Warnings Over Falling Afghani Currency

Afghan government urged to act so as to fend off an economic crisis

Warnings Over Falling Afghani Currency

Afghan government urged to act so as to fend off an economic crisis

Afghanistan needs major economic reforms to halt the depreciation of its national currency, according to speakers at recent IWPR debates.

The afghani’s value has fallen by some 15 per cent against the dollar over the past year. Experts told events held in Kunar, Kandahar and Nangarhar provinces that the economy was far too reliant on imports and international donors.

The 2014 exit of NATO-led forces has also affected the economy, and an estimated 150,000 people have left the country to apply for refugee status abroad over the last year.

“The depreciation of the afghani certainly counts as an economic crisis, because our country depends on imports rather than exports,” said Mohammad Anwar, a lecturer at Tanwir private university in the eastern province of Kunar. “Ordinary people suffer when the afghani rapidly loses value.”

Afghanistan’s annual imports are worth around nine billion US dollars, while exports only come to about 600 million dollars. Depreciation of the afghani makes imports, priced in foreign currencies, more expensive. Trade deficits are largely financed by foreign donor funding. 

Debate participant Ahmad Shah, from Nurgal district, said, “Afghanistan has an import-based economy; all our consumer goods come from abroad and we have very few exports.”

 

“A country grows economically and finds more markets to serve when it has exports and the value of its currency is low,” Anwar replied. “However, when a country has no exports and relies on imports, then this certainly heralds a crisis.”

Rohullah, a member of the association of money exchangers in Kunar, blamed Kabul for its poor management of monetary policy.

“The government announces ahead of time when it is selling 40 million dollars to the market, for instance. It specifies the day [it will happen], which should never be announced,” he said.

In the southern Kandahar province, participants blamed the policy of the country’s central bank for the instability of the domestic currency.

Ahmadullah, deputy head of the Kandahar union of money exchangers, said that Da Afghanistan Bank had not done enough to protect the afghani. While  other currencies had also lost value against the dollar, the central bank had created further problems, Ahmadullah said.

He argued that the national bank should not have chosen to sell dollars to support the afghani . Announcing the sale of 15 million dollars one week and then ten  million the next had indirectly spurred  depreciation.

Another contributory factor was last year’s withdrawal of foreign forces, as the thousands of people employed by the NATO-led coalition had been paid in dollars. This influx of foreign currency had helped keep the afghani stable.

Ahmadullah noted that a further consequence of the 2014 exit was rising unemployment, leading to a mass exodus of young people.

“Everyone leaving the country carries at least 10,000 dollars with him or her; this plays a role in reducing the value of the afghani,” he said.

Businessman Abdulbasir Paiman, a member of the pharmaceutical traders' association in Kandahar, said security issues and political instability had added to current economic woes.

Proactive action was needed, he said, adding, “The depreciation of the afghani is, generally speaking, because we have no domestic production. We satisfy all our needs with imports. And for imports, we need cheap US dollars.”

Kandahar economist Gul Ahmad Kamin suggested that Afghanistan should model itself on more industrialised countries.

“Developed countries enhance their production to maintain the value of their currencies, and if their currency depreciates a little, that doesn’t worry them,” he said.

In the eastern province of Nangarhar, university economist Mohammad Bashir Dodial pointed out that countries with flourishing economies relied on revenue from business rather than foreign aid. He expressed hope that large-scale development projects currently under way would improve the situation.

He cited the planned TAPI natural gas pipeline, named after the initials of the countries through which it will run – from Turkmenistan via Afghanistan to Pakistan and India. The leaders of all four countries met in early December to launch the project, which has been long-delayed by instability in Afghanistan.

“Our government recently inaugurated the TAPI pipeline which will carry natural gas from Turkmenistan via Afghanistan to Pakistan and India,” Dodial said. “With the help of this project our economy will be more self-reliant, and then our currency will also stabilise.”

Civil society activist Shamshad Sapai warned that Afghan traders and the public generally  had lost trust in the afghani, relying instead on foreign currencies.

“Currently, government employees exchange their salaries for Pakistani rupees and use them to buy goods here. The Afghan government is unable to prevent this,” he said.

Taj Mohammad Tamkin, an economic advisor with the eastern division of Da Afghanistan Bank, said that the afghani's depreciation reflected wider trends affecting global currencies.

He added that a lack of public faith in government, combined with business leaders taking their capital out of the country, had also contributed to the afghani’s problems.

At national level, his bank had kept the value of the afghani steady, he said, explaining that every week, it offered dollars for sale “to ensure the afghani’s value is kept stable. And you can see that the prices of goods have remained unchanged.”

As for the damaging effect of using foreign currency instead of the afghani in transactions, Tamkin said changing this pattern was the responsibility of all Afghans rather than of the central bank alone.

Civil society activist Husna asked Tamkin how the afghani could be stabilised.

“We must increase exports, have confidence in our government and trust our own banknotes,” he replied. “[We must] put our own currency into the economic cycle and use it for all our business activities.”

This report is based on an ongoing series of debates conducted as part of IWPR’sAfghan Youth and Elections programme.

 

Afghanistan
Economy
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