Attachments
WHAT SIGAR FOUND
SIGAR found that Afghanistan suffers from a liquidity crisis due to its isolation from the international banking sector and the inability of its central bank—Da Afghanistan Bank (DAB)—to print new, or replace existing, afghani banknotes and its lack of technical expertise within the financial sector. Due to this liquidity crisis, the UN began purchasing and transporting U.S. currency to Afghanistan, which now serves as the country’s primary source of liquidity. However, despite the UN’s shipments of U.S. currency, Afghanistan’s economy continues to be negatively affected by its liquidity shortage, and the reduction or cessation of the UN’s shipments of U.S. currency would exacerbate Afghanistan’s economic and humanitarian crises.
SIGAR also found that the reduction of economic activity and closure of Afghan businesses following the Taliban takeover led to a rise in unemployment. The World Bank has reported Afghan unemployment increased from October through December 2021 due to the “destruction of salaried employment.” For example, the UN Development Programme (UNDP) estimated that from August 2021 through mid-2022, the Afghan economy lost 700,000 jobs. The World Bank has also noted that businesses of all sizes and in all sectors laid off employees, particularly women, which has led to extreme economic hardship and the widespread adoption of harmful coping mechanisms, including selling household assets, predatory loans, and selling daughters into child marriages.
The UN’s U.S. currency shipments have had a positive economic impact, as the shipments eased Afghanistan’s liquidity crisis. The shipments have allowed the Taliban-run DAB to implement monetary policies, such as easing cash withdrawal restrictions, and have helped alleviate the negative impacts of Taliban policies, such as restricting women’s ability to travel or be employed. In June 2023, the UN Security Council reported that UN shipments have “…played a key role in stabilizing the Afghan currency, the afghani, and has provided an economic stimulus.” While the shipments have improved Afghanistan’s ongoing economic crisis, they have not eliminated all of its negative effects nor the negative effects of Taliban policies. For example, the World Bank has found the ongoing economic crisis has decreased Afghan businesses and household incomes, is a major reason for businesses closing, and still requires the Taliban to impose withdrawal limits on depositors’ accounts at Afghan commercial banks.
However due to the Afghan economy’s reliance on U.S. currency shipments, SIGAR found that a reduction or cessation of the shipments would result in a reversal of the economic and humanitarian gains. The World Bank reported that a halt in U.S. currency shipments would “aggravate the liquidity condition of hard currency,” and would have a detrimental impact on Afghanistan’s overall economic health, including the afghani’s value and trade levels. A U.S. Institute of Peace report confirmed these findings and determined that while Afghanistan’s economy has begun to stabilize, the stability is dependent on continuing humanitarian aid, including the UN’s shipments, and that a cessation in the shipments would precipitate a human catastrophe.
SIGAR also found that public international organizations (PIOs) and nongovernmental organizations (NGOs) use some of the U.S. currency for direct cash assistance to Afghans. According to a U.S. Agency for International Development (USAID) and World Food Programme (WFP) report, direct cash assistance is one of the few aid modalities capable of being deployed throughout Afghanistan, is the most cost-efficient aid modality, and is just as effective as in-kind assistance, such as food. The report concluded that direct cash assistance is 9 percent cheaper than vouchers and 75 percent cheaper than food transfers. UN and U.S. Institute for Peace reports confirmed these findings and did not identify other feasible modalities that are as cost-effective and efficient as direct cash assistance. Furthermore, a USAID report found that direct cash assistance stimulates the economy because beneficiaries spend that cash in local markets, instead of aid organizations purchasing in-kind assistance outside Afghanistan and then shipping it into the country. World Bank and NGO officials confirmed this finding to SIGAR, noting that direct cash assistance has significant positive economic impacts on local economies since beneficiaries’ purchase necessities locally.
SIGAR found that while it is effective, direct cash assistance has limitations in its application and use. First, direct cash assistance cannot address all humanitarian needs, such as education or healthcare infrastructure. Second, inflation reduced Afghans’ purchasing power. An NGO reported that between August 2021 and April 2022, the prices of goods in Afghanistan increased. This led to a reduction in beneficiaries’ purchasing power, inflation forced aid organizations to increase the amount of direct cash assistance they provided to beneficiaries. Third, Taliban policies and attempts at interference complicate the deployment of direct cash assistance. For example, SIGAR found that Taliban attempts to misuse or divert direct cash assistance have led to the suspension of humanitarian activities, and Taliban polices often prevent the aid from reaching women and other vulnerable groups. In addition, under the guise of income taxation, the Taliban have targeted and extorted money from some recipients of direct cash assistance as a way of accessing international assistance.
However, SIGAR found that U.S. agencies and aid organizations have policies and procedures intended to prevent the Taliban from misusing and diverting direct cash assistance. For example, SIGAR has previously reported that the Department of State (State) and USAID maintain vetting processes intended to ensure that direct cash assistance is not provided to prohibited organizations, including the Taliban. Additionally, the UN addresses any purported attempts to misuse or divert direct cash assistance by suspending activities or engaging with the Taliban directly to discuss and investigate any misuse or diversion. Nonetheless, even with these controls in place, it is not possible to eliminate the benefits the Taliban garner from the cash transfers.
Finally, SIGAR found that U.S. currency shipments provide indirect benefits to the Taliban because the operating costs associated with humanitarian programming generate tax revenue and other fees. Additionally, the humanitarian assistance facilitated by the shipments provide indirect benefits to the Taliban by stabilizing and legitimizing them, because the funds allow the Taliban to focus on their priorities and policies instead of providing essential services to the Afghan people. For example, the Taliban take credit for the essential services provided by international donors, including the provision of food and healthcare, which can contribute to Afghans’ perception of the Taliban as a legitimate authority. U.S. currency shipments also risk legitimizing and stabilizing the Taliban by allowing them to reallocate financial resources to other priorities and policies, including to the security ministries responsible for enforcing Taliban policies and disciplining and policing the Afghan population. Moreover, because U.S. currency is difficult to trace and can be used internationally as a means of exchange, the Taliban now have a greater ability to circumvent the controls of the international banking system that are intended to limit the Taliban’s ability to conduct money laundering and fund terrorism. Therefore, although the shipment of U.S. currency has provided many benefits to the Afghan people, it is important that Congress consider how these shipments have also provided substantive benefits to the Taliban, and act accordingly.