Afghanistan: Recovering from the Brink of Economic Collapse?

July 31, 2018 Topic: Security Region: Middle East Blog Brand: Middle East Watch Tags: AfghanistaneconomyPakistannational securitywar

Afghanistan: Recovering from the Brink of Economic Collapse?

Afghanistan is struggling to recover from damage done by war and tumultuous politics.

Additionally, the government plans to complete the Turkmenistan-Afghanistan-Pakistan-India gas pipeline and wrap up the construction of three railway projects—two from stations in Turkmenistan’s Serkhetabat and Atamyrat to Afghanistan’s Torghundi and Aqina border towns, and another from Uzbekistan to Afghanistan’s Herat province. The Afghan government also plans to complete the construction of the fiber optics infrastructure ring to reduce the Internet price to meet the growing internal demand.

Meanwhile, Afghanistan, now a member of the World Trade Organization, is rapidly expanding its economic ties with the region. As such, as part of the Afghanistan-Pakistan Transit Trade Agreement, or APTTA, the Afghan government intends to revive two transport corridors—one from Herat to Kabul and another from Kabul to Lahore—meant to boost its economic engagement with Pakistan. At the same time, the Kabul government has enhanced its trade links with China and has begun to use a new transport corridor in Andijan, a strategic throughway in Uzbekistan, to supply Afghan products to the Chinese city of Kashgar in a week time. Moreover, the Afghan government is constructing hydroelectric dams along its border with Iran. By doing so, the government is likely to capitalize on its water resources by either reducing the free flow of water into Iran or reaching an agreement with the Iranian regime to pay for it. Estimates show that Afghanistan can potentially make as much as $3 billion a year if it sells its water to Iran.

To be sure, despite progress made towards self-reliance, the Afghan economy is still mostly donor-dependent. Despite a marginal increase in the total government expenditures between 2014 and 2017, donor grants provided to offset the Afghan budget represented an estimated 18 percent of the Afghan GDP. In 2017, for example, donor grants funded nearly $4 billion in local budgetary expenditures, covering over 60 percent of Afghanistan’s total budgetary spending. While down from 70 percent in 2015, such budgetary shortfalls have created critical fiscal gaps, mainly because of a substantial spending increase in Afghan security expenditures. Meanwhile, festering unemployment and formal corruption continue to pose considerable challenges to Afghanistan’s macroeconomic stability. These bleak indicators underline that the economic achievements of the past few years remain fragile unless they are sustained and stretched beyond the current government’s term.

Nonetheless, it is imperative to maintain an equilibrium between continuity and reform, without losing sight of the longer-term priorities for the Afghan economy. In late November, the Afghan government is expected to present on its many economic gains at an international conference co-hosted with the United Nations in Geneva. Beyond economic progress, the most significant achievement Afghanistan can potentially share with its partners is to deliver the upcoming Afghan parliamentary elections, slated for October 20. In the amorphous twilight of the Afghan war, Afghans are eager to break out of the current frustrating economic and political cycle. There is no secret about what needs to be done for that to happen.

Javid Ahmad, a nonresident fellow at West Point’s Modern War Institute, is a fellow at the Atlantic Council. The views expressed here are his own. Follow him on Twitter: @ahmadjavid .


Image: A shopkeeper stands inside a shop as people are reflected on a window panel in Kabul April 8, 2012. REUTERS/Omar Sobhani