Afghanistan's economic crisis has been exacerbated by recent political developments. Following the Taliban seizing power in the country, the economy, which was already struggling to develop, took another hit. The rapid reductions in international grant support, loss of access to offshore assets and disruptions in financial linkages are expected to result in significant economic contraction, increased poverty and macroeconomic instability.
Following the Taliban takeover, inflation accelerated further, owing to currency depreciation, hoarding and disruptions in international trade. Over the first half of 2021, inflation accelerated gradually, in line with global trends, and energy prices increased by 12% in the first half of the year. Prices for staples such as food and fuel increased significantly as the Taliban captured border posts and critical transit hubs, disrupting supply chains.
A sizable proportion of the population is expected to fall below the poverty line, resulting in negative employment and price effects. Some 10 million Afghans are at risk of poverty, with incomes ranging from one to 1.5 times the poverty level ($0.94 per person per day). Food security is expected to deteriorate as well, with possible long-term negative consequences given Afghanistan's young population.
The U.S., the largest single donor of humanitarian aid to Afghanistan, froze Afghanistan's funds following the Taliban's takeover. The U.S. will release half of the $7 billion in frozen Afghan central bank assets on U.S. soil to assist Afghans facing a humanitarian crisis while keeping the remainder to possibly satisfy terrorism-related lawsuits against the Taliban.
Many Afghans have expressed outrage over the U.S. President Joe Biden administration's decision to divert billions of dollars in frozen assets from the Afghan central bank to American families of the 9/11 victims, as Afghanistan descends further into economic ruin.
Suhail Shaheen, the Taliban's designated representative to the United Nations, has requested that the entire sum be unfrozen and placed under the control of the Afghan central bank. The reserve is owned by Da Afghanistan Bank and, by extension, the Afghan people.
The Taliban's Doha office spokesperson stressed that "stealing and taking over frozen money belonging to the Afghan people by the U.S. demonstrates the lowest level of the human and moral decline of a country. If the U.S. does not budge from its position and continues its provocative actions, the Taliban will be forced to rethink its policy toward the country. The Taliban categorically rejects Biden's ill-advised actions as a violation of all Afghans' rights."
Significantly, Biden's proposal calls for half of the funds to remain in the U.S., subject to ongoing litigation brought by U.S. victims of terrorism, including relatives of those killed in the 9/11 attacks. However, the Taliban statement stated that the 9/11 attacks had nothing to do with Afghans, calling the move a "theft" indicative of the "U.S.’ moral decay."
Notably, many Afghans expressed outrage over the Biden administration's decision to divert billions of dollars in frozen assets from the Afghan central bank to American families of 9/11 victims, as Afghanistan descended further into economic ruin. The move, which effectively bankrupts the country's central bank, exacerbates the growing hostility many Afghans have felt toward the U.S. since the troop withdrawal that paved the way for the Taliban takeover.
For months, Afghanistan's economy has teetered on the verge of collapse. Millions of dollars in aid that helped the Western-backed government are no longer available, and U.S. sanctions have crippled the banking system and harmed the ability of humanitarian organizations to deliver aid. Afghanistan's economy is on the verge of collapse, despite the U.N.'s feverish efforts to galvanize international efforts to expedite food and essential supplies.
Furthermore, seizing central bank funds has halted economic activity. Individuals have lost access to bank-held funds. Teachers and government employees are going without pay. Importers lack the capital necessary to finance their imports. The decision to release only a portion of the funds will wreak havoc on the millions of Afghan children, women and families enduring one of the world's worst humanitarian and economic crises.
Since the U.S. military withdrawal from Afghanistan, Washington has been under pressure to find a way to economically punish the Taliban government without jeopardizing humanitarian assistance. The Taliban had previously warned that withholding funds would result in problems, such as mass migration and further economic collapse. The U.N. warned that by the middle of 2022, the country could reach a "near-universal" poverty rate of 97%. Hence, Afghans require assistance, not money being taken from them.
Before the Taliban takeover, the previous Afghan government deposited over $7 billion in assets at the Federal Reserve Bank of New York (Fed), including currency, bonds and gold. Since then, the Fed has restricted access to those funds.
Complicating matters further is the fact that the U.S. does not recognize the Taliban government as legitimate and is legally prohibited from transferring funds to what it considers to be a "terrorist organization," raising the question of whether the funds held by the Afghan central bank belong to the Taliban. The freezing of funding, combined with sanctions and a decline in development assistance, has thrown the country's economy into freefall, precipitating a humanitarian crisis.
Most importantly, there is no rationality in freezing the Afghan government's bank accounts. The U.S. should unfreeze Afghanistan's assets because they belong to the Afghan people and the Afghan government will pursue any legal action necessary to obtain their release. The U.S. should respond to the legitimate requests of the Afghan people, end its misguided sanctions policy and remove impediments to Afghanistan's peace and restoration.