The Future of Assistance for Afghanistan: A Dilemma

Daniel F. Runde, Annie Pforzheimer, Thomas Bryja, and Caroline Smutny

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Afghanistan has largely disappeared from the news, but it remains at the center of one of the world’s most persistent, severe, and complex humanitarian crises. Almost three years after the Taliban retook power in August 2021, Afghanistan has achieved a moderate degree of stability but remains in a highly precarious position. Taliban leaders inherited tremendous macroeconomic problems when they assumed control of the country. Before the collapse of the Islamic Republic of Afghanistan, foreign aid was equivalent to 40 percent of the nation’s GDP and financed over half of the government’s $6 billion annual budget and 75 to 80 percent of total public expenditures. The sudden regime change was followed by the abrupt withdrawal of all international aid, plunging the country into economic free fall and precipitating a catastrophic humanitarian crisis.

The shock to Afghanistan’s economy was compounded by immediate diplomatic and financial isolation. Consistent with long-standing U.S. and UN sanctions against Taliban leaders, many of whom were named to key cabinet positions, the United States and Europe froze nearly $9.5 billion of Afghanistan’s external reserves, leaving the Afghan central bank, Da Afghanistan Bank (DAB), deprived of assets and cut off from the global financial system. This resulted in an acute liquidity crisis, the cessation of normal financial transactions with foreign banks, and the immobilization of the country’s commercial banking sector. In order to protect some of the frozen funds from being claimed as damages by family members of September 11 victims, who had won a $7 billion default judgment against the Taliban in 2011, the Biden administration diverted $3.5 billion of these assets to establish the Swiss-based Fund for the Afghan People, or Afghan Fund, with the intention of using targeted disbursements to support Afghanistan’s macroeconomic and financial stability. As of 2024, however, the fund remains untapped.