Monday, September 27, 2021

INFORM.INSPIRE.UPSKILL

INFORM.INSPIRE.UPSKILL

Monday, September 27, 2021

AFGHANISTAN’S ECONOMY ON THE EDGE OF COLLAPSE, AND PAKISTAN SHOULD BE PREPARED FOR THE CONSEQUENCES

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Almost all of Pakistan’s attention has been focused on political discussions around the establishment of a new government as it observes the dramatic turn of events in neighbouring Afghanistan. This attention is not wasted, since the establishment of a multi-ethnic, inclusive, and representative government in Afghanistan is intrinsically connected to long-term peace. Afghanistan’s immediate problem is that it is on the verge of complete economic and financial collapse. If left uncontrolled, the impending economic catastrophe would result in relentless civil instability, driving millions of migrants to Pakistan.

UNCERTAINITY IN THE ECONOMY


Even before the US chose to leave, Afghanistan’s economic prospects were bleak. Afghanistan was a textbook example of a demand-driven, supply-constrained, highly open economy struggling with a massive budget deficit and low government revenues. Foreign aid accounted for three-quarters of the budget and around 42% of GDP. Over the previous few years, the withdrawal of multinational soldiers has resulted in considerable budget cuts by foreign nations. This decrease, along with the Afghan economy’s failure to attract foreign direct investment, began to put the brakes on the economy. According to the Asian Development Bank, around two-thirds of Afghans live in poverty, with a daily income of $1.90. Afghanistan’s economic position is going to deteriorate worse. Immediately following the establishment of the new political system in Kabul, there were extensive bank runs, and ATMs quickly ran out of cash. When consumers are forced to hoard cash due to uncertainty, economists call this a “liquidity trap,” which brings economies to a halt. Because the US and the International Monetary Fund have restricted Afghanistan’s access to its foreign exchange reserves, the government today has no capacity to acquire food, basic commodities, or life-saving medications. These poor economic conditions will drive an increasing number of Afghans into abject poverty and suffering. As a result, there will be a massive refugee migration to Pakistan. Thousands of people are said to have crossed into Pakistan via Chaman in the early aftermath of the Taliban’s takeover.

PAKISTAN’S ROLE


Pakistan, however, is unable to accommodate an additional few million Afghan refugees. Due to economic limitations, Pakistani authorities were only able to allocate a meagre 168 billion Pakistani rupees to the Benazir Income Support Programme/Ehsaas Kifalat despite rising poverty rates. Despite the lack of resources, a fresh wave of migrants would present Pakistan with a variety of significant social, economic, and political difficulties. Furthermore, the majority of Afghan migrants will seek low-wage work in the informal economy, displacing Pakistanis who are already impoverished. Finally, increased strain on public services, education, and employment would almost always result in racial strife. Despite the fact that Western nations have taken planeloads of Afghan teachers, physicians, and nurses, they have wiped their hands of the country and made it plain that they would not welcome any Afghan refugees. Afghan and Pakistani authorities must work together to help the people of this war-torn country, and the Afghan economy must be stabilised quickly in the near term.

-Yukta Gulia
(Senior Journalist)

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