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 CashMoney in physical form such as banknotes and coins. More 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.

• “We have been unable to securely move aid moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More into the country to buy emergency supplies for families that face homelessness and hunger this winter. The banking crisis has left several Afghan banks closed and others operating at limited capacity. This has left us struggling to pay our staff and suppliers in Afghanistan. Instead, we are forced to purchase tents, blankets and food in neighbouring Pakistan,” said Jan Egeland of the Norwegian Refugee Council.
• “There needs to be some solution to the financial flows into Afghanistan to ensure that at least salaries can be paid, and that essential supplies – power and water being two of them – can be procured,” said Alexander Matheou, Asia Pacific director of the International Federation of Red Cross and Red Crescent Societies.

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

• “American sanctions have not only played havoc with trade and business but also with humanitarian assistance,” wrote Mawlawi Amir Khan Muttaqi, acting Foreign Affairs minister of Afghanistan in a letter to the U.S. Congress.
• “They talk about human rights, and they are violating human-rights laws themselves. Why do they not unfreeze the Afghan money, which is Afghan people’s right,” said Abdul Jalal, a money changer in Kabul’s money market.

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.

• Administrators of a hospital in Chak-e Wardak have been unable to pay salaries or purchase medicines with bank closures, according to Faridullah, the resident doctor. “Most of our medicine, facilities and livelihood are provided by foreign countries. […] Our own facilities and personnel depend on funds coming from abroad, and we can’t access them,” Faridullah said.
• “Our doctors have not received their salaries for three months now. […] If we don’t receive our salaries, there is a possibility we will leave our duties,” said Mohammad Farid Rasouli from Aliabad Hospital in Kabul.

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:

• In November, the board of the World Bank authorized a $280 million humanitarian aid transfer to the World Food Program and UNICEF, out of $1.5 billion frozen by the organization to comply with U.S. Treasury directives.
• In December, the U.N. Security Council exempted payments and delivery of goods and services from sanctions for one year.
• Also, in December, the U.S. Treasury granted new “general licenses” authorizing nongovernmental organizations, international aid groups and the U.S. government to conduct financial transactions with the Taliban to provide humanitarian relief without incurring sanctions.

What’s the Endgame?

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

• “If you unfreeze the [Afghan assets abroad], then you can put liquidityDescribes the extent to which assets or rights can be converted into cash without causing a significant decrease in the asset’s price. Accordingly, liquidity is often inversely proportional to the profitability of the asset and involves the trade-off between the selling price and the time needed to convert it to cash. In finance, cash is considered the most liquid asset and cash is sometimes used as a synonym for liquidity (e.g. cash reserves; cash pooling…). More back into the marketplace, and the economy will start to come back up. If you don’t, we’re not going to need to feed twenty-two or twenty-three million people per month – we are going to need to be feeding thirty-five million people […] This country will absolutely collapse,” said David Beasley, head of the U.N.’s World Food Programme and a former Republican governor of South Carolina.
• If the reserves were unfrozen, a bank run seems likely. “The money would evaporate pretty quickly if they open the system and put billions in. There also needs to be economic activity and a plan to stimulate international investment into the country again,” said Felix von Schubert, head of InFrontier, an investment fund with stakes in several Afghan firms.
• “We need a bigger humanitarian response, but without a functioning economy and banking system, we are facing terrible odds,” tweeted David Miliband, president of the International Rescue Committee.
• “The current economic restrictions and sanctions policy, if maintained and not adjusted, are on track to hurt the Afghan people – through deprivation and famine – more than the Taliban’s brutalities and poor governance,” said John Sifton, Asia advocacy director at Human Rights Watch.

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