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Afghanistan faces ‘dire’ financial outlook, ex-central banker tells FT

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The people of Afghanistan are facing “dire” financial prospects, the former head of its central bank has warned, cautioning that an acute shortage of dollars and higher inflation will fuel the flow of migrants out of the country.

Ajmal Ahmady, who escaped Kabul on Sunday, told the Financial Times that Afghanistan had been dependent on bulk shipments of dollar reserves from the US and was now rapidly running short, leading to the likelihood of higher food prices and capital controls.

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“If people think, it’s bad but it’s over, I think they’re underestimating the impact . . . we’ve finished the military phase and now we’re going to start the economic phase of the impact,” Ahmady said in a telephone interview on Wednesday.

“It’s going to be quite dire” when “people will not be able to access the funds they need from the banking sector”, he warned.

Ajmal Ahmady says most of Afghanistan’s $9bn in foreign reserves are held outside of the country and have already been frozen

The Afghan economy has a large trade account deficit and is dependent on military spending, foreign aid and access to about $9bn of currency reserves. All of these sources of funds have been extinguished or are drying up, Ahmady said, adding that living standards would now drop “significantly”.

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“If you think the situation at the airport is now bad, I think over the medium term, you’re going to see major, major migration flows from Afghanistan and, unfortunately, if Europe or other countries think that they could stop that, you simply can’t,” he said.

Ahmady’s comments came as the Taliban leadership was rushing to work out how to run Afghanistan after the militant Islamist group’s exiled leaders returned to a country that had changed profoundly since it was driven from power 20 years ago.

Afghanistan had $9bn in foreign reserves last week, but most of this is held in international accounts which have been frozen, Ahmady said.

The Biden administration has blocked Taliban access to Afghan central bank reserves held in US banks, a US official told the Financial Times. Some Taliban members are on the US sanctions list.

Map showing the Taliban's march to seize control of Afghanistan

The Afghan government is due to receive an unconditional disbursement of special drawing rights from the IMF on Monday worth an estimated $460m, as part of the fund’s global programme to deal with the coronavirus crisis. SDRs are a form of reserve asset that are equivalent to newly minted money.

In Washington, Republican lawmakers have urged the Treasury department to cut off this source of funding too.

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“The potential of the SDR allocation to provide nearly half a billion dollars in unconditional liquidity to a regime with a history of supporting terrorist actions against the United States and her allies is extremely concerning,” said 18 members of the House of Representatives in a letter to Treasury secretary Janet Yellen on Tuesday.

As the IMF’s largest shareholder, the US holds significant sway and international recognition of the member country’s government is critical to any disbursement.

The UK and Canada have already said they will not recognise the Taliban-led government, and Russia has said it is in no rush to do so. A person familiar with the matter said the fund would be guided by its member countries.

General Frank McKenzie of the US disembarks from a C-17 Globemaster aircraft after landing at Hamid Karzai airport in Kabul
General Frank McKenzie of the US arrives at Hamid Karzai airport on Tuesday. He said he had warned Taliban leaders ‘against interference in our evacuation’ © Capt. William Urban/Dod/dpa

A financial crisis would complicate the Taliban’s efforts to consolidate power after driving President Ashraf Ghani and most senior government officials into exile.

Abdul Ghani Baradar, the Islamist group’s top political leader, returned to Afghanistan on Tuesday after two decades, flying into the southern city of Kandahar from Qatar, where he has lived since the US secured his freedom from a Pakistani jail in 2018.

Baradar, who helped negotiate the 2020 deal with Donald Trump’s administration to withdraw US troops from Afghanistan, is expected to take a leading role in an Islamist government in the coming days.

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“They have a lot of consolidation to do,” said Rudra Chaudhuri, a senior lecturer at King’s College London’s Department of War Studies.

“They don’t have a civil service, there is no cadre of administrators,” he said. “They will need parts of the old government to keep this system together and that will require a discussion on transition.”

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