IMF withholds Recognition and Funds from Taliban Government

“Afghan per capita income has remained stuck at around $600 for more than a decade. The United States of America is being blamed, mostly by its former officials who served in Afghanistan, for spending most of the $2 trillion bill it incurred during its 20-year stay in the country on security rather than the economy and building a strong Afghan state”.

Following the takeover of Kabul, the capital city of Afghanistan by the Taliban on Sunday 15 August 2021, the International Monetary Fund (IMF) will likely suspend its planned USD650bn new SDR (Special Drawing Right) allocation to the country. The United States of America has also frozen the country’s foreign reserves which is estimated by around USD9.0bn and the existing SDR reserves of around USD440mn.

SDRs are interest-bearing international reserve assets created by the IMF in 1969 to supplement other reserve assets of member countries. The new SDRs are due to be credited in proportion to members’ existing quotas in the fund.

The Taliban seized power in Afghanistan two weeks before the U.S. was set to complete its troop withdrawal after a costly two-decade war.

Prior to this takeover, the US and its allies over the last twenty years had fought the Taliban. The militant group ran the country in the late 1990s, a period noted for their extreme take and enforcement of Sharia law.

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In the last three years, the US and its allies (including the U.K) have slowly discontinued the operations in Afghanistan and planned to fully exit by end of August 2021.

The withdrawal of foreign forces, alongside weak political leadership by the country’s ruling elite allowed the easy Taliban  takeover of cities and the eventual control of the capital city, Kabul.

According to a statement by the IMF, the current political climate is still uncertain as the Taliban is yet to form a government, and so it can not provide funding to the country within the current context. “As is always the case, the IMF is guided by the views of the international community,” said an IMF spokesperson via email. “There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan.”

Last week, Ajmal Ahmady, the former governor of the Da Afghanistan Bank (DAB), the country’s apex bank noted that the country will come under severe economic consequences over the coming weeks as the impact of the Taliban takeover becomes evident.

One of such consequence is dollar scarcity, as the country’s economy was highly dollarized before takeover. With the US halting the Taliban’s access to reserves which were domiciled in the US, the country will likely experience a severe case of galloping inflation, compounded by the scare dollars. Other economic index that should deteriorate over the coming months include economic growth, unemployment, and poverty levels amongst others.

Afghan per capita income has remained stuck at around $600 for more than a decade. The United States of America is being blamed, mostly by its former officials who served in Afghanistan, for spending most of the $2 trillion bill it incurred during its 20-year stay in the country on security rather than the economy and building a strong Afghan state.

Ajmal Ahmady fled Afghanistan via Military Aircraft. Earlier, the country’s President Ashraf Ghani left the country saying he had chosen to leave so to avoid further bloodshed.

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