A report prepared for Afghanistan’s international donors found that the Afghan central bank used up most of its US dollar cash reserves in the weeks leading up to the Taliban taking control of the country, exacerbating the country’s current economic crisis.
According to a private two-page brief provided early this month by senior international economic officials working for organisations such as the World Bank and the International Monetary Fund, Afghanistan’s severe cash shortage began before the Taliban took control of Kabul.
As part of its rebuke, it cited moves made by the previous administration of the central bank in the months preceding up to the Taliban’s takeover, including decisions to auction abnormally large sums of US dollars and relocate money from Kabul to provincial branches.
According to the document, which was obtained by Reuters, “FX (foreign exchange) reserves at CB’s (central bank’s) vaults in Kabul have declined, and the CB is unable to meet… cash requirements.”
In addition, “the primary source of the problem was mismanagement at the central bank previous to the Taliban taking charge,” the report stated.
Mr. Shah Mehrabi, chairman of the central bank’s audit committee, defended the central bank’s actions by claiming that it was attempting to prevent a run on the local Afghani currency before the Taliban seized power.
It is possible to observe the extent of the cash shortage on the streets of Afghan cities, where people have been queuing for hours in order to withdraw their dollar savings, despite the fact that the amount they may withdraw is severely restricted.
However, the return of the Taliban and the unexpected cessation of billions in international aid have further exacerbated Afghanistan’s economic woes, which were already in disarray before to the shock of the collapse of the Western-backed regime.
While labour has become scarce, the cost of basic essentials such as bread has soared, leaving millions of people hungry as winter approaches.
No more foreign aid
In accordance with three sources with firsthand knowledge of the situation, the former government relied on cash shipments totaling $249 million, which were transferred roughly every three months in boxes of bound $100 bills and stored in the central bank and presidential palace vaults.
Foreign governments have shied away from directly dealing with the Taliban, who have fought against foreign military and the ousted government for much of their existence. Thousands of people were slain, many of them innocent civilians, in this conflict.
It was stated on Wednesday that the central bank, which plays a significant role in Afghanistan because it distributes aid from countries such as the United States, has finalised a plan to meet the country’s foreign currency requirements. There was no indication of what was being discussed.
When it comes to meeting basic needs, such as paying for electricity or paying salaries to government employees, the Taliban is finding it difficult to keep up. Many government employees have not been paid in several months.
Afghanistan’s $9 billion in offshore savings were blocked as soon as the Taliban seized control of Kabul, leaving the central bank with just cash in its vaults.
According to the analysis, the central bank auctioned over $1.5 billion in foreign exchange to local foreign exchange dealers between June 1 and August 15, a figure that was regarded as “strikingly high.”
As of August 15, the Central Bank reported that it owed commercial banks a total of $700 million in unpaid obligations and 50 billion Afghanis ($569 million) in unpaid obligations. The bank claimed that this was one of the primary reasons for its coffers being depleted.
Afghanistan’s central bank spokesperson, Mehrabi, stated that despite the announcement of approximately $1.5 billion in auctions, the actual amount sold was only $714 million, according to the bank.
In order to keep depreciation and inflation under control, the central bank has “kept its foreign exchange auction,” he explained.
Missing money in central reserve?
Also questioned was the central bank’s decision to shift some of its assets to provincial offices, putting them in danger as Taliban insurgents pushed across the country in preparation for their expected victory late in 2020, as reported by the paper.
A total of approximately $202 million had been maintained in these branches by the end of 2020, an increase from $12.9 million at the end of 2019, and the cash had not been moved as provinces were captured by the militants.
The storey indicated that “some money is purportedly missing (stolen) from’some’ of the provincial branches,” but it did not specify how much money was missing or where it had been stolen.
Deputy Governor Mehrabi indicated that the central bank was investigating money that had been “stolen” from three of its branches, but that the money had not been seized by the Taliban. He didn’t go into any further detail about what happened.
Ex-central bank governor Ajmal Ahmady did not react to emails and other messages requesting comment on his and his institution’s actions in the months before the Taliban’s re-accession. Ahmady fled the country the day after Kabul was overthrown and has not been heard from since.
In recent weeks, Ahmady has indicated on Twitter that he is doing everything he can to handle the situation and that any cash shortages are the result of the suspension of central bank assets held abroad by foreign governments.
Additionally, he indicated that the central bank had done an excellent job controlling the economy before to Kabul’s collapse, and that he regretted leaving staff behind but was concerned for his own safety. He asserts that no funds were stolen from any reserve accounts during the investigation.