- The Afghan central bank lacks cash to finance the economy
- Money squeeze hurts ordinary Afghans
- Rating written to lenders criticizes the central bank
- Official defends his actions but says some money has been “stolen”
FRANKFURT / MUMBAI, October 1 (Reuters) – The Afghan central bank ran down most of its US dollar cash reserves in the weeks before the Taliban took control of the country, according to an assessment prepared for Afghanistan’s international donors, exacerbating the current economic crisis.
The confidential, two-page letter, written in early September by senior international economic officials, said the country’s severe cash shortage began before the Taliban took control of Kabul.
It was written for use by donors and lenders, including the World Bank and the International Monetary Fund.
It criticized how the central bank’s former management handled the crisis in the months before the Taliban’s conquest, including decisions to auction off unusually large amounts of US dollars and move money from Kabul to provincial branches.
“Foreign exchange reserves (foreign exchange reserves) in CB’s (central bank) boxes in Kabul are depleted, CB can not accommodate … cash requests,” the report said, seen by Reuters.
“The biggest source of the problem is the poor management of the central bank before the takeover of the Taliban,” it added.
Shah Mehrabi, chairman of the central bank’s audit committee, who helped oversee the bank before the Taliban took over and is still in office, defended the central bank’s actions, saying it was trying to prevent a run on the local Afghan currency.
The extent of the cash shortage can be seen on the streets of Afghan cities, where people have been queuing for hours to raise dollar savings amid strict limits on how much they can withdraw.
Even before the shock of the collapse of the Western-backed government, the economy struggled, but the return of the Taliban and the abrupt end of billions of dollars in foreign aid have left it in deep crisis.
Prices for staples such as flour have risen in a spiral while work has dried out, leaving millions starving as winter approaches.
AID DRYS UP
Under the previous government, the central bank relied on $ 249 million in cash shipments, delivered approximately every three months in boxes of bound $ 100 banknotes and kept in the vaults of the central bank and presidential palace, according to three people with direct knowledge of the case.
This money has dried up as foreign powers shy away from dealing directly with the Taliban, who fought against foreign troops and the ousted government. Thousands of people – many of them civilians – died.
The central bank, which plays a key role in Afghanistan because it distributes aid from countries such as the United States, said on Wednesday it had finalized a plan to meet the country’s foreign exchange needs. It gave no details.
The harsh currency crunch makes it difficult for the Taliban to meet basic needs, including paying for power or spreading salaries to government employees, many of whom have not been paid for months.
Afghanistan’s about $ 9 billion of offshore reserves were frozen as soon as the Taliban captured Kabul, leaving the central bank with only the cash in its boxes.
According to the report, the central bank auctioned off $ 1.5 billion between June 1 and August 15 to local currency traders, which it said was “remarkably high”.
“On August 15, the central bank had an outstanding liability of $ 700 million and 50 billion Afghans ($ 569 million) to commercial banks,” it said, adding that this had been a significant factor in the emptying of its coffers.
However, Afghan central bank official Mehrabi said that although auctions of nearly $ 1.5 billion had been announced, the actual amount sold was $ 714 million.
He said the central bank had “continued its currency auction to reduce depreciation and inflation.”
The report also questioned a decision by the central bank to move some of its reserves to provincial branches, putting it in jeopardy as Taliban militants made progress across the country from the end of 2020 in the run-up to their victory.
It said about $ 202 million was held in these branches by the end of 2020, compared to $ 12.9 million in 2019, and that the cash was not moved when the provinces began to fall to the rebels.
“Some money has allegedly been lost (stolen) from ‘some’ of the provincial departments,” the report said without specifying how much.
Mehrabi said the central bank was investigating money “stolen” from three of its branches, though not by the Taliban. He gave no further details.
Former central bank governor Ajmal Ahmady, who left the country the day after Kabul’s fall, did not respond to emails and other messages requesting comments on his and the bank’s actions in the months before the Taliban returned to power.
Ahmady has said on Twitter in recent weeks that he did his best to manage the situation, blaming any cash shortage on the freezing of central bank assets abroad.
In his statements, he also said that the central bank had managed the economy well before the fall of Kabul and that he felt bad about leaving the staff, but feared for his safety. He has said no money was stolen from any reserve account.
($ 1 = 87.8700 Afghans)
Additional reporting by James Mackenzie; writing by John O’Donnell; Edited by Mike Collett-White
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