Aug 15, 2022 - Economy & Business

Afghanistan's economic calamity

Photo illustration of an Afghan man counting money as a collage.
Photo illustration: Aïda Amer/Axios. Photo: Lillian Suwanrumpha/AFP via Getty Images

One year after the U.S. withdrew from Afghanistan, the country's economy has — as predicted — imploded, exacerbating an already-existing humanitarian crisis.

Why it matters: Afghanistan entered 2021 as a client state of the U.S., reliant on foreign aid for 75% of public spending. When Joe Biden made the decision to withdraw, that grant funding disappeared, and some $9 billion of Afghan central bank assets were frozen, rendering many normal central bank functions impossible.

  • On top of that, sanctions on money flows to anybody associated with the Taliban have had a chilling effect more broadly, with many foreign banks being "unwilling to process foreign currency transactions involving Afghan banks," per Human Rights Watch.

By the numbers: The Afghan government's 2022 budget is down more than 60% from its 2020 level in nominal terms and much more in real terms. Basic household goods inflation is running at 52% year-on-year. Per capita income is now about $375 per year, its lowest level in over a decade.

What they're saying: "This is a form of collective punishment," Mark Weisbrot, co-director of the Center for Economic and Policy Research, tells Axios. "If there was a war going on, it would be a war crime under the Geneva Conventions."

  • Article 33 prohibits "collective penalties" in war, saying "no protected person may be punished for an offence he or she has not personally committed." U.S. actions against the central bank have had punishing effects on all Afghans.

Where it stands: After an initial plunge, Afghanistan's economy and currency seem to have stabilized somewhat at their new lower level. Exports are even rising, thanks to higher energy prices — the country's coal exports are up significantly, partly thanks to child labor.

The bottom line: There is no evidence that the Taliban regime has the ability or inclination to rule Afghanistan effectively, even without international sanctions. But as the International Rescue Committee says, "Afghanistan’s slide towards catastrophe is primarily driven by the policies of the international community, rather than conflict or natural disaster."

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