World Bank suspends disbursements to Afghanistan after Taliban seize power

Washington-based lender's decision comes after the IMF cut off the new government's access to the fund's reserve assets

A US plane carrying Afghans at an airport in Madrid, Spain. The World Bank says it is 'deeply concerned' by the situation in Afghanistan, especially regarding women's rights, after the Taliban seized power. Getty
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The World Bank has paused disbursements to its projects in Afghanistan, due to concerns about the potential impact the Taliban government will have on the country and especially women.

“We are deeply concerned about the situation in Afghanistan and the impact on the country’s development prospects, especially for women. We have paused disbursements in our operations in Afghanistan and we are closely monitoring and assessing the situation in line with our internal policies and procedures,” a World Bank spokesperson said on Tuesday.

“As we do so, we will continue to consult closely with the international community and development partners. Together with our partners we are exploring ways we can remain engaged to preserve hard-won development gains and continue to support the people of Afghanistan.”

The World Bank has provided more than $5.3 billion for development and emergency reconstruction projects and eight budget support operations in Afghanistan since April 2002.

The Washington-based lender also administers the Afghanistan Reconstruction Trust Fund (ARTF), the World Bank’s largest single-country multi-donor trust fund, which was established in 2002.

The bank has 12 active projects funded by the International Development Association (IDA) for the total amount of $940 million, and 15 projects jointly funded with ARTF, with over $1.2bn committed from IDA.

The World Bank's private sector development arm, the International Finance Corporation, has committed over $300m and its advisory services portfolio stands at $11.3m.

ARTF was established to provide help with the financing of Afghanistan's government budget and national investment projects. Since inception, the fund raised $12.9bn from 34 donors, making it the largest budget financing contributor for Afghanistan’s development.

Last week, the International Monetary Fund cut off Afghanistan’s new Taliban government from accessing fund reserve assets.

The decision by the IMF came days ahead of the country receiving about $500m earmarked for it as part of the fund’s new reserves, known as special drawing rights or SDRs. The money is part of the IMF's recently approved $650 billion of reserve assets that aim to help member countries, especially emerging and developing nations, cope with the economic fallout from the coronavirus pandemic.

As one of the fund's 190 member states, Afghanistan will still receive the assets but will be unable to use the money due to the Taliban lacking international recognition, the IMF said. Other countries that are unable to access IMF funding include Venezuela and Myanmar.

“As is always the case, the IMF is guided by the views of the international community,” an IMF spokesperson said. “There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access SDRs or other IMF resources.”

Afghanistan’s economy is largely dependent on foreign aid with domestic revenue sufficient to finance only around half of budgeted expenditures. The economy was already deteriorating before the US decided to withdraw from the country in the wake of the Covid-19 pandemic, the onset of a drought, declining trade, weakening donor aid, rising insecurity and uncertainty that eroded confidence.

Afghanistan’s currency is set to weaken and inflation will rise after the collapse of the government and the Taliban seizing power, the country’s outgoing central bank governor Ajmal Ahmady, who left the country this week, told The National.

“Inflation will likely increase to double digits as the currency weakens and inflation pass-through is high,” Mr Ahmady said.

The Afghani, the country’s currency, weakened to 100 to the US dollar before falling back to 86.04, according to the website of the central bank Da Afghanistan Bank. That is still above the 80-81 level it was at before the situation in the country escalated.

Before the Taliban seized power, as a sign of support for Afghanistan’s development and reforms, international donors pledged $12bn in civilian grants over 2021-2024 at a conference in Geneva in November 2020. That support was 20 per cent lower than what was pledged at a 2016 conference.

Updated: August 26, 2021, 5:15 AM