The United States Institute of Peace (USIP) in a report has highlighted the severe economic impact of reduced UN cash aid to Afghanistan, attributing it to the increasing demands of global crises. This reduction has left Afghanistan's fragile economy in a precarious state, the report said.
According to USIP, Afghanistan's economy is heavily dependent on cash transactions, informal hawala systems, and the widespread use of the US dollar. "However, the country's banking system is in disarray, plagued by international sanctions and a lack of global trust," USIP stated.
USIP said that Da Afghanistan Bank (DAB), the country’s central bank, faces significant hurdles in implementing macroeconomic policies. "Restricted access to its foreign reserves and severe limitations on printing afghani banknotes have further compounded these challenges," the report said.
William Byrd, a specialist on Afghanistan at USIP, stressed the need for sound economic management to mitigate the economic fallout, saying: “Minimizing the potential economic damage will demand sound macroeconomic management by the Taliban regime. Among other measures, the country’s economic policymakers will need to organize a gradual depreciation of the excessively strong exchange rate and ensure that there are adequate amounts of afghani currency notes in circulation.”
To address these challenges, USIP proposed several key solutions:
Reducing reliance on the US dollar.
Promoting the use of the afghani currency.
Establishing digital payment systems.
The institute also highlighted a sharp decline in humanitarian aid since 2022, which has significantly affected Afghanistan’s economy. Aid fell from $3.8 billion in 2022 to $1.9 billion in 2023, with only $1.2 billion provided so far in 2024, the report said.
USIP further suggested that Afghanistan’s frozen assets in Switzerland, including nearly $400 million in investment income, could indirectly stabilize the afghani currency. The report emphasized that these funds could be utilized for macroeconomic stabilization without granting direct access to the interim government.
The comprehensive analysis underscores the urgent need for coordinated measures to stabilize Afghanistan’s economy amidst dwindling aid and persistent structural challenges.