IMF stops funds to Afghanistan, reserves blocked from Taliban

WASHINGTON, United States — Despite its swift takeover of the government in Afghanistan, the Taliban will not have access to most of the nation's cash and gold stocks, while the IMF announced it won't provide aid.

A spokesperson for the Washington-based crisis lender on Wednesday said it had decided to withhold its assistance to Afghanistan amid uncertainty over the status of the leadership in Kabul.

"There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access... IMF resources," the official said.

Central bank governor Ajmal Ahmady said on Twitter the Da Afghanistan Bank (DAB) had around $9 billion in reserves, but most of that is held overseas, out of reach of the Taliban.

"As per international standards, most assets are held in safe, liquid assets such as Treasuries and gold," said Ahmady, who fled the country on Sunday, fearing for his safety as the Taliban swept into the capital.

The US Federal Reserve holds $7 billion of the country's reserves, including $1.2 billion in gold, while the rest is held in foreign accounts including at the Basel-based Bank for International Settlements, Ahmady said.

A US administration official told AFP on Monday that "any central bank assets the Afghan government have in the United States will not be made available to the Taliban."

Amid reports the Taliban were quizzing central bank staff on the location of the assets, Ahmady said, "If this is true -- it is clear they urgently need to add an economist on their team."

He repeated that Washington on Friday had cut off cash shipments to the country as the security situation deteriorated, which may have fueled reports the Taliban stole the reserves since the country's banks could not return dollars to account holders.

"Please note that in no way were Afghanistan's international reserves ever compromised," and are held in accounts that are "easily audited," Ahmady said.

No SDRs for Kabul

The IMF's aid would include an existing $370 million loan program, as well as access to reserves in the form of Special Drawing Rights (SDR), the lender's basket of currencies.

"As is always the case, the IMF is guided by the views of the international community," the fund official said.

The International Monetary Fund has taken similar action against other regimes not recognized by a critical mass of member governments, as in the case of Venezuela.

The IMF is set to distribute 650 billion in SDRs on August 23 to all eligible members, of which Afghanistan's share was valued at about $340 million, Ahmady said.

The IMF in June released the latest installment of the $370 million loan to Afghanistan approved in November and aimed at helping support the economy amid the Covid-19 pandemic.

The World Bank has more than two dozen development projects ongoing in the country and has provided $5.3 billion since 2002, mostly in grants. 

The status of those programs is unclear as the development lender works to pull staff out of the country.

An internal memo to World Bank personnel obtained by AFP said "senior management is working around the clock to arrange an urgent evacuation of our staff and their family members."

Meanwhile, Western Union announced Wednesday it was temporarily cutting off wire transfers to the country -- another vital source of cash for the people.

The Taliban have promised to improve Afghanistan's economy, but to do that the new regime will have to rely on foreign aid -- and there is no guarantee it will get the funds it needs.

Apart from the IMF, some major donors already halted their support for the country, one of the world's poorest. The World Bank could follow suit.

"Afghanistan is tremendously dependent on foreign aid. Foreign aid is about 10 times or even more than the Taliban has been able to obtain from its own finance," said Vanda Felbab-Brown, an Afghanistan specialist at the Brookings Institution, a Washington think tank.

"International economic aid, and access to international economic funds will be crucial."

In 2020, aid flows represented 42.9 percent of Afghanistan's $19.8 billion GDP, according to World Bank data.

"Afghanistan's economy is shaped by fragility and aid dependence," the Washington-based development lender said.

Opium and taxes

The Taliban gets much of its revenue from criminal activities such as the cultivation of poppies used to make heroin and opium, as well as from drug trafficking, according to a May 2020 report from a UN Security Council sanctions committee. 

Extortion of businesses as well as ransom from kidnapping also provide income, according to the report which estimated the group's revenues at $300 million to $1.5 billion a year.

The Taliban is expert in taxing just about everything in areas they control, from government projects to goods, and "they will continue to use that as a source of funding," said Charles Kupchan, a senior fellow at the Council on Foreign Relations.

The international community has spent billions of dollars over the years to help Afghanistan eradicate poppy cultivation, but the country still produces more than 80 percent of the world's opium.

The industry employs hundreds of thousands of people in a country with high unemployment after 40 years of conflict.

The Afghan economy has taken a hit during the Covid-19 pandemic, and the Taliban has acknowledged that it cannot improve the situation without foreign help.

"We have spoken to many countries. We want them to work on our economy. We want them to help us," Taliban spokesman Zabihullah Mujahid said Tuesday.

However as they did when they ruled the country from 1996 to 2001, the group will ban opium production, he said.