While the world’s attention is focussed on Afghanistan and the disconcerting upheavals, its economic situation is a cause of greater concern. Economic sustenance over the last decade came from the payments provided by donors. This allowed Afghanistan to function and its economic activities to flourish. Large funding that the US and other global partners spent in Afghanistan made a difference, though, there are serious allegations of corruption on their use.

Between 2016-2020 international donors supported Afghanistan with $15 billion in assistance. Grant funds supported 75 per cent of the public expenditure. GDP per capita increased from $877 in 2002 to $2,087 in 2020. At the Geneva Conference in November 2020, pledges decreased to $3 billion annually till 2024 provided there was peace and respect for democratic rights. This applied to the outgoing regime in Afghanistan. Projections already show that the economy could contract up to 7 per cent in 2021.

Afghanistan’s global trade is about $7 billion, of which $6 billion were imports. Its $1 billion exports, mainly fruits, nuts and vegetable-related products, largely went to India. India absorbed 47 per cent of Afghan exports, mainly the dry fruit trade. This was a $510 million private sector trade, which went overland through Pakistan. Now that Pakistan has closed the border with Afghanistan, this is scuppered. It will directly impact the fruit growers and traders, causing further hardship in difficult times.

Trade with India

India-Afghanistan trade was $1.4 billion till March 2021. It was lower than the $1.52 billion in 2019-20. Indian exports were $820.6 million last year. India, Pakistan, China, Turkey and the UAE are the top five export partners. Iran, China, Pakistan, the US and Turkmenistan are the leading exporters into Afghanistan. India makes the top trade partner because of its imports which are nearly half of Kabul’s total exports.

Afghanistan received FDI of $200 million between 2017-2019. By 2019, FDI severely tapered. Both FDI and trade are too small for Afghanistan to benefit from globalisation. India, since 2003, offered concessional access to 38 products of interest to Afghanistan which increased its exports. This support to Afghanistan’s economy through large imports by India is not well noted.

India contributed $3 billion for the development of Afghanistan. These were people-friendly projects, delivered in a timely and efficient manner. The 42 MW Salma Friendship dam, the parliament building, the, children’s hospital, the 218-km Zaranj-Delaram highway which proved connectivity to Iran, power infrastructure such as the 220kV DC transmission line from Pul-e-Khumri, capital of Baghlan province to the north of Kabul, are among the 400 projects India undertook in all 34 provinces. The proposed Shahtoot dam will bring water to Kabul. At the pledging conference, India promised 100 more community development projects. These will directly benefit the people of Afghanistan.

The temporary closure of the Indian Embassy and the departure of all Indians due to the security situation in Afghanistan have halted these. It remains to be seen if the new dispensation in Kabul. when it emerges, will see India as a security threat or a socio-economic partner.

Afghanistan remained a donor-dependent economy. Since most of the donors coexisted along with the NATO forces, their economic support is expected to be curtailed. The US has already reported to have stopped $9.5 billion of assets while Germany and others announced the suspension of assistance. The impact on poverty rates will be high, squeezing the budget further.

The fall of the government in Kabul, and the transition period will accentuate these figures. The Taliban is not only making normal Afghans feel uneasy, the major donors are hastening to cut their losses. This raises serious questions on Afghanistan's economy.

China to the rescue?

China is touted as the probable saviour of Afghanistan. It has a 14 per cent share in exports to Afghanistan. It imports less than 4 per cent of Kabul’s exports due to lack of connectivity and market. China’s investment in Afghanistan is about $4.4 billion. It has had the rights since 2008 to Mes Aynak copper mine. The $2.9 billion 30-year lease has not developed yet. It may start now. China established a railway from China to Hairatan, Northern Afghanistan in 2016. It can link to Uzbekistan.

There are apprehensions that now China will have a free run and may compensate for the loss of financial stability in Afghanistan. Is this really likely? China is mainly using BRI funds to further its agenda in different countries, including in Central Asia. Its ongoing experience with the BRI flagship, the CPEC in Pakistan will perhaps provide lessons for it. Pakistan is currently a better governed country than Afghanistan. Yet the Chinese CPEC has many problems, it would be foolhardy to start a new project in Afghanistan, given its lower levels of governance and stability.

The ability of any new administration to function will depend on paying their security forces, administration and staff. Where precisely these funds will come from remains a strategic question. For its economic well-being the new administration may may be better off in trying to be a participant in the international comity of nations than uphold its perceived sense of isolated values backed by a failing Pakistani state as its ally.

The writer is a former Ambassador to Germany

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