By Dhruv Shah
The recent toppling of the pro-Western government in Afghanistan has allowed the Taliban to re-establish control over the country. With limited foreign financial backing, the swift recapture of the country in a matter of weeks has surpassed all expectations; revealing a militant group which is extremely wealthy. The Taliban’s declaration of an Islamic Emirate of Afghanistan means they are firmly back in the seat of power in Afghanistan. Yet, the Taliban now confront the hard challenges of governing the economy. Afghanistan is a country where 80% of its budget is financed by the US and international donors. With the US blocking access to the country’s central banking reserves, the country is at risk of high inflation and the Taliban unable to pay public servants. Faced with minimal financial assistance from foreign powers, a Taliban run Afghanistan is very likely to face considerable financial obstacles in the future.
Underpinning much of the Taliban’s success in taking over Afghanistan has been their financial independence, which has allowed them to self-fund their uprising with minimal support from foreign governments. Since their fall from power in 2001, the Taliban have maintained a long running insurgency across parts of the country. To fund this they have run a “state like economy in areas they have controlled.” Tracking flows of militant funding is notoriously difficult, but the BBC predicts that the annual income for the insurgents in 2011 was upwards of £316 million; a number estimated to have risen as high as £1.1 billion by the end of March 2020, according to a leaked NATO report.
The greatest source of income comes from legal and illegal taxation. For years, the Taliban have utilised strong arm tax collection tactics under areas of their control. This includes traditional taxes on production such as oshr, a one tenth tithe of harvest produced, and zakat, a religious tax of 2.5% of disposable income for the poor. Other taxes focus primarily on taxing imports and exports within the country. With the Taliban controlling customs and important border crossings, they have greater oversight and ability to squeeze taxes from Afghani people. Examples of taxed goods include anything from medicine, food, fuel and cigarettes. However, if strong arming does not work, the Taliban can always resort to kidnapping and blackmail.
Another important source of income for the Taliban is the trade of opium and other narcotics. Afghanistan is the perfect country to take advantage of this, providing around 84% of global opium production, according to a 2020 UN World Drug Report. Most of the growing and cultivation takes place under Taliban controlled areas, with the Taliban imposing taxes at several stages of the process, for instance, a 10% cultivation tax is imposed on opium farmers. In fact, the Taliban’s share of the illicit drug market is estimated to net them profit anywhere between $100 – $400 million, which has led analysts to describe the Taliban as the “world’s biggest drug cartel.” In recent years, the Taliban have been more akin to ‘breaking bad’, diversifying from heroin into methamphetamine – a drug with relatively low costs and high profit margins.
However, a poppy tightrope could undermine this source of income. The Taliban have gradually been losing market share of the established European markets to synthetic opioids. These opioids are produced in China and India and are preferred by drug traffickers as they are less bulky. They are already taking over North American and African markets and can easily replace Afghan opium. Moreover, heroin production has long been frowned upon by the international community with several attempts at banning opium production, occurring in the past – the Taliban in 1990s and by the international community post 2002.
Much like the 1990s, the Taliban realise that legitimacy and support are required to sustain a long-term future for the country. However, many countries will not provide it if the one of the most important sources of income for the government is dependent heavily on illegal means. Many of the neighbouring states such as Iran, China and particularly Russia will be happy to see a ban on opium production. In fact, the Taliban have stated that there will be “no drug production and smuggling.” Yet, this is an unrealistic goal: cracking down on opium production risks foregoing an important source of finance for the Taliban.
Yet, failing to ban opium production could prove to be as detrimental for governing the country. Afghanistan has long been dependent on foreign aid, with formal legal revenues making a small portion of the country’s revenue and budget. Western economies, including the EU member states have cut off a promised $1.4 billion in emergency aid and development assistance to the country, following the Taliban’s takeover – funds contingent on conditions such as stopping illicit drugs, promoting human rights and protecting freedoms for women and children.
The US and IMF have followed suit, freezing $9.5 billion in Afghanistan’s central bank assets. The impact of this, as argued by Chatham House, will create economic pressure by dropping cash liquidity and pushing up inflation, raising food prices and making it much harder for the average Afghani citizen to survive. With the value of the Afghan currency predicted to collapse in such an event, it is uncertain exactly how the Taliban will continue to pay civil servants without relying further on taxation and illicit activities.
Non-Western countries may intervene, but results are looking mixed. Countries such as Saudi Arabia, United Arab Emirates and China have been accused by the US of funding the Taliban since the 1990s, recently, however, they have not been as generous with their aid. The UAE has been documented to provide only small pots of money towards militias and political proxies as opposed to large financial handouts, while Pakistan – a country which has long provided support for Taliban — continues to economically stagnate. China’s deep pockets may be the Taliban’s best bet. China has stated that it will aim to play a “positive role” in rebuilding the country and has been one of the first countries to engage in talks with the Taliban. However, China has remained equally cautious. Concerned by the threat of terrorism spilling over the borders of Afghanistan and its wider impact on the Belt and Road Initiative, China has remained hesitant in resuming the mining contracts within the country to extract an estimated $1 trillion worth of minerals.
As the Taliban continue to govern Afghanistan, it is clear that financial issues are imminently on the horizon. The biggest problem facing the Taliban is a shortage of legal funds which makes it near impossible for them to remain linked within the international financial system. With millions and millions of frozen assets and painful sanctions looming over the country, the Taliban are facing a cash crunch which can only be avoided through international aid. Aid which is unlikely to come. Western economic pressure is aiming to drastically transform the Taliban regime away from more oppressive policies or bankrupt the militant group in the process. This tactic is unlikely to work. At best, the combination of pressure can blunt the more hard-line behaviour the group may possess. At worst, the economic pressure creates a precarious humanitarian situation within the country: allowing countries like China and Russia to swoop in and provide vital support to the Taliban at the expense of the West.