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Afghan Central Bank exhausted dollar reserves before falling into Taliban hands in Kabul: report

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It was written for the use of donors and lenders, including the World Bank and the IMF. (file)

Frankfurt/Mumbai:

Afghanistan’s central bank exhausted most of its US dollar cash reserves in the weeks before the Taliban took control of the country, further exacerbating the current economic crisis, according to an assessment prepared for Afghanistan’s international donors.

The confidential, two-page brief written in early September by senior international economic officials said the country’s severe cash crunch began before the Taliban took control of Kabul.

It was written for the use of donors and lenders, including the World Bank and the International Monetary Fund.

It criticized how the central bank’s former leadership handled the crisis in the months before the Taliban’s victory, including decisions to auction off unusually large amounts of US dollars and transfer money from Kabul to provincial branches.

“The FX (foreign exchange) reserves in the CB (central bank) vaults in Kabul have been exhausted, the CB cannot fulfill … cash requests,” said the report seen by Reuters.

“The biggest source of the problem is mismanagement at the central bank prior to the Taliban takeover,” it added.

Shah Maharabi, chairman of the central bank’s audit committee, who helped oversee the bank before the Taliban came to power and is still in his post, defended the central bank’s actions, saying it was a trade-off on the local Afghan currency. Trying to stop the run.

Cash shortages can be seen on the streets of cities in Afghanistan, with people queuing for hours to withdraw dollar savings amid strict limits on how much money they can withdraw.

Even before the shock of the collapse of the Western-backed government, the economy was struggling, but the Taliban’s withdrawal and the abrupt cessation of billions of dollars in foreign aid have plunged it into deep trouble.

Prices of staples like flour have gone up while work has dried up, leaving millions facing the cold.

aid dries up

Under the previous government, the central bank relied on cash shipments of $249 million, distributed approximately every three months in boxes of $100 denominations and stored in the central bank and in the vaults of the presidential palace, for three people. In accordance with the direct knowledge of the case.

Foreign powers shy away from dealing directly with the Taliban, which fights against foreign troops and an ousted government, that has run out of money. Thousands of people – many of them civilians – were killed.

The central bank, which plays a key role in Afghanistan as it distributes aid from countries such as the United States, said on Wednesday it has finalized a plan to meet the country’s foreign exchange needs. It did not provide any details.

The tough currency crisis is making it difficult for the Taliban to meet basic needs, including paying electricity or paying salaries to government employees, many of whom have not been paid for months.

As the Taliban captured Kabul, Afghanistan’s nearly $9 billion in offshore reserves were frozen, leaving only cash in the central bank’s vault.

According to the report, the central bank auctioned $1.5 billion to local forex dealers between June 1 and August 15, a “striking high”.

“As of August 15, the central bank had outstanding liabilities of $700 million and 50 billion Afghanis ($569 million) towards commercial banks,” it said, adding that this was a major factor in draining its coffers.

However, Afghan central bank official Mahrabi said that although the auction was announced for around $1.5 billion, the actual amount sold was $714 million.

He added that the central bank had “continued its foreign exchange auctions to reduce depreciation and inflation.”

Money missing?

The report also questioned a decision by the central bank to move some of its reserves to provincial branches, putting it at risk as the Taliban march to their victory nationwide from the end of 2020.

It said about $202 million was placed in these branches at the end of 2020, compared to $12.9 million in 2019, and that the cash was not transferred as the provinces began to fall to the rebels.

“Some money was reportedly lost (stolen) from ‘some’ of the provincial branches,” the report said.

Maharabi said the central bank was investigating money “stolen” from three of its branches, though not by the Taliban. He did not provide any other details.

Former central bank governor Ajmal Ahmadi, who left the country a day after the fall of Kabul, did not respond to emails and other messages requesting comment on him and the bank’s actions in the months before the Taliban returned to power. .

Ahmadi has said on Twitter in recent weeks that he did his best to manage the situation, and attributed any cash crunch overseas to the freezing of central bank assets.

In his statements, he also said that the central bank had managed the economy well before the fall of Kabul and that he felt bad about leaving employees behind but feared for his own safety. He has said that no money has been stolen from any reserve account.

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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