OUT OF ISOLATION

The Taliban leadership's recent endeavours to emerge from isolation and secure recognition as the legitimate representatives of the Afghan populace have intensified, particularly in their relations with Central Asia.

In March, Uzbek Foreign Minister Bakhtiyor Saidov visited Kabul to deliberate a broad spectrum of bilateral cooperation matters, including economic aspects. Tashkent leads the charge in nurturing beneficial relations with the Taliban, given its proximity to one of the globe's most populous Uzbek ethnic communities.

It's worth noting that following the Taliban's ascension to power, then Uzbek Foreign Minister Abdulaziz Kamilov was among the first to make an official visit to Kabul on October 7, 2021.

Afghanistan is viewed by Tashkent as a pivotal conduit for communication with South Asian nations such as Pakistan and India. The Afghan authorities have articulated a foreign policy that prioritizes economic considerations, with a focus on regional connectivity, signaling Afghanistan's eagerness to integrate into regional economic networks.

The Taliban's Focus on Agriculture

Under Taliban governance for over three years, Afghanistan continues to grapple with profound poverty and humanitarian crises. Despite some stabilisation in the past eighteen months, the plight of many Afghan families remains dire. The nation's population growth, coupled with the return of thousands from Pakistan, foreshadows deepening humanitarian challenges absent significant structural and political reforms.

The Taliban tout their success in anti-corruption efforts and revenue generation, yet Afghanistan still ranks as a major recipient of humanitarian aid. The Taliban's tax collection efficiency spurred notable revenue growth in their initial two years of rule. However, this is expected to wane as economic stagnation sets in. The economy's frailty, coupled with an inability to generate employment or sustain a burgeoning populace, has led to widespread unemployment and underemployment. Consequently, poverty rates are alarmingly high, with many unable to afford basic necessities.

The Taliban's prohibition of opium cultivation, sans alternative livelihoods, has purportedly slashed rural household incomes by over $1 billion annually, exacerbating poverty.

Hence, bolstering agricultural production is deemed crucial for enhancing the general populace's living standards. This necessitates irrigation initiatives, such as the ongoing Kush-Tepa project in northern Afghanistan, and the broadening of agricultural exports.

Emerging Problems and Challenges

The expulsion of approximately 400,000 Afghans from Pakistan, a figure on the rise, is compounding Afghanistan's fiscal woes. Previously, remittances from Afghans employed in Pakistan were a lifeline for numerous families. Now, the onus is on more individuals to secure employment within Afghanistan's challenging economic landscape.

The nation's macroeconomic health is also impacted by deflation, which the Taliban hail as beneficial for reducing prices. Yet, this trend effectively diminishes the economy's overall value, thereby escalating unemployment and diminishing state revenues.

Lastly, the momentum of Afghanistan's export sector is waning. Coal, once a lucrative export amid Pakistani shortages and elevated global prices, is now yielding diminishing returns as markets stabilize.

Afghanistan's banking sector is grappling with severe challenges, though it has been a catalyst for economic activity. The United Nations has sounded the alarm over the dire economic and social repercussions if Afghanistan's banking system collapses. The UN Development Programme has urgently called for support to bolster the country's banks, citing a rise in defaulting borrowers, dwindling deposits, and liquidity issues that could precipitate the financial system's failure within months.

Reconstructing the banking sector is not feasible in the short term. Nonetheless, measures can be taken to ensure continuous payments, facilitating trade and remittances from the Afghan diaspora.

A current priority for the Central Bank of Afghanistan is to combat money laundering and terrorism financing. However, this endeavour faces obstacles due to lost institutional control and potential conflicts of interest, as the Central Bank's leadership is under sanctions.

The Political Economy of Afghanistan

A potential remedy involves partially releasing $3.5 billion in frozen foreign exchange reserves held in the Swiss Fund for Afghanistan, though this presents its own set of organizational hurdles.

In the medium term, bolstering regional trade could invigorate the Afghan economy. This requires the Taliban to enhance transport infrastructure and border management. Neighbouring countries must vigilantly prevent the crossing of refugees, terrorists, or traffickers under the guise of exporting goods.

Experts concur that Afghanistan's long-term economic progress hinges on political decisions that the Taliban seem reluctant to make. The West asserts that development is unattainable while women and girls are marginalized from public life, advocating for the liberalization of Afghan laws concerning women as a precondition for the Taliban's recognition by the international community. Conversely, Afghans envision intensified trade and economic relations with neighbouring states, particularly Central Asia, as their path forward.

Since the Taliban's resurgence, Central Asian nations have adopted a pragmatic approach, focusing on economic and counter-terrorism cooperation. Yet, this strategy is not without its difficulties.

Experts have observed an uptick in activities by foreign terrorist organisations in Afghanistan, allegedly with the Taliban's support, which provides them with resources and utilizes them against adversaries. The Taliban has strategically positioned fighters along the borders with Tajikistan, Uzbekistan, and Turkmenistan, based on ethnic affiliations.

Main Partners: China and Central Asia

Central Asian countries view collaboration with the Taliban government as a geo-economic prospect. Nations like Uzbekistan, Turkmenistan, and Kazakhstan pursue economic interests, including access to new markets in South Asia and the Middle East, while also addressing security threats posed by extremist international terrorist groups with roots in Afghan ethnic factions that also reside in Central Asia.

Kazakhstan and Kyrgyzstan have adopted a more cautious stance towards the Taliban, lacking direct borders or ethnic ties with Afghanistan. In contrast, Tajikistan has backed the Tajik resistance against the Taliban, hindering any dialogue between Dushanbe and the Taliban government.

The Kosh-Tepa canal, a significant concern for Afghanistan's neighbours, is sourced from the Amu Darya River approximately 90 kilometres north-west of Mazar-e-Sharif, near the Tajikistan border. The canal flows about 10 kilometres south before veering west, passing north of Mazar-e-Sharif.

The completion of the canal poses a potential threat to downstream countries like Uzbekistan and Turkmenistan, which may see parts of their agricultural lands deprived of water, turning them into arid zones. Given the scarcity of water in Central Asia, effective water management is crucial.

China, a key partner of Kabul, values Afghanistan for its strategic position and abundant natural resources. China's involvement in Afghanistan's economic development is driven by a desire to harness these resources and bolster its political sway over Kabul. In return, the Taliban is reportedly suppressing the East Turkestan Islamic Movement, which seeks to carve out an Islamic state in China's Xinjiang Uygur Autonomous Region.

The increasing clout of terrorist groups in Afghanistan suggests the Taliban's inability to maintain stability within the country and the region. This situation underscores the intricate dynamics at play and foreshadows the emergence of new challenges on Afghanistan's path to enduring stability.