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Liquidity crisis at core of Afghanistan’s economic challenges: SIGAR

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Afghanistan continued to face a severe liquidity crisis this quarter with access to physical bank notes constrained and banks facing major liquidity challenges due to declining economic activity, lack of trust in the banking center among Afghans, and an inability to transact internationally.

The US Special Inspector General for Afghanistan (SIGAR) said in its latest quarterly report that Da Afghanistan Bank (DAB), Afghanistan’s central bank, will require significant technical support from the international community to tackle these challenges.

The report stated that prior to the Islamic Emirate of Afghanistan’s (IEA) takeover in August last year, Afghanistan’s financial system had been underdeveloped relative to the context of its growth in recent decades, with a low assets-to-GDP ratio and a heavily dollarized banking system.

Approximately 60% of deposits in the country were made in foreign currency. The report stated that in this monetary environment, maintaining financial stability requires both domestic currency (AFN) liquidity and, more importantly, foreign exchange (FX) liquidity.

However, DAB is limited in its ability to control the AFN monetary supply and value due to several factors including the lack of domestic technical capabilities to print currency, which Afghanistan outsources to foreign companies.

“For years, DAB would prop up the value of the afghani (AFN) by regularly auctioning US dollars pulled from its foreign reserves. Prior to August 2021, Afghanistan’s central bank reportedly received quarterly shipments of $249 million in US banknotes from its foreign reserves. This stopped after the Taliban (IEA) takeover prompted the United States to place a hold on US-based Afghan central bank reserves.

“The loss of these US dollar transfers and other sources of foreign currency plunged Afghanistan’s financial system into free fall,” SIGAR stated.

With Afghanistan’s international reserves, including banking sector foreign exchange deposits at the DAB, frozen; the SWIFT system and international settlements suspended; grant transfers suspended; and AFN liquidity printing interrupted, a dramatic adverse shock in the financial and payment systems ensued.

The resulting liquidity crisis has caused salary disruptions for hundreds of thousands of government employees, teachers, and health-care workers, and has imposed limitations on the operations of international aid groups in the country.

“The banking system is totally paralyzed. The central bank is not operating,” according to Robert Mardini, director general for the International Committee of the Red Cross as cited by SIGAR.

Mardini said that his organization is instead paying 10,000 doctors and nurses via the informal hawala money-transfer system.

This has also contributed to a worsening domestic credit market. In the absence of international support, banks have ceased extending new credit to small- and medium-sized enterprises.

In recent months, the increased supply of US dollars from humanitarian channels, averaging around $150 million per month, has helped stabilize the value of the afghani.

However, these humanitarian channels are viewed as stopgap measures that are an insufficient substitute for the normal functioning of a central bank, SIGAR stated.

In her March 2 statement to the UN Security Council, UNAMA head Deborah Lyons cited the “lack of access to hard currency reserves, lack of liquidity, and constraints on the central bank to carry out some of its core functions” as key challenges to reviving the Afghan economy.

Total international DAB reserves were $9.76 billion at the end of 2020, according to the most recent data available to the IMF. Of this amount, $2 billion was deposited in financial institutions in the United Kingdom, Germany, Switzerland, and the United Arab Emirates.

Some $7 billion in DAB reserve funds deposited at the Federal Reserve Bank of New York are now frozen by the US government.

Economists at New York University and the University of Chicago suggested that if central-bank reserves were placed directly with households or with other financial intermediaries, it could enhance the desired increase in liquidity.

Liquidity is a concern for households as well as for the banking system and businesses. Raising household liquidity in Afghanistan is challenged by rising unemployment, the fact that only 10–20% of Afghans have bank accounts, the uncertain status of DAB’s electronic payment system and the declining volume of market transactions as reflected in the country’s declining GDP.

SIGAR stated however that the Biden Administration is currently exploring possible avenues for disbursing $3.5 billion of the frozen assets for humanitarian relief efforts, possibly through a separate trust fund or by providing support through the United Nations or another enabling organization.

US Special Representative for Afghanistan Thomas West has stated that the $3.5 billion could alternatively contribute toward “the potential recapitalization of a future central bank [in Afghanistan] and the recapitalization of a financial system.”

The move to freeze assets meanwhile sparked outrage throughout Afghan society, including among leaders unaffiliated with the IEA.

Shah Mehrabi, a long-time member of the Afghan central bank’s board of governors, called the decision “unconscionable” and “short-sighted.”

Mehrabi argued that the central bank should be treated as independent of the IEA regime, and that depriving the bank of its reserves could lead to “total collapse of the banking system” and further hurt millions of Afghans suffering in the economic and humanitarian crises.

The order to freeze assets has also drawn criticism from US and international policy analysts, human rights groups, lawyers, and financial experts, SIGAR reported.

Analysts have expressed concern over both the seizure of the reserves and the reported proposals to provide those funds in the form of humanitarian assistance.

Paul Fishstein of NYU’s Center on International Cooperation argues that the executive order gave inadequate attention to the macroeconomic collapse of the country.

Fishstein said the release of the central bank’s reserves could instead be used to restore unnecessary exchange rate stability and ease the liquidity crisis.

William Byrd of the US Institute of Peace (USIP) said that even if only half of DAB’s total reserves are devoted to support its basic activities as a central bank, it would “provide an opportunity to make a start toward stabilizing the economy and private sector.”

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Afghanistan urges major Iranian companies to boost investment and trade ties

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Afghanistan has called on major Iranian companies to increase their presence in the country, stressing that deeper economic cooperation is essential to unlocking the full potential of bilateral trade and investment.

The appeal came during a meeting in Kabul between a visiting delegation from Iran’s Chamber of Commerce and senior officials from the Afghanistan Chamber of Commerce and Investment (ACCI), attended by Iran’s ambassador to Afghanistan.

The discussions centered on three core pillars of economic cooperation — investment, exports, and transportation — areas in which both sides acknowledged progress has been limited despite longstanding cultural and commercial ties. Afghan officials said that while companies from other countries have invested robustly in Afghanistan, Iran’s private sector engagement remains “disappointingly low,” particularly considering the two nations’ shared borders and historical links.

Participants noted that major export opportunities remain untapped, largely due to infrastructure gaps, especially in logistics and transport. Strengthening cooperation between the private sectors of both countries, they said, is essential to addressing these weaknesses.

Officials urged the chambers of commerce to take a more proactive role in solving issues “online and in real time” to prevent economic initiatives from stalling.

Iran’s ambassador in Kabul, Alireza Bigdeli, highlighted the cultural, historical, and religious commonalities between the two nations and urged the business communities to use their geographical proximity to build a strong, mutually beneficial economic partnership.

Niloofar Asadi, Director-General for Asia and Oceania at Iran’s Chamber of Commerce, said Tehran is drafting a strategic roadmap to elevate economic ties with Afghanistan, calling the strengthening of this relationship a top priority.

Other Iranian officials pointed to specific opportunities. Alireza Khamehzarr, head of the Birjand Chamber, urged an expansion of Iranian imports from Afghanistan—particularly agricultural products—while addressing the legal hurdles that continue to impede trade. Mahmoud Siyadat, head of the Iran–Afghanistan Joint Chamber, stressed the need for mechanisms that ensure agreements lead to measurable results.

Hamidreza Salehi, chairman of Iran’s Energy Federation, warned that insufficient infrastructure remains a major barrier to growth. He cited Iran’s strong LPG production and Afghanistan’s high demand as a clear opportunity that requires better planning and coordination. Salehi and others advocated for joint investment structures that bring together private-sector partners from both countries.

Afghan commerce and investment officials presented details of major development plans, including roughly $10 billion worth of projects currently under preparation. They urged established Iranian companies to take advantage of these opportunities, especially as both governments review border issues and prioritize improving conditions in adjacent provinces to ease movement of goods and investment.

Karim Hashimi, president of the Afghanistan Chamber of Commerce and Investment, said Afghanistan’s government strongly supports private-sector activity and emphasized that both ACCI and the Chamber of Industries and Mines operate independently and actively.

Building trust, he said, is essential for future cooperation. He proposed that partnerships between companies introduced through the chambers of commerce of both countries be given priority, describing this as a reliable safeguard for secure and productive business engagement.

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Afghanistan records $580m in fruit exports in six months

The Economic Deputy noted that exports moved through both land routes and air corridors, a strategy that has improved delivery times and expanded access to global markets.

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Afghanistan exported more than $580 million worth of fresh and dried fruits in the first six months of the current year, according to the Economic Deputy of the Prime Minister’s Office — a surge that underscores the country’s growing agricultural export capacity.

India, Russia, China, Uzbekistan, Saudi Arabia, Kazakhstan, Qatar, Iran, Iraq, the United Arab Emirates, Pakistan, Tajikistan, and several other countries were among the major importers of Afghan produce.

Key export items included figs, pistachios, almonds, pine nuts, walnuts, raisins, grapes, apricots, pomegranates, apples, melons, watermelons, pears, cherries, and a variety of other fruits.

The Economic Deputy noted that exports moved through both land routes and air corridors, a strategy that has improved delivery times and expanded access to global markets.

The statement also highlighted that the expansion of Afghanistan’s railway network, the reconstruction of major highways, and the reactivation of international air corridors have been instrumental in boosting export levels and strengthening the country’s transit capacity.

This progress comes as Afghan traders continue to emphasize that greater investment in transit infrastructure could open additional markets and substantially increase the nation’s export potential.

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Ariana Airlines’ new cargo tariffs open fresh gateway for Afghan exports

Under the new policy, Ariana will transport export goods at a fixed rate of $1 per kilogram, while the rate for imported goods is set at $0.80 per kilogram.

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Ariana Afghan Airlines has officially implemented a new set of reduced cargo tariffs, a move expected to stimulate Afghanistan’s trade sector at a critical moment for the country’s exporters.

The changes, introduced on Sunday under a directive from the Economic Deputy of the Prime Minister’s Office, apply to both export and import air freight.

Bakhturrahman Sharafat, President of Ariana Afghan Airlines, said the revised pricing structure will make it significantly easier and more affordable for Afghan traders to ship their products abroad. Key export items — including fresh and dried fruits, saffron, carpets, gemstones and other high-value goods — are expected to benefit from faster processing and reduced transportation costs.

Under the new policy, Ariana will transport export goods at a fixed rate of $1 per kilogram, while the rate for imported goods is set at $0.80 per kilogram. Sharafat said the simplified and lowered tariffs would “strengthen Afghanistan’s economy and expand opportunities for Afghan producers in competitive global markets.”

The announcement comes at a time when Afghan exporters continue to face challenges stemming from regional transit restrictions, fluctuating overland shipping costs and limited access to international banking services. Air freight has increasingly become a vital alternative for perishable goods and high-value products, allowing traders to maintain quality and meet market deadlines.

By cutting air cargo rates, Ariana Afghan Airlines aims to reduce logistical pressures on Afghan businesses and improve the reliability of export channels. Trade experts say the measure could help Afghanistan regain market share in key destinations such as India, the Gulf states and parts of Europe, where demand for Afghan agricultural products and textiles remains strong.

The reduced tariffs also underscore Ariana’s broader role in supporting national economic objectives. As one of the few carriers with the capacity to connect Afghanistan to regional hubs, the airline’s pricing reforms position it as a central player in the country’s push to expand export volumes and attract new trading partners.

For Afghan traders, the new rates represent not just a financial relief but a potential turning point — opening a more stable and accessible gateway to international markets at a time when the country’s economic recovery depends heavily on revitalized exports.

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