KABUL (Reuters) - An exodus of people seeking a better life in Europe has put pressure on Afghanistan’s currency, already weakened by a sharp reduction in foreign funds and sliding confidence in the country’s prospects, the central bank governor said on Tuesday.
Nearly 150,000 Afghans have left the country this year, according to a government estimate, as a flagging economy has sent unemployment higher and increased Taliban attacks have dented hopes for peace.
“These people are carrying money with them,” Governor Khalil Sediq told Reuters in an interview in his office in the run-down Kabul central bank building.
If every migrant took $10,000, that would mean an outflow of about $1.5 billion, although Sediq said he believed the total was probably up to $2 billion.
“This is a new demand on the market in the last 12 months which we didn’t have two or three years ago,” he said.
But the outflow is not new. For years Afghans have been illegally siphoning funds out of the country.
A rough estimate was $30 billion had been taken out of an economy, with an annual gross domestic product worth $20.8 billion, over the years and accumulated in places like Dubai and Turkey, he said.
“When a country is at war, everyone is going to be taking out their capital, it’s normal,” he said.
The afghani currency has depreciated about 15 percent against the dollar over the past year, raising alarm, and questions in parliament.
Annual exports are worth about $600 million while imports are worth up to $9 billion, though the balance of payments deficit is largely financed through foreign aid, Sediq said.
The central bank auctions dollars to the tune of $60 million to $70 million a week to avoid “unreasonable” fluctuations.
It would be able to maintain that support while holding foreign exchange reserves at equivalent to eight to nine months of imports, or $6.8 billion to $7.4 billion, he said.
“This is our target, we are keeping to that.”
Sediq said cheaper fuel, a good harvest and falling purchasing power in an economy contracting on a sharp fall in foreign inflows had helped Afghanistan avoid inflation.
In the first five months of the year, inflation was a negative 4.2 percent, climbing to 1.7 percent in the last quarter, he said.
Next year, as the impact of the weaker afghani worked its way through the system, inflation could reach as much as 5 percent, he said, though that would not be a concern.
Afghan businessmen complain about the difficulty in getting loans from commercial banks but Sediq dismissed any suggestion of a credit crunch, saying commercial banks’ portfolio of loans was more than $800 million.
Commercial banks’ non-performing loans were up to 8 percent, from 3-4 percent two years ago, because of the slowing economy.
“There is a problem of increasing NPLs but it’s not a critical one,” he said.
Sediq said the collapse of the private Kabul Bank in 2010 after the theft of almost $1 billion had shaken confidence in the banking system “very badly”.
The central bank, armed with beefed-up powers of supervision, was now monitoring closely.
“We can assure the people that banks have started to improve, go in the right direction,” he said.
The government was forced to bail out Kabul Bank, the country’s then biggest bank, after a run on deposits. It was re-launched as the state-run New Kabul Bank and Sediq said steps were being taken to privatize it.
Editing by Simon Cameron-Moore