Ex-central bank chief warns Afghanistan faces ‘terrible’ fiscal outlook

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The former head of Afghanistan’s central bank has warned that the Afghan people face “terrible” financial prospects, warning that a severe shortage of dollars and rising inflation will fuel an outflow of migrants.

Ajmal Ahmadi, who fled Kabul on Sunday, told the Financial Times that Afghanistan had been dependent on bulk shipments of dollar reserves from the United States and was now rapidly running short, leading to potentially higher food prices and capital controls.

“If people think it’s bad but it’s over, I think they underestimate the impact… We have finished the military phase and will now start the economic phase of the impact,” Ahmadi said in a phone interview on Wednesday.

He warned that “it will be very painful” when “people will not be able to access the money they need from the banking sector”.

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

The Afghan economy runs a large trade account deficit and relies on military spending, foreign aid, and access to about $9 billion in currency reserves. All of these sources of funding have been extinguished or are drying up, Ahmadi said, adding that living standards will now “significantly” drop.

“If you think the situation at the airport is bad now, I think that in the medium term, you will see large and large flows of migration from Afghanistan, and unfortunately, if Europe or other countries think they can stop that, it simply cannot,” he said.

Ahmadi’s comments came as the Taliban leadership was scrambling to work out how to run Afghanistan after leaders of the hardline Islamist group in exile returned to a country that has changed profoundly since it was ousted from power 20 years ago.

Ahmadi said Afghanistan had $9 billion in foreign reserves last week, but most of that reserve is in international accounts that have been frozen.

A US official told the Financial Times that the Biden administration had prevented the Taliban from accessing Afghan Central Bank reserves held in US banks. Some Taliban members are on the US sanctions list.

The Afghan government is set to receive unconditional Special Drawing Rights payments from the International Monetary Fund on Monday estimated at $460 million, as part of the fund’s global program to deal with the coronavirus crisis. Special Drawing Rights are a form of reserve asset that is equivalent to newly minted money.

In Washington, Republican lawmakers have urged the Treasury to cut that source of funding as well.

“The possibility of allocating the SDR to provide nearly half a billion dollars in unconditional liquidity to a regime with a history of supporting terrorist acts against the United States and its allies is deeply troubling,” 18 House members said in a letter. to Treasury Secretary Janet Yellen on Tuesday.

As the largest contributor to the International Monetary Fund, the United States wields significant influence and international recognition of a member country’s government is critical to any exchange.

The United Kingdom and Canada have already said they will not recognize the Taliban-led government, and Russia has said it is in no hurry to do so. A person familiar with the matter said the fund would be directed by its member states.

US General Frank McKenzie arrives at Hamid Karzai Airport on Tuesday. He said he had warned Taliban leaders “not to interfere with our eviction.” © Capt. William Urban/Dodd/DPA

The financial crisis will complicate the Taliban’s efforts to consolidate its power after pushing President Ashraf Ghani and most of the top government officials into exile.

Abdul Ghani Baradar, JI’s top political leader, returned to Afghanistan on Tuesday after two decades, heading to the southern city of Kandahar from Qatar, where he has lived since the United States secured his freedom from a Pakistani prison in 2018.

Baradar, who helped negotiate the 2020 agreement with the Donald Trump administration to withdraw US forces from Afghanistan, is expected to play a leadership role in an Islamist government in the coming days.

“They have a lot of inclusion that they have to do,” said Rudra Chaudhary, senior lecturer in the Department of War Studies at King’s College London.

He said, “They have no civil service, and there is no administrative cadre.” “They will need parts of the old government to keep this system together and that will require a discussion about the transition.”

Video: How 20 Years of War Changed Afghanistan | FT . movie

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