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Economy

What will happen to Afghanistan’s economy under Taliban rule? – Al Jazeera English

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Afghanistan is set to receive nearly half a billion dollars from the International Monetary Fund (IMF) next week, but it’s unlikely the Taliban will be able to touch any of it.

The largest-ever allocation of IMF Special Drawing Rights (SDRs), equivalent to $650bn, is set to go into effect Monday, including an estimated $460m in SDRs for Afghanistan. But the IMF has pressed pause on letting the Taliban exchange the SDRs for hard currency. Instead, Afghanistan joins countries like Myanmar and Venezuela who receive IMF assets but can’t utilise them.

“As is always the case, the IMF is guided by the views of the international community,” IMF spokesperson Gerry Rice said in a statement Wednesday. “There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access the Special Drawing Rights (SDRs) or other IMF resources.”

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Earlier this week, 18 members of the United States Congress urged US Treasury Secretary Janet Yellen in a letter (PDF) to make sure that “nearly half a billion dollars in unconditional liquidity” does not go “to a regime with a history of supporting terrorist actions against the United States and her allies”.

It’s just the latest development in efforts to keep Afghanistan’s assets out of Taliban hands. So what money does the group have access to, and what is the state of the Afghan economy? Here’s what you need to know.

What was the status of the Afghan economy before the Taliban took over?

Struggling. The country’s economy is “shaped by fragility and aid dependence,” according to the World Bank, with 75 percent of public spending funded by grants.

That aid was already set to decrease by around 20 percent from 2016-2020 levels this year after “several major donors provided only single-year pledges” during the 2020 Afghanistan Conference, “with future support made conditional upon the government achieving accelerated progress in efforts to combat corruption, reduce poverty, and advance ongoing peace talks,” the World Bank said.

Now, with the Taliban in charge, it’s uncertain whether any of those conditions will be met, potentially further reducing the foreign aid the country relies on — including in the form of SDRs.

What is an SDR, exactly?

An SDR is an international reserve asset created by the IMF from a basket of currencies including the US dollar, Japanese yen, Chinese yuan, the euro and the British pound.

While not an official currency itself, the SDR is like an artificial currency that IMF member states can exchange for freely usable hard currencies like US dollars.

Countries can exchange their SDRs for those freely usable currencies at a fixed exchange rate, which changes daily and is posted on the IMF’s website.

How many SDRs does Afghanistan currently have?

Just over 37 million, which is equivalent to about $52.5m, according to the latest SDR exchange rate. Monday’s allocation, however, will boost that number to 323.8 million SDRs, or just under $460m, according to the IMF.

What other assets does Afghanistan have?

Da Afghanistan Bank (DAB) – the country’s central bank – listed 784.6 billion afghanis ($10bn) in assets for the period ending June 21, according to its bank statement (PDF), including 102.7 billion ($1.3bn) in gold and 28.7 billion ($366m) in foreign currency cash reserves.

Are all of those assets held in Afghanistan?

No. Like many developing countries, Afghanistan holds some of its assets overseas, including in the US, where the Taliban is the subject of economic sanctions.

For example, the country had more than 101 billion afghanis ($1.3bn) worth of gold stored at the Federal Reserve Bank of New York at the end of 2020, according to an independent auditor’s report (PDF) prepared at the end of last year.

DAB’s acting governor, Ajmal Ahmady, tweeted a breakdown Wednesday of where the bank’s major reserves are held, confirming $7bn are with the US Federal Reserve, including $1.2bn in gold.

So what happened to the money the Afghan central bank has in the US?

It’s currently frozen. The US confirmed it froze $9.5bn in assets DAB has in accounts with the Federal Reserve and other American financial institutions to keep the Taliban from accessing them.

Before Kabul fell, the US had also stopped shipments of dollars to the country, Ahmady tweeted as he fled the country earlier this week.

So can the Taliban access any of the central bank’s funds abroad?

Probably only a small amount. In a tweet Wednesday, Ahmady estimated “the accessible funds to the Taliban are perhaps 0.1-0.2% of Afghanistan’s total international reserves. Not much.”

“Without Treasury approval, it is also unlikely that any donors would support the Taliban Government,” he added.

What about assets held in Afghanistan?

The 2020 auditor’s report on the country’s central bank showed there were 12.5 million afghanis ($159,600) worth of gold bars and silver coins held in the bank’s vault inside Afghanistan’s presidential palace, which the Taliban now controls.

Also in the hands of the Taliban are around $362m in foreign currency cash holdings, which “consist almost entirely of US dollars and were held at the bank’s head offices and branches as well as the presidential palace,” Reuters news agency reported.

Does the Taliban have other sources of funds?

Yes — but not all of them are legal.

The Taliban has always relied on criminal activities to fund itself, “including drug trafficking and opium poppy production, extortion, kidnapping for ransom, mineral exploitation and revenues from tax collection in areas under Taliban control or influence”, according to a United Nations Security Council report published in June.

How much income does the Taliban itself have?

That’s a tough question to answer exactly, but the UN Security Council report estimates the group has an annual income of between $300m and $1.6bn annually.

The UN noted that “external financial support, including donations from wealthy individuals and a network of non-governmental charitable foundations, also account for a significant part of Taliban income.”

The group has also sought to exploit Afghanistan’s mineral wealth, and the UN reports that “profits from the mining sector earned the Taliban approximately $464 million” in 2020.

Afghans waited in long lines for hours to try to withdraw money in Kabul, Afghanistan on Sunday after the Taliban entered the city and took over the government [File: Rahmat Gul/AP Photo]

Where does the current economic situation leave the Afghan people?

In an increasingly precarious position. More than 47 percent of the country already lived below the poverty line in 2020, according to data from the Asian Development Bank, and 34.3 percent of people with jobs live on less than $1.90 per day.

Most households rely on the low-productivity agriculture sector for their income, and security issues, corruption and political instability have all held back private-sector development, leading Afghanistan to rank 173rd out of 190 countries in the World Bank’s 2020 Doing Business Survey.

Unemployment stood at 11.7 percent in 2020 pre-Taliban rule, before people began fleeing the country and some women were dismissed from their jobs.

Ahmady summarised the grim picture in a tweet Wednesday, predicting depreciating currency, surging inflation and rising food prices.

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Britain's economy went into recession last year, official figures confirm – The Globe and Mail

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Open this photo in gallery:

People walk over London Bridge, in London, on Oct. 25, 2023.SUSANNAH IRELAND/Reuters

Britain’s economy entered a shallow recession last year, official figures confirmed on Thursday, leaving Prime Minister Rishi Sunak with a challenge to reassure voters that the economy is safe with him before an election expected later this year.

Gross domestic product shrank by 0.1 per cent in the third quarter and by 0.3 per cent in the fourth, unchanged from preliminary estimates, the Office for National Statistics (ONS) said on Thursday.

The figures will be disappointing for Mr. Sunak, who has been accused by the opposition Labour Party – far ahead in opinion polls – of overseeing “Rishi’s recession.”

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“The weak starting point for GDP this year means calendar-year growth in 2024 is likely to be limited to less than 1 per cent,” said Martin Beck, chief economic adviser at EY ITEM Club.

“However, an acceleration in momentum this year remains on the cards.”

Britain’s economy has shown signs of starting 2024 on a stronger footing, with monthly GDP growth of 0.2 per cent in January, and unofficial surveys suggesting growth continued in February and March.

Tax cuts announced by finance minister Jeremy Hunt and expectations of interest-rate cuts are likely to help the economy in 2024.

However, Britain remains one of the slowest countries to recover from the effects of the COVID-19 pandemic. At the end of last year, its economy was just 1 per cent bigger than in late 2019, with only Germany faring worse among Group of Seven nations.

The economy grew just 0.1 per cent in all of 2023, its weakest performance since 2009, excluding the peak-pandemic year of 2020.

GDP per person, which has not grown since early 2022, fell by 0.6 per cent in the fourth quarter and 0.7 per cent across 2023.

Sterling was little changed against the dollar and the euro after the data release.

The Bank of England (BOE) has said inflation is moving toward the point where it can start cutting rates. It expects the economy to grow by just 0.25 per cent this year, although official budget forecasters expect a 0.8-per-cent expansion.

BOE policy maker Jonathan Haskel said in an interview reported in Thursday’s Financial Times that rate cuts were “a long way off,” despite dropping his advocacy of a rise at last week’s meeting.

Thursday’s figures from the ONS also showed 0.7 per cent growth in households’ real disposable income, flat in the previous quarter.

Thomas Pugh, an economist at consulting firm RSM, said the increase could prompt consumers to increase their spending and support the economy.

“Consumer confidence has been improving gradually over the last year … as the impact of rising real wages filters through into people’s pockets, even though consumers remain cautious overall,” Mr. Pugh said.

Britain’s current account deficit totalled £21.18-billion ($36.21-billion) in the fourth quarter, slightly narrower than a forecast of £21.4-billion ($36.6-billion) shortfall in a Reuters poll of economists, and equivalent to 3.1 per cent of GDP, up from 2.7 per cent in the third quarter.

The underlying current account deficit, which strips out volatile trade in precious metals, expanded to 3.9 per cent of GDP.

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How will a shrinking population affect the global economy? – Al Jazeera English

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Falling fertility rates could bring about a transformational demographic shift over the next 25 years.

It has been described as a demographic catastrophe.

The Lancet medical journal warns that a majority of countries do not have a high enough fertility rate to sustain their population size by the end of the century.

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The rate of the decline is uneven, with some developing nations seeing a baby boom.

The shift could have far-reaching social and economic impacts.

Enormous population growth since the industrial revolution has put enormous pressure on the planet’s limited resources.

So, how does the drop in births affect the economy?

And regulators in the United States and the European Union crack down on tech monopolies.

The gender gap in tech narrows.

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John Ivison: Canada's economy desperately needs shock treatment after this Liberal government – National Post

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Lack of business investment is the main culprit. Canadians are digging holes with shovels while our competitors are buying excavators

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It speaks to the seriousness of the situation that the Bank of Canada is not so much taking the gloves off as slipping lead into them.

Senior deputy governor, Carolyn Rogers, came as close to wading into the political arena as any senior deputy governor of the central bank probably should in her speech in Halifax this week.

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But she was right to sound the alarm about a subject — Canada’s waning productivity — on which the federal government’s performance has been lacklustre at best.

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Productivity has fallen in six consecutive quarters and is now on a par with where it was seven years ago.

Lack of business investment is the main culprit.

In essence, Canadians are digging holes with shovels while many of our competitors are buying excavators.

“You’ve seen those signs that say, ‘in emergency, break glass.’ Well, it’s time to break the glass,” Rogers said.

She was explicit that government policy is partly to blame, pointing out that businesses need more certainty to invest with confidence. Government incentives and regulatory approaches that change year to year do not inspire confidence, she said.

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The government’s most recent contribution to the competitiveness file — Bill C-56, which made a number of competition-related changes — is a case in point. It was aimed at cracking down on “abusive practices” in the grocery industry that no one, including the bank in its own study, has been able to substantiate. Rather than encouraging investment, it added a political actor — the minister of industry — to the market review process. The Business Council of Canada called the move “capricious,” which was Rogers’s point.

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While blatant price-fixing is rare, the lack of investment is a product of the paucity of competition in many sectors, where Canadian companies protected from foreign competition are sitting on fat profit margins and don’t feel compelled to invest to make their operations more efficient. “Competition can make the whole economy more productive,” said Rogers.

The Conservatives now look set to make this an election issue. Ontario MP Ryan Williams has just released a slick 13-minute video that makes clear his party intends to act in this area.

Using the Monopoly board game as a prop, Williams, the party’s critic for pan-Canadian trade and competition, claims that in every sector, monopolies and oligopolies reign supreme, resulting in lower investment, lower productivity, higher prices, worse service, lower wages and more wealth inequality.

(As an aside, it was a marked improvement on last year’s “Justinflation” rap video.)

Williams said that Canadians pay among the highest cell phone prices in the world and that Rogers, Telus and Bell are the priciest carriers, bar none. The claim has some foundation: in a recent Cable.co.uk global league table that compared the average price of one gigabyte, Canada was ranked 216th of 237 countries at US$5.37 (noticeably, the U.S. was ranked even more expensive at US$6).

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Williams noted that two airlines control 80 per cent of the market, even though Air Canada was ranked dead last of all North American airlines for timeliness.

He pointed out that six banks control 87 per cent of Canada’s mortgage market, while five grocery stores — Sobeys, Metro, Loblaw, Walmart and Costco — command a similar dominance of the grocery market.

“Competition is dying in Canada,” Williams said. “The federal government has made things worse by over-regulating airlines, banks and telecoms to actually protect monopolies and keep new players out.”

So far, so good.

The Conservatives will “bring back home a capitalist economy” — a market that does not protect monopolies and creates more competition, in the form of Canadian companies that will provide new supply and better prices.

That sounds great. But at the same time, the Conservative formula for fixing things appears to involve more government intervention, not less.

Williams pointed out the Conservatives opposed RBC buying HSBC’s Canadian operations, WestJet buying Sunwing and Rogers buying Shaw. The party would oppose monopolies from buying up the competition, he said.

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The real solution is to let the market do its work to bring prices down. But that is a more complicated process than Williams lets on.

Back in 2007, when Research in Motion was Canada’s most valuable company, the Harper government appointed a panel of experts, led by former Nortel chair Lynton “Red” Wilson, to address concerns that the corporate sector was being “hollowed out” by foreign takeovers, following the sale of giants Alcan, Dofasco and Inco.

The “Compete to Win” report that came out in June 2008 found that the number of foreign-owned firms had remained relatively unchanged, but recommended 65 changes to make Canada more competitive.

The Harper government acted on the least-contentious suggestions: lowering corporate taxes, harmonizing sales taxes with a number of provinces and making immigration more responsive to labour markets.

But it did not end up liberalizing the banking, broadcasting, aviation or telecom markets, as the report suggested (ironically, it was a Liberal transport minister, Marc Garneau, who raised foreign ownership levels of air carriers to 49 per cent from 25 per cent in 2018).

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The point is, Canada has a competition problem but solving it requires taking on vested interests. Conservative Leader Pierre Poilievre has indicated he is willing to do that, calling corporate lobbyists “utterly useless” and saying he will focus on Canadian workers, not corporate interests.

“My daily obsession will be about what is good for the working-class people in this country,” he said in Vancouver earlier this month.

Even opening up sectors to foreign competition is no guarantee that investors will come. There are no foreign ownership restrictions in the grocery market (in addition to the five supermarkets listed above, there is Amazon-owned Whole Foods). When the Competition Bureau concluded last year that there was a “modest but meaningful” increase in food prices, it recommended Ottawa encourage a foreign-owned player to enter the Canadian market. It was a recommendation adopted by Industry Minister Francois-Philippe Champagne, to no avail thus far.

But it is clear from the Bank’s warning that the Canadian economy requires some shock treatment.

Robert Scrivener, the chairman of Bell and Northern Telecom in the 1970s, called Canada a nation of overprotected underachievers. That is even more true now than it was back then.

It’s time to break the glass.

jivison@criffel.ca

Get even more deep-dive National Post political coverage and analysis in your inbox with the Political Hack newsletter, where Ottawa bureau chief Stuart Thomson and political analyst Tasha Kheiriddin get at what’s really going on behind the scenes on Parliament Hill every Wednesday and Friday, exclusively for subscribers. Sign up here.

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