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Thursday, February 15, 2024

Governor Afghan central bank predicts economic turmoil

Acting Governor Central Bank of Afghanistan Ajmal Ahmady took to Twitter to talk about the situation of asset reserves of DAB. He revealed that the majority of Afghanistan's asset reserves are frozen by the US and the Taliban has access to only 0.1 to 0,2 per cent of the country's total international asset reserves. He said that this is "not much".

Acting Governor Central Bank of Afghanistan named Da Afghan Bank (DAB) Ajmal Ahmedy took to Twitter on Wednesday to clarify the location of international reserves.

According to Mr. Ahmedy, he wrote this as the Taliban has been asking the DAB staff for the location of the assets.

He firstly gave certain statistics regarding the situation of the reserves, saying that as of last week, Afghanistan’s central bank’s reserves were approximately $9 billion.

He explained, however, that the entire reserves are not physically present in DAB’s vault, but are held in safe, liquid assets such as Treasuries and gold according to international standards.

He said that the Federal Reserve had $7 billion, International Accounts had $1.3 billion and the Bank of International Settlements (BIS) has $0.7 billion.

He also gave a breakdown of the country’s assets in federal reserves, with $3.1bn in dollar-denominated bills/bonds, $2.4bn in World Bank Reserve Advisory & Management Partnership (RAMP) assets, $1.2bn worth of gold, and $0.3bn worth of cash accounts.

Ajmal Ahmady pointed out that IMF had approved a Special Drawing Right SDR650 billion allocation recently, out of which DAB was to receive $340 million by 23rd August.

Governor DAB said that he was unsure if the international body would proceed with the allocation of the promised sum to the country.

Ahmady also raised concern about the halting of the cash shipment country received every few weeks as a stabilizer for its huge Current Account Deficit (CAD). He said that Afghanistan’s remaining cash is close to zero due to a stoppage of shipments as the security situation deteriorated, especially during the last few days.

He also said that a recent call on Friday notified him that no further cash shipment were going to be coming to Afghanistan, unlike the one expected on 15th, the day Taliban took over.

Therefore, the governor DAB had to limit access to US dollar for both banks and dollar auctions. He said that the central bank also had to place a maximum withdrawing limit for the customers.

Regarding the Afghani currency Afghani, he said that it depreciated to 100 per USD, before bouncing back to 86.

Read More: Taliban territory not to be let used against any country

Bloomberg wrote, “The Afghani fell as much as 4.6% on Tuesday to 86.0625 per dollar, a fourth day of decline, according to data compiled by Bloomberg. The central bank was told there would be no more dollar shipments on Friday, which curtailed its ability to supply currency and led to more panic.”

He recalled that he even met with former president Ashraf Ghani on the evening of 14th August to inform him of the situation with the cash shipment, and said that upon former president’s request it was approved.

Reassuring people about previous government’s honesty acting governor said, “Please note that in no way were Afghanistan’s international reserves ever compromised. Assets are all held at Fed, BIS, RAMP, or other bank accounts. Easily audited We had a program with both IMF and Treasury that monitored assets,” adding that no money was stolen from any reserve account.

He said that since the incumbent government hasn’t gotten the international legitimacy, and the Taliban is still on different sanction lists, the assets held by foreign agencies would be frozen and inaccessible to the regime.

It is worth mentioning here that according to bloomberg report, the US has frozen almost $9.5 billion of DAB assets.  A Biden administration official has told bloombergthat any central bank assets that the Afghan government has in the U.S. will not be available to the Taliban, which remains on the Treasury Department’s sanctions designation list.

It is also worth mentioning that the vast majority of Afghan Central Bank assets are not currently held in Afghanistan, meaning as Ahmady wrote, Taliban have access to only 0.1-0.2 per cent of countries international reserves, which according to him are “not much”.

Talking about the commercial banks, Ahmady wrote, “I believe local banks have told customers that they cannot return their dollars – because DAB has not supplied banks with dollars.” He said that this is true because all dollars are in the frozen international accounts, by the decision of US sanction implemented by OFAC.

He thereby commented, “Taliban won militarily – but now have to govern. It is not easy.”

Read More: Dead Afghan found in C-17 aircraft coming from Kabul

He ended his thread with these forecasts for the country’s economic situation, “Therefore, my base case would be the following:

  • Treasury freezes assets
  • Taliban has to implement capital controls and limit dollar access
  • Currency will depreciate
  • Inflation will rise as currency pass-through is very high
  • This will hurt the poor as food prices increase
Ajmal Ahmady also suggested that the Taliban need to urgently add an economist to their team.