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Recent Western efforts to boost cash flows to Afghanistan will do little to deal with the country’s growing humanitarian crisis without broader reforms to get money to ordinary people, aid organizations have warned.
the US and the British Treasury Both have issued clarifications in recent days to reassure banks that payments for basic human needs, including food, health and education, do not violate sanctions against the Taliban leaders who seized power last year.
But aid agencies say the impact will be modest without the release of frozen Afghan central bank reserves to restore interbank credit and foreign exchange transactions, spur a resurgence in the banking sector and a release of donor money frozen by the World Bank to boost the economy.
While recent guidance has allayed banks’ concerns about penalties if some remitted funds ultimately pass through Taliban-controlled ministries, the high cost of due diligence means many banks remain reluctant to resume operations.
Martin Hartberg, British Director of the Norwegian Refugee Council, said: “Without a functioning central bank, it will simply be impossible to get enough banknotes into circulation in the economy, not only for aid organizations to expand our humanitarian programs, but also for Afghan households and companies to survive.”
A survey by his panel of 72 non-governmental organizations in Afghanistan in late 2021 showed that 85 percent viewed the unblocking of international bank transfers as “critical” to their operations.
His analysis suggested that a number of the country’s banks, used to wire funds to aid workers and local recipients, were on the brink of collapse.
Matt Reed, Chief Executive of the Aga Khan Foundation in the UK, said: “Sanctions and the freeze on the banking system have had a chilling effect. Even when a bank makes transfers, there is a liquidity problem as there is not enough money in circulation for the economy to function. It is important that the banking sector strengthens. It doesn’t work without them.”
International aid accounted for around 80 percent of the previous Afghan government’s budget. But after US and NATO forces withdrew after the Taliban took power in August, governments halted aid and froze more than $9 billion in central bank reserves held abroad.
Sanctions imposed on the Taliban were largely imposed on Afghanistan’s financial system and civil service, leaving banks unable to transfer funds and withdraw cash. A sharp drop in the Afghan fueled painful inflation in the import-dependent country.
Some Afghans have gone underground Hawala Network to transfer money outside of the banking system, but larger organizations and companies were reluctant to use this informal way as it is illegal in nearby countries like Pakistan. Dollars have been smuggled out of the country, while the lack of money printing machines has meant hard currencies have become scarce.
Regardless, the board of the World Bank won’t be discussing demands until at least the end of this month, via a UN facilitator in excess of $1 billion in funds for months without a salary.
David Miliband, head of the International Rescue Committee, warned of the wider implications. “What is crushing is the country’s economic strangulation. Part of this involves public sector wages, but also private sector activities that are crowded out by bank illiquidity and the deterrent effect of sanctions. We are very quickly caught up in a humanitarian crisis.”
David Pitts of the Crown Agents Bank, which sends money to Afghanistan for the Aga Khan Foundation, said: “It’s no use having the best humanitarian efforts and actors trying to find solutions when the underlying economy isn’t working. If you cannot import basic food, fuel and medical equipment, all good efforts will be undermined.”
