Tag Archives: run out of money

Afghanistan’s banks brace for bedlam after Taliban takeover

By Tom Arnold and Karin Strohecker

LONDON (Reuters) – Afghanistan’s banks, critical to the country’s recovery from crisis, are facing an uncertain future say its bankers, with doubts over everything from liquidity to employment of female staff after the Taliban swept to power.

Banks were expected to reopen imminently, a Taliban spokesman said on Tuesday, after they were closed for some ten days and the financial system ground to a halt as the Western-backed government collapsed amid the pullout of U.S. and allied troops.

Yet there has been scant evidence so far of a reopening or of banking services returning to normal, with large crowds thronging the streets outside banks in Kabul on Wednesday.

“The banks continue to be closed – with no clear signs of reopening, they have run out of money,” said Gazal Gailani, trade and economic adviser at the Afghan embassy in London.

“Afghanistan’s banking system is now in a state of collapse, and people are running out of money.”

Many rural areas get by largely without banks. But in the cities, where government worker salaries are often paid into bank accounts, closures are causing hardship in a mostly cash-based economy.

The outlook for lenders looks precarious, with looming questions about the Taliban’s grasp of finance and its ability to restart an economy shattered by 40 years of war.

With no significant exports apart from illegal narcotics bringing in cash, one immediate obstacle is liquidity in a country that is heavily dollarized and relies on regular physical dollar-shipments that have been halted, according to former central bank chief Ajmal Ahmady.

The Afghanistan Banks Association (ABA) had reached out to the central bank to coordinate steps on a return to normality, said Syed Moosa Kaleem Al-Falahi, chief executive and president of Islamic Bank of Afghanistan (IBA), one of Afghanistan’s three largest banks.

Commercial banks had collectively decided to suspend services until the central bank confirmed liquidity and security arrangements, he said.

“It would be rather difficult to control the rush if banks reopen immediately,” he added.

Liquidity had already been an issue in the run-up to the bank closures as people scrambled to withdraw cash.

Da Afghanistan Bank (DAB), the central bank, provided financial support to banks during last week’s cash squeeze, said a banker at one of Afghanistan’s largest lenders, speaking on condition of anonymity.

But its ability to continue to do so appears uncertain, with DAB’s roughly $9 billion in foreign reserves looking largely out of Taliban reach.

“Banks will face major liquidity challenges as central bank officials have not had access to reserves yet,” the banker said.

“They will face foreign currency liquidity issues which will cause huge fluctuations in the exchange rates.”

SCARCE DOLLARS

The afghani plunged on the expectation of dollar scarcity and further volatility is expected, with Afghanistan’s import coverage reportedly collapsing from more than 15 months to a couple of days.

Bankers in Afghanistan are also waiting for clarity from foreign-based correspondent banks, which provide services such as currency exchange and money transfers, on whether ties will continue after the Taliban takeover. Any new sanctions could see many links cut.

A senior Afghan banker said their bank’s correspondent banks in Turkey, Russia, Spain, United Arab Emirates, Qatar, Pakistan and India were still showing support.

Faith in the banking system was severely damaged by the 2010 collapse of Kabul Bank, in one of the biggest corruption scandals of the 20-year Western presence in Afghanistan.

Banks emerged in generally good health from the COVID-19 pandemic, said DAB in its 2020 report, noticing no liquidity shortfall, while capital positions met regulatory thresholds and assets swelled 4% to 327 billion afghanis ($3.8 billion).

But the current crisis will further set back confidence in a sector which has struggled to expand services in a thinly banked country.

According to the International Monetary Fund, only 183 of every 1,000 people hold a deposit account; there are less than two bank branches or cash machines for every 100,000 adults.

FEMALE STAFF WORRIES

This week, the Taliban said it had named Haji Mohammad Idris, a loyalist with no formal financial training, as DAB’s acting governor. A senior Taliban leader defended the appointment, saying Idris was respected for his expertise.

It is so far unclear whether Afghanistan’s less than a dozen banks, all but one of which are conventional, will have to convert to Islamic banking, a lengthy and costly procedure.

More uncertainty surrounds the future employment of female staff.

“So far there is no official communication from them (the Taliban) with respect to female staff,” said IBA’s Al-Falahi. “Our female staff will return to work when we reopen.”

But given the Taliban’s track record, their assurances that women would be allowed to work consistent with Islamic law have been met with skepticism.

The banker at one of Afghanistan’s largest lenders said their bank had a plan to ensure it could continue operations in the event of it having to dismiss its roughly 20% of female staff.

“We expect we will face challenges such as losing qualified and high-skilled staff as most of them are planning to flee the country at the first opportunity,” the banker said.

($1 = 85.9000 afghanis)

(Reporting by Tom Arnold and Karin Strohecker in London, Editing by Rosalba O’Brien)

‘Every time, it’s messy:’ U.S. again approaching debt ceiling

By Richard Cowan

WASHINGTON (Reuters) – The U.S. Congress will learn on Wednesday when the federal government will likely run out of money to pay its bills, setting the stage for the latest in a long series of fights over what is known as the debt ceiling.

A failure by Democrats and Republicans to work out differences over whether government spending cuts should accompany an increase in the statutory debt limit, currently set at $28.5 trillion, could lead to a shutdown of the federal government — something that has happened three times in the past decade.

“Every time, it’s messy,” said the top Republican on the Senate Finance Committee, Mike Crapo, when asked about the process of adjusting the debt limit. He noted that in his nearly three decades in Congress he had pushed for spending cuts in those negotiations, adding in a brief interview that he would be seeking cuts again.

Neither Crapo nor other senior Republicans have brought up the threat of a shutdown in recent public statements, and Democrats insist on a “clean” debt limit increase unfettered by a fight over spending reductions.

But the top Senate Republican, Mitch McConnell, warned on Wednesday that members of his party would be unlikely to support a hike to the debt limit, given the current Democratic drive for a multi-trillion-dollar infrastructure investment bill.

“I can’t imagine there will be a single Republican voting to raise the debt ceiling after what we’ve been experiencing,” McConnell told the Congress-focused Punchbowl News. But rather than call for an outright battle, he suggested Democrats address the debt limit in a second spending measure they are expecting to pass without Republican votes in a maneuver called reconciliation.

On July 31, the Treasury Department technically bumps up against its statutory debt limit. Much like a personal credit card maximum, the debt ceiling is the amount of money the federal government is allowed to borrow to meet its obligations. These range from paying military salaries and IRS tax refunds to Social Security benefits and even interest payments on the debt.

Since the government spends more than it receives in revenues, it keeps operating by borrowing more and more.

If Congress does not raise the debt ceiling from its current $28.5 trillion by then, Treasury Secretary Janet Yellen is expected to take special steps to avoid a government default. Such stop-gap measures are effective for only a short period.

On Wednesday, the non-partisan Congressional Budget Office is scheduled to release its latest estimate of when the government actually would be unable to pay its bills — known as the “X Date.”

Democrats are eyeing several possibilities for heading off debt payment problems, such as attaching a debt-ceiling increase to a bipartisan infrastructure bill being negotiated in the Senate or as part of a stop-gap funding bill in September to avoid government shutdowns on Oct. 1 with the start of the new fiscal year.

Failure could lead to a repeat of the government shutdowns seen in 2013, January 2018 and one that lasted from 35 days from late December 2018 into January 2019. Other factors also were in play during those disruptions.

In a sign of Wall Street’s worry about the approaching limits, yields on short-term U.S. Treasury debt have inched up to around 0.05%, after having hovered near zero since early in the pandemic.

‘IF YOU INCUR YOUR BILLS, YOU PAY THEM’

Cooperation from Republicans in passing a debt limit increase is essential given the 50-50 party split in the Senate, where most legislation requires 60 votes to advance.

“Nobody should be allowed to take our economy hostage, particularly when we are in a fragile period like this” with the United States clawing its way out of the devastating effects of the COVID-19 pandemic, said Senator Ron Wyden, the Democratic chairman of the Finance Committee that oversees the debt limit.

“If you incur bills, you pay them,” Wyden added.

The brewing battle over budget deficits and debt comes after Senate Republicans earlier this year adopted a party rule stating that any debt limit increase should be coupled with spending cuts.

It also is on the heels of Congress approving around $5.7 trillion in COVID-19-related relief measures since early 2020 and as Democrats push for over $4 trillion in infrastructure investments, amid an estimated $3 trillion budget deficit this year alone.

DEBT LIMIT ‘WEAPONIZED’

That sense of urgency rankled Democrats, since Republicans had little problem increasing the debt limit in 2018 and 2019 when a fellow Republican, Donald Trump, was president and after they enacted sweeping tax cuts skewed to the wealthy, which were projected to add $1.8 trillion to the nation’s debt.

“I think the debt limit became weaponized a while back and that created a huge problem,” said Maya MacGuineas, president of the Committee for a Responsible Budget.

Nowhere was that more apparent than in 2011, when Republicans launched a battle over the debt limit and federal spending, which led to the first-ever Standard & Poor’s downgrade of the U.S. credit rating — a move that reverberated through global financial markets.

(Reporting by Richard Cowan; Editing by Scott Malone and Cynthia Osterman)