Blog Post

Afghanistan’s Reverse Refugee Flow Retools Taliban Economy

Bretton Woods Committee  | Tue, May 28, 2024

by Gary Kleiman


In January alone, almost two and a half years after the Taliban seized power again with a hasty US and NATO troop retreat, 100,000 refugees were forcibly returned from Pakistan, Iran, and Turkey according to the government. Many were from the immediate half million wave that fled after the takeover, often with higher education and previous Western employers, stuck in a third country resettlement limbo that has dragged on under bureaucratic red tape and political anti-immigration hostility. Pakistan, hosting 3.1 million in multiple generations dating back four decades, was in the spotlight in particular as it embarked on a mass deportation campaign late last year in response to alleged terrorist strikes from groups across the border and it has since repatriated nearly 600,000. Iran has expelled over one million in the past year. Pakistani security forces rounded up migrants in major cities in the Baluchistan province that straddles both countries, and hundreds of thousands of others left before they could be detained in hopes of salvaging possessions and savings typically confiscated with departure. The Taliban, which has been feuding with Islamabad over issues from US dollar smuggling to trade tariffs, willingly took in the returnees and offered households a small adjustment allowance.

Reentry coincides with signs that the gross domestic product contraction may have bottomed out after 20% shrinkage two years into Taliban rule, with the UN originally forecasting actual growth for 2023 before its $3 billion aid plan was only half funded. The World Bank’s Economic Monitor in December cited core 6% deflation, excluding food and energy, on weak public and private sector demand. The poverty rate is 50% on $350 per capita income, with half the population also food insecure. Agriculture was the mainstay export up 15% to $1.3 billion, while textile shipments mainly to India and Pakistan jumped 45% to $300 million. Coal sales in contrast dropped by half to $250 million as Islamabad sourced domestically. Capital goods imports took off as the overall category increased 25% to $8 billion, for a final $6 billion merchandise trade deficit.  

Tax revenue for the first ten months of the fiscal year that begins in March rose 6% to 170 billion afghani, below target although collection efforts improved, the Bank noted. In monetary policy, the central bank, with a crackdown on informal FX dealers, 250 approved licenses, and regular auctions, managed a 25% appreciation against the dollar in 2023, the steepest globally. In 2024 it has given back nearly 2% and the currency stands near 72 against the greenback, with fresh banknotes printed in Poland replacing worn out, often counterfeit, bills. Last year around $2 billion each in humanitarian aid and remittances came in for further backing. Half of central bank frozen international reserves, $3.5 billion, can technically be tapped through a Swiss trust fund arrangement authorized by Washington, but an independent audit found that Taliban control remained too pervasive to release funds which have also earned $200 million in interest. The US-Afghan Chamber of Commerce, which sent a delegation to Kabul in 2023, has advocated transfer to begin, and the welcoming of refugees may help swing this debate and a more business-friendly stance with entrepreneur influx.

With pariah status, the Taliban gravitates toward commercial and diplomatic ties with other sanctioned and authoritarian regimes. It tripled fuel imports from Russia last year and lists Iran as a top trade partner. China’s foreign direct investment in natural resources dates back to an unrealized copper project in the early 2000s, succeeded by a half-billion-dollar oil exploration joint venture through 2026 signed last year. The government claims $6 billion altogether in mining deals were signed then, including with firms from Turkey and the UK, and reminds investors that, according to geological surveys, the country is potentially endowed with trillions of dollars in rare earth and clean energy raw materials like lithium.

Initiatives have also been pursued with Central Asia neighbors for improved relations. With a long drought and chronic water shortage for irrigation, a canal that may cut supply to the broader sub-region has become a high-profile infrastructure effort with regular technical consultation to allay concerns. Kabul has paid off its $600 million electricity import debt in full after initial arguments, and a $1 billion power connection build out with Kyrgyzstan, Tajikistan and Uzbekistan has resumed with the World Bank releasing $100 million in suspended support. The caveat for Western shareholder buy-in is establishment of a dedicated account to “ring-fence” funding solely for that purpose, which is to then lead to $300 million in multi-year aid, around the amount already pledged by the Asia Development Bank.

Gridlock remains on women in the workforce, with the UN estimating only 5% job participation after 60% of small businesses were shut down under the Taliban’s all-embracing professional/education gender ban. According to statistics, less than half the male secondary school population is enrolled alongside the blanket female prohibition. The American business group, during its visit last September, pushed for incremental progress in restoring career opportunities, especially since highly trained special immigrant visa holders without political complications faced a long wait before eventual relocation often joining family in the US. It brandished the possibility of member companies eventually offering employment and housing under private sector funding schemes that can now help relieve the wider refugee reintegration burden amid tentative economic performance and policy turnaround. 

Gary N. Kleiman is a Senior Partner at Kleiman International Consultants and a member of the Bretton Woods Committee.

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