Afghanistan: Economic Roots of the Humanitarian Crisis

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• How serious is the humanitarian situation in Afghanistan?
• How has the humanitarian crisis affected women and girls?
• What makes the humanitarian crisis the result of an economic crisis?
• Why did the Afghan economy collapse?
• Were these economic actions taken because of international sanctions?
• Did the Biden administration seize Afghan foreign currency reserves in the US?
• Did the Biden administration set aside $3.5 billion of Afghan currency reserves for families of victims of the September 11 attacks?
• Can President Biden’s February 11 order be changed or overturned?
• Can increasing foreign assistance end the humanitarian crisis?
• If the Central Bank is given access to assets, can’t the Taliban just take the funds?
• How can relief from existing sanctions improve the situation?
• What should be done to address Afghanistan’s humanitarian crisis?

How serious is the humanitarian situation in Afghanistan?

Since the US withdrawal and the Taliban takeover of Afghanistan in August 2021, the country has endured a deepening and increasingly deadly humanitarian crisis. Acute malnutrition is spiking across the country and 95 percent of households have been experiencing insufficient food consumption and food insecurity. At least 55 percent of the population is “expected to be in crisis or emergency levels of food insecurity” through March 2022, according to the United Nations. Humanitarian organizations have repeatedly issued warnings about the sheer scale of the crisis and how much worse it can get. Afghan children are starving to death nearly every day.

The International Rescue Committee has concluded  that, “[u]naddressed, the current humanitarian crisis could lead to more deaths than twenty years of war.” A February 2022 survey by Save the Children found that 82 percent of Afghan families had lost wages since August 2021 and almost one in five were sending children to engage in labor (for miniscule wages), while 7.5 percent stated they were resorted to begging or requesting money or food from charity. “The huge spike in prices caused by the economic crisis has left many families unable to afford food.”

The Afghanistan country director of Save the Children said in mid-February:

I’ve never seen anything like the desperate situation we have here in Afghanistan. We treat frighteningly ill children every day who haven’t eaten anything except bread for months. Parents are having to make impossible decisions – which of their children do they feed? Do they send their children to work or let them starve? These are excruciating choices that no parent should have to make.

How has the humanitarian crisis affected women and girls?

Almost all Afghans are facing these dangerous hardships, but women and girls, who face greater obstacles to obtaining food, health care, and financial resources, are disproportionately affected. Taliban policies that have barred women from most paid jobs have had a swift and devastating impact on households in which women were the sole or main earners. According to a World Food Program survey released in February 2022, nearly 100 percent of female-headed households are facing insufficient food consumption and 85 percent are taking “drastic measures” to obtain food. Even in areas in which women are still allowed to work in some jobs – primarily education and health care – they are often unable to comply with oppressive Taliban requirements, such as having a male family member escort them to work and even throughout the workday. 

Afghanistan’s healthcare system has largely collapsed, which has had a devastating impact on maternal and infant health, and women and girls’ access to sexual and reproductive health care – services that were already in short supply. Taliban restrictions including requiring that women be escorted to health appointments by male family members and bans on male healthcare professionals treating women are further compromising women’s access to health care.

The Taliban have closed the vast majority of girls’ secondary schools depriving girls of the right to education. This and escalating poverty that has made it very hard for girls to attend the girls’ schools that remain open have heightened the risk of child marriage. Humanitarian groups and the media have reported families selling girls – ostensibly for marriage – out of desperation to obtain food or repay debts.

What makes the humanitarian crisis the result of an economic crisis?

The root causes of Afghans’ loss of access to food, water, shelter, and health care are almost all economic: millions of dollars in lost income, spiking prices, and the collapse of the country’s banking sector. Other factors have contributed to the country’s humanitarian crisis, including a major drought and the effects of decades of war, but economic shocks have been the primary causes of the deteriorating situation. 

Since August, more than four out of five Afghan households have experienced significant decreases or elimination in income. At the same time, the country’s overall economy and banking system has been almost completely incapacitated by decisions by the US and other governments to cut off Afghanistan’s Central Bank, officially the Da Afghanistan Bank, from the international banking system. This has led to a massive liquidity crisis and nationwide shortages of banknotes in both US dollars and the Afghan currency, afghanis.

As Save the Children’s country director said: “There is no shortage of food here – the markets are full. Yet children are starving to death because their parents can’t afford to pay for food. This could, and should, have been prevented. But it is not too late to prevent further tragedy if we act now.”

Private Afghan banks cannot cover withdrawals by depositors, including humanitarian aid organizations. Even when funds are transmitted electronically into banks, to pay for humanitarian operations, wages, or remittances, banks’ lack of physical cash means that funds cannot be withdrawn. This is because Afghanistan’s Central Bank, short on banknotes in both US and Afghan currency, has severely restricted transfers of banknotes to private banks, and imposed limits on withdrawals of afghanis, while also prohibiting many types of electronic transactions in US dollars. Private banks therefore lack adequate local currency to cover withdrawals, have few or no dollars in cash, and without significant assets on deposit, are unable to extend credit.

Banks are also facing difficulties settling incoming dollar transactions via correspondent accounts at private banks outside the country, most likely due to foreign banks’ fears that they may be violating UN and US sanctions on the Taliban.

Why did the Afghan economy collapse?

Afghanistan’s economic collapse was caused by a combination of factors and decisions taken by governments and international institutions, outlined below, and on a larger level, by the US and the Taliban’s failure to reach an agreement to avert the humanitarian impacts of the change in governance in August 2021. Actions underlying the crisis include:

• Suspending support for essential salaries and large-scale poverty alleviation food security mechanisms. Afghanistan’s economy before August 2021 was 75 percent dependent on foreign assistance. After the Taliban took control of the country on August 15, 2021, donor governments, led by the US, instructed the World Bank to cut off about $2 billion in outside international assistance the bank had previously been dispersing through the Afghanistan Reconstructive Trust Fund (ARTF) to pay salaries of millions of teachers, health workers, and other essential workers, and through projects funded by the International Development Association (IDA).

• These massive funding streams provided purchasing power to millions of Afghan families, including many very poor households who benefited from cash-for-work, cash distribution, and livelihood support programs. Additional budgetary assistance from the International Monetary Fund (IMF), USAID, and the Asian Development Bank (ADB) was also cut. As a direct result, an enormous number of Afghan households immediately lost their primary sources of income. According to a World Food Program survey released in February, four out of five households reported no income or significantly reduced incomes in January 2022.

  In early 2022, the World Bank board reportedly decided to resume the delivery of some of these stopped funds, but the technical details of which funds will be released, and how they will be dispersed, remains unclear.

  The abrupt cuts of World Bank-programs caused a massive drop in purchasing power across the country and had major impacts on both household and macroeconomic levels. Even if humanitarian groups are able in the future to increase food and cash distributions, it cannot make up for the impact of these cuts.

• Revoking the Afghan Central Bank’s credentials. Notably, the US, other governments, and the World Bank Group also revoked the credentials of the Afghan Central Bank to interact with the international banking system and international financial institutions (World Bank, IMF, ADB, and others), and many countries’ domestic banking systems. At the same time, most of the leadership of the Afghan Central Bank effectively resigned and fled Afghanistan. About a week after taking control of Kabul, the Taliban appointed a new finance minister and head of the Central Bank. Neither of them, however, have been certified by other governments as authorized representatives of the Central Bank for the purposes of engaging in international transactions or accessing accounts or assets the Central Bank has outside of Afghanistan. At the World Bank, the US government used its dominant position on the board to revoke the Central Bank’s credentials, blocking the bank from receiving any World Bank assets, grants, or assistance. In any case, it would be unable to transfer these funds because of the central bank’s lack of access to the international banking system.

In other countries, the US and other governments stopped recognizing the credentials of the Central Bank, effectively blocking the bank from its foreign currency reserves on deposit at their central banks, including the New York Federal Reserve, the Bank of England, and other central banks in Europe, which together held approximately $9 billion of Afghanistan’s foreign currency reserves, the bulk of it – $7 billion – at the New York Federal Reserve. This $9 billion is part of the overall sovereign wealth of Afghanistan. Notably, however, approximately $1 billion of the assets are on deposit by private actors in Afghanistan, including businesses.

The decisions outlined above have prevented the Central Bank from accessing foreign currency reserves even as collateral to provide short-term liquidity to settle dollar transactions, make essential payments, purchase banknotes to hold auctions of dollars for private banks, or pay dues to the World Bank. As noted above, this immediately increased liquidity problems for all banks and the shortages of currency in US dollars and Afghan afghanis.

Were these economic actions taken because of international sanctions?

The recent economic actions against the Taliban were not taken because of existing sanctions. UN, US, and other government sanctions currently applicable to the situation in Afghanistan were initially imposed on the Taliban and its senior leadership in 1998 after Al Qaeda carried out attacks on two US embassies in Africa – the sanctions aimed to punish the Taliban for hosting al Qaeda in Afghanistan. These sanctions were updated in 2008 and have been adjusted by the US, UK, and other governments at various times since. They remain fundamentally focused on the Taliban as an armed group, not as a government, and its leaders as individuals.

These sanctions are not automatically applicable to the Central Bank of Afghanistan. There are no sanctions against Afghanistan itself, its government, or any governmental entities. There are no sanctions on the Afghan Central Bank. However, some of the Taliban leaders listed for sanctions by the UN, US, and others are now ministers in the new Taliban administration, such as the finance minister, Gul Agha Ishakzai.

However, existing UN and state sanctions on the Taliban and many of its senior leaders led many banks and other financial institutions outside of Afghanistan after August 2021 to restrict or block the processing of most transactions involving Afghan bank accounts, out of concern, appropriate or not, that they could face fines or prosecution from US authorities. (Major US dollar denomination transactions involving Afghan banks ultimately require the cooperation of a US-based bank’s “correspondent” account to “settle” transactions.)

In September and December 2021 and February 2022, the US Treasury issued multiple “licenses” and guidance documents authorizing banks and other entities subject to US law to engage in a range of humanitarian activities and transactions with Afghan government entities necessary or incidental to humanitarian operations or legitimate commercial activities, such as remittances. The UK and several EU governments have issued similar licenses or guidance documents. A US Treasury license and new guidance issued February 25, 2022, technically authorizes transactions with the Central Bank.

The Central Bank itself, however, remains cut off from the international banking system and cannot access its assets in foreign accounts, because US and other country’s central banks, and the World Bank, still do not recognize the credentials of any current bank officials.

Moreover, many foreign banks remain unwilling to process foreign currency transactions involving Afghan banks in general. Humanitarian organizations, Afghan banking officials, and private actors have told Human Rights Watch that although some major transactions involving long-recognized accounts have now resumed, many electronic settling transactions continue to be blocked.

According to internal UN surveys of humanitarian actors and Human Rights Watch consultations with aid groups, the vast majority of humanitarian agencies operating in Afghanistan through February have been utilizing informal and largely unregulated hawala money transfer systems or sarrafs, or money exchangers, to move funds into Afghanistan, pay salaries, and obtain cash. These systems, however, impose enormous transactional costs – sometimes over 10 percent – and in any case cannot be scaled up to handle the scope of humanitarian operations that groups are hoping to undertake, which involve hundreds of millions of dollars in cash assistance.

Did the Biden administration seize Afghan foreign currency reserves in the US?

After the Taliban takeover, the US Treasury stopped recognizing the Afghan Central Bank’s credentials at the New York Federal Reserve, preventing the Central Bank from acquiring them, but the United States did not block or seize the assets.

Subsequently, on February 11, 2022, the administration of US President Joe Biden undertook a complicated set of steps affecting the reserves, including blocking some of them – but did not explain their actions publicly in adequate detail. As a result, several media accounts misleadingly reported that the US was dividing Afghanistan’s $7 billion foreign currency reserves in half, with half – $3.5 billion – set aside in a trust fund for the benefit of the “Afghan people,” while the other half were being given to the families of victims of the September 11, 2001, attacks on the US. This was not accurate.

Instead, on February 11, President Biden issued an executive order formally seizing, or “blocking,” all $7 billion of Afghanistan’s reserves in the US and moving them into one account at the New York Federal Reserve. The US Treasury Department then immediately issued a “license” ordering the New York Federal Reserve to transfer $3.5 billion of those assets into a separate account in the name of the Afghan Central Bank. It then authorized transfers of that money to any account or entity or body using it “for the benefit of the Afghan people and for Afghanistan’s future,” including World Bank trust funds; other trust accounts; “a United Nations fund, programme, specialized agency”; or any other “entity or body.” The administration later acknowledged that other entities or bodies includes the Central Bank itself – in other words, its own ledger in Afghanistan or at its own bank accounts in other countries.

The $3.5 billion that the administration set aside formally belongs to the Afghan Central Bank and technically can be withdrawn at any time and used by the bank for transactions or activities for the “benefit of the Afghan people,” providing an accredited official of the bank was recognized by the US as authorized to do so. According to the US Federal Reserve Act, cited by the February 11 license, this representative must be someone certified by a person who the US State Department has recognized as an “accredited representative… to the Government of the United States” of “the foreign state.” The US has not recognized any such representative or a bank official credentialed by such a person, so essentially the bank remains cut off from its access to the reserves.

Did the Biden administration set aside $3.5 billion of Afghan currency reserves for families of victims of the September 11 attacks?

Under President Biden’s February 11 order, the remaining $3.5 billion of blocked assets are to remain in a frozen account. This would ostensibly allow families of September 11 victims who had previously obtained judgments against the Taliban to litigate in federal court to obtain the funds as damages to satisfy the judgment. Some families of September 11 victims have opposed the funds being used for this purpose.

It appears unlikely, however, that federal courts will rule in favor of the plaintiffs. US law does not allow plaintiffs to obtain a country’s central bank assets as damages for a judgment unless the government for which it is a central bank is a “terrorist,” “terrorist organization,” or a designated “state sponsor of terrorism.” The state of Afghanistan is not designated as any of these entities.

The plaintiffs’ previous judgments are also against the Taliban, not the state of Afghanistan; under US law, funds in an account in the name of a foreign central bank are presumed to belong to that bank and its country, not private parties. Moreover, the United States has not made a decision as to whether to recognize the Taliban as the government of Afghanistan, and entities that are not recognized as governments of a country are not entitled under US law to property belonging to that country that is located in the United States.

Can President Biden’s February 11 order be changed or overturned?

It is unlikely that Biden’s February 11 order can be reversed, except by the president himself. There is little legal basis to challenge presidential executive orders.

At the same time, given the slow speed of existing litigation, there is little likelihood of any immediate decision concerning the $3.5 billion that remains blocked.

Given the gravity of the crisis in Afghanistan, the existing availability of funds in World Bank managed trust funds, and the existence of the $3.5 billion that is ostensibly not blocked but remains technically available for withdrawal, restoring the central bank’s credentials remain the primary issue that, if resolved, could address many of the economic issues facing the country.

Can increasing foreign assistance end the humanitarian crisis?

Humanitarian assistance programs can help mitigate the severe impacts of Afghanistan’s humanitarian crisis and bring genuine relief to many people, but they are far from sufficient to overcome its scale and breadth. Humanitarian aid organizations have repeatedly warned that no amount of relief assistance is sufficient to feed the country’s entire population.

The World Bank is set to release hundreds of millions of dollars more to help support the education and health sectors. But even if billions of dollars more are made available for humanitarian assistance, current central banking incapacities would limit their impact. Financial amounts at that level require electronic banking on the international level; they cannot practicably be sent or spent in Afghanistan with paper banknotes flown in by outside actors. Even the small batches of paper currency currently sent into the country on UN flights are losing as much as 10 percent in transactional costs, insurance, and fees, and perhaps more. Without a functioning banking system, UN-led humanitarian activities have become exceedingly difficult; some have had to cease operations altogether. Humanitarian actors, legitimate businesses, and ordinary Afghan citizens need access to banks to function.

Afghanistan is in need of a recognized central bank – or a private bank, given the authorities and access to assets to act like one. Easing the country’s economic crisis will ultimately require allowing Afghanistan’s Central Bank or its equivalent to conduct transactions using the international banking system.

If the Central Bank is given access to assets, can’t the Taliban just take the funds?

Since the August 2021 takeover, Taliban authorities have arbitrarily arrested and attacked activists, journalists, and former government officials. They have imposed policies and practices that violate the rights of women and girls to education, employment, health, and freedom of movement, among other basic rights. Under these circumstances, donor governments are understandably reluctant to adopt actions and measures that would bolster the Taliban’s rule or facilitate further rights violations.

At the same time, Afghanistan’s deepening economic and humanitarian crises are already massively detrimental to Afghans’ basic rights – to food, to health care, and increasingly to life – and the situation continues to worsen. The impact of rights violations on the Afghan people, particularly women and girls, cannot be disregarded because of the Taliban’s past and present abuses.

On a practical level, there are technical and diplomatic solutions to address concerns about Taliban access to funds, centering around steps that can be taken to “ringfence” the Afghan Central Bank, put in place independent auditors to monitor the bank’s transactions internationally and domestically, and ensure that assets made available are being used for legitimate central banking functions and humanitarian and commercial purposes.

How can relief from existing sanctions improve the situation?

While restoring the credentials of the Afghan Central Bank and its access to assets is critical, addressing ongoing impacts of sanctions against the Taliban is also important. The US Treasury has reaffirmed that existing US sanctions on the Taliban and certain Taliban leaders still apply. UN agencies and member states remain bound by UN Security Council sanctions. Absent new actions or guidance from the Security Council’s relevant sanctions committees, which would require the agreement of all other council members, it remains unclear if UN sanctions apply to the Central Bank or to transactions involving government offices or ministries controlled by sanctioned people. It is also unclear if US and other domestic sanctions would apply to the Central Bank if it were credentialed. The US Treasury’s permissions and “comfort letters” do not address many other legitimate transactions, or the status of the Central Bank or its credentials, which is needed for Afghanistan’s economy to stabilize.

What should be done to address Afghanistan’s humanitarian crisis?

Human Rights Watch recommends that:

• Governments, the UN, the World Bank, and the Taliban should work to reach an agreement to allow the Afghanistan Central Bank access to the international banking system and provide it with its requisite credentials. As an initial step, the US Treasury Department and other financial authorities should issue licenses and guidance to allow the Central Bank to engage in limited settlement transactions with outside private banks so that the bank can pay its World Bank dues and process or settle incoming dollar deposits from legitimate private depositors – such as UNICEF, the UN Development Program, remittance banks, and other legitimate actors – and purchase banknotes to hold commercial auctions for private banks in Afghanistan.
• Governments, the UN, the World Bank, and the Taliban should work to urgently reach an agreement on a mechanism to restore wage support for essential workers and numerous food-for-work and other food insecurity programs that were providing purchasing power to millions of families across Afghanistan, including very poor and female-headed households.
• If agreement involving the Central Bank is not possible, governments, the UN, and the World Bank should negotiate a short-term agreement with the Taliban to designate a private bank or other entity, independent of the Central Bank, to process large-scale humanitarian transactions (e.g., a “Humanitarian Exchange Facility” to facilitate payment of salaries of some essential humanitarian workers and other vital cash-for-work and other food security programs), to be monitored by officials with the World Bank, UN, or a designated third-party auditing entity.
• The US Treasury and other authorities should then issue guidance to allow the designated private bank or entity to utilize incoming electronic dollar deposits from humanitarian agencies to purchase US dollar currency outside the country and transport them, under international monitoring, for deposit in private banks in Kabul. Remittance banks should be provided with additional licenses to allow arrangements with the Central Bank and private banks to facilitate legitimate US dollar transactions and, if necessary, physical shipments, monitored by an independent auditor.
• In the absence of any agreements, the UN should continue to use whatever means are at its disposal to continue shipments of currency to Afghanistan for humanitarian purposes. The Taliban should cooperate in allowing these shipments, allowing deposits into independent private banks, and permitting the UN to use the funds independently and without interference.
• The US, along with other governments, should immediately undertake sanctions policy reviews, adjust current measures accordingly, and issue new licenses and guidance to facilitate liquidity and availability of paper currency to address the humanitarian crisis.
• UN Security Council members should take immediate steps to ensure that legitimate financial transactions related to humanitarian activities and the provision of other essential goods and services are excluded from the scope of UN sanctions.
• UN Security Council members should also reach agreement on issuing new guidance or “Implementation Assistance Notices,” and take other steps to ensure that UN sanctions do not present obstacles to legitimate financial transactions involving the Central Bank, related to humanitarian and other essential work by international and Afghan actors.
• The Taliban should end violations of human rights, including abusive policies targeting women and girls that have deepened the gendered impact of the humanitarian crisis. Donors, the UN, and other international institutions should press the Taliban to stop violating rights and should promote the establishment of robust mechanisms to monitor human rights, such as through the mandate renewal of the United Nations Assistance Mission in Afghanistan (UNAMA) and the establishment of a UN special rapporteur on Afghanistan.