Afghanistan’s new Taliban rulers are likely to face a rapidly evolving financial crisis in which foreign exchange reserves are virtually unattainable and Western aid donors – who fund the country’s institutions by about 75% – are already interrupting or threatening to cut payments.
While the hardline Islamist group has in recent years moved to become more independent of external financial backers, including Iran, Pakistan and wealthy donors in the Gulf, its financial flows – at 1.6 billion. Dollars (1.2 billion pounds) last year – far below what it will require to manage.
On Wednesday, Afghanistan’s central bank governor revealed that the country has $ 9 billion in reserves abroad, but not in physical cash inside the country, after the Biden government ordered the freezing of Afghan state reserves in US bank accounts on Sunday.
Ajmal Ahmady wrote on Twitter on Wednesday that the majority of it – about $ 7 billion. – was held in US Federal Reserve bonds, assets and gold, adding that its holdings of US dollars were “close to zero” as the country had not received a scheduled cash shipment during Taliban offensive that swept the country last week.
“The next shipment never arrived,” he wrote. “It seems our partners had a good intelligence about what was going to happen.”
Ahmady noted that the lack of US dollars would likely cause Afghans to fall and inflation rise and hurt the poor. Access to these reserves is likely to be complicated by the US government, which is considering designating the Taliban as a sanctioned terrorist group.
“The Taliban won militarily – but must now rule,” he wrote. “It is not easy.”
With the Taliban long subject to international sanctions, they have for the past five years been heavily dependent on increasing their opium trade enormously, including, according to some experts, by introducing a new poppy that can be harvested three times a year instead of twice.
A confidential report prepared by NATO two years ago painted a picture of a movement that had “achieved or is close to achieving economic and military independence”, which enabled the Afghan Taliban to self-finance its insurgency without the need for support. from governments or citizens of other countries ”.
But if that helped explain the Taliban’s recent successes, the huge difference between the money the Taliban has had to fund their military campaign and what they should manage has been a leading factor in predictions that the group will present a more softening face to the world to seek backing.
Speaking at an event this year, John Sopko, the US Special Forer on Reconstruction in Afghanistan, said: “It seems that even the Taliban understand Afghanistan’s great need for foreign aid.”
Despite the group’s promise to halt drug exports from Afghanistan “to zero” at its first press conference in Kabul on Wednesday, the country accounted for 84% of global opium production in the year ending 2020, according to the UN World Drug Report. The majority of this production took place in Taliban-controlled areas and benefited the group through a 10% production tax.
Three of the last four years have seen some of Afghanistan’s highest levels of opium production, according to the UN, where poppy cultivation rose 37% last year alone.
According to reports prepared for the UN, NATO and the US Defense Intelligence Agency, another key component of the Taliban’s funding has been the taxation of mine exports, which bring in almost a third of its income in addition to the tax it levies on residents in areas it controls.
On top of that, the analysis reveals that the Taliban has continued to be a major benefit to charitable donations from wealthy people in the Gulf for more than $ 240 million. It has also received support from Iran.
Complicating the issue for the Taliban is the threat to aid flows that has long sustained the Afghan government – accounting for 42.9% of GDP. Germany, one of the country’s largest donors, has said it is stopping development aid and others have threatened to do the same. Berlin had intended to provide € 430 million in aid. (£ 366 million) This year.
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