KARACHI – Food prices skyrocket in Afghanistan as the local currency crumbles under sales pressure and imports from Pakistan decline sharply due to a shortage of US dollars preventing traders from selling ‘make payments.
Zia-ul-Haq Sarhadi, vice president of the Joint Pakistan-Afghanistan Chamber of Commerce and Industry (PAJCCI), told Nikkei Asia that food shipments from Pakistan to Afghanistan have been reduced to a trickle in largely because of the Taliban limiting weekly bank withdrawals to $ 200. – around 20,000 Afghans.
According to Sarhadi, only cement deliveries paid for before the Taliban’s return to Kabul cross the border at Torkham, Pakistan’s northwest border post with Afghanistan. He told the Nikkei that fewer than 200 trucks pass a day, up from more than 1,000 a few weeks ago.
The Taliban’s withdrawal caps are aimed at preventing a leak of currency as the United States continues to block access to approximately $ 9.5 billion Afghan dollar reserves in U.S. banks.
The IMF and World Bank also halted dollar-denominated aid, which accounted for about 43% of gross domestic product (GDP) in 2020, and was the country’s main source of income in the absence of tax collections and strong exports.
Afghanistan’s trade deficit was previously around 30% of GDP and funded almost entirely by foreign aid, according to the World Bank.
With denial of access to dollar reserves abroad, Afghanistan’s financial sector is on the brink of collapse. The Taliban government cannot pay government employees or provide electricity.
Long queues form in front of Afghan banks every day as panicked and cash-strapped residents attempt to extract their deposits. Many bank branches are either not opening at all or offering only limited services as the cash shortage continues.
Pakistan’s finance ministry ruled last month that perishable goods could be exported to Afghanistan and paid for in Pakistani rupees instead of US dollars.
The State Bank of Pakistan has yet to officially announce the new monetary policy, and there have been significant losses among traders. Zubair Motiwala, president of PAJCCI, recently told reporters in Karachi that exports to Afghanistan had declined by 50%.
The Commerce Ministry is not commenting because Pakistani officials are not allowed to make statements on Afghanistan.
Haji Hazrat, director of the vegetable traders union in Kabul, told Nikkei that it is very difficult to trade with Pakistan with such a high US dollar.
The Afghan rose from 80.9 against the dollar on August 15 – just after the Taliban took power in Kabul – to 87.9 on September 30, according to data provided by investment research firm Morningstar, and has now reached 90.
Another Kabul-based trader, Ahmed Zia, imported cooking oil from Pakistan which is paid for in dollars from his office in Dubai.
Zia said the depreciation of the local currency and the shortage of dollars are exacerbated by tighter Pakistani immigration controls and inflated air fares – all of which have increased the cost of doing business.
Round-trip commercial flights between Kabul and Islamabad, which previously cost less than $ 300, can now cost as much as $ 1,900 one-way, he said.
Food items like flour and cooking oil have risen 35% in recent weeks, according to a Kabul-based reporter, who requested anonymity.
“Afghans are grappling with the twin problem of unemployment and food inflation, which, in part, is fueled by opportunistic traders selling commodities on the black market,” he told Nikkei.
Food security in Afghanistan is also threatened by a possible disruption to the winter wheat harvest, which is about to begin. Rein Paulsen, Food and Agriculture Organization of the United Nations director of emergencies and resilience, said Afghanistan faces 25% drop in wheat harvest due to unrest policies. This will leave one in three Afghans acutely food insecure.
Although Pakistani traders are reluctant to take orders from Afghanistan, Islamabad has pledged to back the faltering Taliban government with food and medical aid. The government is also reportedly considering economic support for Afghanistan with technical assistance to the central bank, lines of credit and even assistance with printing local currency.
Being landlocked, Afghanistan relies heavily on Pakistan for the supply of many commodities including food, construction materials and medicines through bilateral trade and transit through Pakistani sea ports.
However, since 2014 Iran has replaced Pakistan as Afghanistan’s main import partner. According to UN data, Afghanistan imported $ 1.10 billion from Pakistan in 2019, while imports from Iran and China were $ 1.24 billion and $ 1.19 billion, respectively. , relegating Islamabad to third place. Pakistan’s crackdown on Afghan smuggling and frequent border closures to thwart terrorism and contain COVID-19 contributed to the decline.
Pakistan nevertheless remains Afghanistan’s main supplier of perishable foodstuffs due to its proximity to urban centers in the east of the country. In 2019, Afghanistan imported more than $ 191 million worth of food from Pakistan, which the World Bank said accounted for around 40% of the country’s food import bill.