The currency crisis in Afghanistan puts millions at risk of starvation

Afghanistan’s currency has plummeted about a quarter since the Taliban took power, exacerbating an economic crisis that has left millions in the import-dependent country facing starvation.

The Afghani has dropped to 105 per dollar from about 80 before the hardline Islamists August Victory, making it one of the world’s worst performing coins over the past six months. It is second only to Turkey, where lira has been battered by the unorthodox economic policies of Recep Erdogan.

In Afghanistan, withdraw the great powers of America and its allies funding cut accounts for 80% of government budgets, freezing more than $9 billion in central bank reserves, and enforcing sanctions that have crippled the financial system. Banks have been unable to function properly and community workers such as doctors and teachers have not been paid.

The weakening of the afghani has caused what international aid agencies see as The world’s worst humanitarian crisis, pushing the prices of essential goods beyond the means of desperate Afghans. More than half of the population is facing food insecurity, a disaster exacerbated by icy winters.

Line graph of Afghanistan per US dollar showing the currency of Afghanistan has fallen

Mohammad Farid, a curly-haired fruit seller in Kabul, sells so little that his modest business is losing money. His colorful display of yellow and red apples is slowly going to waste, barely selling in four days.

“Afghanistan is a mess,” he said. “I wanted it in a different way – where there would be work, business and income.”

During 20 years of occupation by the United States and Nato since 2001, Afghanistan’s economy has become dependent on foreign aid and dollar. The greenback was delivered to the country and the Da Afghanistan Bank, the central bank, conducted regular auctions to back the afghani coin.

Sanctions mean that Afghans, businesses and public institutions have their savings, foreign customers and international donors cut off, worsening what the IMF expects is Economic contraction 30%.

The United Nations and the United States last month announced waivers to allow humanitarian aid to enter the country. But critics still say the sanctions are punishing ordinary Afghans rather than the Taliban.

Mohammed Farid, a fruit seller in Kabul, with his stall
Mohammad Farid’s fruit stand in Kabul is losing money as the currency collapse leaves many Afghans unable to buy food © Benjamin Parkin / FT

Graeme Smith, a senior consultant with the International Crisis Group, a think tank, argues that “the economic restraint imposed by the West has created a need for humanitarian aid”. “Having a central bank is a necessary service for a modern state-owned economy. The easiest thing is to just let the DAB do their job. “

Shah Mehrabi, an economics professor at Montgomery University in Maryland who sits on the DAB’s board, said the US should allow transfers of about $150 million a month to allow the central bank to continue to compete. currency prices and price stability. “Why not just allow this process to establish some level of trust [in the] DAB, the organization we have invested in for 20 years? Why destroy this institution? ” he say.

Currency traders are ubiquitous in Kabul, lingering near traffic lights or packing into markets. Some said dollars were smuggled out of the country to Pakistan, which has also been affected by the sharp devaluation of the currency.

Mohammad Mirzai, a 22-year-old trader, said: “When Pakistani tycoons see their currency depreciating, they try to buy dollars. “In Afghanistan, there are no rules. They are buying from Afghanistan and trading dollars into Pakistan. “

Analysts say the afghani could deteriorate further given the extent of the crisis, but the difficulty of accessing savings has underpinned the need for cash.

Charlie Robertson, economist at Renaissance Capital, an investment bank, said that in other economic downturns – such as in former Soviet Union countries or Zimbabwe – central banks have to resort to printing money to pay their bills.

But DAB depends on foreign companies to print invoices and lacks the facilities to print invoices itself. “For a country in Afghanistan’s situation, it’s surprising how small the drop is,” said Robertson.

While a relatively limited currency collapse has helped prevent hyperinflation, the upside is still doing Important food can’t be bought, increasing the risk of widespread famine.

Hamidullah Ibrahim, a 61-year-old currency trader, complains that the prices of flour and oil have both risen sharply. “Everything,” he said, “was going backwards.”

Additional reporting by Fazelminallah Qazizai in Kabul

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