Inflation set to hit double digits, says ex-Afghan central bank chief

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Afghani loses 23pc of its value against US dollar

Islamabad

Afghanistan’s currency is set to weaken and inflation will rise after the collapse of the government and the Taliban seizing power, said the country’s outgoing central bank governor.

“Inflation will likely increase to double digits as the currency weakens and inflation pass-through is high,” Ajmal Ahmady, who left the country this week, told the media.

Afghanistan’s economy was already deteriorating before the US decided to withdraw from the country in the wake of the Covid-19 pandemic, the onset of a drought, declining trade, weakening donor aid, rising insecurity and uncertainty that eroded confidence.

Peace talks between the government and Taliban stalled in January over a future governance system and transition plan, while tensions between the previous cabinet and parliament delayed the approval of the 2021 budget, which was rejected twice.

That backdrop prompted the International Monetary Fund to lower its growth forecast in June to 2.7 percent this year from a previous 4 percent estimate. The fund had projected inflation would increase to 5.8 per cent by the end of this year.

The Afghani, the country’s currency, weakened to 100 to the US dollar before falling back to 86.04, according to the website of the central bank Da Afghanistan Bank. That is still above the 80-81 level it was at before the situation in the country escalated.

The “currency should decline with decreased donor inflows and, especially, if the US freezes international reserves”, Ahmady, who also served as an economic adviser to President Ashraf Ghani before he fled the country on August 15, said. The central bank foreign currency reserves were about $9 billion, he said.

“During [the] last days, I feared not only risks related to the Taliban, but fear of a transition period once there is no chain of command.

Once [the] president’s departure was announced, I knew within minutes chaos would follow. I cannot forgive him for creating that without a transition plan,” Ahmady said on Twitter.

“It did not have to end this way. I am disgusted by the lack of any planning by Afghan leadership. Saw at the airport them leaving without informing others.”

While the country’s banks had “sufficient liquidity” before the turmoil, non-performing loans, or bad loans, “are set to increase … but [banks] can likely manage with some recapitalisations”, said Ahmady, a graduate of Harvard Business School and the Kennedy School of Government. The ratio of loan to deposits before the Taliban seized power was “very low”, he said.

The economy, which was largely dependent on foreign aid with domestic revenue sufficient to finance only around half of budgeted expenditures, is expected to deteriorate, Ahmady said. “Remittance flows are relatively small compared to donor inflows.”

On Twitter, Ahmad said he received a text message from someone telling him: “Taliban came to <area> and were looking for you. They were asking about Ajmal Ahmady, DAB Governor.”

Asked what he planned to do next, Ahmady said: “After seven years of government service, I look to rest with my family and find a job in the private sector.”

Ahmady, who did not say where his flight had landed, criticised the former president and the lack of a contingency plan as the Taliban came closer, adding: “I think that’s where my disappointment arose from.”

Ahmady, who left deputies in charge of the central bank – Da Afghanistan Bank (DAB), said that he expected “significant economic hurdles” lay ahead for the country.—TLTP

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