The Washington PostDemocracy Dies in Darkness

Biden administration faces big choices as economic calamity hangs over Afghanistan

Top Afghan officials plead for assistance as the White House is torn between isolating Taliban and preventing economic collapse

Afghans waited in long lines for hours to try to withdraw money at Kabul Bank on Aug. 15. (Rahmat Gul/AP)

An earlier version of this story said that the U.S. government had designated the Taliban as a terrorist organization. The U.S. government has not extended such a designation to the Taliban.

Afghanistan’s economy faces calamity in the aftermath of the Taliban capture of Kabul, with the United States freezing the country’s financial reserves, residents unable to withdraw their money from bank accounts and billions of dollars of international aid put on hold.

The dangerous economic climate poses a major dilemma for the Biden administration as it tries to maintain leverage over the Taliban without exacerbating the severe economic conditions that threaten to immiserate millions of Afghan citizens. Biden administration officials are monitoring the situation closely and have said they will resume the flow of humanitarian aid, but they have not signaled how they plan to proceed.

Senior officials in Afghanistan’s toppled government have warned in recent days that parts of the nation’s economy are on the brink of devastation, given the country’s high dependence on international funding. Acting central bank governor Ajmal Ahmady, who recently fled the country, said in an interview that the nation’s economy faces severe strains as foreign capital and aid are choked off.

Similarly, Wahid Majrooh, the acting minister of public health in Afghanistan, told The Washington Post that he is “deeply, deeply concerned” about cuts in international aid and funding for the Afghan government’s national health-care system. Majrooh said in an interview that he is already facing shortages of critical medical supplies such as bandages, sutures, syringes, catheters and other “basic supplies for emergency rooms.” He said he is pleading with international officials to maintain public health funding for Afghanistan, despite the Taliban takeover, but has largely not yet received a clear response.

Biden administration freezes billions of dollars in Afghan reserves, depriving Taliban of cash

The threat to the broader economy also appears serious. Exports and imports are reported to have cratered as major borders have been closed to traffic. A half-dozen people in communication with Afghan residents reported dramatic price increases and shortages in grocery stores. Fears are also mounting about the impact of a failure by the Afghan government — the largest employer in the country — to pay its workforce when paychecks are due this month.

“The situation will be dire,” Majrooh said.

The Biden administration said the Afghan government fell faster than U.S. intelligence predicted in the days after its collapse. (Video: JM Rieger/The Washington Post, Photo: Demetrius Freeman/The Washington Post)

Ahmady warned of a surge of refugees if the economic devastation is prolonged. “There will be a restructuring of the economy, with the currency depreciating, inflation rising, and real incomes declining. It’s going to cause a significant economic impact,” he said.

President Biden vowed in his public address on Afghanistan this week that aid to the Afghan people would continue, despite the U.S. withdrawal from the country. That pledge may prove difficult to keep in practice, given the prospect of the Taliban’s standing between international donors and the intended recipients of money and other aid. The United States is not expected to want to lift financial restrictions on the Afghan government until the White House sees how the Taliban governs, posing a further logistical hurdle.

On Sunday, the U.S. Treasury Department froze Afghan central bank assets held in the United States. The move will prevent the Taliban from accessing the bulk of the $9 billion of Afghan central bank reserves but could hasten the financial crisis feared by many experts.

The administration is also grappling with how to handle existing sanctions on the Taliban that may chill the flow of international aid and funds into the country. Roughly 80 percent of the Afghan government’s budget comes from international grants and aid, according to PGIM Fixed Income, a global income manager. Billions of dollars of existing congressional appropriations to Afghanistan — primarily in the form of military support — are expected to stop flowing.

The International Monetary Fund also announced this week that Afghanistan would not have access to hundreds of millions of dollars of emergency funds that were to be disbursed to the country next week. IMF spokesman Gerry Rice said in a statement that the payments could not be made because of the “lack of clarity within the international community regarding recognition of a government in Afghanistan.”

Germany has suspended approximately $300 million of aid budgeted for Afghanistan.

Biden administration officials and other international groups have faced pressure to cut off Afghanistan’s international funding after the Taliban takeover, but the economic repercussions for Afghanistan’s population could be difficult to unravel, experts said.

“The last thing the Afghan people need right now is an economic crisis on top of a political and security crisis. The challenge for Washington is squaring that increasingly urgent need for cash and access to international reserves with the desire to not empower the Taliban,” said Elizabeth Threlkeld, a senior fellow and deputy director of the South Asia Program at the Stimson Center, a foreign policy think tank. “That’s the fundamental tension.”

White House officials have made clear in recent days that they are looking at ways to try to bypass the government of Afghanistan so that they can still deliver aid, but officials have not spelled out precisely how this might occur.

“I don’t want to get into hypotheticals, but I would point out that there are a range of different diplomatic relationships the United States has with countries around the world, including some in very difficult or nonexistent relationships with governments where we still provide forms of aid to people,” White House national security adviser Jake Sullivan said this week. “And I will leave it at that, because we’re not at a point yet where we can speak directly to how things will play out in Afghanistan.”

The Afghanistan Papers

White House and State Department officials say Washington will continue to provide aid to Afghanistan, as it has in other countries where its relations with those governments are strained, such as with Venezuela and Yemen. “Whatever course we take will not prevent humanitarian aid,” said a senior administration official.

But in those countries, the United States provides funding to aid organizations working there rather than payments directly to the governments. In the case of Afghanistan, Congress appropriates billions of dollars of direct government aid.

Given the Biden administration’s profound disagreements with the Taliban, it has to determine what aid it is willing to continue. However, the administration has been explicit that it does not yet recognize the Taliban as the official government of Afghanistan, which may mean the sanctions do not yet affect funding for the Afghan government.

The United States has stressed the importance of unifying its approach with other world powers and international institutions. That is likely to prove at least as difficult as getting world powers to agree simply on recognizing the Taliban diplomatically.

Afghanistan’s neighbors watch warily as Taliban completes its dramatic takeover

China and Russia have issued warm statements about the Taliban in recent days but have stopped short of formally recognizing its rule. Canadian Prime Minister Justin Trudeau said his government had “no plans” to recognize Taliban rule.

The European Union’s top diplomat, Josep Borrell, said the E.U. would open a channel of communication with the Taliban but stop short of recognition. “The Taliban have won the war, so we will have to talk with them,” he said.

On Wednesday, Deputy Secretary of State Wendy Sherman said “each country, of course, makes its own decisions,” but she said Secretary of State Antony Blinken had begun talks with his Chinese and Russian counterparts to “try to all head in the same direction.”

The State Department has said the manner in which the Taliban governs Afghanistan will be the central factor in determining recognition. But even if the Taliban rules as inclusively as it says it will, untangling aid-limiting terrorism sanctions on the militant group will require an international effort because many sanctions are enshrined in resolutions approved by the United Nations Security Council, experts said.

The United States may continue to provide aid to Afghanistan without going through the Taliban, using organizations that maintain a presence in the country despite the fighting. The United Nations High Commissioner for Refugees remains operational in about two-thirds of the districts in the country with a staff of about 200, said Chris Boian, a spokesman with the organization. He says his organization will stay as long as it safely can, given the need for UNHCR’s services in the country.

“Violence and insecurity have prompted the displacement of more than half a million Afghan civilians this year,” Boian said. “Many of them are women and girls.”

The impact of the withholding of international funds on Afghanistan’s economy may be mitigated by a few factors. The country has a relative lack of dependence on the international financial system, because most Afghans do not have bank accounts and largely operate outside the traditional economy.

Jehanzaib Zafar and Hamza Kamal, analysts at AKD Securities in Pakistan, told Bloomberg News that other regional powers such as China, Iran and Pakistan could assist the Afghan economy, thus helping to maintain peace.

“The integrated economic interests of major powers in the region will help bring these players closer and work together and potentially bring peace and economic prosperity,” they said.

Taliban shifts focus to governing, but protests, empty coffers and isolation pose challenges

But signs of danger are mounting. Afghanistan’s currency, the Afghani, lost about 5 percent of its value this week, reaching 86 to the U.S. dollar, according to Bloomberg News.

Majrooh, the health minister, said Afghanistan’s two major health-care systems — one funded by international donors, the other by the Afghan central government — are under threat of collapse. He said they need oxygen, oil, fuel and food for patients.

“Economically, this is likely to be a disaster unless they can figure out a way to keep the development aid going and the international support going,” said Matthias Lücke, a senior researcher at the Kiel Institute for the World Economy and a former official at the IMF. “It will be close to complete breakdown of the state and the economy. It is scary.”

On Sunday, security personnel at banks around Afghanistan fired at the “literally hundreds and hundreds of people even at the minor branches of minor banks” seeking to withdraw cash, said Zuhra Bahman, Afghanistan country director at Search for Common Ground, an international nongovernmental organization. International organizations and local NGOs have halted their operations as they decide whether to work in a country controlled by the Taliban, Bahman said, and layoffs have been reported in sectors including transportation and service industries.

“The economy is collapsing. We need help,” said Bahman, who is based in Dubai but says she is in contact with many people in Afghanistan. “We need the international community to meaningfully engage with the Taliban to ensure the already fragile economy does not further deteriorate.”

The Taliban’s likely loss of access to international disbursements to the military and Afghan government budget will amount to a loss of $750 million per month, said Alex Zerden, who led the U.S. Treasury Department’s office in Kabul in 2018 and 2019. That will immediately hamper the Taliban’s ability to pay government and military salaries, a destabilizing outcome in a country with a weak private sector.

“A lot of people are reliant on government salaries. One salary can feed a large family in some places, so there’s a multiplier effect,” Zerden said.

Halema Wali, 30, a founder of Afghans For a Better Tomorrow, said her relatives in Afghanistan in recent days have told her about dramatic increases in the prices of rice, flour, cooking oil and other basic goods. She said that wealthier Afghans have stockpiled cash and food but that ATMs were quickly emptied. Many Afghans fear their ability to obtain financial help, she said.

“Much of the economy was propped up by U.S. and international aid. That is a major concern of my family in Kabul, who are worried the economy might crash completely due to the pullout and the uncertainty of it at all,” Wali said. “Folks are incredibly worried.”