Afghanistan is experiencing the mother of all "sudden stops"
i.e. economic collapse resulting from a sudden stop of foreign money that was financing a large trade deficit
Afghanistan was financing a trade deficit of ~ 25% of GDP
i.e. economic collapse resulting from a sudden stop of foreign money that was financing a large trade deficit
Afghanistan was financing a trade deficit of ~ 25% of GDP
How large is 25%? It is about 3 times as large as the largest sudden stops in recent history such as east asia, southern europe, mexico etc.
And it gets even worse
~9B$ of their reserves have also been frozen, and there's no other credit line
And it gets even worse
~9B$ of their reserves have also been frozen, and there's no other credit line
So what happens when there's a sudden stop?
in the absence of foreign money, the only way left for the economy to balance its imports is to contract, i.e. GDP falls so demand falls, so imports fall
exchange rate devalues a lot too to cut imports
in the absence of foreign money, the only way left for the economy to balance its imports is to contract, i.e. GDP falls so demand falls, so imports fall
exchange rate devalues a lot too to cut imports
It is a very painful process
It is this "sudden stop" that makes Taliban's second coming very different from their first in economic terms
The first time they came to power, Afghanistan was a subsistence economy with no particular reliance on foreign flows for local demand
It is this "sudden stop" that makes Taliban's second coming very different from their first in economic terms
The first time they came to power, Afghanistan was a subsistence economy with no particular reliance on foreign flows for local demand
So ordinary Afghans did not experience as large a negative decline as they are going to experience now
It seems like its going to be a much tougher road for the Taliban this time
It seems like its going to be a much tougher road for the Taliban this time
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