IMF prevents Afghanistan from accessing funds after Taliban seize power

The US has frozen nearly $9.5bn in assets belonging to the Afghan central bank and stopped shipments of cash to the country

The IMF will withhold funds to Afghanistan amid uncertainty over the status of the leadership in Kabul. AFP
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In a blow to the Taliban, the International Monetary Fund has cut off Afghanistan’s new government from accessing fund reserve assets.

The decision by the Washington lender comes days ahead of the country receiving about $500 million 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.

The “currency should decline with decreased donor inflows and, especially, if the US freezes international reserves”, said Mr Ahmady, who also served as an economic adviser to President Ashraf Ghani before the latter fled the country on August 15.

The central bank foreign currency reserves were about $9bn, he said.

The US has frozen nearly $9.5bn in assets belonging to the Afghan central bank and stopped shipments of cash to the country, according to Bloomberg. Any central bank assets that the Afghan government has in the US will not be available to the Taliban, which remains on the Treasury Department’s sanctions designation list, the news agency reported, citing an administration official.

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 19, 2021, 6:16 PM