Afghanistan’s currency falls to record low amid ongoing turmoil

The Afghani fell as much as 4.6 percent on Tuesday during a fourth day of decline, according to Bloomberg data.

The acting governor of the central bank left Afghanistan on a military plane [File: Satellite Image 2021 Maxar Technologies/Handout via Reuters]

Afghanistan’s currency extended losses to a record low as the departure of the acting central bank governor added to political turmoil weighing investor sentiment.

The Afghani fell as much as 4.6% on Tuesday to 86.0625 per dollar, a fourth day of decline, according to data compiled by Bloomberg. The central bank was told there would be no more dollar shipments on Friday, which curtailed its ability to supply currency and led to more panic, acting Governor Ajmal Ahmady wrote in a Twitter thread.

Ahmady boarded a military plane at Kabul airport, where thousands sought to leave as the Taliban’s rapid territorial advance led to the collapse of the government. There was no evacuation plan, and President Ashraf Ghani’s departure without creating a transitional government contributed to the chaos, Ahmady wrote.

“Currency spiked from a stable 81 to almost 100 then back to 86,” the central banker wrote. “I held meetings on Saturday to reassure banks and money exchangers to calm them down.”

On Sunday, the governor left the central bank and went to the airport where he saw other government leaders. More than 300 passengers were packed into his flight, though it had no fuel or pilot, he wrote.

“It did not have to end this way. I am disgusted by the lack of any planning by Afghan leadership,” he wrote.

The turmoil in Afghanistan spilled over into markets in Pakistan.

Sovereign dollar bonds due 2031 for Pakistan dropped 1.8 cents on Monday, the biggest decline since the government priced the notes in March. Pakistani dollar bonds were the biggest losers in Asia on Monday, according to a Bloomberg Barclays index. The notes rose 0.4 cents on the dollar on Tuesday to 100.9 cents.

Investors are concerned over any impact on law and order in Pakistan, and whether “global forces will try to isolate Pakistan” due to its alleged support of the Taliban, said Abdul Kadir Hussain, the head of fixed-income asset management at Dubai-based Arqaam Capital.

Here is some of what analysts and economists are saying:

Samiullah Tariq, head of research at Kuwait Investment Company Pvt:

  • The future of the Afghan currency would depend upon the future economic direction, monetary policy and fiscal policy
  • “One thing is clear that with a favorable regime in Afghanistan, Pakistan will benefit economically and diplomatically”

Piotr Matys, senior FX analyst at InTouch Capital Markets Ltd.

  • “A broader contagion from the latest dramatic developments in Afghanistan should be relatively limited”
    Afghan assets could prove attractive to opportunistic foreign investors who may assume that Afghanistan could potentially become a far more stable country going forward
  • Nation may also benefit from China expressing interest to rebuild it and potentially include it in its “One Belt, One Road” initiative
  • “Democracy is not often the top priority for international investors who appreciate stability and predictability in politics, even if provided by authoritarian regimes”

A. A. H. Soomro, managing director at KASB Securities Pvt

  • There could be some pressure on the Pakistani rupee if a drop in Afghanistan’s currency prompted the wealthy part of its populace to try get U.S. dollars from Pakistan
  • “Of course, it’s too early to predict any economic policy of Taliban at the moment”

Charles Robertson, chief economist at Renaissance Capital

  • “The market has been selling Pakistan Eurobonds and equities, due to spillover risk. But I suspect the trade should be the reverse”
  • “The Taliban victory now makes Pakistan the most helpful interlocutor for the U.S. in Afghanistan”

Jehanzaib Zafar, Hamza Kamal, analysts at AKD Securities Ltd

  • “Major regional powers in the region like China, Iran and Pakistan have all showed a willingness to work with the new setup in Afghanistan and help maintain peace”
  • “The integrated economic interests of major powers in the region will help bring these players closer and work together and potentially bring peace and economic prosperity”
  • “The fall of Kabul in the hands of Taliban may not turn out to be as negative as feared earlier”
  • “Though still early at this point, a stable and peaceful Afghanistan will have positive spillover effects for Pakistan and the region at large”
Source: Bloomberg