Afghanistan faces a potentially catastrophic perfect storm of bank closings and hard currency shortages, in addition to suspending money transfers by companies that maintain the vital flow of remittances from family members to Afghans from abroad.
With urban ATMs emptied and banks and the main financial exchange, Sarai Shahzada in Kabul, still closed, the country has seen a series of economic shocks since the Taliban came to power a week ago.
Without access to 9 billion, the value of the afghani has fallen, even though they ran out of money.
Government workers’ salaries, many of whom have gone into hiding since the Taliban takeover, are not paid while banks queued to withdraw savings during the collapse of the former government. Experts warn of the risk of hyperinflation and increased hardship in the already impoverished country.
Among those warning of the threat of rising inflation was Ajmal Ahmady, the country’s former central banker, who fled last week. He suggested that inflation could soon hit double digits.
Explaining the crisis, Graeme Smith, a researcher at the Overseas Development Institute, said: “The Afghans have been defended very regularly, sometimes on a weekly basis, with literal plane loads of US dollars landing in Kabul.
“If the Taliban don’t get cash injections soon to defend the Afghans, I believe there is a real risk of currency devaluation, making it difficult for ordinary people to buy bread on the streets of Kabul.”
Ed Dolan of a Washington think tank, the Niskanen Center, echoed that view last week.
“The flow of dollars into the country through foreign aid and private remittances appears to have largely stopped.
“People with savings in the form of the Afghani currency will rush to convert them into dollars. If they can’t find dollars, they try to trade their afghani for goods. The prices will continue to rise. “
Justin Sandefur, Senior Fellow at the Center for Global Development, told the New York Times: “In the short term, it’s potentially catastrophic. They are looking at the possibility of a currency collapse and a financial crisis that could cause real pain to normal people. “
Western Union and MoneyGram’s decision last week to discontinue their services is also expected to have a profound impact as the country is most dependent on money transfers from overseas family members in the world.
According to the World Bank, remittances account for 4% of Afghan GDP, or $ 800 million a year.
When announcing the move last week, Western Union admitted the effects of the suspension. “We understand that our services provide our customers with an important channel to support their loved ones, and we will continue to monitor this rapidly evolving situation closely and keep our customers and employees informed of any developments.”
The effects on the less formal Islamic ones seem less obvious, but just as critical. to have been hawala A system for sending money from abroad, which relies on hard currency to support its business operations and which is more widely used by people in rural areas, who are also the poorest in the country.
The cash shortage is likely to have far-reaching consequences if the Taliban don’t find a way to get the Afghan economy back on its feet.
There are already reports of urban Afghans being unable to afford rent payments, while some have complained about being unable to find food or fuel.
“At the moment I want to eat for my 3 children,” tweeted a member of the Hear Afghan Women account. “Today we had bread with sweet tea. Petrol is too expensive, all banks closed, other food shortages in Kabul shops, no mobile recharging to be found – and also fear for our lives. “
Even before the Taliban came to power, the prices of staple foods such as bread had risen sharply due to the effects of the coronavirus pandemic.
The topic of cell phone charging is also important. Many remittance services use text messages to let users know that they have received money from overseas.
The value of the Afghani has also declined since the Taliban came to power. This weekend reported that reopened street exchanges exchanged one dollar for 86 Afghans, up from around 80 before the fall of Kabul.
The dire outlook was underscored on Friday by a prediction by forecaster Fitch Solutions that the Afghan economy could contract by up to 20% this year and the currency could slide even further.
“It is likely that the economy will contract sharply this year,” said Anwita Basu, its head of Asia country risk. “Countries facing similar circumstances to Myanmar and Syria have seen their GDP slump by around 10-20%, which cannot be ruled out for Afghanistan either.”
Basu said the Afghani, which has already depreciated more than 7% against the US dollar this month, could fall even more as most of the state’s overseas assets were frozen to prevent the Taliban from entering. She added that hyperinflation cannot be ruled out.
The Congressional Research Service found that 90% of the Afghan population lived on less than $ 2 a day that year and warned that losing American support would weaken one of the world’s smallest economies.