Now that the Taliban have supposedly taken complete control of Afghanistan and started to form a government, an imminent challenge awaits them: how will they keep their country and economy afloat?
Over the past 20 years, the US government and other countries have financed the vast majority of the Afghan government’s non-military budget — and every penny of the fighting force that turned into the Taliban in August 2021.
Now, with the probable american help out of the question and a billion euros in frozen central bank foreign reserves, the Taliban will have to find other means.
Understanding how the Taliban are going to pay for their rule starts with the last time they were in power, more than 20 years ago.
Afghanistan has changed a lot
In the 1990s, Afghanistan was a very different country. The population was less than 20 million and depended on international aid groups for the few services they could provide. In 1997, for example, the Taliban government had a budget of just $100,000, which barely covered the salaries of government employees, let alone the administrative and development needs of the entire country.
Today the Afghanistan has changed significantly. The population grew and its citizens started to expect more and more services such as health and education. In 2020, for example, Afghanistan had a non-military budget of 5.6 billion dollars.
As a result, Kabul has transformed itself from a war-torn city to a modern capital, with an increasing number of tall buildings, cyber cafes, restaurants and universities.
Most of the development and infrastructure spending that has taken place since 2001 has come from other countries. The US and other international donors covered about 75% of non-military government spending during those years. In addition, the US has spent 5.8 billion since 2001 on economic and infrastructure development.
Still, government revenue was starting to cover an increasing share of domestic spending in recent years. Sources included customs duties, taxes, revenue from fees on services such as passports, telecommunications and roads, as well as revenue from its vast but mostly unexplored, mineral wealth.
The revenue would have been much higher if it weren’t for the endemic government corruption, which some experts cite as one of the main reasons for its downfall. A May 2021 report suggested that $8 million was being siphoned out of the country every day, the equivalent of about $3 billion a year.
Where do the Taliban get the money
Meanwhile, the Taliban had their own significant revenue streams to fund their insurgency as they gained control of the country.
In fiscal year 2019-2020 alone, the Taliban raised $1.6 billion from a wide variety of sources. Most notably, they earned 416 million that year from the sale of opium, over 400 million from mining minerals such as iron, marble and gold, and 240 million from donations.
US intelligence agencies and others believe that several countries, including Russia, Iran, Pakistan and China, helped finance the Taliban.
With these resources, the Taliban were able to buy many weapons and increase their military ranks while taking advantage of the US withdrawal and conquering Afghanistan in a matter of weeks.
The challenges of Afghanistan
But winning the war can be easier than managing the county, which faces many problems.
Afghanistan is currently facing a severe drought that threatens more than 12 million people — a third of the population — with “crisis” or “emergency” levels of food insecurity. Prices for food and other essentials soared as most banks began to reopen with limited availability of cash.
And, like many countries, its economy was harmed by covid-19 — and some fear a resurgence of cases as vaccination rates stagnate. Many public health facilities face severe funding shortages.
The Taliban also face daunting financial challenges. About $9.4 billion in Afghanistan’s international reserves have been frozen immediately after the Taliban conquered Kabul. The International Monetary Fund has suspended more than 400 million in emergency reserves and the European Union has suspended plans to disperse 1.4 billion in aid to Afghanistan by 2025.
Potential sources of funding for the new government
- customs and taxation. Now that the Taliban have full control over Afghanistan’s border crossings and government offices, they can start collecting all import and other taxes.
- Drugs. The Taliban have said they will not allow Afghan farmers to grow opium poppies while seeking international recognition for their government. But they can change their minds if that recognition doesn’t occur, in which case they can continue to generate a significant source of revenue from drug smuggling. Afghanistan is said to be responsible for about 80% of the world’s opium and heroin supplies.
- Mining. Afghanistan is estimated to have $1 billion worth of minerals in its mountains and other parts of the country. China, in particular, is eager to extract these metals, which include those essential to the modern supply chain, such as lithium, iron, copper and cobalt. However, this may not be possible in the short term.
- Non-Western countries. Several governments have financially helped the Taliban, including Russia, Qatar, Iran and Pakistan, and those countries can continue to do so. After the previous Afghan government fell in August, Qatar will have injected millions of dollars to support the Afghan economy. China, in particular, stands out for its potential ties to the new government, as the Taliban recently declared the country their “key partner”. On September 8, 2021, China gave the government $31 million in emergency aid. In addition to mining, China is also interested in extending its New Silk Road — a global infrastructure development project — to Afghanistan.
- Western help. Even with these other sources of income, the Taliban will still be eager to restore aid from the US and other Western countries and get rid of the UN sanctions that have been in place since 1999. The Taliban have said they intend to behave in a manner different than in the 1990s, including respecting women’s rights and not allowing terrorists to operate from Afghanistan. And the EU, US and other governments may want to use the aid and frozen reserves as leverage for the Taliban to keep these promises.