Taliban And Its effect on Pakistan’s and Afghanistan's Economy

Author: Awais Kayani
Taliban And Its effect on Pakistan’s and Afghanistan's Economy

Pakistan’s economy is now in the eyes of many. The fragile economy that is in large public debt needs a desperate win and support from this situation, rather than being the next target by the Taliban’s spillovers.

So, how will Pakistan face such a formidable crisis, where cheering the Taliban or the Afghanistan news claiming government could secure Pakistan a much-needed safety? If not much effect, could it have on the economy of Pakistan, Afghanistan, and the World?

This article covers the following points:

  • The Economy of Pakistan
  • The Afghanistan Crisis Spreads
  • The Economy of Afghanistan
  • Conclusion

The Economy of Pakistan

The much-debated economy needs room to breathe in. The Financial Action Task Force, the global anti-money laundering body, has kept Pakistan in the “Grey List” which is much likely not what Pakistan wants to stay in for long.

Since then, the Global X MSCI Pakistan exchange-traded fund (ticker: PAK) has lost half of its value. A post-mortem investigation of Islamabad's Taliban financing may kill any hope of eradicating this plague.

It may also have an impact on future installments of a $6 billion aid agreement inked by Pakistan with the International Monetary Fund two years ago.

Pakistan’s political situation doesn’t affect their economic scenario that much.

The other sector that’s helping the Pakistan economy improve is China Pakistan Economic Corridor CPEC. The budget for CPEC is set for $62 Billion. The one belt one road initiative helps the Industries, Real Estate, Construction, Imports/Exports, and other Businesses. Such a multi-billion Dollar project would stabilize the inflow of cash into the economy. China would most likely consider Afghanistan if there's any monetary gain from it.

Pakistan had already paid its price in multiple dimensions. Be it the refugees of 1.4 million, the sacrifice of over 270 thousand soldiers and citizens, or the following financial crisis of millions of dollars that Pakistan has paid.

Afghanistan News may quote what Imran Khan spoke on this occasion in the National Assembly,

Now we are not going to be part of the war. We are not partners of peace. The only way to move forward was dialogue, and the USA didn’t listen to us, and now they are forced to leave.

A military solution was not even an option. History keeps telling us that, yet we fought with the Taliban for over 20 years, and spent Taxpayers’ money over the NATO forces.

We got sanctioned, and our economy was crippled even more. Were we not allies?


The statements were applauded by the Ministers and stakeholders, as Pakistan should not scuffle on the turf and burning stove set by the USA in Afghanistan. The last thing Pakistan needs is another refugee crisis and the Taliban moving over towards Pakistan in their attempt to put turmoil once again.

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The Afghanistan Crisis

The bullying of one giant separatist has now turned the tables against the US. With Afghanistan news claiming the government to fall, the walls that were kept so high, now hold no meaning. The Taliban are now inside that same wall.

The refugees are the biggest deal when it comes to Afghanistan right now, we have an idea as to how threatening the situation is, and leaving Afghanistan is one thing they can hopefully commit to right now.

This crisis won’t stay under the belt of the Afghanistan government. It is more likely to spread the flames towards the north where landlocked countries such as Tajikistan, Turkmenistan, Azerbaijan exists; the western country of Iran, and in East, Pakistan. Not only were these countries trading with Afghanistan, but countries like Iran also depended on Afghanistan since the US imposed sanctions on it. Other countries use Afghanistan than Iran/Pakistan to connect to sea routes. Pakistan had open trade with Afghanistan and Afghanistan finds Pakistani Markets “Favorable” for the economy.

The US sanctions will put more pressure on Afghanistan’s new ruler, as the system is new and mostly focusing on releasing the economic pressure it is under right. Afghanistan leaving and the refugee crisis being created puts a dent in the GDP and human resources of Afghanistan.

With Third consecutive drought, and poverty. Afghanistan faces a stiff wind and sand in its shoes, making it harder and harder for them to even walk forward.

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The Economy of Afghanistan and The World

The 15 August was one of the darkest times for Afghanistan. Long queues and abandoned government banks paved the way for poverty. As the bank closed, atm was drained and cash flow became stagnant, people are now left with no cash left to spend. The rents, the purchase of food, and other necessary items are now out of anyone’s reach.

The currency is now worthless after the banks have frozen the reserves. The reserves were sustaining a trembling economy.

This didn’t happen all of a sudden. The banks knew what could go wrong if the reserves were left at the Taliban’s mercy. Thus, the reserves were frozen.

This also leads to the fact that Afghanistan is an Aid-dependent country. Aid-dependent countries are those that rely mostly on foreign aid for up to 10%.

40% of the Afghanistan GDP is dependent on foreign aid.

The Foreign reserve bank Da Afghanistan Bank and the central bank froze their reserves. The reserves amount to $9.1 Billion, most of the amount is held in the USA. A senior retired president of Da Afghanistan Bank (DAB), Ajmal Ahmady claimed

“We can say the accessible funds to the Taliban are perhaps 0.1-0.2% of Afghanistan's total international reserves”

The foreign aid and the aid from the IMF were also halted as soon as the Taliban approached the government and laid hands-on Kabul.

The Taliban could affect the revenues by mining opium, heroin, and trading through routes illegally, although it can be said they cannot operate such schematics at a government level.

"It doesn't matter if you have Afghanistan currency, because that money has lost most of its value. And the central bank, the resources, the assets that helped to sustain the Afghanistan currency have been frozen."

Conclusion

The sanctions, the poverty, the bank freezing, and the hopeless refugee crisis, are turning out to be a storm that no one wants to be under. The newer management is making sure to keep an eye on the economy but this is more than what they can chew.

Pakistan is on the verge of catering to the financial crisis and already is home to 1.4 million refugees. Any more the burden from Afghanistan could mess up the goals and budget it had planned. The scenario may turn its back and bite Pakistan if they move out of the line and follow the failures of the US actions in Afghanistan. More certainly, it does not need another Taliban war on its turf.

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