Afghanistan: Implications of Economic Slowdown and U.S. Troop Withdrawal

 By Sartaj Singh
0
73

Afghanistan’s economic and security outlook seemed bleak throughout 2019 due to a drought and a high frequency of Taliban attacks. The US-Taliban peace deal revived hopes for the nation-building process of Afghanistan. Soon after, the COVID-19 pandemic brought about a global economic slowdown. Afghanistan’s economy is heavily dependent on international aid and tariffs levied on international trade, both of which are at risk of diminishing significantly. President Donald Trump’s decision to reduce US troop presence comes at a time of a possible economic collapse in Afghanistan which will undoubtedly lead to an increase in the relative power of the Taliban and regional warlords. An unstable Afghanistan is against India’s interests and it has invested considerably to support Afghanistan’s state-building process.

Implications of COVID Induced Economic Slowdown

The formation of the contemporary Afghanistan government in 2002 saw a steady economic growth fueled by international aid and assistance up until a sharp decline in 2018 and 2019. The decline was caused by a higher frequency of Taliban attacks and deteriorating security in the entire region. Competing claims in the controversial 2019 presidential elections did not help ease investors’ concerns. The question now is, to what extent will the COVID-19 induced economic slowdown impact Afghanistan’s economy and what impact will it have on the security situation in Afghanistan. Afghanistan’s economy is overwhelmingly dependent on two main sources, both of which are threatened by the pandemic; international aid and international trade.

Economic Implications

International aid constitutes 19 per cent of the GDP of Afghanistan while international trade constitutes 51 percent of it. International aid to Afghanistan comes through a “pledging conference” held once in 4 years; the last one held in Brussels, 2016, collected pledges of US$15.2 billion[1] worth of aid to be provided over the next four years. The pledge will take place virtually in the next few months, but COVID-19’s impact on the global economy may substantially reduce the pledged funding to Afghanistan. COVID-19’s impact on funding can be seen in the case of Yemen’s pledging conference which took place virtually, on 2 June and collected a pledge of US$1.35 billion[2] as compared to US$2.6 billion[3], pledged last year. A reduction in international aid will be particularly detrimental for Afghanistan’s fiscal policy, under which the government has allocated roughly $100 million[4] to combat the virus. Measures to restart the economy will be dependent on increased spending by the government, tax concessions and decreased interest rates, which will lead to a deficit in the budget, further racking up debt. Therefore it is likely that Afghanistan’s fiscal response to the COVID-19 induced economic slowdown will be hampered by decreased pledges from the International community.

Trade makes up half of Afghanistan’s GDP, making the economy import dependent, with imports above US$7 billion while exports are  close to $1 billion in goods and services, primarily to India and Pakistan.  A majority of Afghanistan’s exports are agricultural and had halted at the outset of the virus, while the government promised to buy up 50 per cent of the produce, the private sector is losing millions of dollars as trade has not resumed until June.[5] Bordering states like Pakistan and Iran have closed their borders with Afghanistan, forcing the use of an air corridor to export produce to China and India.[6] The COVID-19 outbreak is harming consumption and exports; according to the World Bank’s estimates, Afghanistan’s economy will contract by 4% in 2020 due to the pandemic and increased political instability. A draft budget amendment submitted to the parliament aims to allocate 1.4 per cent of their GDP for supporting vulnerable sectors, bringing a total of government spending to 2 per cent of GDP due to COVID-19. It is important to note that Afghanistan’s GDP does not account for illegal poppy cultivation, most of which is taking place in Taliban occupied territories and being taxed by them. The opium harvest takes place between March to June, and the availability of required labour for it is uncertain; furthermore, acetic anhydride, a compound required for the production of heroin, is not produced in Afghanistan and is difficult to obtain from the international market under the presently restricted conditions. With land borders to Afghanistan being closed, the supply of drugs to their markets as well as their demand will be subdued. A report by the United Nations Office on Drugs and Crime suggests that drug trafficking in Afghanistan is completely disrupted due to the restrictions imposed on international trade and travel.[7] COVID-19 is inflicting significant losses to both legal and illegal economic activity in Afghanistan and the virus is projected to reach 80 per cent[8] of the population and will continue to hamper trade for as long as it lasts.

Security Implications

In 2019 Afghanistan suffered a drought, a growth recession, and had half of its population living below the poverty line.[9] The current economic crisis will force Afghans to look to insurgents and local warlords for support and employment while seeding dissent against the Afghan government. The US has attempted to stabilize Afghanistan by centralising power in the unitary government as opposed to power having been concentrated with warlords and militias prior to the beginning of the state-building process in 2002. A lack of measures taken by the government resulting from a lack of funding will decrease popular support towards the center and increase support of regional warlords and militias. In such a scenario, the government’s legitimacy and their political weight and legitimacy during negotiations with the Taliban will fall, inevitably leading to increased violence and instability.

Implications of US Troop Withdrawal

The US has made a political settlement with the Taliban its ultimate goal in Afghanistan.[10] It’s’ primary objective has been to prevent Afghanistan from being used as a safe haven for terrorists who would harm their or their allies’ interests, the Taliban have agreed to do so in the US-Taliban peace agreement. The agreement gives a timeline for reducing U.S. troop presence in Afghanistan; as of now 8,600 troops remain and by April of 2021 all military and non-military personnel besides diplomatic staff are to withdraw. President Trump is committed to reducing troops to 8,600, before the presidential election in November of 2020.[11] A complete US withdrawal rushed or not will have serious repercussions for Afghanistan’s economic and security situation.

Security Implications

A withdrawal of US forces from Afghanistan will be accompanied by exit of NATO forces, international civilians, and private military contractors (PMCs). PMCs outnumber US troops on the ground by roughly 2:1[12] and are responsible for providing security to international officials and US facilities. In 2001, the US used warlords to spearhead the fight against the Taliban. After its defeat, some warlords ran their own autonomous proto-states until the Afghan government was formed and as a part of the state-building process, the US sought to centralise power within the government and away from regional leaders. US presence and support of the Afghan government had deterred regional warlords from retaining their weapons, opposing the government, and securing more power for themselves. After the US withdrawal, if the Afghan National Army fails to provide security for the entirety of the state, warlords will rise to fill in their role; sowing the seeds for a civil war.  Former warlords such as Abdul Rasheed Dostum and Fahim Khan still remain powerful and popular representatives of their communities. Although their militias have been disarmed, they possess the capability to rearm them on short notice when the need arises.[13] No warlord possesses the capability to fend off the Taliban by themselves, therefore if the government is weakened, and these regional leaders rise in prominence, it is likely that they will form an a Anti-Taliban reminiscent of the erstwhile Northern Alliance. For instance, Dostum has been backed by Uzbekistan and Turkey and would likely end up in control of Northern regions of Afghanistan if the government were to lose power.[14]

In terms of military support, Afghan defence forces will lose US military trainers, advisors and US air support. While the Afghan government forces will still have air superiority over the Taliban, they will lose much of the technological edge of precision bombing and surveillance which the United States contributed. The Taliban is stronger now than in the last 18 years, having 66,000 full-time fighters and control over 18 per cent of Afghanistan’s districts as opposed to the 33 per cent of the Afghan government,[15] while the rest of the territories are disputed. It is therefore unlikely to sincerely take part in any power-sharing agreement with the Afghan government while being in a position of power. After the US withdraws fully, the Taliban will resume its fight against the Afghan government, with continued Pakistani support. The US is unlikely to completely abandon all progress they have made in Afghanistan and will continue supporting the Afghan government by supplying equipment if the Taliban were to declare war once more. By rushing troops out of Afghanistan, the US will be degrading Afghanistan’s security environment and undermining its own goal of ensuring a lasting political settlement with the Taliban.

Economic Implications

The withdrawal’s impact on Afghanistan’s security will have dire consequences for Afghanistan’s economy. Most international civilians will leave Afghanistan as they may no longer feel secure with the departure of US forces. International attention on Afghanistan will be reduced significantly along with the amount of international aid pledged to Afghanistan. An unstable security environment creates unacceptable risks for investment in the country. With reduced international aid, decreasing foreign investment adding to the economic slowdown brought about by the virus; Afghanistan’s economy will face a recession. A recession would negatively impact the security situation when the government is unable to pay employees, discontent grows and some look to insurgent groups for support.

Impact on India

India has been supportive of the peace dialogue and was present during the signing of the US Taliban agreement, however it has been a proponent of the ‘Afghan-led, Afghan-owned, and Afghan-controlled process’. Afghanistan is geo-strategically placed at a crossroads between South Asia and West, Central Asia. A friendly regime in Afghanistan is important for India’s  energy security needs in Central Asia. The TAPI pipeline, meant to transfer natural gas from Turkmenistan to India, passes through Afghanistan; conflict there is delaying its completion. It is in India’s interest to promote peace in Afghanistan and maintain relations with both parties, as a united Afghanistan is seemingly impossible in the near future. The Taliban recently declared Kashmir to be an internal matter of India, adding they do not support a holy war there. The Taliban’s ambassador in Pakistan further stated the group’s intention to have positive relations with India and invited its efforts in the reconstruction of Afghanistan.[16] However, in the same week, a Taliban representative in Doha said that India has played a negative role in Afghanistan and supported a puppet government. The contradiction in statements could have resulted from factionalism in the organisation or from a lack of clarity on international affairs. Either way, India will have to engage with the Taliban in the future as the withdrawal of US troops and the economic downturn in Afghanistan increases the group’s relative power.

Conclusion

Afghanistan’s economy remains heavily dependent on international aid and international trade; the pandemic negatively affects both of these sources of income. The pledging conference, the primary source of international aid, is projected to promise reduced aid to Afghanistan in lieu of limited progress made by the past government. The economic strain on the pledging nations because of the pandemic may contribute to reduced aid as well. International trade, primarily with neighbouring countries, remains restricted, and damages Afghanistan’s agricultural sector. The withdrawal of US forces from Afghanistan will indirectly undermine international aid received by Afghanistan while directly impacting its security and stability. The Taliban consider the withdrawal of US forces a prerequisite to negotiating terms with the Afghan government. Once the withdrawal is complete, there is nothing to stop the Taliban restarting the fight against government forces, who will be without US military support. India has remained important to the reconstruction efforts and will remain so regardless of the regime in Afghanistan. Recent behaviour of the Taliban towards India seems to indicate pragmatism and an understanding of this geopolitical reality. India will have to engage the Taliban as it will become increasingly influential in Afghanistan while the US withdraws and the government reels under economic pressure.

End-notes:

[1] “The situation in Afghanistan and its implications for international peace and security”, UN General Assembly Security Council,  https://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_2020_210.pdf, accessed on 15 May, 2020.

[2] “Note to Correspondents: High-level Pledging Event for Yemen – Pledging result”, UN Secretary General,

  https://www.un.org/sg/en/content/sg/note-correspondents/2020-06-02/note-correspondents-high-level-pledging-event-for-yemen-pledging-result,  accessed on 11 May, 2020.

[3] “2019 High Level Pledging event”, UN OCHA,  https://www.unocha.org/yemen/2019-high-level-pledging-event,  accessed on 13 May, 2020.

[4] “Policy Responses to COVID-19: Afghanistan”, IMF,  https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19,  accessed on 18 May, 2020.

[5] “Covid-19 impacts; Afghanistan’s exports on hold”, Ariana News,   https://ariananews.af/covid-19-impacts-afghanistans-exports-on-hold/,  accessed on 15 May, 2020.

[6] “Afghanistan to Resume Exports to Chinese, Indian Markets

”, Haidarshah Omid, TOLO News,  https://tolonews.com/business/afghanistan-resume-exports-chinese-indian-markets, accessed on 20 May, 2020.

[7] “COVID-19 and the drug supply chain: from production and trafficking to use”, UN Office of Drugs and Crime,  http://www.unodc.org/documents/data-and-analysis/covid/Covid-19-and-drug-supply-chain-Mai2020.pdf ,  accessed on 20 May, 2020.

[8] “Large Scale COVID-19 Infections Feared in Afghanistan as IOM Scales Up Response”, IOM UN,

  https://www.iom.int/news/large-scale-covid-19-infections-feared-afghanistan-iom-scales-response, accessed on 11 May, 2020.

[9] “Hunger before the Drought : Food Insecurity in Afghanistan”, World Bank,

  http://documents.worldbank.org/curated/en/560691563979733541/Hunger-before-the-Drought-Food-Insecurity-in-Afghanistan, accessed on 15 June, 2020.

[10] “Enhancing Security and StabilityIn Afghanistan”, DoD United States,  https://media.defense.gov/2020/Jan/23/2002238296/-1/-1/1/1225-REPORT-DECEMBER-2019.PDF, accessed on 18 May, 2020.

[11] Mujib Mashal, “U.S. Troops in Afghanistan Reduced to 8,600, General Says”, 16 June 2020, New York Timeshttps://www.nytimes.com/2020/06/19/world/asia/afghanistan-us-troop-withdrawal.html, accessed on 25 June, 2020.

[12] “Private Security Contractors in Iraq and Afghanistan: Legal Issues”, Congressional Research Service,  https://fas.org/sgp/crs/natsec/R40991.pdf, accessed on 21 May, 2020.

[13] Romain Malejacq, Warlord Survival: The Delusion of State Building in Afghanistan(Cornell University Press: UK, 2019), p. 43.

[14] ibid

[15] Lindsay Maizland and Zachary Laub “The Taliban in Afghanistan”, Council on Foreign Relations,  https://www.cfr.org/backgrounder/taliban-afghanistan, accessed on 11 June, 2020.

[16] Sidhant Sibal, Taliban acknowledges Kashmir internal matter of India after fake tweets, WION News, 18 May 2020,  https://www.wionews.com/india-news/taliban-acknowledges-kashmir-internal-matter-of-india-after-fake-tweets-299514, accessed on 8 June, 2020.


Sartaj Singh is an Intern at Centre for Land Warfare Studies. He is pursuing his Masters in Geopolitics and International Relations from the Department of Geopolitics and International Relations, Manipal Academy of Higher Education (MAHE).