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Afghan economy nears collapse as pressure builds to ease US sanctions

  • >> Christina Goldbaum, The New York Times
    Published: 2021-11-27 11:58:34 BdST

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A currency exchange market in central Mazar-i-Sharif, Afghanistan, on Oct 9, 2021. Afghanistan’s economy has crashed since the Taliban seized power, plunging the country into one of the world’s worst humanitarian crisis. (Kiana Hayeri/The New York Times)

Racing down the cratered highways at dawn, Mohammad Rasool knew his 9-year-old daughter was running out of time.

She had been battling pneumonia for two weeks, and he had run out of cash to buy her medicine after the bank in his rural town closed. So he used his last few dollars on a taxi to Mazar-e-Sharif, a city in Afghanistan’s north, and joined an unruly mob of men clambering to get inside the last functioning bank for hundreds of miles.

Then at 3 pm, a teller yelled at the crowd to go home: There was no cash left at the bank.

“I have the money in my account; it’s right there,” said Rasool, 56. “What will I do now?”

Three months into the Taliban’s rule, Afghanistan’s economy has all but collapsed, plunging the country into one of the world’s worst humanitarian crises. Millions of dollars of aid that once propped up the previous government has vanished, billions in state assets are frozen, and economic sanctions have isolated the new government from the global banking system.

Now Afghanistan faces a dire cash shortage that has crippled banks and businesses, sent food and fuel prices soaring, and triggered a devastating hunger crisis. This month, the World Health Organization warned that about 3.2 million children were likely to suffer from acute malnutrition in Afghanistan by the end of the year — 1 million of whom are at risk of dying as temperatures drop.

No corner of Afghanistan has been left untouched.

In the capital, desperate families have hawked furniture on the side of the road in exchange for food. Across other major cities, public hospitals do not have the money to buy badly needed medical supplies or to pay doctors and nurses, some of whom have left their posts. Rural clinics are overrun with feeble children, whose parents cannot afford food. Economic migrants have flocked to the Iranian and Pakistani borders.

As the country edges to the brink, the international community is scrambling to resolve a politically and legally fraught dilemma: How can it meet its humanitarian obligations without bolstering the new regime or putting money directly into the Taliban’s hands?

In recent weeks, the United States and the European Union have pledged to provide $1.29 billion more in aid to Afghanistan and to Afghan refugees in neighbouring countries. But aid can do only so much to fend off a humanitarian catastrophe if the economy continues to crumble, economists and aid organisations warn.

“No humanitarian crisis can be managed by humanitarian support only,” said Abdallah Al Dardari, the United Nations Development Program’s resident representative in Afghanistan. “If we lose these systems in the next few months, it will not be easy to rebuild them to serve the essential needs of the country. We are witnessing a rapid deterioration to the point of no return.”

Under the previous government, foreign aid accounted for around 45% of the country’s gross domestic product and funded 75% of the government’s budget, including health and education services.

But after the Taliban seized power, the Biden administration froze the country’s $9.5 billion in foreign reserves and stopped sending the shipments of US dollars upon which Afghanistan’s central bank relied.

The scale and speed of the collapse amounts to one of the largest economic shocks any country has experienced in recent history, economists say. Last month, the International Monetary Fund warned that the economy is set to contract up to 30% this year.

Thousands of government employees, including doctors and teachers, have gone months without pay. The wartime economy that employed millions and supported the private sector has come to a halt.

By the middle of next year, as much as 97% of the Afghan population could sink below the poverty line, according to an analysis by the UN Development Program. Many people who were already living hand to mouth have been pushed over the edge.

One October morning in Mazar-e-Sharif, dozens of men gathered downtown, carrying shovels cobbled together with rough wood and rusted metal.

For years, day laborers have gathered there to pick up work digging wells, irrigating fields of cotton and grain, or doing construction around the city. The pay was modest — a couple dollars a day — but enough to buy food for their families and pay other small bills. These days, though, the men stay at the square until sunset hoping for even one day of work a week. Most cannot even afford to buy bread during lunch.

“There was work one day — and then suddenly there wasn’t,” said Rahmad, 46, standing in the crowd. “It was so sudden, I didn’t have time to plan or save money or anything.”

Even before the Taliban takeover, Afghanistan’s fragile economy was wracked by slow growth, corruption, deep poverty and a severe drought.

Afghanistan has long been dependent on imports for basic foods, fuel and manufactured goods, a lifeline that was severed after neighbouring countries closed their borders during the Taliban’s military campaign this summer. Trade disruptions have since caused shortages of crucial goods, such as medicine, while the collapse of financial services has strangled traders who rely on US dollars and bank loans for imports.

At the Hairatan port along the Afghanistan-Uzbekistan border, a team of workers unloaded flour bags from a shipping container into trucks, sending clouds of white specks into the air. Since August, their company has slashed its imports in half; people can no longer afford basic goods.

At the same time, the cost of doing business soared. Customs and traffic officers, who have gone unpaid for months, are asking for more in bribes, according to a manager for the company, the Bashir Navid Group.

“Everything is disorganised,” said the manager, Mohammad Wazir Shirjan, 50. “Everyone is completely frustrated.”

To avoid a complete currency collapse, the Taliban limited bank withdrawals to first $200 and then $400 a week and have appealed to China, Pakistan, Qatar and Turkey to fill its budget hole, which is billions of dollars large. So far, none have offered the financial backstop that Western donors provided to the former government.

The Taliban have also pressed the United States to release its chokehold on the country’s finances or risk a famine as well as Afghan migrants flooding into Europe in search of work.

“The humanitarian crisis we have now is the result of those frozen assets. Our people are suffering,” Ahmad Wali Haqmal, a spokesperson for the Ministry of Finance, said in an interview.

In late September, the Biden administration issued two sanctions exemptions for humanitarian organisations to ease the flow of aid, and it is considering additional adjustments, according to humanitarian officials involved in those negotiations. But those exemptions do not apply to paying employees such as teachers in government-run schools and doctors in state hospitals, and the decision not to include them risks the collapse of public services and a further exodus of educated professionals from the country, humanitarians say.

And the scope of the exemptions is limited in other ways. Many foreign banks that aid organisations rely on to transfer funds into Afghanistan have cut ties to Afghan banks for fear of running afoul of sanctions. And the liquidity crisis severely restrains the amount that organisations can withdraw to pay vendors or aid workers.

“The current economic restrictions and sanctions policy, if maintained and not adjusted, are on track to hurt the Afghan people — through deprivation and famine — more than the Taliban’s brutalities and poor governance,” said John Sifton, the Asia advocacy director at Human Rights Watch.

Already, hospitals across the country show signs of a hunger crisis that could overwhelm the fragile health care system.

In a malnutrition ward of a hospital in southern Afghanistan, Shukria, 40, sat with her 1-year-old grandson, Mahtab, his mouth craned open but body too weak to let out a cry.

For weeks, the boy’s father had come home empty-handed from his mechanic shop as business dried up, and the family resorted to bread and tea for every meal. Soon, his mother stopped producing milk to breastfeed, so she and Shukria supplemented Mahtab’s diet with milk from their family’s goat. But when they ran out of cash to buy food, they sold the animal.

“I’ve been asking this hospital to give me work,” Shukria said. “Otherwise, after a week, a month, he will just end up sick and back here.”

© 2021 The New York Times Company