Afghanistan’s Collapsing Economy Puts Pressure on the Taliban to Negotiate

Afghanistan’s Collapsing Economy Puts Pressure on the Taliban to Negotiate

16:25 - Banks remain closed amid shortage of cash as dollar shipments, foreign aid halted

No longer facing serious military opposition, Afghanistan’s new Taliban rulers are grappling with a new threat: an economic meltdown that could fuel renewed challenges to their rule and has already put pressure on them to share power.

There has been no legitimate government of Afghanistan since President Ashraf Ghani and most ministers escaped Kabul on Aug. 15. In the eight days since then, the banks and money exchanges have remained shut and prices for basic commodities have surged. Economic activity has ground to a halt.

“People have money, but it’s in the bank, which means they no longer have money now. It’s hard to find cash,” said Bahir, a Kabul resident who worked as a financial officer for a construction company. “That’s why the whole business in Kabul has stopped.”

In the 1990s, a Taliban takeover revitalized the Afghan economy, ending fighting between rival warlords and reopening roads to trade. At the time, Pakistan, Saudi Arabia and the United Arab Emirates established diplomatic relations with Afghanistan’s Taliban rulers, and the ensuing stability bolstered the movement’s appeal. So far, however, no nation has recognized the new regime in Kabul, inflicting an economic pain that could force the Taliban to form a more inclusive—and moderate—government that includes rival political forces.

“The quicker we push on a political settlement, the sooner we will save Afghanistan from the dire economic consequences that are looming,” said Omar Zakhilwal, a former finance minister who returned to Kabul this week to join power-sharing talks with the Taliban. “We are working in tandem with the Taliban to bring a normal face to Kabul again: reopening of the banks, of the offices, of the ministries.”

In the current political limbo, Mr. Zakhilwal added, promoting existing civil servants at key economic institutions to replace senior officials who have fled the country “would be more helpful than bringing in new people who don’t’ know, and whom the international community doesn’t know.”

The Taliban so far don’t seem influenced by such arguments. On Monday, instead of promoting a current civil servant, they appointed Hajji Mohammad Idris, who was a senior member of the Islamist movement throughout the insurgency, as a new governor of Afghanistan’s central bank. The previous governor, Ajmal Ahmady, fled the country on Aug. 15, running with a crowd of other Afghans into the back of an open C-17.

In their first economic decree, the Taliban Monday banned the export of scrap metal. They have also said that they will continue paying the salaries of government employees, and that banking operations will resume “in the near future.”

The Taliban have indicated they won’t form a fully fledged new government as long as U.S. forces remain in the Kabul airport, a magnet for thousands of Afghans desperate to flee the new regime on American and allied evacuation flights. The Taliban declared on Monday that they won’t accept American presence in the airport past President Biden’s Aug. 31 deadline.

With the Taliban under international sanctions, the U.S. has already stopped shipping dollars to Afghanistan or disbursing aid. Western Union and MoneyGram International, the two leading money-transfer firms widely used by the Afghan diaspora, Saturday ceased sending money to the country because of concerns that continuing to do so would run afoul of American sanctions.

The International Monetary Fund said last week that the country can no longer access its resources because “there is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan.”

Afghanistan was due to receive some $440 million in special drawing rights from the IMF on Aug. 23. Out of the Afghanistan central bank’s $9 billion reserves, virtually none was held inside Afghanistan before the Taliban takeover, according to the former governor, Mr. Ahmady. Foreign aid and remittances from Afghans abroad account for a major part of the country’s economy.

Unlike the ruins that the Taliban entered in 1996, Kabul today is a sophisticated city of six million people where a significant share of residents had grown accustomed to being paid their salaries into bank accounts, using smartphones, watching cable TV, and browsing the internet.

With the banks and most stores closed, cellphone top-up scratch cards—used to add credit to mobile accounts—have become a hot commodity in Kabul, residents say. They are selling well above their nominal value as mobile-phone networks, many of them partially owned by large foreign companies, continue providing coverage for now.

ATMs, where they still function, have reduced the daily withdrawal limits to 10,000 afghanis a day, equivalent to about $116, down from 30,000 afghanis, said Baryalai, a resident of the northern city of Mazar-e-Sharif. “Not a single bank is open. Today, the banks didn’t put money into the ATMs. Nobody can get any money,” he said.

Prices for basic commodities, such as flour, cooking oil and gas have risen by as much as 50%, residents say. The afghani-to-dollar exchange rate quoted by the few street money-changers still operating has fallen by about 10%, with dollars increasingly hard to find, they add. Some imported items, too, have disappeared from shelves.

Even those who have money are unwilling to spend it. “They are afraid of the future and want to save,” said Toryalai, a government employee in Kabul. “They want to be prepared for the difficult time ahead, and are trying to spend what they have to get out of the country.”

The only thing that is going down is rent. “So many people have left the city,” said Paiman, a money changer in Kabul. “Some landlords now even ask their tenants to stay for free because they fear that the Taliban may just take a house if it’s empty.”

The one improvement, residents say, is a more steady supply of electricity around the country—caused in part by diminished demand as government offices and many businesses remain shut, and in part by the fact that the Taliban no longer regularly blow up pylons on the main transmission lines.

Some restaurants and coffee shops in Kabul are operating again, but business is slow. One businessman who reopened a popular coffee shop in the western part of the city two days after the Taliban takeover says that he has had only between five and 10 customers a day.

“A Taliban commander responsible for a checkpoint near my cafe came to my place. He ate some cakes and had a cappuccino,” the businessman said. “He liked my coffee.”

“The city has faded away,” he added. “People are hopeless.”