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Inflation ringing the recession bell - Mohammed Shaheen

Economic Indicator

5 Oct 2021

Afghanistan Cash Crisis Could Lead to Economic Collapse

The Index Today

Afghanistan’s economy is facing a major cash crisis as money supplies are drying up weeks after the U.S withdrawal. The supply of money coming in from the outside world is limited due to border restrictions, bank withdrawal limits and cash strapped businesses.

The growing cash problems in the country are pushing prices of food supplies higher which could have a devastating impact on the general public. Prior to the Taliban taking over, Afghanistan’s economy was mainly run with the support of U.S and international aid.

A prominent board member of the Central Bank of Afghanistan, Shan Mehrabi, has estimated approximately two-thirds of the nation’s monetary deposits comprised of dollars. He further went to say, “Dollarization is still prevalent in Afghanistan, and our economy depends on it.”

Since the Taliban still have not achieved international recognition as the new government, the ruling regime has no access to the $9 billion central bank reserves. The U.S and other superpowers including Russia have denied legitimate governmental status to the Taliban over growing terrorism and human rights abuses. Currently, the IMF and World Bank have halted all international aid to the country until dispute resolution begins.
The Taliban have implemented strict money control measures to manage whatever little reserves are left. This includes limiting bank withdrawals and placing a ban on sending money outside the country. Residents are seeking desperate measures to raise cash and survive, some going so far as selling their furniture at local flea markets.
The worsening liquidity market also means that the banks are not able to pay depositors. Small business owners and the once-flourishing market now lies at the brink of bankruptcy ad collapse. Khanjan Alokozay, senior member of the nation’s chamber of commerce said, “If these companies collapse, the whole nation collapse.” The United Nations published a report last month where it estimated that the GDP will fall by 13.2% by mid of next year. If public funds are not made accessible, a full blown economic crisis would most likely occur.

©Photo: ©Reuters

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