Afghanistan’s Economic Crisis

Lara Kajs | 3 June 2022 |

Afghanistan’s economic crisis is worsening. As humanitarian groups continue to distribute enough aid to avoid famine and sweeping starvation, the country hinges on collapse. In order to avoid complete failure, the root problems of the crisis must be resolved – and doing so will require the cooperation of all parties working together. Anything less and the ability to aid the Afghan people is moot.

Catalyst for Failure

The crisis has been accelerated by the combination of sanctions, interruption of aid, disruption to basic services such as education and healthcare, extreme hunger, high unemployment and inflation, currency shortages, termination of international payments, and due to anti-money laundering and countering the financing of terrorism: asset freezes.

Loss of human capital as tens of thousands of highly qualified and skilled Afghans fled the country, and new restrictions were imposed on women’s participation in the private and public sectors, added to the crisis. Starvation conditions impacted thirty-nine million people in the country. UN agencies and their partners have provided aid to twenty million Afghans – but still much more is needed. Distrust of the Taliban and disbelief that they would hold to any of the progress made in the country over the previous two decades has created a vacuum, and trapped in the middle of all of this are the Afghan people.

Approximately eighty-five percent of NGOs operating in Afghanistan reported the inability to transfer funds from overseas and limited access to cash – disabling their operations. Eighty-two percent of families have lost income since the takeover. One in five families is sending children to work for penny wages. Nearly ten percent of the population has resorted to begging for money or food. A huge increase in the price of food has left much of the population unable to afford to feed themselves or their families.

There is desperation. Children are extremely ill, many have not eaten a meal, but have literally existed on bread for months. Parents are having to choose which of their children get to eat – and no parent should have to make that choice.

The Taliban – Conduit for Collapse

Although the Taliban does not have international recognition or support, at the moment, it is in control of the country. Taliban leadership is under UN and US sanctions. At the core of the deteriorating economic infrastructure is the collapse of the banking system. Donor governments cut financial support and $9 billion in Central Bank assets have been frozen, which is attributed to seventy percent of government funding. The decision by the US and other governments to cut off the Afghanistan Central Bank from the international banking system led to a mass liquidity crisis and currency shortages in both US dollars and Afghanis.

Even when funds are wired into the banks, the lack of tangible currency prevents them from issuing cash. It simply does not exist – there is none. Regulations and the fear that banks may violate UN and US sanctions on the Taliban put banks in an impossible position – whether to take a risk and meet incoming dollar transfers from outside the country or refuse.

The World Bank cut approximately $2 billion in outside international funding that was previously distributed through the Afghanistan Reconstructive Trust Fund (ARTF). The funding was designated to pay the salaries of essential workers such as teachers and healthcare workers. The World Bank also cut funding from USAID and the International Monetary Fund (IMF). Due to these cuts, four in five households lost their incomes.

After the Taliban took control, most of the leadership of the Central Bank resigned and fled the country. The Taliban appointed new leadership that was not certified by other governments to engage in international transactions on behalf of the Central Bank or permitted to access accounts and assets internationally. The US used its influence at the World Bank to revoke the Central Bank’s credentials and block the bank from accessing World Bank grants and assets, as well as blocking its foreign currency including that in Europe, the Bank of England, and the New York Federal Reserve, totaling $9 billion – $7 billion of which was at the Federal Reserve. This is not Taliban money… all of this money belongs to the sovereign wealth of Afghanistan.

The sanctions, which are not new but have been in place since 1998 after the Taliban aided Al Qaeda in carrying out attacks on two US embassies in Africa, target the Taliban as an armed group, not as a government. Also important is that there are no sanctions against Afghanistan itself, and there are no sanctions against the Central Bank. However, since the Taliban listed its members in the administration at the Central Bank, and since the Taliban has not been recognized as the government of Afghanistan, it does not have access to the funds that belong to the country – the people of Afghanistan. Should the Central Bank come under different leadership that is approved and on record to the US – then, and only then, would they have access to the assets of that country in the US.

Viable Options for Recovery

Restoring the Central Bank’s credentials should be the first step in resolving the economic crisis. The UN, governments, the World Bank, and the Taliban need to make an agreement that everyone will accept and adhere to, that will allow the Central Bank to have access to the international banking system. This may mean approving and allowing an outside source to have access and oversight of all the financial transactions for the Central Bank. Once that situation is cleared, then the Central Bank would have access to at least $3.5 billion, which would settle many of the economic issues in the country including accounts with the World Bank, and also settle deposits with humanitarian agencies. Humanitarian assistance alone will not solve the problems in Afghanistan – the country must have bank access to its financial wealth to function.

The Taliban should cooperate with all agreements and allow systems and programs to work, for the good of the country and all the people. Excluding half the population is not for the good of Afghanistan. Giving up a nation’s wealth because it does not want to cooperate with the rest of the world, is not in the best interest of the people. The Taliban wants to be recognized as the official government of Afghanistan, it needs to start behaving like true leadership and less like a terrorist group whose sole purpose is to oppress the people.

The bottom line is this: the Afghan people did not invite the Taliban to take control of their country. The Taliban seized the country piece by piece and then took advantage of the US (and others’) departure. Seize the Taliban’s assets. The sovereign country of Afghanistan and the Afghan people are not the assets of the Taliban, they are the victims.

Photo Credit: United Nations Photo – Maslakh Camp for Displaced Afghanistan. License by CC. 2.0 International license.