Taliban fighters patrol in Kabul
Taliban fighters patrol in Kabul on Wednesday. A financial crisis would complicate the Islamist group’s efforts to consolidate power © Rahmat Gul/AP

The people of Afghanistan are facing “dire” financial prospects, the former head of its central bank has warned, cautioning that an acute shortage of dollars and higher inflation will fuel the flow of migrants out of the country.

Ajmal Ahmady, who escaped Kabul on Sunday, told the Financial Times that Afghanistan had been dependent on bulk shipments of dollar reserves from the US and was now rapidly running short, leading to the likelihood of higher food prices and capital controls.

“If people think, it’s bad but it’s over, I think they’re underestimating the impact . . . we’ve finished the military phase and now we’re going to start the economic phase of the impact,” Ahmady said in a telephone interview on Wednesday.

“It’s going to be quite dire” when “people will not be able to access the funds they need from the banking sector”, he warned.

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

The Afghan economy has a large trade account deficit and is dependent on military spending, foreign aid and access to about $9bn of currency reserves. All of those sources of funds have been extinguished or are drying up, Ahmady said, adding that living standards would now drop “significantly”.

“If you think the situation at the airport is now bad, I think over the medium term you’re going to see major, major migration flows from Afghanistan and, unfortunately, if Europe or other countries think that they could stop that, you simply can’t,” he said.

Ahmady’s comments came as the Taliban leadership was rushing to work out how to run Afghanistan after the militant Islamist group’s exiled leaders returned to a country that had changed profoundly since it was driven from power 20 years ago.

Afghanistan had $9bn in foreign reserves last week, but most of this is held in international accounts that have been frozen, Ahmady said.

The Biden administration has blocked Taliban access to Afghan central bank reserves held in US banks, a US official told the Financial Times. Some Taliban members are on the US sanctions list.

Map showing the Taliban's march to seize control of Afghanistan

On Wednesday, the IMF also announced the Afghan government would not receive a previously scheduled disbursement of special drawing rights, which are a form of reserve asset equivalent to newly minted money. The country was set to receive an estimated $460m on Monday as part of the fund’s global programme to deal with the coronavirus crisis, but resistance to recognising the Taliban-led government thwarted the allotment.

“There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access SDRs or other IMF resources,” an IMF spokesperson said. “As is always the case, the IMF is guided by the views of the international community.”

The UK and Canada have already said they will not recognise the Taliban-led government, and Russia has said it is in no rush to do so. Lawmakers in Washington have also resisted any additional funding that may benefit the Taliban.

“The potential of the SDR allocation to provide nearly half a billion dollars in unconditional liquidity to a regime with a history of supporting terrorist actions against the United States and her allies is extremely concerning,” said 18 Republican members of the House of Representatives in a letter to Janet Yellen, Treasury secretary, on Tuesday.

A financial crisis would complicate the Taliban’s efforts to consolidate power after driving President Ashraf Ghani and most senior government officials into exile.

Abdul Ghani Baradar, the Islamist group’s top political leader, returned to Afghanistan on Tuesday after two decades, flying into the southern city of Kandahar from Qatar, where he has lived since the US secured his freedom from a Pakistani jail in 2018.

Baradar, who helped negotiate the 2020 deal with Donald Trump’s administration to withdraw US troops from Afghanistan, is expected to take a leading role in an Islamist government in the coming days.

“They have a lot of consolidation to do,” said Rudra Chaudhuri, a senior lecturer at King’s College London’s department of war studies.

“They don’t have a civil service, there is no cadre of administrators,” he said. “They will need parts of the old government to keep this system together and that will require a discussion on transition.”

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