The Afghan Military: Foreign Aid Or Independence?

Afghanistan's economy has been heavily reliant on foreign aid, with 43% of its GDP coming from foreign aid and 75% of public spending being funded by foreign aid grants. The country's economy has been in a fragile state since the Taliban takeover, with the U.S. and other countries freezing assets and halting foreign aid to prevent money from flowing into the hands of the Taliban. This has had a devastating impact on the Afghan people, causing a financial shockwave and pushing the economy to the brink of collapse.

The freezing of assets and foreign aid has made it difficult for aid organizations to operate and deliver much-needed humanitarian assistance. The U.S. and other countries have provided some humanitarian aid, but it is not sufficient to offset the total breakdown of public services. The situation has been further exacerbated by the Taliban's policies, which have restricted the rights and opportunities of women and girls.

The future of Afghanistan's economy remains uncertain. While there have been some efforts to resume aid, such as the U.S. providing nearly $327 million in additional humanitarian assistance, the Taliban's failure to uphold their promises and their treatment of women and girls continue to be a concern for the international community.

The US has frozen billions of dollars in Afghan central bank reserves, causing a financial crisis in the country

The Freezing of Afghan Central Bank Reserves

The US government froze nearly $9.5 billion in assets belonging to the Afghan central bank in August 2021. The decision was made by Treasury Secretary Janet Yellen and officials in the Treasury's Office of Foreign Assets Control, with the State Department and White House also involved. The Biden administration was attempting to keep the money out of the hands of the Taliban, which remains on the Treasury Department's sanctions designation list.

The Impact of the Freeze

The freezing of the national reserves and the drying up of all types of aid to the country have sent financial shockwaves through Afghanistan, and the economy is on the brink of collapse. The liquidity crisis has made it extremely challenging for humanitarian aid organisations to operate, and for ordinary Afghans to put food on the table.

The US Position

The Biden administration moved to establish a foundation to begin spending $3.5 billion to benefit Afghans, using funds that President Biden had frozen and seized from Afghanistan's central bank. The US government announced the creation of a foundation based in Switzerland that will use the money to help address the unfolding economic and humanitarian crisis in Afghanistan—while keeping the funds out of the hands of the Taliban.

The Way Forward

The United Nations Secretary General, Antonio Guterres, warned that this was a "make or break moment" for Afghanistan, and urged the world to inject liquidity into the Afghan economy to prevent its collapse, while avoiding channelling cash through the Taliban. The US has provided nearly $327 million in additional humanitarian assistance to help the people of Afghanistan, bringing the total US humanitarian assistance in Afghanistan and neighbouring countries to more than $1.1 billion since the Taliban takeover.

The Taliban are taxing and controlling the distribution of foreign aid, which makes up a large part of Afghanistan's GDP

Foreign aid has been a critical component of Afghanistan's economy, with the World Bank reporting that 43% of Afghanistan's GDP came from foreign aid before the Taliban takeover. The country's economy has been in crisis since the Taliban took control, with the World Bank reporting a 20.7% GDP contraction in 2021 and a further 6.2% contraction in 2022.

The Taliban has historically been adept at generating revenue through criminal activities, such as the cultivation of poppies for heroin and opium production, as well as extortion and kidnapping. However, with the Taliban now in power, they have had to rely more heavily on foreign aid, which makes up a large part of Afghanistan's GDP.

The Taliban has been accused of infiltrating and diverting foreign aid for profit, with a report by the U.S. Institute of Peace stating that the Taliban views the UN system as a revenue stream to be monopolized and controlled. The report also highlights the Taliban's ability to generate income through taxation and basic budget management, with estimates placing their annual revenue at around $2 billion.

The Taliban's control of foreign aid distribution has significant implications for the country's future. With the Taliban's oppressive policies and lack of inclusivity in governance, there are concerns about the effective utilization of foreign aid and the potential for aid to be diverted for personal gain.

The Taliban's takeover has caused a breakdown of public services, with hospitals and schools unable to function without foreign aid

The Taliban's takeover of Afghanistan in August 2021 has had dire consequences for the Afghan people, causing a breakdown of public services, with hospitals and schools unable to function without foreign aid.

Under the previous government, 43% of Afghanistan's GDP came from foreign aid, and about 75% of public spending was funded by foreign aid grants. The loss of foreign development aid and the Taliban's rights violations have caused a catastrophic health crisis in Afghanistan, with women and girls disproportionately affected. The Taliban's harsh measures, including restrictions on women's freedom of movement and employment, have severely limited their access to health services. The group has also banned girls from attending school beyond the sixth grade and prohibited women from attending university, threatening the educational future of Afghanistan's 19.5 million children.

The Taliban's takeover has also disrupted the country's economy, driving millions into poverty and hunger. Sanctions against the Taliban rulers, a halt on bank transfers, and frozen billions in Afghanistan's currency reserves have cut off access to global institutions and external funding, causing the economy to be on the brink of collapse. The asset and aid freezes were intended to prevent money from flowing to the Taliban, but they have had far-reaching consequences for the Afghan people.

The breakdown of public services is evident in the health sector, where hospitals struggle to provide basic health services due to a lack of funding and resources. The World Health Organization reported that only 17% of health facilities previously supported by the World Bank were fully functional as of September 22, 2021. The situation is similarly dire in the education sector, with schools lacking the necessary resources to operate.

The impact of the Taliban's takeover extends beyond the direct loss of foreign aid. The group's restrictions on civil society and aid organizations have further hindered the delivery of humanitarian assistance. The Taliban's ban on female aid workers, for example, has forced some aid organizations to pause vital programming, severing assistance to millions of Afghans.

The international community's response to the Taliban's takeover has been mixed. While some countries and organizations have provided humanitarian aid, others have paused or halted development aid, citing concerns about the Taliban's treatment of women and human rights violations. The United Nations Secretary-General, Antonio Guterres, has warned that this is a "make or break moment" for Afghanistan, calling on the world to inject liquidity into the Afghan economy while ensuring that cash does not flow through the Taliban.

The US and other countries have pledged millions of dollars in humanitarian aid to Afghanistan, but development aid remains frozen

The US has been the largest donor of humanitarian assistance to Afghanistan since the Taliban takeover in August 2021. The US has provided over $1.1 billion in humanitarian assistance to Afghanistan since August 2021, including nearly $812 million from USAID and nearly $320 million from the State Department. The US has also provided $12 million in additional funding to respond to the devastating earthquake in Afghanistan in October 2023.

However, development aid to Afghanistan remains frozen. After the Taliban takeover, the World Bank, the International Monetary Fund, the European Union, Germany, and Finland suspended development funding to Afghanistan. The US blocked access to billions of dollars in Afghan central bank reserves held in the US and froze Afghan government assets.

The freezing of assets and international aid was intended to prevent the flow of money to the Taliban. However, it has also had significant negative consequences for the Afghan people, including contributing to a potential humanitarian disaster. The freezing of assets and aid has led to a severe economic crisis in Afghanistan, with the economy contracting by over 20% in 2021 and 6.2% in 2022. The lack of access to foreign funds has also made it difficult for the interim Taliban administration to provide basic services and has resulted in high unemployment and a dysfunctional banking sector.

There are concerns about the policies of the interim Taliban administration, including restrictions imposed on women and girls. As a result, the international community, including the World Bank, has focused on providing humanitarian support and off-budget support for basic service delivery and livelihoods. The World Bank has provided over $1.7 billion in support to the Afghan people since August 2021 through the Afghanistan Resilience Trust Fund.

The Taliban's treatment of women and girls is a major obstacle to the resumption of development aid

Since the Taliban took control of Afghanistan in 2021, they have imposed restrictions on the rights of women and girls, limiting their freedom of movement, education, employment, and participation in public life. These restrictions have had a devastating impact on Afghan women and girls, rolling back 20 years of advancements and causing a humanitarian crisis. The Taliban's treatment of women and girls is a significant obstacle to the resumption of development aid, as it raises concerns about the protection of human rights and the safety of aid workers.

The Taliban have banned girls from attending school beyond the sixth grade and prohibited women from working in most sectors, except for primary education and healthcare. They have also imposed restrictions on women's dress and movement, requiring them to wear burqas and be accompanied by a male chaperone when outside the home. These restrictions have limited women's access to education, healthcare, and economic opportunities, and have led to social isolation and mental health issues.

The Taliban's policies have also disrupted the delivery of humanitarian aid, as female aid workers play a critical role in needs assessment, planning, and implementing the response. The ban on female aid workers has prevented aid organizations from reaching vulnerable communities, particularly women and girls. It has also hindered the resumption of development aid, as donors are reluctant to provide assistance that may indirectly support the Taliban regime.

The international community has condemned the Taliban's treatment of women and girls, with UN experts stating that it may amount to "gender apartheid" and "gender persecution," which is a crime against humanity. There have been calls for investigations and prosecutions under international law, and for the Taliban to respect and restore women's human rights.

The resumption of development aid is crucial for addressing the humanitarian crisis and promoting long-term social change in Afghanistan. However, donors must carefully navigate the challenging political and security situation, balancing the need to support the Afghan people without legitimizing the Taliban regime. Flexible and creative approaches are needed to ensure that aid reaches those who need it most, especially women and girls.

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