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The Economic Disaster Behind Afghanistan’s Mounting Human Crisis
The Economic Disaster Behind Afghanistan’s Mounting Human Crisis
Afghanistan: Growing Challenges
Afghanistan: Growing Challenges
An Afghan woman and her children carry bags on their heads as they walk along a path on the outskirts of Mazar-i-Sharif, 5 November 2015. AFP/Farshad Usyan
Statement / Asia

The Economic Disaster Behind Afghanistan’s Mounting Human Crisis

Donors and Afghan state agencies must urgently tackle an economic crisis building up since 2014, when foreign troops started leaving and political instability worsened. The starting point must be a socio-economic assessment of just how big the problems are.

­As Afghanistan’s international donors meet in Brussels in a summit co-hosted by the European Union and the Kabul government on 4-5 October, Afghanistan’s rapidly deteriorating economy must be their central concern. Before this and an escalating humanitarian crisis merge to reach a dangerous critical mass, all must agree on several priorities – alongside renewed efforts to bring peace and political stability: realistic planning based on a thorough new socio-economic assessment, currently absent; adequate aid and support for state policy implementation, especially to help an alarming rise in numbers of displaced and shelterless people; halting repatriation of Afghan refugees, especially from Europe and Pakistan; and boosting investment and above all job creation in the country.

Afghanistan’s impressive average annual growth of nine per cent from 2002-2013 has declined rapidly since 2014. According to the World Bank’s World Development Indicators, annual GDP growth fell from 14.4 per cent in 2012 to 2 percent in 2013, and 1.3 and 1.5 per cent in 2014 and 2015 respectively. This drastic economic decline is mainly the result of the post-2014 international military drawdown and the year of intensified political instability that followed the 2014 election. Foreign troops once brought hundreds of millions of dollars into the Afghan economy, and their departure from 800 bases, large and small, deprives the country of what was after 2002 its largest single source of revenue. By one estimate, more than 200,000 Afghans have now lost jobs in logistics, security, and other sectors of a war-driven economy.

Heightened security concerns, political uncertainty and the erosion of the rule of law since 2014 have added to a devastating loss of confidence by consumers, producers and investors. Pervasive fears of a political meltdown have led to a surge in capital flight, with both wealthy and middle-class Afghans moving assets to the Gulf States, Pakistan, Iran, Turkey and Central Asia. Afghanistan’s human capital shrank too, especially among the urban middle class that had emerged after 2001 to play a stabilising role in Afghan politics. Hundreds of thousands of Afghans, mostly young and educated, left the country in 2014 and 2015, often to seek refugee status in Europe.

This sudden economic reversal has considerable political, security and social implications. Rising unemployment and widespread poverty is already widening the legitimacy gap between the National Unity Government (NUG) and the Afghan public, and expanding the reservoir of grievances that insurgents as well as hardline ethnic and regional players could further exploit. Unfortunately, it is not the NUG’s only pressing problem.

An Underestimated Humanitarian Crisis

The economic crisis may have been predictable, but its impact remains poorly understood and insufficiently reflected in strategic thinking and policies about the country’s future. The most revealing indication of such gross underestimation of the situation is the absence of any current, reliable socio-economic data. Three years after the economic reversal began, neither the NUG nor the international community have conducted any substantial assessment of the impact of the collapse of the war economy on the Afghan people and state.

The available figures show that the most vulnerable segments of the population are bearing the brunt of the burden. According to the Afghanistan Living Conditions Survey, the unemployment rate rose from 9.3 per cent in 2011-12 to 24 per cent in 2014. During the same period, the number of people who were not engaged in gainful employment increased from 26.5 per cent to 39.3 per cent of the labour force; among women, the rate increased from 42.4 per cent to 49.8 per cent. Those who manage to find work have to provide for a large number of dependents, with 47 per cent of the population under the age of fifteen. Although no such figures are available for 2015 and 2016, anecdotal evidence makes it abundantly clear that these negative trends are worsening. With Afghanistan’s estimated 32.5 million people growing by perhaps three per cent annually, adding half a million people to the work force every year, the decline in employment opportunities can only worsen.

Even without reliable Afghan government statistics for 2015 and 2016, the trends indicated by anecdotal evidence and UN figures point to a silently evolving, increasingly alarming humanitarian crisis. According to UNHCR, the total numbers of “people of concern”, including Internally Displaced Persons (IDPs), refugees and returnees, nearly doubled between 2013 and 2015, rising from 985,197 to 1.77 million people. UNOCHA estimates that 265,141 more were displaced from their homes in 31 of 34 provinces between 1 January and 15 September 2016.

On top of this has come an unprecedented rise in recent months in the return of registered and unregistered refugees from Pakistan, averaging 5,000 people daily in early September. Combined with the new internally displaced, an alarming one million (57 per cent of whom are children) could be on the move just as winter sets in between September and December 2016. All will require urgent food assistance, health, shelter and other essential services. This spike in the numbers of IDPs and returnees will increase the percentage of the population facing seasonal or permanent food insecurity beyond the current estimate of 40 per cent, and will further strain already meagre economic and employment opportunities and public services.

As Budgets Shrink

The decline in economic opportunities has long-term consequences for overall political stability. Over the past three years, state institutions have become by far the largest source of employment and providers of essential public services, but available economic resources are shrinking fast. Reductions in donor assistance and international contracts are increasing the fragility of the post-2001 political order, which is largely based on networks of patron-client relations in which powerful political players have become dependent on the continuous flow of international largesse. As international military spending and contracts shrink, these networks will rely even more on the proceeds of the informal economy including corruption, criminality, the opium trade and the illegal exploitation of resources such as mines.

The decline in economic opportunities has long-term consequences for overall political stability.

The NUG’s inability or unwillingness to respond to these challenges has profound implications for both its legitimacy and the future of the post-Taliban political order. In the Asia Foundation’s 2015 Survey of the Afghan People, citizens who believed the country was going in the right direction declined to 37 per cent from 55 percent in 2014. After insecurity, worsening economic conditions were cited as the main reason for such pessimism. While the NUG inherited problems that were already mounting before it was formed in September 2014, the Afghan public increasingly links the worsening economy with the government’s policies and/or inability to perform. While the NUG has prioritised the economy in its policy reform agenda, popular expectations created by such rhetoric have yet to be matched by a track record in forging or implementing reforms, let alone actual economic benefits. Aside from some major infrastructure projects such as energy transit routes, which depend on good security and may take years to make a tangible impact on the economy, the NUG has done little to respond to immediate asks such as job creation or the protection of the private sector against rising criminality and insecurity. 

The potential gains of some of the government’s most important infrastructure projects, including CASA 1000, which aims to carry power from Central Asia to South Asia, are threatened not just by insurgent violence but also by increased social and political discord over the distribution of national resources. For instance, in mid-2016 a persistent, predominantly Hazara Enlightenment protest movement emerged to oppose the government’s decision to change the route of another power transmission line bringing electricity from Turkmenistan to Afghanistan, from a route passing through the Hazara-majority Bamiyan province to one running through the Salang Pass. Absent transparency and accountability, such policy decisions could further escalate ethnic tensions.

The government’s ability to implement economic reforms is hampered by internal political gridlock, bureaucratic hurdles and pervasive corruption. Capacity constraints in most government ministries continue to adversely affect the execution of development projects. Payments are delayed to private sector contractors, suppliers and even the state’s own personnel. As of September 2016, nine months into the current Afghan fiscal year, the NUG has spent only 30 per cent of a $2.5 billion development budget. This slow pace in spending and execution is depriving a cash-starved economy of much-needed funds.

The government’s ability to implement economic reforms is hampered by internal political gridlock, bureaucratic hurdles and pervasive corruption.

Despite its many weaknesses and shortcomings, the NUG has succeeded in maintaining a degree of macro-economic stability and addressing the budgetary shortfalls it encountered in 2014. It has also raised domestic revenues above targets set by the International Monetary Fund. However, the new Afghanistan National Peace and Development Framework, 2017 to 2021 is based on an unproven assumption that the three-year economic decline has been stemmed and that over the next five years the economy will grow by an average of five per cent. Domestic revenue mobilisation is in fact a poor indicator of the economy’s overall health, and the current effort to raise more money runs the risk of further shrinking an already fragile and struggling formal tax base.

While taxation rates remain low in comparison to other countries in the region, there is a widening mismatch between what the government demands in terms of revenue and the services it offers. Meanwhile the costs of doing business are increasing, and rising violence and weakening government control is exposing an already shrinking private sector to extortion and other acts of criminality, including kidnapping for ransom. Those responsible may be the Taliban, urban criminal networks or a range of other actors, some with links to the state. 

Despite a rise in revenue collection in 2015, the U.S. Special Inspector General for Afghanistan Reconstruction (SIGAR) estimated that over half of the country’s customs revenues were lost to graft that year. Public sector appointments, including critical security sector positions, are often casualties of infighting and nepotism. All this indicates the complicity of powerful political networks at the highest levels of government, costs the state and Afghan people hundreds of millions of dollars in revenues, and curtails the delivery of even basic services. Astonishingly, corruption within the security sector extends to the sale of military hardware and ammunition to insurgents.

Recommendations

As international donors and the Afghan government devise their responses to address the deteriorating situation in Afghanistan, they should prioritise – alongside coordinated efforts to bring peace and political stability – a comprehensive and robust approach to an escalating humanitarian crisis, and adopt a more realistic vision of economic recovery and growth. They should:

  • Conduct a thorough national assessment of post-2014 socio-economic conditions and challenges to serve as the basis of more realistic strategic planning;
     
  • Urgently respond to the fast-growing humanitarian crisis, pledge adequate resources for the immediate needs of IDPs and refugee returnees for shelter, food, health and sanitation, and support the NUG in devising and implementing a coordinated policy to meet their longer-term needs for access to gainful employment;
     
  • Halt the deportation of Afghan refugees and asylum seekers from Europe; encourage the Pakistan government to end coercive, involuntary returns of all Afghan refugees, registered or unregistered; and provide financial and other incentives to sustain the millions that remain; 
     
  • Create new momentum in the fight against fraud by (i) tackling politically connected corruption networks within government; (ii) integrating robust anti-corruption policies with current revenue collection efforts; and (iii) ensuring robust oversight over payments in government contracts to private contractors and suppliers, while also streamlining these payments;
     
  • Ensure that funds reach the provinces, to promote more equitable distribution regionally and improve the writ of the government, while also prioritising the most under-developed and isolated regions;
     
  • Consider boosting private sector investment through guarantees and other protections and incentives; in particular encourage job-generating and long-term investments by the private sector through tax incentives; and provide, as far as possible, access to public services, including electricity, to firms that create jobs;
     
  • Take immediate, coordinated measures to ensure the security of private investors and business persons, including by targeting criminal networks, some containing elements within or linked to government institutions.  

CORRECTION: An earlier version of this article wrongly stated that the Enlightenment protest movement emerged to oppose the government's decision to change the route of the CASA 1000. This has now been updated to correctly cite that the opposition was towards the government's decision to change the route of another power transmission line bringing electricity from Turkmenistan to Afghanistan.

Commentary / Asia

Afghanistan: Growing Challenges

Political fractures continue to weaken the Afghan National Unity Government as the Taliban insurgency expands and an Islamic State affiliate strengthens its foothold. In this excerpt from the Watch List 2017 – First Update early-warning report for European policy makers, Crisis Group urges the European Union and its member states to continue to provide technical support to the negotiating process and take measures to alleviate the humanitarian crisis.

This commentary is part of our Watch List 2017 – First Update.

Rising insurgency and a fraught political transition are exacerbating an already pervasive sense of insecurity about Afghanistan’s future. Since the 2014 international military drawdown, the resurgent Taliban has fast expanded its presence countrywide. The Islamic State-Khorasan (IS-K), an affiliate of the Islamic State in Iraq and Syria (ISIS), also has a foothold, albeit limited and mainly in some eastern districts. Two-and-a-half years after it was created to prevent the bitterly contested 2014 presidential election from plunging the country into turmoil, the National Unity Government (NUG) is beset with internal disagreements and dysfunction that undermine the capacity of the Afghan National Defence and Security Forces (ANDSF) to counter the insurgency. The government’s ability to confront significant governance, economic and humanitarian challenges also is weak. Civilian and military casualties as well as the numbers of conflict-displaced and those in need of urgent humanitarian assistance continue to grow.

Rising Insurgency

After the transition to Afghan security forces in 2014, the thinly stretched ANDSF has been battling a growing insurgency on several fronts. According to the U.S. Special Inspector General for Afghanistan Reconstruction (SIGAR) only 57.2 per cent of 375 districts were under government control or influence by 1 February 2017, an almost 15 per cent decline since end-2015. According to the Special Inspector General, 6,785 Afghan forces were killed and another 11,777 wounded from January to November 2016, significant losses at a time when security forces are struggling with personnel retention. The UN Mission in Afghanistan (UNAMA) also reported a 3 per cent increase in civilian casualties (3,498 killed 7,920 wounded) in 2016 over the previous year. The number of high profile attacks in Kabul also was higher during the first three months of 2017 as compared to equivalent periods in previous years. On 21 April, Taliban gunmen and suicide bombers attacked an Afghan army base in the northern Balkh province, killing over 100 military and other personnel and injuring scores more. The army chief and defence minister both resigned the following day. Two attacks in March targeted police stations and a military hospital, killing 73 and wounding over 240 people.

Preventing the loss of more territory to insurgents, particularly during the anticipated spring offensive, is an urgent priority, notably in order to limit the scope of ungoverned spaces that could be exploited by regional extremists and transnational terror groups. With 8,400 troops already based in Afghanistan, the U.S. military leadership has requested a few thousand additional troops, a step that – if approved – would boost ANDSF morale and potentially could help blunt the insurgents’ offensive. But countering the growing insurgency also will depend on continued robust international financial and technical support, including honouring commitments made at NATO’s July 2016 Warsaw summit to advise, assist and train Afghan forces and provide them with annual funding of up to $4.5 billion until 2020.

Tackling the security situation also will require addressing widening internal disagreements and political partisanship that permeate all levels of the security apparatus and have undermined ANDSF command and control structures. Intra-governmental divisions likewise have impeded implementation of reforms necessary to mitigate the effects of corruption, nepotism and factionalism in the Afghan National Army (ANA) and particularly the Afghan National Police (ANP). Such weaknesses and overall government dysfunction played a major part in the 2016 Taliban advances in Kunduz city in the north, the siege of Lashkargah and Tirin Kot cities in the south, and, in March 2017, the Taliban capture of Helmand’s Sangin district.

Regional Neighbours

Amid ambiguity about the Western will to remain engaged, Afghanistan’s neighbours are more aggressively promoting what they perceive to be their own national security interests. This most notably is the case of Pakistan, whose relations with Afghanistan continue to be strained. Islamabad remains unwilling to facilitate talks between the Taliban and Kabul, and continues supporting its Afghan proxies, allowing them to recruit, fundraise, as well as plan and conduct operations from safe havens inside Pakistan. Pakistan in turn accuses Kabul of at best turning a blind eye, if not actively supporting, Pakistani tribal militants conducting cross-border attacks from Afghan territory.

No internationally-led negotiations will work unless there is a consensus among Afghans, both those backing and opposing the government, to pursue a negotiated peace rather than continued conflict.

Deteriorating bilateral relations have had other consequences. In 2016, Islamabad forcibly repatriated more than 550,000 Afghans (including 380,000 registered refugees) as relations with Kabul deteriorated because of heightened Taliban attacks in Afghanistan and cross-border attacks by Afghanistan-based Pakistani tribal militants. In February 2017, after a major terror attack on a Sufi shrine in southern Pakistan which was claimed by a Pakistani Taliban faction reportedly based in eastern Afghanistan, Pakistan closed its two main border crossings with Afghanistan – Torkham and Chaman – for over a month. It also conducted mortar and other military strikes on the bordering provinces of Kunar and Nangarhar. Though it has since reopened the crossings, Pakistan has begun to fence the border, a move certain to aggravate tensions insofar as Kabul does not recognise the Durand Line as the international boundary.

There are further complicating regional factors. Closer ties between Kabul and New Delhi, which has offered a $1 billion aid package and MI-25 combat helicopters to Afghanistan, are viewed as provocative by Islamabad. Iran long has been suspected of providing military hardware to some Taliban factions, a stance motivated partly by animosity toward the U.S. and more recently by the desire to counter IS-K. Russia also recently has upped its involvement, reaching out to the Taliban and, according to senior U.S military officials providing them with some military support, and proposing to lead a new negotiation process which could further complicate Afghanistan’s security dynamics.

Peace Negotiations

No internationally-led negotiations will work unless there is a consensus among Afghans, both those backing and opposing the government, to pursue a negotiated peace rather than continued conflict. External actors can lend a hand, through facilitation and other support, but the impetus has to come from within. In this context, the European Union (EU) and its member states should continue their technical and financial support to an Afghan-led peace and reconciliation process in its upcoming 2017-2020 EU Strategy for Afghanistan.

A second precondition for successful negotiations is for the U.S., still the most powerful and influential foreign actor in Afghanistan, to settle on a comprehensive political strategy. While the Trump administration’s Afghan policy remains a work in progress, there are clear indications it will maintain its presence in Afghanistan and likely enhance its military support. But it still must address the question of the optimal format and composition of the talks. The Quadrilateral Consultation Group comprising Afghanistan, China, Pakistan and the U.S. has been dormant since the May 2016 U.S. drone attack that killed Taliban leader Mullah Mansoor. Russia’s efforts to bring together Pakistan, China, Iran, India, and most recently Afghanistan, are more promising insofar as they include all regional stakeholders. But Washington declined Moscow’s invitation to participate in the process, concerned that Russia’s outreach to the Taliban, including some military support, could endanger U.S. stabilisation efforts and endanger the lives of U.S. forces in Afghanistan. Given the U.S.’s key role, its absence clearly would be to the detriment of the process. The EU should continue providing technical support to a negotiating process that has broad Afghan support, which the Moscow-led process currently lacks even with one of the principal stakeholders, the Taliban.

A third essential element is for Pakistan to become convinced that its interests would be better served by a political settlement in Afghanistan than by continued Taliban insurgency. This will require international efforts both to pressure Pakistan to shift course and to facilitate constructive dialogue between Islamabad and Kabul. The U.S. role will be central, including by conditioning continued military support to Islamabad on Pakistan working with Kabul to bring the insurgents to the negotiating table and rethinking its support to the Taliban’s Quetta Shura and the Haqqani Network, now fully integrated into the insurgency’s command structure. While the U.S. is best placed to pressure Pakistan to reverse its support for Afghan proxies, the EU and member states should use trade and diplomatic ties with Pakistan and financial assistance to Afghanistan as leverage to persuade them to peacefully resolve their differences.

The Humanitarian Situation

Afghanistan suffers from one of the most protracted humanitarian crises in the world. In 2016, which witnessed some of the worst fighting since the U.S.-led intervention in October 2001, 646,698 persons were internally displaced due to conflict, compared to 70,000 in 2010; this added to the roughly one million conflict-displaced in previous years. 2016 also saw one million Afghan refugees and migrants forced to return home from Pakistan and Iran. The EU’s plan to deport back home some 80,000 Afghans whose request for asylum was rejected will further strain Afghanistan’s capacity. More broadly, both Kabul and the humanitarian community, including UN agencies, estimate that 9.3 million people, or almost one-third of Afghanistan’s population, will be in need of humanitarian assistance this year. As security continues to deteriorate and both Pakistan and Iran force more refugees and migrants to return, the humanitarian crisis likely will worsen.

The overall humanitarian crisis is putting enormous pressure on Afghanistan’s already stretched public services and infrastructure, especially in urban centres, where 70-80 per cent of internally displaced and returning refugees tend to settle; most are jobless or under-employed, with little or no access to health care or education. Countrywide, as many as 1.57 million face severe food insecurity. Women and girls are often the worst off given the country’s socially conservative nature. Addressing the humanitarian emergency will require continued, robust and long-term international, including EU, economic assistance. While the UN Human Rights Council (UNHRC) should persuade Pakistan and Iran to end the forcible deportation of Afghan refugees and migrants, the EU and member states also should at the very least slow down deportations as security continues to deteriorate in Afghanistan.