Sanctions Misconceptions Worsen Afghanistan’s Crisis

Misconceptions and over-compliance with international sanctions have created severe obstacles for the Afghan business community, causing ongoing suffering for millions of people. A new report commissioned by the Norwegian Refugee Council (NRC) found that while Afghanistan should be open for business, banks continue to restrict businesses’ access to financial services, even for essential goods like food shipments via the United Nations.

The report calls on the international community to improve awareness about sanctions and reduce over-compliance, arguing that concrete steps must be taken to address the crippled Afghan economy and the ongoing unprecedented humanitarian crisis. According to the report, more than 28 million people are now on the brink of survival in Afghanistan.

Since the Taliban returned to power in 2021, international actors have pursued political and economic isolation policies toward Afghanistan, in reaction to the Taliban’s increasingly restrictive governance. This has contributed to the current economic crisis and the population’s reliance on humanitarian assistance.

“There is a real lack of understanding about this – particularly among key sectors in our main export and import markets,” said an executive of a large agricultural firm in Afghanistan. “We need to educate overseas companies and banks that Afghanistan itself is not under sanctions.”

The Taliban’s stance towards women has also led to the loss of many women from the Afghan workforce. These restrictions pose substantial challenges to the Afghan people and the economic prospects of the country as well as serious practical and ethical dilemmas for international donors and aid agencies.

To address the complex political, economic, and social changes since the return to power of the Taliban, NRC calls on major governments, financial institutions, UN agencies, and relevant regional actors to urgently convene to establish measures to stabilize and support Afghanistan’s economy for the benefit of all the Afghan people.

“Concrete steps must be agreed to address the barriers faced by critical private sector actors in Afghanistan, including challenges in accessing financial services. On top of this, it’s vital that mechanisms are stepped-up to provide technical assistance to the Afghanistan Central Bank to support its resumption of core functions that are critical to support the Afghan economy, private sector actors, and ultimately the Afghan people who have already endured so much,” added Turner.

According to the report, Afghanistan’s real GDP contracted by 20 percent between 2021 to 2022, equating to a loss of $5 billion, which had taken almost ten years to generate. As a consequence, per capita income declined by 14–28 percent, and an estimated 700,000 jobs were lost during the same period.

Banking sector de-risking and overcompliance to sanctions continue to create challenges for private businesses and international banks. In the linked report, one European Bank reportedly needed 40-50 staff members to facilitate one financial transaction to Afghanistan. Despite the broad exemptions to sanctions, humanitarian actors continue to face challenges accessing domestic and international banking services for Afghanistan and remain mostly reliant on UN cash shipments.

A recent report by ACAPs demonstrates that Afghani has maintained its stability through foreign currency inflows that are part of humanitarian aid. These inflows have been vital to helping stabilize the price volatility of essential food and non-food items, but if jeopardized it will have a serious impact on the stability of the economy and banking sector.

The report highlights the urgent need for the international community to work together to stabilize and support Afghanistan’s economy for the benefit of all the Afghan people. It calls on major governments, financial institutions, UN agencies, and relevant regional actors to convene and agree on concrete steps to address the barriers faced by critical private sector actors in Afghanistan, including challenges in accessing financial services, and provide technical assistance to the Afghanistan Central Bank to support its resumption of core functions.

Link to full report