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Afghanistan’s bleak economy

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Economic outlook even more pathetic now, as future financial assistance is under a dark of uncertainty. Afghanistan does have large mineral resources, but the political situation has restrained their exploitation. The aid dependency is astonishing. In 2019, World Bank figures depicts development aid was equivalent to 22 percent of gross national income. That is a high figure, but it is down a long way from the 49 percent the World Bank mentioned years earlier. Other aid donors are sure to be watching advancements at close quarters. The weakness the World Bank refers to is ascertained by the very high levels of spending on security before the Taliban takeover like 29 percent of GDP, compared with an average of 3 percent for low-income countries.
Security and severe problems with corruption are behind another continuous problem in Afghanistan for example very fragile foreign business investment. Based on United Nations data, there were no announcements in the last two years of new “Greenfield” investments, which involve a foreign business setting up an operation from, rub out.
Since 2014, there have been a total of four countries. Take two other countries from the South Asia region, both with somewhat with less populations, Nepal has controlled 10 times as many and Sri Lanka 50 times more over the same period. The World Bank describes Afghanistan’s private sector as restricted. Employment is focused in low-productivity agriculture for instance about 60 percent of households get some income from cultivation.
Afghanistan also has a large illegal economy. There is black market mining and, truly, opium production and connected activities such as smuggling. The drugs trade has been a significant source of revenue for the Taliban. The Afghan economy has grown since the US invasion in the period of 2001.
The figures for Afghanistan are not trustworthy, and they show, based on the World Bank, is average annual growth of above 9ppercent in the decade from 2003. After that, it declined which may well show the lower levels of aid to an average rate of 2.5 percent between 2015 and 2020.
The drugs trade has been a substantial source of revenue for the Taliban. Afghanistan does have phenomenal natural resources, which would, in the regard of better security and less corruption, is attractive to international economic and business. There are several kinds of mineral available in huge quantities, including copper, cobalt, and coal and iron ore.
There is also oil and gas and valuable stones. One with specifically noticeable possible is lithium, a metal that is used in batteries for mobile instruments and electric cars. The latter application is going to be particularly important as the motor industry makes the transition to zero-carbon forms of transport.
There have been many reports that China is interested to be involved. It seems to have better relations with the Taliban than Western powers do, so may have benefits if the new regime does hold on to power. Chinese firms did win contracts to develop operations in copper and oil. But little positive results are to be anticipated that China would be interested. The opportunities appear to be very phenomenal and the two countries do share a short border.
No doubt any Chinese agency official or a business or commerce would want to be confident of succeeding. They will be unwilling to commit unless they feel the security and corruption problems will be well enough limited to enable them to derive valuable quantities of these industrial commodities.
Another important factor likely to affect the economy is women’s employment. In the past ten years the percentage of the female population over 15 years of age in employment has risen surprisingly though at 22 percent in 2019 it was still low by international standards. Under the Taliban the change is likely to be reversed, further deteriorating economic future .In the immediate future, there is also a great deal of uncertainty about financial easiness. People have been trying to withdraw their money from the banks.
The Pakistan-based Afghan Islamic Press mentioned a Taliban spokesman as offering promise to bank owners, money changers, traders and shopkeepers that their lives and property would be safeguarded.
That there are even troubles about the physical safety of financial operators is worrying. They do need to be confident if Afghanistan’s financial system is to function. But it also needs customers to feel their money is safe. That is difficult to happen.
China seeks stability in Afghanistan before economic dialogue. As is always the case, the IMF is guided by the views of the international community,” IMF spokesperson Gerry Rice said in a statement Wednesday. There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot have the Special Drawing Rights or other IMF resources.
The 18 members of the United States Congress urged US Treasury Secretary in a letter (PDF) to make sure that half a billion dollars in unconditional liquidity does not go to a government with a history of supporting terrorist actions against the United States and her allies.
It’s just the latest development in efforts to keep Afghanistan’s assets out of Taliban hands. Battling the Afghanistan economy the country’s economy is built by weakness and aid dependence. The World Bank says that, with about 75 percent of public spending funded by grants.
That aid was already established to decline by around 20 percent from 2016-2020 levels year after several large donors provided only single-year pledges during the 2020 Afghanistan Conference, with future support made conditional upon the government achieving quickened advancement in efforts to corruption, lessen poverty, and ongoing peace talks.
Presently, with the Taliban in charge, it’s uncertain whether any of those conditions will be met; potentially further reducing the foreign aid the country relies on including in the form of SDRs. An SDR is an international reserve asset created by the IMF from a heap of currencies including the US dollar, Japanese yen, Chinese yuan, the euro and the British pound. While not an official currency itself, the SDR is possibly an artificial currency that IMF member states can exchange for freely usable hard currencies like US dollars.
Countries can exchange their SDRs for those freely usable currencies at a fixed exchange rate, which changes daily and is seen on the IMF’s website.