FRANKFURT/MUMBAI: 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 brief, written early this month by senior international economic officials for institutions including the World Bank and International Monetary Fund, said the country’s severe cash shortage began before the Taliban took control of Kabul. It criticised how the central bank’s former leadership handled the crisis in the months before the Taliban’s conquest, including decisions to auction unusually large amounts of U.S. dollars and move money from Kabul to provincial branches.
“FX (foreign exchange) reserves in CB’s (central bank) vaults in Kabul have depleted, the CB cannot meet ... cash requests,” the report, seen by Reuters, said.
“The biggest source of the problem is the mismanagement at the central bank prior to the Taliban takeover,” 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 his post, defended the central bank’s actions, saying it was trying to prevent a run on the local Afghani currency. The extent of the cash shortage can be seen on the streets of Afghan cities, where people have been queuing for hours to withdraw dollar savings amid strict limits on how much they can take out.
Even before the shock of the Western-backed government’s collapse, the economy was struggling, but the return of the Taliban and abrupt end of billions of dollars in foreign aid has left it in deep crisis.
Prices for staples like flour have spiralled while work has dried up, leaving millions facing hunger as winter approaches.
AID DRIES UP
Under the previous government, the central bank relied on cash shipments of $249 million, delivered roughly every three months in boxes of bound $100 notes and stored in the vaults of the central bank and presidential palace, according to three people with direct knowledge of the matter. That money has dried up as foreign powers shy away from dealing directly with the Taliban, which 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 like the United States, said on Wednesday it had finalised a plan to meet the country’s foreign currency needs. It gave no details. The hard currency crunch is making it difficult for the Taliban to meet basic needs, including paying for power or dispersing salaries to government employees, many of whom have not been paid in months.