In August 2024, the Taliban movement marked three years since regaining control in Afghanistan following the withdrawal of the US military and its allies. Despite the predictions of many international experts, the Afghan state did not experience the anticipated socio-economic collapse following the group’s seizure of control. While encountering various challenges, the Taliban-led government effectively prevented the country from descending into chaos. The publication Politik sought to understand how and through what means the movement achieved this.

On the brink of collapse

Following the departure of foreign forces and the fall of Ashraf Ghani’s administration in August 2021, many analysts anticipated Afghanistan to experience severe economic and humanitarian challenges, and there were ample grounds for this. The fact is that as much as 75% of the Afghan state budget since 2001 has been reliant on financial support from external donors, and the presence of foreign troops has contributed to the growth of the transportation and services industry, which was tied to many jobs.

After the Taliban seized control of Kabul, failed to establish an inclusive government as per the West’s expectations, and started implementing unfair gender policies, nearly all international aid was promptly suspended. In addition, $9.5 billion of the Central Bank of Afghanistan’s reserves were frozen in Western bank accounts, paralyzing the local banking system. The Taliban’s decision to ban opium poppy cultivation, a primary source of income for over half a million people and the largest sector of the Afghan economy, has exacerbated the situation. The prolonged drought has further complicated the already dire circumstances.

Almost immediately, millions of people faced the threat of starvation. The UN World Food Programme has estimated that 23 million Afghans, out of a total population of 40 million, faced severe food shortages. By the end of 2021, there were discussions concerning a severe economic crisis due to a 20.7% decline in the country’s GDP. However, Afghanistan did not collapse into the abyss, which raised the question of how the new Taliban-formed government managed to find a remedy to the looming economic turmoil.

Five ingredients of Taliban economics

Five key factors helped Afghanistan avoid economic and humanitarian collapse.

The first step involved maintaining discipline and internal unity within the movement, which allowed for implementing the economic stabilization and development strategy. A crucial role was played by the rapid restructuring of part of the Taliban elite from a military-ideological mindset, relevant during the armed conflict with the Ashraf Ghani government, to a formal and rational approach essential for nation-building.

The second driver was the Taliban’s energetic efforts to stabilize the military-political situation and transform the country’s entire territory into a single transport-economic and legal space. That the Taliban would succeed in this was not evident in the first months of their stay in power, making their achievement all the more surprising.

In late August 2021, immediately after the Taliban captured Kabul, Ahmad Massoud, the son of the legendary Ahmad Shah Massoud, together with former Vice President Amrullah Saleh, attempted to turn the Panjshir Valley into a stronghold against the movement. However, unlike a similar situation in the second half of the 1990s, when Ahmad Shah Massoud defended Panjshir, the Taliban could relatively easily defeat the forces of the National Resistance Front this time and establish control over this strategically important region in September 2021.

In addition, the Taliban has succeeded in significantly weakening the military capabilities of the Afghan faction of the terrorist group ISIS – Wilayat Khorasan, which they have been in conflict with since 2014. This prolonged confrontation has considerably weakened the group, forcing it to shift from large-scale military operations to sporadic terrorist activities that had a limited impact on the new government’s stability. However, it is premature to claim the complete eradication of the threat posed by Wilayat Khorasan. For instance, in mid-September 2024, the organization perpetrated a terrorist assault on Shiite pilgrims in the vicinity of the Daqundi and Ghor provinces, resulting in the loss of 14 lives.

Also, among the Taliban’s achievements in terms of security was eliminating the control of various field commanders and gangs over highways. As a result, Afghan businesses could carry out end-to-end and safe cargo transportation, which, among other things, allowed the establishment of cargo communications between Pakistan and Central Asia through Afghanistan.

The third element of the Taliban’s plan for the country’s economy involves tackling corruption and improving tax collection and customs procedures. From 2010 to 2020, Afghanistan consistently ranked low on the Transparency International Corruption Perceptions Index. The country’s lowest score was 8 out of 100 in 2012-2013, while its highest was 19 in 2020. By comparison, in 2020, Denmark and New Zealand, the top-ranking countries, scored 88 out of 100.

The second round of the World Bank’s assessment of the business environment in Afghanistan under the Taliban, conducted in 2022, showed that less than 10% of the surveyed firms made unofficial payments since August 2021. Before that, 82% of the surveyed firms paid bribes. Transparency International even recognized this success. In its rating, the organization raised Afghanistan’s indicator to 24, which allowed it to take 150th place out of 180 countries.

The Taliban quickly restored the volume of tax and customs duties collected to the level of the Ashraf Ghani government and received $2 billion by the end of 2022.

The fourth key to success involves effectively utilizing diplomatic resources to maintain solid foreign trade relations with neighboring and regional countries. This helped prevent job losses in some sectors that rely on exporting goods. In 2022, trade with other countries was $6.3 billion, down from $9.1 billion in 2020. Despite this, the Taliban managed to trade quite successfully with countries in Central Asia, especially Uzbekistan, Turkmenistan, and Kazakhstan. In the first five months of the current year (since March 21, 2024), Afghanistan traded $684 million with these neighboring countries.

The fifth key factor in addressing the socio-economic challenges of 2021 was international aid. It played a significant role in preventing a large-scale humanitarian crisis that the Taliban would have been unable to manage independently. For instance, the Asian Development Bank provided $2 billion to support Afghanistan in 2022. It’s interesting to note that the United States, which was at war with the Taliban not long ago, also made a significant contribution. Since August 2021, the U.S. has provided nearly $2.1 billion in humanitarian funding, including more than $1.5 billion through USAID.

Photo: BLANKSPOT

Development facing obstacles

Despite notable progress, the Taliban government was unable to effectively address all the economic challenges that arose before and after August 2021. Unemployment remains a critical issue, with over 500,000 Afghans losing their jobs as of January 2022, according to the UN International Labor Organization. It is clear that creating a large number of jobs in such a small economy overnight is impossible.

The ongoing expulsion of Afghan refugees from Pakistan and Iran further complicates the situation. Afghan officials have reported that more than 400,000 refugees have been forcibly returned to their homeland since the beginning of 2024, with approximately 75% originating from Pakistan. Islamabad and Tehran claim they are only deporting those without the proper documents.

Challenges persist with conducting both local and international transactions in Afghanistan. This hinders the potential of the country’s private sector and leads businesses to depend on the medieval financial system of “hawala.”

Another obstacle to entrepreneurship is the population’s low purchasing power. Afghan business owners acknowledge that they can import any goods, but the country lacks a sufficient middle class of consumers who can afford them.  

Afghan business representatives, according to World Bank surveys, have emphasized the necessity for enhanced skills among government employees and better handling of concerns raised by entrepreneurs.Transparency International’s latest assessments on corruption have also raised concerns. In 2023, Afghanistan scored 20 points in the Corruption Perceptions Index, dropping 12 places from 2022 to 162nd place out of 180.

Afghanistan’s economy continues to face a structural challenge as exports consistently fall behind imports. In 2023, the foreign trade deficit rose to $5.9 billion, up from $4.4 billion in 2022. This lasting issue highlights Afghanistan’s struggle to produce high-value modern goods.

The interim government is meritorious in looking for ways to solve problems and create conditions for the second stage of economic reforms. Currently, the focus is on large projects that can generate millions of jobs and increase Afghans’ purchasing power, with priority given to several.

First, the current focus is developing agriculture, irrigation, and hydropower. The construction of the Kushtepa Canal, which originates from the Amu Darya River, is noteworthy among the ongoing projects. This canal is anticipated to provide irrigation to over 500 thousand hectares of land in the northern provinces of Balkh, Jowzjan, and Faryab. This project aims to create many job opportunities, increase food production and exports, and boost the cotton supply to Pakistan, China, Türkiye, and Uzbekistan markets. Moreover, there are plans to build a set of three dams and power plants with a combined capacity of 700 MW along the Kunar River, with Chinese companies participating in the construction process.

Secondly, the Taliban’s attention is focused on the development of mineral resources, as the country holds significant natural resources that have not yet been fully utilized in the global economy. Currently, the estimated value of natural resources exceeds $ 1 trillion. Among the discovered reserves, there are world-class deposits, such as the iron ore “Hajigak” and the copper ore “Mes Aynak”. The country also boasts deposits of coal, gold, silver, and other valuable metals, as well as lithium, rare earth metals, precious and semi-precious stones, marble, oil, and natural gas. The interim government is actively finalizing agreements with both Afghan and foreign companies for the development of these resources. According to the Ministry of Mining and Petroleum, local companies have already invested 10 billion Afghanis (about $147.6 million), and investors from China, Iran, Türkiye, and Qatar have contributed $7 billion. The mining industry currently provides income for 150,000 Afghans.

Some projects are already generating revenue for the budget. For example, the launch of an enterprise in 2023 by the Chinese company Xinjiang Central Asia Petroleum and Gas Company (CAPEIC) based on a 25-year contract for oil production in Northern Afghanistan allowed the local treasury to receive $26 million. Coal exports also became a major source of income, bringing in $174 million to the budget in 2023. Revenues from the sale of coal, primarily from the Balkhab coal basin, are considered by Kabul as a source of financing for constructing the Kushtepa Canal.

There are high expectations for the development of Mes Aynak, the world’s largest undeveloped copper deposit located in Logar Province, by China Metallurgical Group Corporation (MCC). According to American geologists, the copper deposits are estimated to be worth $50 billion. Negotiations are also underway with Chinese businesses to develop promising lithium deposits. It is well-known that China is a leader in producing and exporting electric vehicles powered by lithium-ion batteries, making it strategically important for China to secure access to lithium deposits globally.

Thirdly, the Taliban does not forget about developing road and transport infrastructure. According to the Ministry of Public Works, a road reconstruction program has been launched, including 109 projects, 85 of which have already been completed, and 24 are under implementation. Among them are the reconstruction of the Salang Pass, the Kabul-Kandahar highway, the second lane of the Kabul-Jalalabad, Kabul-Logar, Kabul-Ghazni highways, and the Afghan ring road. It is also planned to build a second tunnel on the Salang Pass and the Trans-Afghan Railway, connecting Central and South Asia, allowing Afghanistan to earn money on cargo transit.

Stable, yet fragile

In one way or another, the Taliban has succeeded in stabilizing Afghanistan’s domestic economy and preventing a large-scale economic, humanitarian, and political crisis. Building on this fragile stability, the government strives to initiate the next phase of its domestic economic policy, which will profoundly impact Afghanistan’s modern history.

If the Taliban succeeds in turning the mining industry into the main driver of economic growth, it will provide an additional boost to the development of many sectors directly or indirectly related to mining and increase consumer demand.

As long as the government continues to progress in tackling corruption and improving tax collection, it will be able to invest more in development. This will begin the third phase of domestic economic reforms, focusing on establishing a manufacturing sector and producing high-value products.

Of course, implementing the second and especially the third stages of domestic economic policy will require measures that go far beyond pure economics. Thus, the Taliban needs to revive the banking sector as soon as possible and regain access to the international financial system, loans, and investments. However, to achieve this, it will not be enough to develop ties only with neighboring countries and new centers of power such as China and Russia. Normalizing relations with the Greater West under the representation of the USA, EU, Japan, and South Korea is essential.

In this context, serious diplomatic and geopolitical intrigue arises. Will the West acknowledge the established realities in Afghanistan, as encapsulated in the notion that “there is no alternative to the Taliban today,” or will it continue to insist on the creation of an inclusive government, improving the situation with human rights and freedom of speech? Answering this question is challenging at present, given the rapidly evolving dynamics within Afghanistan and on the global stage, which frequently disrupt conventional maneuvers and decision-making rationale. Therefore, the ambiguity surrounding Afghanistan and the domestic economic policies of the Taliban is expected to endure in the coming years, thereby retaining the focus of scrutiny for both experts and policymakers.

Rustam Mahmudov

Rustam Mahmudov

Telecommunications department correspondent. I write about gadgets, electrical equipment and marketplaces.