Afghanistan faces threat of economic collapse after Taliban takeover

US, international community crack down on financial aid to Afghanistan

The Afghan economy may be on the brink of collapsing, just two weeks after the Taliban seized control and toppled the U.S.–backed government in Kabul in a sudden military blitz. 

The country's economy was already struggling before the Taliban regained power, and the Islamic group's sudden ascension has prompted the international community to crack down on Afghanistan's finances, freezing assets and pausing crucial foreign aid.

"Afghanistan was already facing the triple threat of COVID-19, conflict and drought. Even before recent events, the World Food Programme had announced that up to 14 million Afghans were food insecure," Ajmal Ahmady, the former head of Afghanistan's central bank, wrote in an op-ed for the Financial Times. "Now, the country must also deal with an economic shock. With the freezing of $9 billion of foreign reserves, import coverage has dropped from more than 15 months to only two days overnight." 

Days after Kabul collapsed, the Biden administration froze Afghan government reserves held in U.S. banks, blocking the Taliban from accessing billions of dollars, FOX Business confirmed.


"Any Central Bank assets the Afghan government have in the United States will not be made available to the Taliban," an administration official told FOX Business. 

The Afghanistan Central Bank holds total assets of about $10 billion assets – $7 billion of which are stashed with the Federal Reserve Bank in New York. The Taliban last week tapped Haji Mohammad Idris as acting governor of the bank to help restore the nation's war-crippled economy, with government workers unpaid, businesses closed and the growing cost of necessities like food and fuel. 

Following the White House's decision, the International Monetary Fund announced that it would prevent the Taliban from accessing nearly $500 million in aid. The Washington-based group was slated to deliver a new allocation of assets, known as special drawing rights, on Aug. 23, with about $450 billion designated for Afghanistan.

"As is always the case, the IMF is guided by the views of the international community," an IMF spokesperson said in a statement. "There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access SDRs or other IMF resources."


Days later, the World Bank said it would suspend financial aid to Afghanistan in the wake of the Taliban's sudden takeover.

"We are deeply concerned about the situation in Afghanistan and the impact on the country’s development prospects, especially for women," a World Bank spokesperson told FOX Business. The Washington-based organization plans to monitor how the leadership transition proceeds and consult with the international community and development partners.

The World Bank has committed more than $5.3 billion for development projects in the country since 2002. It also had another 15 projects with the Afghanistan Reconstruction Fund, a donor-funded trust administered by the bank. The fund has raised almost $12.9 billion from 34 donors, the World Bank said in April. 

Afghanistan, already one of the poorest countries in the world, is heavily dependent on American aid. About 80% of Afghanistan’s budget is funded by the U.S. and other international donors, John Sopko, the special inspector general for Afghanistan reconstruction, told Reuters in the spring. 


Without the aid, the economic outlook for Afghanistan is bleak. 

Ahmady predicted the economic fallout would be felt in three different ways: Depreciating currency, likely leading to inflation – there are already reports that wheat prices have doubled in Kabul – while aggregate real income will probably fall, leading to job losses and lower salaries. Third and foremost, Ahmady said the Taliban's takeover will likely lead to a surge of refugees in both neighboring and far-off countries over time.

"Afghanistan is once again facing a blanket of darkness, and the future there is as uncertain as ever. The scenes from the airport will haunt us for a long time to come. But let us take action now to ensure that the result is not a humanitarian crisis as well," he wrote.