By John O’Donnell and Rupam Jain

FRANKFURT/MUMBAI (Reuters) – The Afghan central bank ran down most of its U.S. dollar cash reserves in the weeks before the Taliban took control of the country, according to an assessment prepared for Afghanistan’s international donors, exacerbating the current economic crisis.

Two-page confidential brief was written by top international economists for several institutions, including the World Bank, International Monetary Fund. It stated that the severe cash crisis in Afghanistan began long before the Taliban took over Kabul.

It was critical of the previous leadership at the central bank in handling the crisis during the period before Taliban control. They made decisions such as to auction large sums of U.S. dollar and to move funds from Kabul to their provincial branches.

The report was seen by Reuters and stated that FX (foreign Exchange) reserves in CB (central bank vaults) in Kabul had depleted. This means the CB can’t meet… cash demands.”

It also stated that the main problem stemmed from the poor management of the central bank before the Taliban tookover.

Shah Mehrabi was chairman of the audit committee at the central bank. He helped to oversee the bank prior to the Taliban takeover and is currently in that position. The central bank’s actions were justified by Shah Mehrabi who claimed it was trying prevent an attack on Afghani money.

You can see the extent of cash shortage in Afghanistan by the lines of people queuing up for hours to get their dollars savings. There are strict limit on the amount they can withdraw.

Although the country was already in trouble before the Western-backed collapse, it has been in severe crisis since the sudden end to billions in aid and the return of Taliban.

As winter draws near, staples such as flour are at an all-time high and work is scarce. This has led to a spiralling of prices.

AID DRIES UP

Under the previous government, the central bank relied on cash shipments of $249 million, delivered roughly every three months in boxes of bound $100 notes and stored in the vaults of the central bank and presidential palace, according to three people with direct knowledge of the matter.

Foreign powers are reluctant to deal directly with Taliban fighters, who fought against the government and foreign troops. Many people, including civilians, were killed in the attacks on foreign troops and their government.

It distributes humanitarian aid to Afghanistan and plays a crucial role. The central bank said Wednesday that they had developed a plan to supply the country with foreign currency. It gave no details.

Due to the hard currency crunch, it is now difficult for Taliban to cover basic needs such as paying power bills or dispersing wages to government employees. Many of these workers have not received their salaries in several months.

The central bank was left with only the money in its vaults after Afghanistan’s offshore reserves of approximately $9 billion were frozen by the Taliban when they captured Kabul.

The report states that the central bank sold $1.5 billion to local foreign currency dealers between June 1st and August 15. This was reported to be “strangely high”.

It stated that the Central Bank had a $700 million outstanding debt and 50 billion Afghanis (569 million) to the commercial banks by August 15. This was a significant factor in the bank’s financial collapse.

Mehrabi, a representative of the Afghan central bank, stated that while almost $1.5 Billion had been auctioned, $714 M was actually sold.

He stated that Mehrabi had said the central banks “continued their foreign exchange auction to decrease the depreciation & inflation.”

MONEY LOST?

It also questions a central bank decision to transfer some of its reserve to province branches. This put it at risk since Taliban militants advanced across the country in the lead up to their victory.

The report stated that $202 million had been kept in these branches by 2020, as opposed to $12.9 million in 2019. It also said that cash wasn’t moved when provinces fell to insurgents.

According to the report, “Some money has been stolen (lost) from some of the provincial branches.” It did not say how much.

Mehrabi claimed that money was being investigated by the central banking for theft from its three branches. But, not by the Taliban. Mehrabi did not provide any further information.

Ajmal Ahmedy, the ex-central bank governor, left the country on the same day as Kabul’s fall. Emails and messages seeking comment about his actions and those of the bank in the three months prior to the Taliban return to power were not answered.

Ahmady stated on Twitter (NYSE 🙂 that he tried his best to handle the situation and that any cash shortage was due to the freeze of assets at the central bank abroad.

According to his statements, Ahmady also claimed that the central banking had successfully managed the economy before Kabul fell. He said that although he regretted leaving behind staff members, he fears for his safety. He stated that no money was stolen out of any reserve account.

($1 = 87.8700 Afghanis).