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Taliban face financial crisis without access to foreign reserves - The Guardian

Afghanistan’s new Taliban rulers are likely to face a rapidly developing financial crisis, with foreign currency reserves largely unreachable and western aid donors – who fund the country’s institutions by about 75% – already cutting off or threatening to cut payments.

While the hardline Islamist group has moved in recent years to become more independent of outside financial supporters including Iran, Pakistan and wealthy donors in the Gulf, its financial flows – amounting to $1.6bn (£1.2bn) last year – are far short of what it will require to govern.

On Wednesday, Afghanistan’s central bank governor disclosed that the country has $9bn in reserves abroad but not in physical cash inside the country after the Biden administration ordered the freezing of Afghan government reserves held in US bank accounts on Sunday.

Ajmal Ahmady wrote on Twitter on Wednesday that the majority of that – about $7bn – was being held in US Federal Reserve bonds, assets and gold, adding that its holdings of US dollars were “close to zero” as the country had not received a planned cash shipment during the Taliban offensive that swept the country last week.

“The next shipment never arrived,” he wrote. “Seems like our partners had good intelligence as to what was going to happen.”

Ahmady noted that the lack of US dollars would probably cause the afghani to depreciate and inflation to rise, hurting the poor. Getting access to those reserves will probably be complicated by the US government considering designating the Taliban as a sanctioned terror group.

The “Taliban won militarily – but now have to govern”, he wrote. “It is not easy.”

With the Taliban long subject to international sanctions, they have relied heavily in the past five years on hugely increasing their trade in opium including, according to some experts, by introducing a new poppy that can be harvested three times a year instead of twice.

A confidential report prepared by Nato two years ago painted a picture of a movement that had “achieved, or is close to achieving, financial and military independence”, enabling “the Afghan Taliban to self-fund its insurgency without the need for support from governments or citizens of other countries”.

But if that helped to explain the Taliban’s recent successes, the huge disparity between the money the Taliban have had available to fund their military campaign and what they will need to govern has been a leading factor in predictions that the group will need to present a more emollient face to the world to seek backing.

Speaking at an event this year, John Sopko, the US special inspector general for Afghanistan reconstruction, said: “It appears that even the Taliban understand Afghanistan’s dire need for foreign assistance.”

Despite the group’s promise to halt the export of narcotics from Afghanistan “to zero” at its first press conference in Kabul on Wednesday, the country accounted for 84% of global opium production in the year ending 2020, according to the UN’s World Drug Report. Most of that production took place in Taliban-controlled areas and benefited the group via a 10% production tax.

Three of the past four years have seen some of Afghanistan’s highest levels of opium production, according to the UN, with poppy cultivation soaring 37% alone last year.

According to reports prepared for the UN, Nato and the US Defense Intelligence Agency, another main component of the Taliban’s funding has been its taxation of mining exports, which brings in almost a third of its income in addition to the tax it levies on residents in areas it controls.

On top of that, analysis reveals, the Taliban have continued to be a major beneficiary of charitable donations from wealthy individuals in the Gulf to the tune of upwards of $240m. It has also received support from Iran.

Complicating the issue for the Taliban is the threat to aid flows that have long sustained Afghanistan’s government – they account for 42.9% of GDP. Germany, one of the country’s top donors, has said it is halting development aid, and others have threatened to do the same. Berlin had been due to provide aid of €430m (£366m) this year.

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