Cash in Afghanistan runs low, financial collapse approaches

Source : 112 Ukraine

The liquidity crisis is worsening, and many banks are unable to pay depositors; in Kabul, some citizens sell furniture and other goods for home at flea markets to collect money
13:18, 6 October 2021

The economy of Afghanistan, which has been fenced off from the reserves of the central bank and foreign aid collapses due to the absence of cash as Bloomberg reported.

A few weeks after the last US troops left Afghanistan, the money crisis infected serious harm to the weak economy. The money scarcity and border restrictions and growing international isolation lead to non-payment of wages to the employees. Such a situation forces the local companies to close, the bank restricts the withdrawal of money.

Afghanistan can also be left isolated from the outer world as it is difficult to pay the service suppliers for operators of wireless telecommunications.

38-million nation faces the shortage of food, which is deepening amid the deficit of cash. It leads to the growing prices of essential goods, creating the terms for broader economic and humanitarian crises.

Related: Pentagon admits that the United States lost Afghanistan war

To keep what is left, the Taliban controls the movement of capital and banned Afghan people from the withdrawal of dollars from the country, and restricted the cash withdrawal from banks up to $200 per week.

In Kabul, some citizens sell furniture and other goods for home at flea markets to collect money.

“The liquidity crisis is worsening, and many banks aren’t able to pay depositors,” Ahmad Khesrow Zia said, the former chief executive officer of Bank-e-Millie Afghan—the nation’s oldest bank—and now an economics professor at a private university in Kabul.

During the 20-year occupation of the US, the economy of Afghanistan was supported mostly by international aid and the US that allocated funds in dollars. The American currency is working in the country, as well as the local one – Afgani.

Related: Ukrainian intelligence to evacuate more people from Afghanistan, - Foreign Minister

The dollars and the national currency are used to pay for imported goods and services, as well as holding of larger operations, such as the purchase of the house of payment for the education of children in private schools.

Shah Mehrabi, a board member of Afghanistan’s central bank who’s now in the U.S., estimates that dollars accounted for about two-thirds of deposits in the banking system and half of all loans.

“Dollarization is still prevalent in Afghanistan, and our economy depends on it,” he says.

According to the World Bank and the Trade Chamber of the country, small and medium enterprises prospered after the overthrow of the Taliban in 2001. Their role in the economy of Afghanistan with $20-billion circulation has increased significantly. As of now, they are in danger of extinction.

“If these companies collapse, the whole nation’s economy collapses,” Khanjan Alokozay says, a senior member of Afghanistan’s chamber of commerce, noting that several have already suspended operations due to lack of cash.

Related: EU delivers 25 tonnes of life-saving medical aid to Afghanistan

It is not likely that the US will provide the Taliban the access to the reserves and the IMF support. Senator Pat Toomey, the main Republican in the Banking Committee of the Senate, said that it would a serious mistake.

On August 15, the Taliban militants seized Kabul, the capital of Afghanistan. Afghan President Ashraf Ghani said that he had left the country to avoid bloodshed as the Taliban entered the capital Kabul.

After the Taliban have seized the power in Afghanistan, the International Monetary Fund on August 18 said it had suspended the country's access to its financial resources, including around $440 million in new monetary reserves.

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