Afghanistan’s economy under the spotlight on eve of 1401, the new solar year

On the eve of Afghanistan’s new solar year, Nowruz, the year 1400 has proven to be one of increased economic hardships that ultimately led to a financial crisis in the country.

In August, the former government collapsed which sparked widespread panic among Afghans who rushed to banks to draw their money.

People queued for hours, for days and even weeks but as the Ashraf Ghani government tumbled and foreign troops withdrew, foreign funding that propped up the country came to a sudden halt and the banking system froze.

In order to prevent the complete collapse of the banking system, the Islamic Emirate of Afghanistan (IEA), which had swept to power, stepped in and imposed strict restrictions on the amount of cash people could withdraw.

Global sanctions added to the mix and made life even more difficult for Afghans – so much so that the IEA was unable to pay government employees their salaries for the first few months.

Gradually, the economic situation stopped its freefall and leveled out. Humanitarian aid helped ease hunger and shipments of cash from the United Nations has continued to come in to the country. Although sanctions are still in place, the UN has stepped in to assist with regards to the economy.

On a more positive note, some development projects have been kickstarted by the IEA these past few months – especially transit projects connecting Afghanistan to Central Asia.

However, Afghanistan’s economic situation is still critical.

Key problems are as follows:

• No new investments have been made in 1400 in the country
• With the coming to power of the Islamic Emirate, banking activities were suspended for a significant period of time
• International organizations stopped major projects they had been funding, leaving many projects unfinished
• Global sanctions were imposed on the country’s economic system
• Trade between Afghanistan and its neighbors stalled due to a lack of funding and political uncertainty for some time
• The Afghani (AFN) plummeted to a low of 130 AFN to the US dollar. It has since recovered somewhat
• Food and fuel prices have risen unprecedentedly
• About $9 billion of foreign assets were frozen by the United States

Despite all these challenges, the IEA has stepped up efforts to stabilize the economy and to improve the situation. The IEA came out in support of the private sector and worked hard to save the country’s economy from collapsing altogether.

The Ministry of Finance meanwhile said the economic situation in the country has improved slightly in the past few months and that the Islamic Emirate will take major steps to boost the economy in the new year (1401). The IEA also said it will launch some key development projects.

The Ministry of Finance, however, was unable to finance the budget for the new fiscal year from domestic revenue. This is not however new, as a major part of the budget has been funded by the international community for the past 20 years.

Economic experts believe the Islamic Emirate has taken effective steps to stabilize the economy, but many have said government needs to facilitate new investments.

Afghanistan’s private sector has in addition called on the Islamic Emirate to invest in agriculture and mining; to generate electricity; and develop transit, telecommunications, fiber optics and telecommunication sectors.