Afghanistan is preparing for even greater economic disaster

The Taliban’s takeover of Afghanistan raises new fears for financial experts, who are closely following the country’s already fragile cash-based economy.

The Afghan currency, Afghani, has fallen to record lows, according to Bloomberg. Afghan United Bank, which had published regular Afghan exchange rates on Facebook, stopped doing so on Thursday. A day earlier, Ajmal Ahmady, the acting governor of Afghanistan’s central bank, tweeted that he had fled the country.

All of this happened after a hurry was reported with local cash withdrawals and Western Union announced that it suspended money transfer services to Afghanistan “until further notice.” Western Union spokeswoman Rachel Rogala referred to the company’s tweet and declined further comment. MoneyGram also appears to have stopped its services, and it did not respond to a request for comment.

A Taliban fighter stands at a kiosk selling sugar cane juice at a market area in the Kote Sangi area of ​​Kabul on August 17, 2021.Hoshang Hashimi / AFP – Getty Images

Members of the Afghan diaspora have a harder time sending money and getting cash in the hands of their loved ones. This is especially challenging as almost all Afghans do not have bank accounts and many people depend on money transfers from relatives and friends abroad, not only in the US but also in neighboring countries like Iran and Pakistan. About 4 percent of Afghanistan’s gross domestic product comes from such personal remittances, according to the World Bank, a recent high level.

Serina, 27, an Afghan American woman living in the United States who asked to withhold her last name for fear of her family’s safety, said she regularly sent money to Afghanistan via MoneyGram, typically $ 400 at a time. Her father-in-law would go to a bank to pick up the money. As recently as July, she said, she sent $ 700 – more than usual – in honor of Eid al-Adha, one of Islam’s most important festivities. A few days ago, she successfully sent $ 400.

“We sent money last Friday and he went shopping on the 14th and on the 15th the city fell,” she said, talking about Kabul. “I wish we had sent more.”

Even before the Taliban completely took over the country, inflation was high due to the coronavirus pandemic and the perpetually unstable political situation, she said, with the price of bread recently rising from 20 Afghans to 200 Afghans, about 25 cents to $ 2.50.

Since the takeover, the banks have remained closed, so there is little convenient way for many people abroad, like Serina, to send money home. Her usual channels for sending cash, MoneyGram and Western Union, are closed.

“The newcomers after 9/11 are definitely sending money to their family members in Afghanistan,” said Aisha Wahab, a city council member in Hayward, California, in the San Francisco Bay Area, a city adjacent to Fremont, which is believed. to be home to the largest Afghan American community. “But the Afghan banks are running out of cash and they are actually not even able to give the Afghan people in Afghanistan the cash that they are rightfully getting.”

Falling assets

The fall to the Taliban over the weekend follows decades of problems for Afghanistan’s economic system. When the US military invaded Afghanistan following the terrorist attacks of September 11, 2001, the Afghan financial system was “almost non-existent”, according to a report released by the Special Inspector General of Afghanistan’s Reconstruction in 2014.

Much of the country has been in an almost perpetual state of war since the Soviet Union invaded in 1979. At various times, several currencies were circulating, The Associated Press reported in 2002.

In 2018, the World Bank estimated that only 10 percent of the Afghan adult population had bank accounts.

Today, the entire Afghan annual gross domestic product is the size of Idaho’s economy, or about $ 78 billion, according to the CIA World Factbook. But Afghanistan’s 37 million people are more than 20 times the population of Idaho.

Future prospects

As recently as April, the World Bank proclaimed that “Afghanistan’s economic and development prospects remain very uncertain,” adding that “Afghanistan has no domestic debt market and concerns about debt sustainability limit future external borrowing.”

A UN report in June said the Taliban were mainly funding themselves through illegal means: “The primary sources of Taliban funding remain criminal activities, including drug trafficking and opium poppy production, extortion, kidnapping for ransom, mineral exploitation and tax revenues in areas below Taliban control or influence. “

It is unlikely that the Taliban will be good stewards of the economy, experts said.

“I think it’s going to look a lot like what happened to Cuba. Currency controls are going to be strict,” said Belinda Román, a professor of economics at St. Mary’s University in San Antonio, noting that Cuba, like Afghanistan, needs stable money or “hard currency” to buy almost all the imported goods it needs.

“I do not think you will easily be able to get money into that country,” Román said.

Administration officials are discussing ways to prevent Afghan-owned financial assets from falling into the hands of the Taliban, a senior administration official said. One option is to issue guidance to U.S. banks that would effectively freeze assets, but no decisions have been made, the source said.

Preparing for the worst

Still, it is likely that at least some affluent Afghans saw the economic disaster looming.

“The wealthy would have already seen it coming weeks ago and gotten their money out or turned it into something negotiable – gold, silver, land, commodities,” said Dwaine Plaza, a sociology professor at Oregon State University who has researched money transfers. . via e-mail.

“It is now primarily the middle class and poor people who suffer from a lack of cash. Look for hyperinflation soon – as the economy tries to land on a currency to be used in the market, groceries, petrol, spare parts, etc., “said Plana.

Similarly, Kay McGowan, a co-founder of Future State, a not-for-profit initiative of the United Nations Fund, formerly Director of Digital Financial Inclusion at the US International Development Agency, said “it will not get any easier” for the Afghan economy.

“It will be difficult until the situation stabilizes,” she said. “The central bank was the last bank that was even able to have US dollar accounts.”

Meanwhile, Serina, who talks to her relatives through WhatsApp and is desperately trying to help them, said her father-in-law and other extended family members will not even be able to buy groceries if something does not change soon.

“Without funds, their groceries will last about a week, and even with that amount, they have to be careful about what they eat,” she said. “If they eat sparingly, it will last about a week.”

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