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Afghanistan and Regional Connectivity

Since the US withdrawal from Afghanistan after a long war spanning around two decades, the situation in this war-ravaged country has changed rapidly. The world is still amazed at the manner and pace with which the Afghan Taliban have gained control over the entire Afghanistan – without any bloodshed and in a short period of time. From the initial actions taken by the interim Taliban government and the announcements it made immediately after taking over the country — e.g. announcement of a general amnesty and some other steps that helped prevent the chaos – it seems that, unlike in the past, the attitude of the Taliban has softened. That is a good omen for peace in this country. A peaceful Afghanistan offers a lot of opportunities for the economic development of this part of the world. Seeing these opportunities, China has announced financial assistance for Afghanistan. Pakistan has also sent relief goods there in a spirit of goodwill, which will surely bring relief to the people there.
For the first time since 1973, Afghanistan has a government that controls the whole of the country. China and Russia have openly supported the Taliban as it is in their interest to help them and to bail them out in the current difficult situation. Pakistan, too, has persistently urged the world to give Taliban time to install a government and run the country in a smooth manner. Pakistan has the potential to achieve peace and stability in the region. In the past, some movements in China, Russia and Pakistan have supported the Taliban, but now they are assuring that Afghanistan’s territory will not be used against any country. This situation will also benefit Pakistan as it will be able to strike gas deals with Central Asian countries and, above all, the China-Pakistan Economic Corridor (CPEC) project. It’s a golden opportunity and we need to take advantage of it wisely.
Although the Taliban government has, before it, huge challenges on both external and internal fronts, the most formidable is an economy that is on the verge of collapse. The country’s economy was already extremely fragile, heavily dependent on aid — a nation is considered aid-dependent when 10% or more of its gross domestic product (GDP) comes from foreign aid; in Afghanistan’s case, about 40% of its GDP was international aid, according to the World Bank.
When it became clear that the Taliban would gain control of Kabul, Western powers, including the United States and Germany, suspended foreign aid to the country.
The US Federal Reserve has “frozen” all of Afghanistan’s foreign exchange reserves in its hands, amounting to some $7 billion. While intended to block misuse of these funds by the Taliban, this action also means that Afghanistan’s central bank has no ability to manage the exchange rate by trading its dollar and other reserves for the local currency, potentially leading to a collapse of the afghani, a plunging exchange rate and hyperinflation.
The International Monetary Fund (IMF) has similarly frozen the Afghan government’s access to IMF resources (its so-called Special Drawing Rights, or SDR), which otherwise could have been deployed to help manage both the balance of payments and the government finances. The SDRs include Afghanistan’s $450 million share from the global IMF quota increase in response to Covid, which countries are supposed to have access to automatically.
Along with other donors such as Germany, the World Bank has stopped all disbursements of its own resources and donor-contributed Afghanistan Reconstruction Trust Fund money to Afghanistan — including both direct support to the Afghan budget and high-priority development projects such as basic public health and rural development. The Asian Development Bank also has suspended disbursements.
So, meeting the basic needs of the Afghan people is a huge challenge for the Taliban and combating it is not possible without external cooperation. China, Russia and Pakistan should help them in every possible way. China’s interests are more related to Afghanistan than Pakistan, the success of OBOR and CPEC project is linked to peace and stability in Afghanistan. China has played a good role in tackling the current difficult situation by announcing $300 million in aid to Afghanistan. This will bring some relief to the Afghan people.
Afghanistan can also harness its potential as the “heart of Asia” and connect the South and Central Asian regions. The five Central Asian countries have been isolated to the south by war-torn Afghanistan, to the east by rough terrain with nearly impassable mountains, and to the west by Iran, making engagement with South Asia both implausible and difficult. And though connecting the regions completely would be a lengthy process requiring the expansion and improvement of infrastructure across Afghanistan, achieving it would unlock opportunities for all: for Afghanistan, building infrastructure to integrate the regions would stimulate the country’s fragile economy; and for South and Central Asian countries, doing so would not only increase regional engagement but also serve their economic interests and open up access to new markets. Such infrastructure would increase trade and the flow of people and ideas between both regions — and the additional flow would stimulate innovation, job creation, and economic growth. Regional connectivity is also crucial to harnessing the economic potential of South and Central Asia’s youth bulge; the median age in both regions is 27.6 years old. Given these potential benefits, South and Central Asian countries have a strong incentive to partner in support of a stable, peaceful and democratic Afghanistan.
Energy infrastructure projects are already underway to connect the regions: The Central Asia-South Asia Electricity Transmission Project (CASA-1000) will send surplus hydropower in Central Asia to communities in South Asia, while the Turkmenistan-Afghanistan-Pakistan Power Interconnection Project will help support power trade among the parties and the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline will run gas throughout the participating countries. A more comprehensive project, the Central Asia Regional Economic Cooperation Program, brought together eleven countries across Central, South, and East Asia to promote development. But new road and railway infrastructure will be essential to open corridors and maximize the benefits of regional connectivity.
All five Central Asian countries are landlocked and, in a geographical sense, partially surrounded by two major powers: Russia and China. Economically, too, Central Asia is surrounded: Russia and China tend to dominate the region’s imports and exports. Creating land corridors through Afghanistan would give the Central Asian countries access to Iran in one direction and to Pakistan, India, and the greater Indo-Pacific region in another. Doing so would also provide Central Asia with alternatives to its inefficient and expensive routes through China to access the global market and overcome both its isolation and its dependence on Russia and China.
Regional connectivity would also help restart Afghanistan’s fragile economy, most notably by connecting Afghanistan to the region’s largest market in India. Improved infrastructure would offer countries the opportunity to trade an array of goods via land routes that are more cost efficient than existing air routes. The economic links that come with new infrastructure would also encourage South and Central Asian countries to engage with Afghanistan through both the public and private sectors. Private-sector engagement could increase investment in Afghanistan, while public-sector engagement could encourage governments to incorporate Afghanistan into regional programming and multilateral initiatives such as the US-Central Asia platform C5+1.
Pakistan, too, would benefit from a peaceful Afghanistan. A direct land route to Central Asia through Afghanistan would provide Pakistan a more efficient and convenient alternative to its current routes through Iran or China. With this connection, Pakistan would be able to access new markets for its goods and strengthen ties with its Muslim-majority neighbours—two opportunities that are key to fulfilling a pillar of its 2025 vision, which aims to modernize transportation infrastructure and greater regional connectivity, along with the country’s goal of refocusing its foreign policy around geoeconomics. Pakistan could, for instance, leverage its strong agriculture sector to provide short-term food relief to Turkmenistan, where the Covid-19 pandemic has exacerbated an existing food crisis. This exchange would lay the foundations for a long-term partnership.
Afghanistan can leverage its strategic geopolitical position to not only begin to rebuild its economy but also to help the region achieve greater prosperity. Yet that only underscores the need for countries in the region to prioritize the task of crafting consensus for peace in Afghanistan, a necessary condition to harness this untapped potential.
The writer is a member of staff.