Advertisement
Afghanistan
OpinionComment
Neal Kimberley
Neal Kimberley

Macroscope | Why Afghanistan might be China’s money pit after messy US withdrawal

  • Afghanistan faces a financial void after the United States, European Union and IMF have suspended aid and frozen billions in reserves
  • China could step in and aid Kabul financially, but the high risk and extraction costs of mineral resources might outstrip any benefits to Beijing

Reading Time:3 minutes
Why you can trust SCMP
11
A camp set up by a state-owned Chinese mining company sits mostly empty near a protective wall in the arid mountains of Mes Aynak in Afghanistan on October 10, 2012. Photo: AFP
Neal Kimberley
The Taliban’s return to power in Kabul could offer economic opportunities to China. Afghanistan is rich in minerals – access to which would benefit the Chinese economy – but there are no guarantees. In fact, there is every likelihood Afghanistan could just prove to be a money pit into which Beijing pours cash with China getting little back in return.
Advertisement

First off, there is the inconvenient fact that, whoever is running the country, Afghanistan runs a current account deficit that has to be funded. Money needs to be found from somewhere to help balance the books. Aid inflows equated to almost 43 per cent of Afghanistan’s gross domestic product in 2020, according to the World Bank.

Under the now-collapsed government of president Ashraf Ghani, the United States provided hard currency backing for the Afghan afghani through regular shipments of pallets of US dollars. Ajmal Ahmady, the Ghani-appointed governor of Afghanistan’s central bank, Da Afghanistan Bank (DAB), explained the situation in a recent series of illuminating tweets.

“Given Afghanistan’s large current account deficit, DAB was reliant on obtaining physical shipments of cash every few weeks,” Ahmady, who is now outside Afghanistan, tweeted on August 18. “The amount of such cash remaining is close to zero due [to] a stoppage of shipments as the security situation deteriorated, especially during the last few days.”

Confidence in the afghani rested on the continuation of regular arrivals of pallets of US dollars. On August 13, two days before Kabul fell and with pallets of US dollars expected on the Sunday, Ahmady said he was made aware that “there would be no further USD shipments”. On the Saturday, as Ahmady describes it, the afghani fell from 81 to the US dollar to 100 before settling back at 86.

Kabul residents sought hard currency, prompting Ahmady to restrict local banks’ access to US dollars to conserve the DAB’s remaining physical dollar reserves.

Advertisement