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Remittances a vital lifeline for Afghan families

7 October 20210 comments

Remittances from Afghans working abroad have become a lifeline for many people in the beleaguered nation which faces twin financial and humanitarian crises.

But along with much of live in Afghanistan, there is now uncertainty around this vital flow of finance.

Worldwide, there are 5.85 million Afghans living outside of their home country and their remittances account for more $US788 million – or about 4 per cent of Afghanistan’s total GDP. And they are the main source of income for one in ten Afghan households.

But Afghans now face a financial squeeze after the Taliban’s takeover of the country on August 15.

The US has frozen $US9 billion in Afghan reserves. The International Monetary Fund (IMF) shut off financing to the country, including hundreds of millions of dollars in Special Drawing Rights, which can be converted into currency during times of crisis.

Aid agencies say banks have been closed for weeks, ATMs are out of cash meaning that even Afghans with savings haven’t been able to access money.

The Taliban has ordered that foreign remittances be paid in local currency, keeping foreign cash reserves for themselves. But the buying power of the local ‘afghani’ currency is plummeting as prices rise.

There are also withdrawal limits place just as prices for essential goods are soaring. There are fears of food shortages, higher inflation, and a slump in the currency — all of which will result in a worsening of the humanitarian emergency across the country.

Even before the latest crises, remittances were crucial to many Afghan families and to the broader economy.

Afghans working in Pakistan, Iran, Turkey, the Gulf countries, and in Australia, Europe, and the United States, have been sending money to their families in Afghanistan for decades.

The US has told financial institutions that they may process personal remittances to Afghanistan, a move that help to ensure the continued flow of humanitarian aid.

The decision to allow money transfers could provide some relief for the broader Afghan economy, which is nearing collapse.

Western Union and other money transfer firms has suspended their services after the Taliban takeover, shutting off a major source of funds that many families rely on to pay for food.

Under the Taliban, the central bank has been restricting dollar outflows amid a pause in foreign aid and a scramble by some Afghanis to get savings out of the country.

Further controls are expected to hasten the afghani’s depreciation against the dollar, exacerbating inflation in a country where more than a third of the population lives on less than $2 a day.

The afghani was trading at around 80 to the dollar just before the fall of Kabul.

Banks have been told by the central bank last week to restrict withdrawals by corporate customers to local currency only, capped at around 20 per cent of each customer’s weekly operating costs.