Editor in Chief: Moh. Reza Huwaida Friday, January 18th, 2019

Afghan Economy Dependent on Foreign Charity Dollars


Afghan Economy Dependent on Foreign Charity Dollars

Afghanistan economy has long been bifurcated into two separate spheres. One is the troubled formal economy, ravaged after decades of conflict, war and civil strife and held up together by infusion of billions of dollars in foreign aid and foreign military-related spending. The other is the black, illegal, informal, illicit and underground economy that is being fuelled by the proceeds of the drug trade and rampant corruption. The first one, the real and the formal economy is the one that the Afghan government and other governments and international institutions mean when they say for example, "let's help the economy of Afghanistan". This economy has long been near-dead; it has been put on life support all these years and since 2001 when the Taliban turbans ran away in search of their rabbit holes.

The second economy that is in existence parallel to the first one is the black economy; it is the murky cloak and dagger story where men in black, having siphoned off millions, stash them away in foreign banks or launder them back into the economy erecting stately mansions and sprawling townships. Unlike the real, formal economy that is on life support, this black economy has never been better; it is flourishing, thriving, all is well with it and its godfathers had never made it so rich. This black economy, of course, has been erected on the back of record export of opium and narcotics, illegal extraction and export of precious and semi-precious gems and stones and public corruption that results into hundreds of millions of dollars illegally earned in bribes, embezzlement and theft of others' money. Let us see the status of Afghan economy and its prospects for future.

Coming to the first one which is the formal and the real economy, available facts paint a grim picture of it. The CIA World Fact book puts this formal economy's Gross Domestic Product (GDP) based on Purchasing Power Parity at roughly15.6 billion dollars for the year 2010. This figure gives a per capita income of around 550 dollars per person per year. Adjusting this economic figure to the real world situation and after deducting other expenses, the share of every Afghan from the wealth of the country would come down to around 200 dollars per year. This is even lower than some of the poorest countries of the world in sub-Saharan Africa. Another problem is that this paltry sum of per capita income is not evenly distributed among all sections of the population. The majority of the population does not even earn the 550 dollars per head per year.The end result is of course poverty, unemployment and a culture of gun and violence where jobless youths take up arms for the Taliban and other militant groups for 10 dollars a day! 

But don't be disappointed with the status of the economy in Afghanistan. Right now at least, there are jobs for the masses of English-speaking youths who can make it into an NGO or a private company. Now at least, there are hundreds of millions of dollars annually worth of contracts for Afghan logistics companies that are handed out by the foreign forces present in the country. Now at least, there is billions of dollars coming into the country annually that makes bribes, siphoning off and embezzlement of this money possible for those who are well-placed and well-connected. Recently, there has been a flooding of warnings that Afghanistan will face a severe financial and economic crisis after the majority of foreign forces leave by 2014. A report prepared by the U.S. Congress as well as numerous warnings by concerned people and organizations inside Afghanistan have all warned that these happy days for the economy of Afghanistan will not last long when the billions of dollars in incoming funds will reduce to half or even less.

Many people would like to dismiss these warnings as too sensational and exaggerated but the bitter fact is this economic doom and gloom is well on its way whether we like it or not. In 3-4 years time, days will come when our difficult days of today will look like a happy-go-lucky vacation, a happy dream when a dollar was well worth 45 Afghanis and the continuous flow of dollars from abroad, whether for reconstruction, aid or western military-related spending, kept Afghani exchange rate high, breathed life into the rag-tag economy and generated NGO and private company jobs for masses of English-speaking Afghan youths. The boom that you see in the real estate market in Kabul and other large cities, the tens of large townships that have been raised from ground and the hustle bustle you see in large cities are all, in large part, thanks to the influx of mega dollars that so far have kept coming in. The newly-rich, flourishing class of middle-class and upper-middle class Afghans have emerged on the back of billions in western military-related spending in recent years. If you strip the economy of the country of these billions of incoming dollars and the consumption frenzy it has created, the economy of our country, by itself, is really nothing more than subsistence-level agriculture, drug trade and a few industrial units here and there.

The situation has become such that, as reflected in recent warnings, even a partial withdrawal of foreign forces and a decrease in military-related spending or even a drop in foreign aid could blow a devastating shock to the fragile economy of Afghanistan. As it is evident, this economy, as it stands now, cannot withstand any shocks. If any turbulence occurs, the exchange rate of Afghani can significantly drop in relation to foreign currencies. This would wreak havoc with the imports and would cause high rates of inflation and a significant increase in poverty and hunger throughout the country. Some foreign governments such as the U.K. and some international financial institutions such as World Bank have already stopped disbursal of their aid and loans to Afghanistan in recent month after the problems that surfaced in the country's financial system and the near-collapse of Kabul Bank, the country's largest private bank. Although the problems at Kabul Bank are one reason for these governments and international institutions to stop their aid and loans, the real reason, however, is the Afghan government and President Karzai's sinking relations with the western countries. This means that such political problems and shocks can easily translate into economic shocks to the fragile economy of Afghanistan when the foreign donors stop or reduce their aid. The economy is painfully and excessively dependent on foreign charity dollars.

The reality is that during these ten years since the fall of Taliban, little has been done to build and strengthen the fundamentals of the economy. Such important issues as re-building the manufacturing base of the economy, fostering the growth and consolidation of small and medium-scale industries, encouraging Foreign Direct Investment (FDI) and investment by Afghan private sector have all been ignored and forgotten. The result of course has been an economy, country and a nation that is at the mercy of humanitarian dollars from abroad.

The author is the permanent writer of the Daily Outlook Afghanistan. He can be reached at outlook afghanistan@gmail.com

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