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Afghanistan’s Cash Crunch and Humanitarian Catastrophe

Categories : Cash and Crises, Cash is a contingency and fall-back solution, Cash is the most widely used payment instrument
January 28, 2022
Tags : Access to cash, Afghanistan, Cash and Crises, Cash cycle efficiency, Humanitarian
Economic sanctions and a shortage of cash delay and impede urgently-needed humanitarian aid to Afghanistan. Millions face hunger and death this winter.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

A Full-On Humanitarian Catastrophe

Already weakened by the forever war, the Covid-19 pandemic, and severe drought, the Afghan economy crashed after the Western-backed government collapsed. Billions of dollars in foreign aid ceased flowing into Afghanistan, and U.S. sanctions froze its foreign assets, cutting the country off from the global financial system.

Most Afghans have lost their meagre incomes as the prices of food staples and other essential goods have skyrocketed. According to an analysis by the U.N. World Food Program and Food and Agriculture Organization, 22.8 million Afghanis (more than half of the country’s population) face potentially life-threatening levels of food insecurity, and 8.7 million people are nearing famine. “Nearly 10 million girls and boys depend on humanitarian assistance just to survive. At least one million children will suffer from severe acute malnutrition and could die without treatment,” said Henrietta H. Fore, UNICEF’s executive director.

Western Sanctions and the Cash Shortage Delay and Impede Humanitarian Operations

U.S. sanctions targeting the Taliban and the country’s cash crunch have made it very difficult for relief organizations to pay vendors or aid workers. Despite reassurances from the U.S. Treasury about conducting humanitarian transactions, foreign banks are afraid of incurring exposure to U.S. sanctions.

The Taliban have successfully weaponized the freezing of its assets abroad against the United States.

The Cash Crunch Threatens the Viability of Essential Services

The breakdown in the Afghan payments system has impeded payroll disbursements to domestic health and education workers, risking an exodus of highly-qualified professionals.

Afghanistan’s cash shortage resembles similar crunches in Zimbabwe, Venezuela, Lebanon, Syria, and Myanmar, experiencing political and economic dislocation, social instability and humanitarian crises.

Cash Protects Essentials Workers in Remote Areas

In October, the U.N. wired nearly $8 million to the Afghanistan International Bank and an undisclosed money service provider to pay for the salaries of 23,500 health workers across the country. The transfer bypassed the Taliban-run health ministry. Although most workers had their wages deposited in bank accounts, 2,500 workers would be paid in cash since they lived in remote areas.

“Someone had to step in. We were confronted not just with a health system that was collapsing but also a financial system that was collapsing. […] Without this, you literally would have all the Afghan doctors, nurses, technicians, heading across borders.” said Kanni Wignaraja, UNDP regional director for Asia and the Pacific.

Although aid groups such as the U.N. Children’s Fund have fund disbursement systems to assist the most disadvantaged Afghan families, “the challenge is increasing day by day,” said Mohammed Safi, a former Afghan finance ministry employee.

Releasing the Chokehold (Somewhat): Too Little, Too Late?

For most of 2021, the Biden administration barely budged over its economic pressure against the Taliban regime. “It’s essential that we maintain our sanctions against the Taliban but at the same time find ways for legitimate humanitarian assistance to get to the Afghan people,” said Wally Adeyemo, deputy U.S. Treasury secretary. Per Reuters, French and German officials share their U.S. counterparts’ appreciation: “Economic and trade levers are among the strongest we have.”

After much international outcry and negative press coverage over the rapidly worsening situation, the U.S. government released its chokehold over the Afghan economy somewhat:

What’s the Endgame?

Whether the unfreezing of Afghan reserves is the right solution to avoid a humanitarian catastrophe is up for debate.

This post is also available in: Spanish