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This is an audio transcript of the FT News Briefing podcast episode: Afghanistan’s ‘dire’ financial outlook

Joanna Kao
Good morning from the Financial Times. Today is Thursday, August 19th, and this is your FT News Briefing. Afghanistan’s former central bank chief has fled and yesterday told the Financial Times that his country’s financial outlook is dire. Plus, we’ll hear from our global China editor, James Kynge, about China’s position on Afghanistan’s new rulers and what Beijing is watching for.

James Kynge
What China wants to see most is Afghanistan becoming a peaceful country, a country that it can have a stable diplomatic relationship with and also thereafter start potentially to invest in the country and to build up trade and commercial links.

Joanna Kao
And in the US, most Federal Reserve officials agree they should dial back pandemic stimulus measures later this year, but they don’t all agree on the details. We’ll get the latest thinking from our US economics editor. I’m Joanna Kao, in for Marc Filippino. And here’s the news you need to start your day.

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The Taliban are rushing to form a government, and one of the biggest challenges will be to shore up Afghanistan’s finances. The country’s financial outlook is dire, and that’s according to its former central bank chief. Ajmal Ahmady escaped Kabul a few days ago and yesterday he spoke to the Financial Times. To find out more about what he said. I’m joined by the FT’s emerging markets correspondent, Jonathan Wheatley. Hi, Jonathan.

Jonathan Wheatley
Hi there. How are you?

Joanna Kao
So how did Ajmal Ahmady sound and what did he say?

Jonathan Wheatley
I think what he’s particularly concerned about is that the Taliban seem to be under the impression that they’ll be able to get their hands on Afghanistan’s international reserves. And I think he said in a tweet before we spoke to him that they really need to get an economist on their team because they just don’t understand how it works. And the fact is that all those reserves, almost all of them at least, are outside the country and almost certainly going to be frozen.

Joanna Kao
So what does this all mean for the Afghans who are on the ground right now?

Jonathan Wheatley
Well, it means that the economy is in danger of some severe financial and fiscal trouble. Banks don’t have dollars. The central bank itself, it has emerged over the past few days, was receiving physical shipments of dollars into the country. He said on Twitter again that on Friday that he’d been told that the next shipment wouldn’t be coming. That was due to come in on Sunday. He said that local banks had run out of cash because people were making withdrawals. So there’s gonna be an acute shortage of hard cash leaving possibly the alternative of printing it, and therefore the prospect of runaway inflation. And they’re gonna be severely strapped for cash.

Joanna Kao
So looking at all this, what are they hoping for now?

Jonathan Wheatley
Well, I mean, one thing they’ll be perhaps still hoping for is that the IMF will include Afghanistan in its new allocation of special drawing rights, basically new money that they have been planning for some time. And they have approved a new allocation at the beginning of this month, specifically to help poor countries fight the pandemic. Afghanistan was due to receive about four hundred and sixty million dollars of that, but it looks as though they’re almost certainly not going to get it. If enough members of the IMF question the new government and decide not to recognise it, then the IMF will suspend its relations with Afghanistan and that will mean it won’t get its SDRs. So they won’t be getting that cash. They won’t be getting the reserves. They’ve got a severe problem.

Joanna Kao
Jonathan Wheatley is the FT’s emerging markets correspondent.

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With the US leaving Afghanistan, China looks likely to step in, but not with military force. Senior Asian diplomats say Beijing is willing to send hundreds of millions of dollars to finance the reconstruction of critical infrastructure. I’m joined by the FT’s global China editor, James Kynge for details and also to talk more about China’s relationship with Afghanistan.

James Kynge
Really, it’s been a question of China looking towards its northwestern frontier and seeing Afghanistan as pretty much a persistent source of instability. And China’s overriding preoccupation has been to prevent that instability from spilling over into the north western region of Xinjiang. And in this regard, it’s particularly worried about separatists or insurgents from China’s Uyghur minority that live in Xinjiang, coming back from Afghanistan and moving over into Xinjiang and engaging in violence and insurgencies in that area. But it also has to be said that over the last decade or so, China has begun to look at Afghanistan as a place where it can invest some money, particularly in the resources sector, where some of its businessmen, the brave ones among them, can start to set up companies and do some trading business in Kabul and other parts of Afghanistan. So there has been, I would say, a nascent commercial aspect to the relationship in recent years.

Joanna Kao
So looking at the most recent events, what are Beijing’s relationships with the Taliban?

James Kynge
Well, the main point is that with the Taliban having assumed power in Afghanistan, Beijing has moved pretty swiftly to pretty much give it a de facto recognition as the government of Afghanistan. There was a meeting at the end of last month between Abdul Ghani Baradar, who is the head of the Afghan Taliban Political Commission, and the Chinese foreign minister, Wang Yi, that this meeting looked for all the world like an official state visit. The photographs that were put out by the Chinese media showed the two standing side by side in some grand hall. And it’s very clear that the Taliban is being very respectful of China and its wishes, at least for now. And I think the reason for this is that the Taliban needs an awful lot from China, just as the US is pulling out. Afghanistan is a country that survives to a significant extent on foreign aid. There’s a high level of unemployment in Afghanistan, the infrastructure there needs rebuilding and the whole country needs huge infusions of cash. So from the Taliban’s perspective, China is the best potential source of the help that it so gravely needs.

Joanna Kao
So with all that in mind, what are some of these opportunities that this new situation offers China to expand its influence in that region?

James Kynge
If China can coax the Taliban government on to the path of peaceful reconstruction, some experts have spoken about hundreds of millions of US dollars that China could hand over to Afghanistan to help with the reconstruction work. If that can happen, then I think you could see the Chinese government moving to a kind of stage two, which might be investments in some of the resources that I spoke of. For instance, there’s a huge copper mine called the Aynak Copper Mine in Afghanistan. It’s supposed to be the second largest in the world. And the Chinese have been interested in that for a while. In fact, back in 2007, a Chinese company won the right to mine that mine. There are also other potential areas that China could get involved. There are oil projects there. And so I think the starting point for China will be to use its influence to coax the Taliban into a phase of peaceful reconstruction of the country and emphasising that the Taliban needs to prevent Uyghur fighters from coming over from Afghanistan into the northwestern region of China and creating trouble in that regard.

Joanna Kao
That’s the FT’s global China editor, James Kynge.

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In the US, a majority of Federal Reserve officials now believe that the central bank could start dialling back on their pandemic stimulus programme later this year. That’s according to minutes of the July meeting of the Federal Open Market Committee. The US economics editor, Colby Smith, has more.

Colby Smith
We’ve been hearing such a drawn out debate over the past couple of months about the fate of these bond buys. And I think there’s been a lot of speculation about how various officials think about this. So the fact that we have an acknowledgment in the minutes that we could see a move this year I think really focuses everyone’s attention on the next couple of months and how the Fed is signalling the economic outlook will align with that type of timeframe.

Joanna Kao
So is everyone in agreement with this?

Colby Smith
No, I definitely wouldn’t say that the officials are all in alignment here. There’s still quite a lot of debate about the exact timing and the pace of tapering. So in the minutes we saw that several officials were actually thinking about a potentially earlier taper this year than perhaps what the majority suggests, while some also pointed to maybe a move in early next year as well. So there’s quite a lot of caveats, I would say, in the minutes. At the same time, there’s also a broad-based discussion about the pace of the tapering. So how quickly they’re going to scale back on the purchases. Now, some officials have said the pace needs to be faster because there are broader knock on effects from the asset purchases at the moment. But again, this is still very much a point of debate.

Joanna Kao
That’s the FT’s economics editor, Colby Smith.

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And before we go, we have an update on a story we told you about earlier this week, a deal between a British defence company, Cobham, which plans to buy a rival British defence firm, Ultra Electronics. The problem is Cobham is owned by a US private equity firm. And this is one of several deals in which a UK defence firm could fall into foreign hands. While responding to concerns over national security, the British government has stepped in. It opened a formal investigation following advice from defence officials. And in a social media post, the UK business minister said, quote, The UK is open for business. However, foreign investment must not threaten our national security.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.

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