**Debt And Default In Afghanistan: Navigating Financial Challenges**

Afghanistan's economy is ranked 155th in the world in terms of nominal gross domestic product (GDP) and 137th in terms of purchasing power parity (PPP). The country's total external debt is $8 billion as of 2024, with a national debt of $1.52 billion in 2020. Afghanistan's economic outlook remains uncertain, with the threat of stagnation looming until at least 2025. The country's long-term growth prospects depend on transitioning from an international aid-reliant and consumption-driven economy to a private sector-led economy that leverages its inherent strengths in agriculture and extractive sectors.

Afghanistan's national debt in 2020 was 1.52 billion US dollars

The national debt of Afghanistan has been increasing since 2010, when it was 1,180 million dollars. In 2020, the debt reached 7.4% of Afghanistan's GDP, a rise of 1.27% from 2019. In per capita terms, the debt in 2020 was $45 per inhabitant, up from $36 in 2019.

The economic outlook for Afghanistan remains uncertain, with the country facing potential stagnation until at least 2025. The absence of GDP growth, coupled with declining external financing avenues, paints a bleak picture. Structural deficiencies in the private sector and waning international support are expected to hinder progress.

Afghanistan's long-term growth prospects rely on a shift from reliance on international aid and consumption-driven growth to a private sector-led economy that capitalizes on the country's inherent strengths, particularly in agriculture and extractive sectors. Strategic investments in irrigation infrastructure, land tenure security, research, and market access are needed to enhance agricultural productivity and create jobs.

The World Bank has provided over $1.7 billion in support to Afghanistan since August 2021

The World Bank has been providing support to Afghanistan since August 2021 through the Afghanistan Resilience Trust Fund (ARTF) financing. The World Bank has provided more than $1.7 billion in support to the Afghan people since August 2021. This support has been delivered through three approaches, with the latest approach being implemented in February 2024.

Approach 1.0

Under this approach, the World Bank provided $280 million in funds from the ARTF to UNICEF and the World Food Program. This funding was used for humanitarian gap financing to meet emergency health and nutrition needs.

Approach 2.0

The World Bank and ARTF donors have been supporting the Afghan people with critical health, education, food security, livelihoods, and water services since early 2022. The support has been provided at a national scale, with over $1.3 billion in funds from the ARTF provided to select United Nations agencies and international NGOs. These funds have remained outside the systems and control of the Interim Taliban Administration (ITA) and have focused on service delivery for women and girls.

Approach 3.0

The World Bank is now making IDA funds available to complement ARTF financing and to continue supporting the Afghan people with basic services. IDA grants will be provided directly to United Nations agencies and other public international organizations. The World Bank coordinates closely with other development partners to ensure complementary financing for these critical activities. Approach 3.0 will also support employment opportunities by promoting income-generating activities, especially in the area of microfinance, and by facilitating the participation of the private sector in the delivery of aid.

In addition to the above approaches, the World Bank has also approved three emergency projects for Afghanistan, totaling $793 million. These projects will provide urgent and essential food, livelihood, and health services to the Afghan people and will be implemented through United Nations agencies and non-governmental organizations.

The Biden administration froze about $9 billion in assets belonging to the DAB

The frozen assets include a significant portion held in accounts with the New York Federal Reserve and other US-based financial institutions. The Biden administration's objective was to block the Taliban's access to these funds due to their presence on the Treasury Department's sanctions designation list. This action, however, had broader implications for Afghanistan's economy and humanitarian situation.

The freezing of DAB assets contributed to a sharp contraction and reconfiguration of the Afghan economy. The loss of access to international banking systems and offshore foreign exchange reserves further exacerbated the economic challenges. The Afghan currency, the Afghani (AFN), experienced a record low, and the country faced disruptions to public services, investment confidence, and skilled labour migration.

Amid mounting criticism and a deteriorating humanitarian crisis, the Biden administration later released about $7 billion in frozen Afghan assets, with half designated for humanitarian aid for Afghanistan and the other half for American victims of terrorism, including relatives of 9/11. This decision was met with mixed reactions, with critics arguing that it could further strain Afghanistan's banking system and deepen the humanitarian crisis.

The release of the funds was intended to address the urgent needs of the Afghan people, but it also highlighted the complex legal and ethical considerations surrounding the distribution of Afghanistan's central bank assets.

Afghanistan's GDP per capita stands at $200 as of 2024

The Afghan economy faces significant challenges, with a high unemployment rate of over 23% and about half of the population living below the poverty line. The continuous war in the country has deterred business investors, and the recent reestablishment of the Taliban government led to a temporary suspension of international development aid, further exacerbating the economic situation.

However, there are also signs of resilience and potential for growth in Afghanistan's economy. The country's agricultural sector, including illicit opium production, provided some resilience in rural areas during the economic downturn. Additionally, the resumption of international humanitarian and basic service aid in late 2021 helped cushion the falling aggregate demand and supported some recovery in the private sector.

Afghanistan's long-term growth prospects rely on a shift from reliance on international aid and consumption-driven growth to a more resilient, private sector-led economy that capitalizes on its inherent strengths, particularly in the agricultural and extractive sectors. Strategic investments in irrigation infrastructure, land tenure security, research, and market access are necessary to enhance agricultural productivity and drive economic growth.

Despite the challenges, Afghanistan's GDP per capita of $200 in 2024 highlights the country's ongoing economic struggles and the need for sustainable solutions to improve its economic outlook.

The country's total external debt is $8 billion as of 2024

Afghanistan's total external debt is $8 billion as of 2024. This is a significant amount, especially when compared to the country's GDP, which is only $6.81 billion as of the same year. The country's external debt has been steadily increasing over the years, with the exception of a slight decline from 2018 to 2019. In 2019, Afghanistan's external debt was $2.66 billion, which increased to $3.04 billion in 2020, and further to $3.55 billion in 2021. The slight decline in 2022 to $3.39 billion could be attributed to various factors such as economic policies, international aid, or changes in trade patterns.

External debt refers to the debt owed by a country to non-residents, which can be repayable in currency, goods, or services. In the case of Afghanistan, the external debt includes public, publicly guaranteed, and private non-guaranteed long-term debt, as well as short-term debt. The short-term debt includes obligations with an original maturity of one year or less and interest arrears on long-term debt.

The external debt of Afghanistan has been a concern for the country's economic outlook. While the country has seen some improvements in its economy due to the influx of expatriates, the establishment of trade routes, and the expansion of agriculture, energy, and mining sectors, the high external debt could hinder future economic growth. Additionally, Afghanistan's economy is vulnerable to other factors such as political instability, natural disasters, and the impact of war.

To address the external debt and improve the economic prospects, Afghanistan has been seeking foreign investment and international aid. The World Bank and other development partners have provided support to the country, focusing on critical areas such as health, education, and livelihoods. However, the approach to providing aid has evolved over time, especially with concerns about the policies of the interim Taliban administration. The focus has shifted to providing humanitarian support and off-budget aid to ensure that funds reach the intended beneficiaries, particularly women and girls.

Overall, Afghanistan's total external debt of $8 billion as of 2024 is a critical aspect of the country's economic landscape, and managing this debt sustainably will be crucial for the country's long-term growth and development.

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