collect taxes
The fall of the Ghani government means the Taliban now collects all taxes and controls customs and border crossings. It controls the central bank and commercial banks.
It is expected to impose taxes and extract its share from the massive illegal Hawala transfer network that serves as Afghanistan's de facto banking system.
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It is also expected to formalise its collections from the booming illicit opium and heroin trade and the country's methamphetamine production.
The Taliban, which controlled mining in 280 zones across 26 provinces earlier this year, now controls all 704 mining zones across Afghanistan's 34 provinces.
A 2017 report by the Afghan government has estimated the total value of the mineral wealth of the country, including fossil fuels at $3 trillion. All this now belongs to the Taliban.
This may explain the Chinese, Russian and Pakistani eagerness to stay engaged with the Taliban post its takeover of Afghanistan. But it could well take years before the infrastructure is ready to exploit the mineral reserves fully.
But more than the total control over Afghanistan's natural resources, tax system, banking, drug trade, money laundering network, the Taliban would be happy about the 84 billion dollars worth of US military hardware and assets that have fallen in its hands.
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