One year ago, in the aftermath of the Taliban’s return to power in Kabul, Western policy was pushing Afghanistan to the brink of collapse. Humanitarian groups warned that U.S. sanctions and other restrictions were choking the Afghan economy and could lead to famine, large-scale migration, and regional instability. In a series of quick decisions that may have saved millions of lives, the United States and like-minded countries changed course, taking action to mitigate the catastrophe they had left behind in Afghanistan. The United States granted the most sweeping exemptions in the history of U.S. sanctions and, with Western allies, sent planeloads of humanitarian aid to the country.

As a result, Afghanistan’s economic free fall slowed and a famine was averted, though many Afghans still face starvation. Afghanistan has also become more stable: compared with last year, there is less violence, fewer people have had to flee their homes, and the Taliban are making some progress in clamping down on corruption and the trafficking of weapons and narcotics. Yet the Taliban regime also appears bent on isolating the country from the rest of the world, most notably by barring women and girls from broad swaths of public life.

The Taliban’s insistence on rolling out more restrictions on women and limiting other fundamental rights and freedoms has sparked an understandable backlash. Some Western officials are increasingly unwilling to countenance the kind of engagement that helped deliver lifesaving assistance in the past year. They want to block development aid, tighten sanctions, and isolate Afghanistan further.

Such punitive measures would only hurt the population without changing the Taliban’s stance. No matter how unpleasant the regime in Kabul—and the Taliban’s behavior certainly deserves condemnation—donors should take further steps to stabilize the Afghan economy. To avoid disaster, Western governments must grit their teeth and stop constraining Afghanistan’s chances for development.

A GOOD START

The United States and its allies started the year determined to mitigate the suffering of Afghans despite the awful conduct of the Taliban regime. In January, Taliban diplomats flew to Oslo for their first meetings in Europe since taking power. The Norwegian government endured criticism for bringing Taliban officials over on a private jet, but the meetings resulted in apparent breakthroughs. The Taliban suggested that they would open schools for girls of all ages; at the same time, European and U.S. envoys committed to supporting social services and the revival of Afghanistan’s economy.

A major step toward fulfilling that promise happened on February 25, 2022, when the U.S. Treasury Department issued General License No. 20, the latest in a series of U.S. and UN exemptions to sanctions on the Taliban and its members. The new U.S. license went beyond earlier humanitarian carve-outs, permitting commercial activity in Afghanistan and development support for Afghan state institutions. The United States was experimenting in an unprecedented situation: an armed group under sanctions had never before taken over a country, and the Treasury Department had never before had to grant exemptions on such a large scale. Some U.S. officials privately expressed concern that the breadth of the license could set a precedent that would weaken sanctions around the world or expose the Biden administration to political backlash.

As some donor countries worked to soften the damage done by sanctions, they also moved ahead with other relief efforts. In March 2022, the World Bank unlocked hundreds of millions of dollars from a trust fund for Afghanistan that had been frozen since the Taliban takeover. Donors pledged billions of dollars in humanitarian aid, although the UN estimates that Afghanistan requires billions more to satisfy basic needs. U.S. officials also started negotiations with the Taliban about Afghan central bank assets frozen in overseas accounts, looking for ways to use the money to shore up the country’s economy.

The effect was gradual but positive. Over the subsequent months, humanitarian organizations reported fewer problems in making the bank transfers to Afghanistan necessary to sustain vital operations. UN flights brought cash into the country and eased liquidity shortages, propping up the local currency. Afghans who lined up at the crippled banks to withdraw their savings managed to get a little more cash, and Afghans overseas had more success in sending remittances to desperate friends and relatives.

BAD FOR BUSINESS

Still, the sanctions carve-outs proved less effective than expected, as many financial institutions remained reluctant to work in Afghanistan and with Afghan companies and institutions. International banks feared reputational hazards, compliance costs, and fines for violating sanctions; banks were not convinced that profits in the Afghan market could outweigh those risks. As a result, Afghans continued to lack access to the international financial system. Money transfers took weeks or months to reach the country. Banks sometimes denied cash transfers altogether. U.S. officials gave some foreign investors and traders written assurances that their activities were permitted, but banks still refused to facilitate their transfers.

These difficulties presented an opportunity for hawaladars, informal brokers who transfer money using a traditional system based on trust that falls outside conventional banking networks. Such exchanges existed for centuries before the Taliban takeover, but the breakdown of regular banking has created new customers, including major aid organizations and businesses. After the Taliban takeover, hawala rates more than doubled, taking a bite out of money intended to feed hungry people and raising costs for businesses. Transaction fees were passed along in rising prices of food, fuel, and medicine. In Afghanistan, a country that depends on imports, the UN estimated that 20 million people—half the population—could not get enough food. Moreover, hawaladars operate in the shadow economy, avoiding controls on money laundering and terrorist financing.

One bank executive in Kabul said that he tried to restore banking connections to facilitate more affordable transfers than those performed by the hawaladars. He printed out a copy of General License No. 20 and flew to meet with regional banks, sharing the U.S. Treasury’s decision to prove that the Americans did not want to restrict Afghan trade. The tactic worked, he said, for some weeks, until U.S. banks told their regional partners that if they continued to do business with Afghanistan, access to U.S. banks could be compromised. Such headaches are a frequent complaint among Afghan business owners.

THE PERIL OF THE NEW NORMAL

The lingering chill of sanctions was only part of the reason why the Afghan economy remained on life support over the past year. Carve-outs alone were never going to be enough to counteract the economic shocks that followed the collapse of the former government and the cutoff of the foreign assistance that had covered 75 percent of public spending. Most of Afghanistan’s central bank reserves remained stuck in overseas accounts. Investor confidence collapsed, largely because the Taliban regime lacked international recognition.

The Taliban takeover also sparked an exodus of tens of thousands of educated Afghans, and the new regime’s clampdown on women’s rights sharply curtailed female participation in the professional workforce. Poverty had been rising since before the Taliban seized power, and farmers were already struggling with droughts and floods. The agricultural sector—the biggest employer in the country—has faced a growing challenge from climatic distress in recent years, with erratic rainfall and heat waves.

Not all the news was bad for businesses. According to some traders, the Taliban’s draconian rule has produced a more stable environment for commerce. The number of people who fled their homes as a result of violence dropped by 93 percent in the 14 months after the Taliban takeover compared with the 14 months prior, according to the UN. Predictions that leftover weapons would flood the region proved overblown, as the Taliban went door to door collecting guns and ammunition. Under the Taliban, truckers and merchants now have to pay fewer bribes than they did in prior years. The new Taliban authorities claimed to have collected strong revenues in 2022, exceeding government income for each of the last three years.

Aid workers in Kabul say that the economy is settling into a “low-level equilibrium,” a precarious new normal with the threat of famine still looming. Yet current funding levels are not sustainable and will soon decline as donors turn to other priorities such as the war in Ukraine and the growing crises in a number of fragile countries. As humanitarian aid shrinks, the root causes of Afghanistan’s economic distress will need to be addressed in order to prevent widespread suffering. Development agencies should be unshackled from political constraints, because donors cannot keep Afghanistan on life support indefinitely.

Sadly, many donors are tempted to pull the plug. The Taliban’s refusal to respect women’s rights forced Western countries not only to reconsider aid but also to think about new punitive measures such as stronger sanctions and restricting aid to the barest essentials. Western donors who believed the promises of Taliban diplomats about reopening schools felt betrayed as they watched in horror when Taliban hard-liners blocked girls from a large portion of public secondary schools in March 2022. The mood darkened in November 2022 as the Taliban further restricted freedoms by closing women’s bath houses, banning women from parks, barring women from health facilities unless accompanied by male chaperones, and forbidding women from exercising in gyms and public places.

MORE SANCTIONS, MORE PROBLEMS

But further isolating Afghanistan would backfire. Entrenching the country’s pariah status would hurt Afghans and run counter to the interests of the United States and its allies. The economy would crater. Inflation would soar, as it has in other heavily sanctioned countries such as Iran. When sanctions against Iran tightened in 2012 and 2013, consumer prices rose by more than 30 percent annually. Afghanistan is much poorer than Iran, and a similar shock could starve millions of people.

Beyond the threat of suffering on a grand scale, there are other reasons to avoid provoking a deeper crisis. The Taliban are willing to cooperate with the United States on security matters and sent their most senior intelligence official to Qatar for a meeting with the CIA in October 2022. For the United States and its allies, shutting down communication with the Taliban would limit opportunities for cooperation and foreclose channels for airing warnings about security threats. That could make it impossible for Washington to work with the Taliban on issues of mutual interest in the future, such as collaboration on border security, nonproliferation, and combatting the local chapter of the Islamic State, an enemy of the Taliban.

More sanctions will not change the minds of Taliban leaders, who for decades endured not only financial restrictions but also bombardment and night raids. In fact, sanctions give the most conservative Taliban leaders what they want: freedom from the foreign influences they fear are sources of corruption and moral decay. Already in early November 2022, NGOs received warnings from the regime to curtail their operations in the city of Kandahar, the home of senior Taliban clerics who would prefer not to see their streets teeming with aid workers who bring ideas from the outside world. Slamming the door on Afghanistan would be a gift to the mullahs who want to return their society to the Middle Ages.

The Taliban are willing to cooperate with the United States on security matters.

Faced with tough policy choices, some Western officials have fallen back on slogans such as “Help the people but do not help the Taliban.” This is appealing but impossible. For the country to emerge from crisis its economy needs growth, which will generate additional tax and customs revenues for local authorities and boost the capacities of the state to meet the needs of its people. Most steps along the way require engagement with the Taliban.

Take the example of Afghanistan’s electrical grid. Donors and regional countries have spent years developing an electrical corridor known as CASA-1000 that would traverse Afghanistan and connect suppliers in Central Asia with tens of millions of homes in South Asia. A deal negotiated under the previous Afghan government would earn Kabul more than $40 million per year in transit fees and also electrify parts of Afghanistan. The project would be a public relations bonanza for the regime. Western donors shudder at the thought of Taliban leaders cutting the ribbon to launch the project, but the corridor would help keep the lights on for millions of Afghan families.

Similar dilemmas have stalled other development projects. The Taliban have made themselves so politically toxic that international officials cannot work with them on a development plan, as donors would with the governments of other poor countries. Nor can they work with them to complete unfinished projects that were abandoned in 2021, despite the Taliban’s express desire to do so. Donors have already spent more than $2 billion on these projects, many of which are more than 80 percent complete.

UNPALATABLE BUT NECESSARY

Like it or not, the Taliban are in charge of Afghanistan. Donor countries do not need to normalize relations with the Taliban or refrain from criticizing their governance or human rights record, but they will need to set aside their reluctance to deal with a Taliban-controlled state. The rich countries that sent armed forces to Afghanistan in pursuit of their own security interests should feel a sense of duty about helping repair the country—and recognize that it is in their interest to do so, not least to contain security threats.

For all the horrors of Taliban rule, most of the country is now experiencing a respite from war for the first time in decades. There is no realistic way to compel the Taliban to change their regressive social policies or to overthrow them. The regime appears set to hold on to power for the foreseeable future no matter how much suffering the people endure and certainly without regard to the concerns or threats of Western officials. Instead of pushing Afghans into the wilderness with sanctions and other restrictions, the outside world should forge ahead with smoothing a beleaguered country’s path to economic recovery.

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