- The future of Afghanistan’s local economy looks uncertain, according to its ex-central bank chief.
- The Taliban “had sufficient revenues to run an insurgency,” not a government, said Ajmal Ahmady.
- Local businesses could be hit as inflation grows and cash dries up.
- See more stories on Insider’s business page.
A “triple shock” to Afghanistan’s economy could leave local businesses scrambling for a future as the country moves toward an economic crisis, says its most recent central bank chief.
First, there was a regional drought. Then the COVID-19 pandemic. And now the Taliban takeover, Ajmal Ahmady said at an event hosted by the Atlantic Council on Friday. He said the Taliban “had sufficient revenues to run an insurgency but not to run a government.”
As the Taliban began the difficult task of taking over a broken and broke government, former insiders and outside observers said the local economy was perhaps days away from ruin.
The central bank was running low on funds, without support or access to its reserves from outside the country. The local currency, the afghani, was at risk of a sharp decline. And locals were struggling to figure out how local Taliban rules would affect their businesses.
“I don’t want to say economic collapse, but I think it’s going to be [an] extremely challenging or difficult economic situation,” Ahmady said, predicting that GDP would shrink by 10-20%.
The economy in Afghanistan is cash-based, especially for local businesses. As citizens find it increasingly difficult to access cash and savings, these businesses are expected to suffer.
Joseph Fleming, a managing director at Straife, which provides risk-advisory services, is a former lobbyist for Pakistan who has done business in Afghanistan and the surrounding region.
He told Insider: “Certainly, local businesses that relied on services to NGOs and direct foreign aid recipients will likely be affected, but the average local business will be far more affected by the ongoing collapse of the afghani.”
Perhaps adding to the sting were the reports that former President Mohammad Ashraf Ghani had taken millions of dollars in government funds when he fled the city last month. Ghani this week denied the reports, saying: “My wife and I have been scrupulous in our personal finances.”
But he also acknowledged that Afghanistan had long struggled with officials who took their own share of government funds. Most of which came from foreign governments or international aid groups.
“Corruption is a plague that has crippled our country for decades and fighting corruption has been a central focus of my efforts as president,” he said in a message posted on Twitter. “I inherited a monster that could not easily or quickly be defeated.”
From an international perspective, it seemed clear that China had an interest in doing business with the Taliban, said Peter C. Earle, of the American Institute of Economic Research.
It was likely that Beijing’s acceptance of the Taliban – setting it apart in the international community – would amount to a first step toward helping the Taliban mine the “considerable mineral wealth” in the Afghani mountains and elsewhere, he said.
The country has a range of natural resources, from gold and oil to rare elements like lithium. But unlocking the wealth of those resources could take a long time.
“Once a vein or lode worth mining is discovered, the retrieval process is extremely capital intensive and may take even more years to become productive,” he said. “If the Taliban is hostile to outsiders and/or shows an ambivalence toward property rights, the pool of interested mining and excavation partners will rapidly dwindle.”
Fleming said the US withdrawal may have created “the deal of a lifetime” for China.
But for local businesses, the future was still hazy. The local currency will also be hard to obtain, partly because afghani printing facilities are limited, Ahmady said.
“Inflation will definitely rise,” he added.
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