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The people of Afghanistan face “dire” financial prospects, the former head of its central bank warned, warning that acute dollar shortages and higher inflation will boost the flow of migrants out of the country.
Ajmal Ahmady, who escaped from Kabul on Sunday, told the Financial Times that Afghanistan had relied on bulk shipments of US dollar reserves. And now it was rapidly depleting, leading to the likelihood of higher prices of food and capital controls.
“If people think it’s bad but it’s over, I think they are underestimating the impact. . . we have finished the military phase and now we are going to start the economic phase of the impact, ”Ahmady said in a telephone interview on Wednesday.
“It’s going to be pretty terrible” when “people won’t be able to access the funds they need from the banking sector,” he warned.
The Afghan economy runs a large trade account deficit and relies on military spending, foreign aid and access to around $ 9 billion in foreign exchange reserves. All of these sources of funds have died out or are running out, Ahmady said, adding that living standards would now fall “significantly”.
“If you think that the situation at the airport now is bad, I think that in the medium term, you are going to see large migratory flows from Afghanistan and, unfortunately, if Europe or other countries think they can stop that, I just can’t,” he said.
Ahmady’s comments came as Taliban leaders scrambled to find a way to rule Afghanistan after exiled leaders of the militant Islamist group returned to a country that had changed profoundly since it was ousted from power 20 years ago.
Afghanistan had $ 9 billion in foreign reserves last week, but most of it is held in international accounts that have been frozen, Ahmady said.
The Biden administration has blocked the Taliban’s access to the Afghan central bank’s reserves in US banks, a US official told the Financial Times. Some members of the Taliban are on the US sanctions list.
The Afghan government will receive an unconditional disbursement of special drawing rights from the IMF on Monday worth an estimated $ 460 million, as part of the fund’s global program to deal with the coronavirus crisis. SDRs are a form of reserve asset equivalent to newly minted money.
In Washington, Republican lawmakers have urged the Treasury Department to cut off this funding source as well.
“The potential for the SDR allocation to provide nearly $ 500 million in unconditional liquidity to a regime with a history of supporting terrorist actions against the United States and its allies is extremely concerning,” 18 members of the House of Representatives said in a letter. to Treasury Secretary Janet Yellen on Tuesday.
As the IMF’s largest shareholder, the United States has significant influence, and international recognition from the member country’s government is critical to any disbursement.
The UK and Canada have already said they will not recognize 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.
A financial crisis would complicate the Taliban’s efforts to consolidate power after exiling President Ashraf Ghani and most of the top government officials.
Abdul Ghani Baradar, the Islamist group’s top political leader, returned to Afghanistan on Tuesday after two decades, flying to the southern city of Kandahar from Qatar, where he has lived since the United States secured his freedom from a Pakistani jail in 2018.
Baradar, who helped negotiate the 2020 deal with the Donald Trump administration to withdraw US troops from Afghanistan, is expected to take a leadership role in an Islamist government in the coming days.
“They have a lot to consolidate,” said Rudra Chaudhuri, Senior Lecturer in the Department of War Studies at King’s College London.
“They have no civil service, there are no cadres of administrators,” he said. “They will need parts of the old government to keep this system together and that will require a discussion about the transition.”