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After cash crunch Afghanistan businesses stare at raw material shortage

Multiple economic challenges for the Taliban led regime in Afghanistan

Amid acute cash crunch, Afghanistan’s businesses now face another challenge — shortage of raw materials. Sources said that the supply of raw materials is unlikely to ease in the coming weeks and this could make the going tough for the businesses in the war torn Central Asian country. With no cash in the banking system, businesses have no access to money that is required for purchase of raw materials.

According to Tolo News, about 5000 factories are still active in the country. However a source told India Narrative that cottage or micro and small scale industry has been the main thrust in Afghanistan. Most of the factories are run by local people who make carpets, soaps, nuts, clothes and footwear among other things.

Also read: After IMF, World Bank too halts funding for Afghanistan in major blow to Taliban

“This winter around 5,000 factories do not have raw materials. How can we transfer money abroad? The banking system is closed. Most of the factories will stop due to the lack of raw materials,” Tolo News quoted Shirbaz Kaminzada, head of Afghanistan Chamber of Mines and Industry. Flow of remittances have dried up too.

While China had earlier shown interest in expanding the Belt and Road Initiative to Afghanistan and even invest in the country which is home to rich natural resources, recent indications present a different picture.

Sources told India Narrative that Beijing is unlikely to go ahead with any major investments. Only Iran had resumed supply of oil to the war-torn country.

“China is more cautious than you might think,” former acting governor of the Da Afghanistan Bank—the country’s Central Bank, told American think tank-Atlantic Council in September.

“The economic collapse in Afghanistan may also intensify inflow refugees to the neighbouring countries,” a person who had business dealings in Afghanistan told India Narrative.

A World Bank report said that energy prices increased by 12 per cent in the first half of the year in line with global trends. Prices for basic household goods, including food and fuel, increased substantially as the Taliban captured border posts and key transit hubs, disrupting supply chains, it said, adding that the financial sector has been pushed into crisis.

Also read: China's headline grabbing pledge of $31 million to Afghanistan fails to materialise

According to the International Monetary Fund, the aid-reliant Afghanistan’s economy could contract 30 per cent this year amid choking of non-humanitarian aid and the freezing of foreign assets.

In Afghanistan grants have financed about 75 per cent of the public spending.

The US has frozen the $9.5 billion reserves that the country has in overseas accounts. Besides, flow of remittances has choked too.

The IMF also said that the uncertainty in Afghanistan would result in economic and security spillovers to the region and beyond.