Afghan economy collapsing

03 Nov, 2021

Afghanistan is running out of money fast, its currency is in a tail-spin and prices across the board are going through the ceiling. The Taliban are facing immense economic challenges. The new rulers in Kabul seem hardly up to the task.

An economic collapse has grabbed Afghanistan by its neck. But the international community does not seem to be interested in providing the war- torn country the much needed succor. In fact, it has with-held what is Afghanistan’s legitimate due. The country was abruptly cut off from roughly $9 billion in foreign currency reserves, more than 90 percent of its total holdings, most of which is held in the United States.

The state does not have money to- pay salaries, aside from those to some teachers and hospital workers. Banks are only allowed to distribute miniscule amounts in the country’s currency, the afghani. And as a consequence, millions of people are running out of cash – at a time when prices for many foodstuffs, gasoline and cooking gas are climbing rapidly. There is still electricity – around 80 percent of it imported from the neighboring countries of Uzbekistan, Turkmenistan, Iran and Tajikistan – but Kabul hasn’t been able to pay for it since August 15.

It is not only Washington, but Berlin and Brussels have also frozen the country’s assets and suspended payments for all on-going development projects, aside from emergency humanitarian aid – aid that was originally intended for the drought-stricken western part of the country, but which is now needed everywhere.

Forecasts from the UN’s World Food Program are sounding increasingly apocalyptic.

To avert a run on the banks already experiencing dwindling deposits, the government has restricted withdrawals to $25,000 per month. But if they keep the current rules in place, companies and traders are likely soon to go out of business. But the dilemma is, if they remove those rules, people will withdraw everything they have, the banks will collapse and the afghani will plunge into the abyss because people only want to use dollars.

Afghanistan’s legal exports in recent years – coal, dried fruits, fruit and carpets, for example – only earned it less than a billion dollars per year, with narcotics exports adding another $600 million on top of that. But more than $7 billion worth of goods were imported. The exchange rate of around 75 afghani per dollar was largely propped up by the fact that between $20 and $30 million flowed in from the U.S. every week. That is over. And now the current account deficit is simply running away.

But the new central bank board member wasn’t particularly interested in the bank’s balance sheet, according to someone who was present during his first visit to the bank. He was much more concerned with how the women were dressed, and continued to focus on their attire even when none were around. There were no immediate consequences – the Taliban, after all, would like to portray a more liberal image. Either way, though, there was no discussion during the visit regarding how to prevent the complete collapse of Afghanistan’s banking industry.

According to Christoph Reuter of Der Spiegel, a German publication (Afghanistan Teetering on the Brink of Economic Collapse, published on October 25, 2021), Riazuddin Sharifi, the deputy head of production for the National Development Corporation (NDC), which was, until August, in charge of numerous construction projects – some of them massive – and employed more than 10,000 workers is now holding only a bunch of abandoned building sites. Among the projects were four new residential complexes in Kabul, each with between 500 and 1,200 apartments, and three canal projects for irrigation and electricity production.

Talking to Der Spiegel, Sharifi said the NDC offices were forced to move out of the presidential palace in Kabul to new accommodations on the city’s outskirts.

“Even just the canal in Mazar-i-Sharif in the north would have provided irrigation for tens of thousands of hectares of farmland,” says Sharifi proudly. “But only 14 of 300 kilometers have been finished.”

In the photographs of the 100-meter-wide, 12-meter-deep canal, earth movers and cranes can be seen, looking as small as toys. Around 800 construction vehicles were said to be involved in the project “and some of them are still in the trench, while others have been picked up by the companies involved. Nobody knows if the project will be continued,” Sharifi said. Two-thousand workers are now sitting at home without pay. “What am I supposed to tell them? Stay? Go somewhere else to find work?”

The longer the construction sites lie abandoned, and the more equipment and workers disappear, he says, the more difficult it will be to resume construction at some point. “We understand the precarious situation of the new government, but we need decisions. Should we keep going? Or just shut down?” When asked which system worked better from an economic point of view – the old, Western-dominated government or the new, Taliban regime – he just shakes his head. “There is no answer to that question,” he says. “At the moment, there is no system that could be compared to the former one.”

The Der Spiegel interviewer says: “The country is running out of time. And technocrats continue to leave, perhaps not as dramatically as at the end of August, but the outflow is quiet and continuous. The Taliban have so few experienced engineers, finance experts and technicians that they have appointed a bachelor’s degree holder to university rector, fighters have been given governorships and clerics are now bank executives.

“The result is that multi-million-dollar projects are crumbling due to a lack of interest and chaos within both the Taliban ranks and in donor countries. Among those projects is a German one called the Afghan Credit Guarantee Foundation (ACGF), a German-Afghani

development aid organization headquartered in Cologne and with offices in Kabul. Over the course of several years, the ACGF has guaranteed millions in loans taken out by Afghan companies. Financed by the German government and by the World Bank, the 30 ACGF employees would examine credit worthiness, business plans and the market – and if they gave their thumbs up, loans would be guaranteed against default. “It was extremely difficult to find financial experts in Afghanistan,” recalls ACGF executive Idrees Haidarpoor. “For one job, we issued a call for applicants on three occasions with no luck, before finally training one of our staff members to do the job.”

“Germany has to increase the pressure, says Haidarpoor, or the Taliban leaders do. But for weeks, nothing happened, and then, in mid-October, Haidarpoor left the country for Germany. Other ACGF specialists are also leaving, one after the other, out of fear and a lack of professional prospects. The Taliban leadership, meanwhile, views loans as a fundamental sin in violation of the Islamic ban on charging interest and has prohibited banks from loaning money in return for interest payments. How should the economy be financed without that tool? The Taliban doesn’t seem much to care.

“Finally, it was possible to track down a Finance Ministry spokesman. Ahmad Wali Haqmal says that the criticism of the Taliban is unfair. “Before we can pay salaries, we have to first filter out all the fake employees that were on the payrolls, especially at the police. We will pay! We are already taking in 300 to 400 million afghani,” 3 to 4 million euros, “in taxes and customs every day!” The world, he says, needs to be more patient. “We will make it easier for foreign investment and get rid of red tape!” He says he can’t yet say when the banks will be allowed to reopen, but issued a plea: “You first have to release our money!”

“His appeal is one that applies to Germany as well. Outgoing German Chancellor Angela Merkel participated in a G-20 teleconference on October 12 in which she supported the provision of assistance to Afghanistan beyond merely emergency aid. The goal, she said, cannot be that of standing by as “40 million people fall into chaos because they have no electricity or a financial system.” In Berlin, though, the government apparatus – specifically, in this case, the Development Ministry – is doing exactly that, and is apparently preventing Germany’s international aid agency, the GIZ, from paying its bills in Afghanistan, even for services rendered prior to the August 15 Taliban takeover. The same is true of the KfW, Germany’s state-owned investment and development bank.”

Copyright Business Recorder, 2021

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