Afghanistan’s Former Central Bank Chief on the Dire State of the Country’s Economy

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:16)

And I'm Joe Weisenthal.

Tracy Alloway (0:18)

You know, Joe, it's obviously the start of a new year, and I'm just thinking back to 2021, and there were so many things that happened. It's kind of crazy when you think back. I mean, just think back this time last year, GameStop hadn't even really begun to take off, and then it suddenly became such a big thing, but it feels like that happened.

I mean, absolutely ages ago.

Joe Weisenthal (0:43)

Yeah, it really does. I feel like there were some really big themes, obviously. We don't need to go over them, that happened in 2021, but there were also just a bunch of smaller, remarkable stories.

Tracy Alloway (0:55)

Yeah, and you mentioned remarkable stories. So one of the very big things that happened last year was the fall of Afghanistan, and we had those dramatic scenes out of Kabul as people scrambled at the airport to try to get out of the country.

And it's one of those things, you know, at the time, people were talking about how those pictures were going to go down in history. It was all over the news. The news cycle focused on it a lot, and we did an Odd Lots episode on it at the time, but it's sort of fallen off the front pages since then. And in the meantime, Afghanistan has really been struggling under Taliban rule. You see these news reports now.

Again, they're not on the front page, but somewhere in the back of the newspaper talking about mass starvation, inflation, absolute economic collapse. And I think it's important that we do a follow-up on what is actually going on in the Afghanistan economy right now.

Joe Weisenthal (1:59)

Right, so Afghanistan was in the news for about two weeks near the end of, I think it was around the end of summer. And obviously one aspect of it was just the withdrawal after basically two decades of the US forces being there. But then the other aspect was simply the dramatic pictures at the airport and around the airport.

And people, there was an evacuation. And then of course the cameras left and you don't see much Afghanistan in the news. But to your point, everyone anticipated that there would be extreme economic fragility and likely inflation due to the balance of payments issues and the loss of aid that would come along with a rule by the Taliban. And now we seem to be seeing exactly that, that an economy that was already in bad shape is in extremely bad shape right now.

Tracy Alloway (2:48)

Yeah, exactly right. And there's clearly an informational challenge here, right? Which is that there aren't a lot of journalists operating in Afghanistan at the moment for obvious reasons. There isn't a lot of clear financial data necessarily coming out of the country. And so that can be difficult or make it difficult to actually report on the situation there. We are going to try our best in this episode.

We are going to be speaking once more with Ajmal Ahmadi. He's the former governor of Afghanistan Central Bank, now a senior fellow at Harvard University. So Ajmal, thank you so much for coming back on the show.

Ajmal Ahmady (3:24)

Thank you very much for having me. It's a pleasure to be here.

Tracy Alloway (3:27)

So maybe just to begin, could you give us your impression of the situation on the ground in Afghanistan since we last spoke to you back in August? I mentioned some of the things that we've seen reports of, starvation, double-digit inflation, currency volatility. I think there was one day in December where apparently the Afghani fell something like 11% in one day. That's obviously been challenging for people on the ground.

But what are you hearing from your contacts in the country?

Ajmal Ahmady (4:01)

I think it's in line with what you're hearing as well. The economic situation continued to deteriorate.

The situation is getting worse. So back in August, when we first spoke, I've mentioned a few things. One, that you'd likely see a large GDP contraction, which is what we're seeing now.

You're likely to see a FX depreciation, which will pass on through to inflation, which we're also seeing. And we're likely to see an increase in refugee flows. So I think all of that is in line. And so the people I speak with, are seeing the same things, unfortunately.

Joe Weisenthal (4:43)

So when we last talked, we talked about, I mean, you basically anticipated this. We talked about the difficulty that Afghanistan would have importing dollars. We talked about the current account and what would happen with the loss of aid. But just sort of talked about what's changed from a sort of like external perspectives. Where was Afghanistan getting its money prior to the change in rule? How is it financing itself?