KABUL (Agencies): Since the US withdrawal and the Taliban takeover of Afghanistan in August 2021, the country has endured a deepening and increasingly deadly humanitarian crisis. Acute malnutrition is spiking across the country and 95 percent of households have been experiencing insufficient food consumption and food insecurity.
At least 55 percent of the population is “expected to be in crisis or emergency levels of food insecurity” through March 2022, according to the United Nations. Humanitarian organizations have repeatedly issued warnings about the sheer scale of the crisis and how much worse it can get. Afghan children are starving to death nearly every day.
The International Rescue Committee has concluded that, “[u]naddressed, the current humanitarian crisis could lead to more deaths than twenty years of war.” A February 2022 survey by Save the Children found that 82 percent of Afghan families had lost wages since August 2021 and almost one in five were sending children to engage in labor (for miniscule wages), while 7.5 percent stated they were resorted to begging or requesting money or food from charity. “The huge spike in prices caused by the economic crisis has left many families unable to afford food.”
The Afghanistan country director of Save the Children said in mid-February: I’ve never seen anything like the desperate situation we have here in Afghanistan. We treat frighteningly ill children every day who haven’t eaten anything except bread for months. Parents are having to make impossible decisions – which of their children do they feed? Do they send their children to work or let them starve? These are excruciating choices that no parent should have to make.
Almost all Afghans are facing these dangerous hardships, but women and girls, who face greater obstacles to obtaining food, health care, and financial resources, are disproportionately affected. Taliban policies that have barred women from most paid jobs have had a swift and devastating impact on households in which women were the sole or main earners. According to a World Food Program survey released in February 2022, nearly 100 percent of female-headed households are facing insufficient food consumption and 85 percent are taking “drastic measures” to obtain food. Even in areas in which women are still allowed to work in some jobs – primarily education and health care – they are often unable to comply with oppressive Taliban requirements, such as having a male family member escort them to work and even throughout the workday.
Afghanistan’s healthcare system has largely collapsed, which has had a devastating impact on maternal and infant health, and women and girls’ access to sexual and reproductive health care – services that were already in short supply. Taliban restrictions including requiring that women be escorted to health appointments by male family members and bans on male healthcare professionals treating women are further compromising women’s access to health care.
The Taliban have closed the vast majority of girls’ secondary schools depriving girls of the right to education. This and escalating poverty that has made it very hard for girls to attend the girls’ schools that remain open have heightened the risk of child marriage. Humanitarian groups and the media have reported families selling girls – ostensibly for marriage – out of desperation to obtain food or repay debts.
The root causes of Afghans’ loss of access to food, water, shelter, and health care are almost all economic: millions of dollars in lost income, spiking prices, and the collapse of the country’s banking sector. Other factors have contributed to the country’s humanitarian crisis, including a major drought and the effects of decades of war, but economic shocks have been the primary causes of the deteriorating situation.
Since August, more than four out of five Afghan households have experienced significant decreases or elimination in income. At the same time, the country’s overall economy and banking system has been almost completely incapacitated by decisions by the US and other governments to cut off Afghanistan’s Central Bank, officially the Da Afghanistan Bank, from the international banking system. This has led to a massive liquidity crisis and nationwide shortages of banknotes in both US dollars and the Afghan currency, afghanis.
As Save the Children’s country director said: “There is no shortage of food here – the markets are full. Yet children are starving to death because their parents can’t afford to pay for food. This could, and should, have been prevented. But it is not too late to prevent further tragedy if we act now.” Private Afghan banks cannot cover withdrawals by depositors, including humanitarian aid organizations. Even when funds are transmitted electronically into banks, to pay for humanitarian operations, wages, or remittances, banks’ lack of physical cash means that funds cannot be withdrawn. This is because Afghanistan’s Central Bank, short on banknotes in both US and Afghan currency, has severely restricted transfers of banknotes to private banks, and imposed limits on withdrawals of afghanis, while also prohibiting many types of electronic transactions in US dollars. Private banks therefore lack adequate local currency to cover withdrawals, have few or no dollars in cash, and without significant assets on deposit, are unable to extend credit.
Banks are also facing difficulties settling incoming dollar transactions via correspondent accounts at private banks outside the country, most likely due to foreign banks’ fears that they may be violating UN and US sanctions on the Taliban.
Afghanistan’s economic collapse was caused by a combination of factors and decisions taken by governments and international institutions, outlined below, and on a larger level, by the US and the Taliban’s failure to reach an agreement to avert the humanitarian impacts of the change in governance in August 2021. Actions underlying the crisis include: Suspending support for essential salaries and large-scale poverty alleviation food security mechanisms. Afghanistan’s economy before August 2021 was 75 percent dependent on foreign assistance. After the Taliban took control of the country on August 15, 2021, donor governments, led by the US, instructed the World Bank to cut off about $2 billion in outside international assistance the bank had previously been dispersing through the Afghanistan Reconstructive Trust Fund (ARTF) to pay salaries of millions of teachers, health workers, and other essential workers, and through projects funded by the International Development Association (IDA).
These massive funding streams provided purchasing power to millions of Afghan families, including many very poor households who benefited from cash-for-work, cash distribution, and livelihood support programs. Additional budgetary assistance from the International Monetary Fund (IMF), USAID, and the Asian Development Bank (ADB) was also cut. As a direct result, an enormous number of Afghan households immediately lost their primary sources of income. According to a World Food Program survey released in February, four out of five households reported no income or significantly reduced incomes in January 2022.
In early 2022, the World Bank board reportedly decided to resume the delivery of some of these stopped funds, but the technical details of which funds will be released, and how they will be dispersed, remains unclear. The abrupt cuts of World Bank-programs caused a massive drop in purchasing power across the country and had major impacts on both household and macroeconomic levels. Even if humanitarian groups are able in the future to increase food and cash distributions, it cannot make up for the impact of these cuts.
Revoking the Afghan Central Bank’s credentials. Notably, the US, other governments, and the World Bank Group also revoked the credentials of the Afghan Central Bank to interact with the international banking system and international financial institutions (World Bank, IMF, ADB, and others), and many countries’ domestic banking systems. At the same time, most of the leadership of the Afghan Central Bank effectively resigned and fled Afghanistan. About a week after taking control of Kabul, the Taliban appointed a new finance minister and head of the Central Bank. Neither of them, however, have been certified by other governments as authorized representatives of the Central Bank for the purposes of engaging in international transactions or accessing accounts or assets the Central Bank has outside of Afghanistan. At the World Bank, the US government used its dominant position on the board to revoke the Central Bank’s credentials, blocking the bank from receiving any World Bank assets, grants, or assistance. In any case, it would be unable to transfer these funds because of the central bank’s lack of access to the international banking system.
In other countries, the US and other governments stopped recognizing the credentials of the Central Bank, effectively blocking the bank from its foreign currency reserves on deposit at their central banks, including the New York Federal Reserve, the Bank of England, and other central banks in Europe, which together held approximately $9 billion of Afghanistan’s foreign currency reserves, the bulk of it – $7 billion – at the New York Federal Reserve. This $9 billion is part of the overall sovereign wealth of Afghanistan. Notably, however, approximately $1 billion of the assets are on deposit by private actors in Afghanistan, including businesses.
The decisions outlined above have prevented the Central Bank from accessing foreign currency reserves even as collateral to provide short-term liquidity to settle dollar transactions, make essential payments, purchase banknotes to hold auctions of dollars for private banks, or pay dues to the World Bank. As noted above, this immediately increased liquidity problems for all banks and the shortages of currency in US dollars and Afghan afghanis.
The recent economic actions against the Taliban were not taken because of existing sanctions. UN, US, and other government sanctions currently applicable to the situation in Afghanistan were initially imposed on the Taliban and its senior leadership in 1998 after Al Qaeda carried out attacks on two US embassies in Africa – the sanctions aimed to punish the Taliban for hosting al Qaeda in Afghanistan. These sanctions were updated in 2008 and have been adjusted by the US, UK, and other governments at various times since. They remain fundamentally focused on the Taliban as an armed group, not as a government, and its leaders as individuals.
These sanctions are not automatically applicable to the Central Bank of Afghanistan. There are no sanctions against Afghanistan itself, its government, or any governmental entities. There are no sanctions on the Afghan Central Bank. However, some of the Taliban leaders listed for sanctions by the UN, US, and others are now ministers in the new Taliban administration, such as the finance minister, Gul Agha Ishakzai.
However, existing UN and state sanctions on the Taliban and many of its senior leaders led many banks and other financial institutions outside of Afghanistan after August 2021 to restrict or block the processing of most transactions involving Afghan bank accounts, out of concern, appropriate or not, that they could face fines or prosecution from US authorities. (Major US dollar denomination transactions involving Afghan banks ultimately require the cooperation of a US-based bank’s “correspondent” account to “settle” transactions.)
In September and December 2021 and February 2022, the US Treasury issued multiple “licenses” and guidance documents authorizing banks and other entities subject to US law to engage in a range of humanitarian activities and transactions with Afghan government entities necessary or incidental to humanitarian operations or legitimate commercial activities, such as remittances. The UK and several EU governments have issued similar licenses or guidance documents. A US Treasury license and new guidance issued February 25, 2022, technically authorizes transactions with the Central Bank.
The Central Bank itself, however, remains cut off from the international banking system and cannot access its assets in foreign accounts, because US and other country’s central banks, and the World Bank, still do not recognize the credentials of any current bank officials. Moreover, many foreign banks remain unwilling to process foreign currency transactions involving Afghan banks in general. Humanitarian organizations, Afghan banking officials, and private actors have told Human Rights Watch that although some major transactions involving long-recognized accounts have now resumed, many electronic settling transactions continue to be blocked.
According to internal UN surveys of humanitarian actors and Human Rights Watch consultations with aid groups, the vast majority of humanitarian agencies operating in Afghanistan through February have been utilizing informal and largely unregulated hawala money transfer systems or sarrafs, or money exchangers, to move funds into Afghanistan, pay salaries, and obtain cash. These systems, however, impose enormous transactional costs – sometimes over 10 percent – and in any case cannot be scaled up to handle the scope of humanitarian operations that groups are hoping to undertake, which involve hundreds of millions of dollars in cash assistance.
After the Taliban takeover, the US Treasury stopped recognizing the Afghan Central Bank’s credentials at the New York Federal Reserve, preventing the Central Bank from acquiring them, but the United States did not block or seize the assets.
Subsequently, on February 11, 2022, the administration of US President Joe Biden undertook a complicated set of steps affecting the reserves, including blocking some of them – but did not explain their actions publicly in adequate detail. As a result, several media accounts misleadingly reported that the US was dividing Afghanistan’s $7 billion foreign currency reserves in half, with half – $3.5 billion – set aside in a trust fund for the benefit of the “Afghan people,” while the other half were being given to the families of victims of the September 11, 2001, attacks on the US. This was not accurate.
Instead, on February 11, President Biden issued an executive order formally seizing, or “blocking,” all $7 billion of Afghanistan’s reserves in the US and moving them into one account at the New York Federal Reserve. The US Treasury Department then immediately issued a “license” ordering the New York Federal Reserve to transfer $3.5 billion of those assets into a separate account in the name of the Afghan Central Bank. It then authorized transfers of that money to any account or entity or body using it “for the benefit of the Afghan people and for Afghanistan’s future,” including World Bank trust funds; other trust accounts; “a United Nations fund, programme, specialized agency”; or any other “entity or body.” The administration later acknowledged that other entities or bodies includes the Central Bank itself – in other words, its own ledger in Afghanistan or at its own bank accounts in other countries.
The $3.5 billion that the administration set aside formally belongs to the Afghan Central Bank and technically can be withdrawn at any time and used by the bank for transactions or activities for the “benefit of the Afghan people,” providing an accredited official of the bank was recognized by the US as authorized to do so. According to the US Federal Reserve Act, cited by the February 11 license, this representative must be someone certified by a person who the US State Department has recognized as an “accredited representative… to the Government of the United States” of “the foreign state.” The US has not recognized any such representative or a bank official credentialed by such a person, so essentially the bank remains cut off from its access to the reserves.
