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The Taliban’s Black Gold: Militants Seize on Coal to Reboot Economy

Taylor Johnston



Dozens of men and boys, covered head to toe in coal dust, stream in and out of the mine shafts bored deep into a mountain in northern Afghanistan.

In the mines below Nahrain in Baghlan province, children as young as eight work as labourers, loading the fossil fuel on to donkeys which carry it to trucks bound for Kabul. They work with no machinery or safety gear.

Thanks to the global surge in commodity prices amid the Ukraine war and Covid-related disruption, business is booming at Afghanistan’s coal mines. This gives the Taliban a crucial revenue stream as the militant group — after seizing control a year ago — seeks to revive an economy shattered by international isolation and sanctions.

“It was good luck for the Taliban that the price of coal immediately went up after they came,” said Malang, a 60-year-old man helping carry coal to waiting trucks.

Since the departure of Nato forces and the Taliban’s ousting of the western-backed government, Afghanistan has suffered a dramatic economic collapse. The economy contracted at least 20 per cent last year as the international aid that made up three-quarters of the previous government’s budget was halted and $9bn in foreign reserves was frozen.

Najibullah, 35, has worked for 20 years in the mines, his 12-year-old son Noorullah for 4. Najibullah’s father and grandfather also worked there © Oriane Zerah/FT

To reboot the economy, the Taliban have aggressively increased coal exports, brushing aside environmental and ethical concerns in a bid to boost, control and tax trade in the commodity as well as other resources from minerals to fruit.

Much of the coal makes its way along precarious mountain roads to Kabul and on to Pakistan, from where some is sent to China. David Mansfield, author of a report on cross-border trade under the Taliban, estimates that coal exports to Pakistan have doubled to around 4mn tonnes a year since the group took power.

The previous government had begun work on a green transition, but the Taliban have embraced fossil fuels, according to Abdallah al-Dardari, the UN Development Programme’s Afghanistan chief. After the Taliban took over, the plans to green the economy “fell apart . . . People went ahead and started exploiting the coal mines [and] coal started booming”, he said.

The Taliban have so far proven surprisingly effective at controlling the trade, cracking down on rampant bribery and smuggling, said Mansfield: “We’ve seen a massive shift . . . The Taliban have been quite adept in terms of regulating and controlling [the] border points.” As well as boosting revenues, this has allowed them to consolidate power by preventing regional warlords and factions from having independent revenue sources, he added.

Although imports have fallen sharply, the UN expects Afghanistan’s total exports to increase this year to about $1.8bn from $1.2bn in 2019.

Afghanistan’s rich mineral wealth has long tantalised governments and investors. Some estimates put the total value of its vast reserves of everything from lithium to gemstones at as much as $1tn. But decades of instability have limited exploration and mining.

In 2007, the Chinese state-owned China Metallurgical Group Corporation secured the rights to Mes Aynak, one of the world’s largest known copper reserves. However mining at the site south-east of Kabul is yet to begin.

Chinarak mine in Baghlan province, north of Kabul © Oriane Zerah/FT

Workers carry coal by hand to a truck which will travel to Kabul © Oriane Zerah/FT

The Taliban funded their own insurgency partly by regulating and taxing trade in everything from precious stones, such as lapis lazuli, to the widespread opium poppy crop.

Nooruddin Azizi, Afghanistan’s commerce minister, said in an interview that Kabul was in talks with investors from China, Russia and elsewhere to strike mining and fossil fuel deals.

“The attention that the Islamic Emirate has given to trade is better than any of the previous regimes,” he said, using the Taliban’s name for Afghanistan. “We want to make economic trade separate from military matters. We don’t have any problems trading [with anyone].”

However, no large international deals had yet been finalised, he said, with mining activity still domestic and relatively small-scale. The mining ministry says 17 of 80 coal mines are operational, mostly in the north.

Mining is often brutal. In Nahrain, the miners — around half of whom appear to be teenagers or younger — work in precarious conditions for meagre pay.

Many have followed generations of their family into the mines, such as 35-year-old Najibullah, who started alongside his father and grandfather as a teenager. He has been joined by his 12-year-old son Noorullah.

Child labour long predates the Taliban but the number of children working the mines has reportedly increased as the economic crisis forces them out of school, analysts say.

“In Afghanistan, without this work there would be nothing,” said Atiqullah, a 14-year-old who said he started working in the mine when he was eight. “We have to come here, but who is happy working hundreds of metres down a tunnel?”

Child labour has reportedly increased since the Taliban takeover as economic pressures force them from spending time at school © Oriane Zerah/FT

Mohammad, a 55-year-old farmer who started mining in Nahrain after flooding damaged his land, said higher prices meant miners’ earnings had effectively doubled since the Taliban took over.

“The labourers don’t care about politics,” he said. “They only care about having work and earning money.”

Esmatullah Burhan, the mining ministry’s spokesman, said more foreign investment and technology would improve working conditions and help curtail child labour.

The Islamists have pledged to stop exploiting one of Afghanistan’s most notorious resources and largest exports — opium poppies. The regime announced a ban in April, but experts say it is too early to tell if this will be enforceable. Cultivation more than doubled after the US invaded in 2001 after the 9/11 terror attacks, according to UN figures, despite the billions of dollars spent on eradication efforts.

With international banks largely unwilling to intervene because of sanctions, the coal trade is mostly financed through informal money traders, who charge high fees. But it remains economically attractive, particularly as alternatives disappear.

Mohammad Azim started trading coal after losing his job following the Taliban’s takeover, buying it at the mines in Nahrain and selling it on to Kabul. Export demand was extremely high, he said, adding: “If it keeps on going like this, I’m not sure Afghans will have coal left to buy in the winter.”

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Bank of England Raises Interest Rates by 0.5 Percentage Points to 4%

Taylor Johnston




The Bank of England has increased interest rates by half a percentage point to a 15-year high of 4 per cent, but suggested that rates may have peaked.

The BoE, which is now anticipating a milder recession this year than previously thought, said further rises would only be needed if there were new signs that inflation was going to stay too high for too long.

Samuel Tombs, chief UK economist at Pantheon macroeconomics, said the BoE’s current expectations of declining inflation signal that it “doesn’t intend to hike rates any further.”

The bank dropped its previous guidance that it would need to act “forcefully”, although governor Andrew Bailey cautioned that the BoE still needed to be sure that inflation had been beaten.

The Monetary Policy Committee voted seven to two in favour of the 10th consecutive rate increase, which came a day after a quarter-point rise by the US Federal Reserve and just before the European Central Bank carried out its own 0.5 point increase.

While the ECB said it would “stay the course” on rate rises, the wording of the BoE’s statement suggests interest rates might peak at the new rate of 4 per cent, below the 4.5 per cent expected by financial markets.

“If there were to be evidence of more persistent [inflationary] pressures, then further tightening in monetary policy would be required,” the MPC said.

Sterling weakened on Thursday, trading 0.45 per cent lower against the euro at €1.12 and 0.36 per cent down against the dollar at $1.23.

The yield on the 10-year gilt slipped 0.13 percentage points to 3.17 per cent as the price of the debt rose. London’s FTSE 100 was up 0.5 per cent just after noon.

There was no attempt by the BoE to suggest financial markets are misguided in expecting interest rate cuts later this year. But MPC members warned “that the risks to inflation are skewed significantly to the upside”.

The BoE’s new central inflation forecast shows it thinks price rises will ease quickly from December’s 10.5 per cent annual rate to a level under 4 per cent by the end of the year. Inflation is forecast to drop well below the BoE’s 2 per cent target in 2024.

Explaining why the BoE raised rates despite such predictions, Bailey said “we need to be absolutely sure we really are turning the corner on inflation”.

The two dissenting voices on the MPC — Swati Dhingra and Silvana Tenreyro, who voted to leave interest rates at 3.5 per cent — argued that Thursday’s rise to 4 per cent “would bring forward the point at which recent rate increases would need to be reversed”. 

The BoE’s new forecasts were less pessimistic than previous predictions in November. It now thinks wholesale gas prices will be lower and assumes companies will be reluctant to lay off employees during a difficult time for the economy.

The central bank is now predicting a mild recession, but it made clear it thought UK economic performance would be weak for some time.

It expects gross domestic product to contract 0.7 per cent for the fourth quarter of the year compared with the last quarter in 2022. That is marginally more pessimistic than the IMF, which this week forecast that the UK economy would shrink 0.5 per cent in the same period.

After looking at the likely supply of workers, low business investment and trade weakness, BoE officials think the UK economy cannot expand even at a 1 per cent annual rate without generating inflationary pressures.

Before the financial crisis of 2007-8, the equivalent sustainable average annual growth rate was 2.5 per cent, while before the coronavirus pandemic it was around 1.5 per cent. The BoE attributed the long-term underlying weakness of the economy to Brexit, the pandemic and the energy crisis.

The BoE’s downgrade implies it expects the output to be no higher at the start of 2026 than it was just before the pandemic at the end of 2019.

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Stocks and Bonds Soar As Investors Bet That Rates Are Close to Peak

Taylor Johnston




European government bond markets surged the most in years while stocks also rallied, as investors bet that interest rates on both sides of the Atlantic would soon peak.

The European Central Bank and the Bank of England both raised rates by half a percentage point on Thursday, with the BoE expressing optimism inflation would fall below its 2 per cent target in coming years. The ECB benchmark deposit rate is now 2.5 per cent, while the BoE’s rate has risen to 4 per cent.

The dual European rate rises came a day after Federal Reserve chief Jay Powell signalled that the US was winning its own battle against previously soaring inflation, and the Fed shifted to the slower pace of a 0.25 percentage point increase.

The yield on 10-year German bonds dropped 0.23 percentage points to 2.07 per cent, as investors piled into the market in the biggest rally on the region’s benchmark debt for more than a decade.

Yields on riskier Italian 10-year bonds fell 0.4 percentage points to 3.90 per cent, while US Treasuries also extended a rally on the back of Powell’s remarks.

“Markets are taking a victory lap on what looks like co-ordinated ‘light at the end of the tunnel’ signalling from central banks,” said Charlie McElligott, analyst at Nomura. “[Central banks] have thrown gasoline on the fire.”

The market moves came despite a pledge by Christine Lagarde of another half percentage point increase in March and a warning by the ECB president that eurozone inflation remained “far too high”.

“We know we have ground to cover, we know we are not done,” Lagarde said. She added that rate-setters already had enough evidence to be confident that a further significant rate rise would be needed since underlying price pressures had not yet started to come down.

The eurozone’s central bank has so far increased borrowing costs by 3 percentage points — a smaller increase than the UK and US central banks.

The ECB said it would “evaluate the subsequent path of its monetary policy” after March — language that some market participants took to suggest that interest rates could be nearing a peak.

But Lagarde made it clear that, while the pace of rate increases could slow from May onwards, it was unlikely that the ECB would be ready to pause by then.

“The question is how much to hike further beyond March, not whether to hike further,” said James Rossiter, head of global macro strategy at TD Securities.

Since December, the eurozone economy has proved more resilient than expected, aided by warmer weather and government support to help households and businesses cope with soaring energy bills.

While stronger growth has been welcomed by policymakers, it will make it harder for them to tame underlying price pressures and return inflation to their 2 per cent goal.

Data published this week showed the eurozone headline rate of inflation fell more than expected, from 9.2 per cent in the year to December to 8.5 per cent last month. But eurozone core inflation — which excludes changes in food and energy prices, and is seen as a better indicator of longer-term price pressures — was unchanged at an all-time high of 5.2 per cent.

In contrast with the ECB’s pledge to increase rates in March, the BoE suggested UK interest rates might peak at the country’s new rate of 4 per cent, below the 4.5 per cent previously expected by financial markets.

There was no attempt by the BoE to suggest financial markets are misguided in expecting interest rate cuts later this year. But MPC members warned “that the risks to inflation are skewed significantly to the upside”.

The BoE’s new central inflation forecast shows it thinks price rises will ease quickly from December’s 10.5 per cent annual rate to a level under 4 per cent by the end of the year. Inflation is forecast to drop well below the BoE’s 2 per cent target in 2024.

As investors moved into UK bonds, the yield on the 10-year gilt slipped 0.35 percentage points to 2.99 per cent. London’s FTSE 100 was up 0.8 per cent.

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The Fed Finds Itself in a Nasty Hole

Taylor Johnston




There is never a good moment for the US government to hit its ceiling for debt issuance — and spark speculation about a potential looming default if Congress refuses to raise it.

Now, however, is particularly inopportune timing for this fight. That is partly because big foreign buyers have quietly trimmed their Treasury purchases in the last year, and this might accelerate if chatter about a possible default grows louder.

It is also because liquidity has repeatedly vanished from the Treasuries sector at times of stress in recent years, because of underlying vulnerabilities in the market structure. This could easily reoccur in a debt-ceiling shock, since these structural problems remain (lamentably) unaddressed.

But the biggest reason to worry about the timing is that the financial system is at a crucial stage in the monetary cycle. After 15 years of accommodative monetary policy, during which the US Federal Reserve expanded its balance sheet from $1tn to $9tn, the central bank is now trying to suck liquidity out of the system, to the tune of about $1tn a year.

This process is necessary, and long overdue. But it was always going to be difficult and dangerous. And if Congress spends the coming months convulsed by threats of default — since the Treasury’s ability to fund itself apparently runs out in June — the risks of a market shock will soar.

A recent report from the American lobby group Better Markets outlines the wider backdrop well. This entity first shot to fame during the 2008 global financial crisis when it became a thorn in the side of Wall Street and Washington regulators because it complained loudly — and correctly — about the follies of excessive financial deregulation. Since then, it has continued to scrutinise the more recondite details of US regulation, complaining, again rightly, that the rules have recently been watered down.

However, in a striking sign of the times, it now has another target in its sights: the Fed. Most notably, it thinks that the biggest danger to financial stability is not just the finer details of regulation, but post-crisis loose monetary policy. This left investors “strongly incentivised, if not forced, into [purchases of] riskier assets”, it “decoupled asset prices from risk and ignited a historic borrowing and debt binge”, the Better Markets report argues. Thus, between 2008 and 2019 the amount of US debt held by the public rose 500 per cent, non-financial corporate debt increased 90 per cent and consumer credit, excluding mortgages, jumped 30 per cent.

Then, when the Fed doubled its balance sheet in 2020 in the midst of the pandemic, these categories of debt rose by another 30, 15 and 10 per cent respectively. And the consequence of this exploding leverage is that the system is today highly vulnerable to shocks as interest rates rise and liquidity declines — even before you factor in a debt-ceiling row.

“The Fed is in many ways fighting problems of its own creation. And considering the scale of the problems, it is very difficult to solve without some damage,” the report thunders. “Although the Fed monitors and seeks to address risks to financial stability and the banking system, it simply failed to see — or didn’t look or consider — itself as a potential source of those risks.”

Fed officials themselves would dispute this, since they believe that their loose monetary policies prevented an economic depression. They might also note that rising debt is not just an American problem. One of the most stunning and oft-ignored features of the post-crisis world is that global debt as a proportion of gross domestic product jumped from 195 to 257 per cent, between 2007 and 2020 (and from about 170 per cent in 2000.)

Moreover, Fed officials would also point out, correctly, that the central bank is not a direct cause of the debt-ceiling fight. The blame here lies with political dysfunction in Congress and an insane set of Treasury borrowing rules.

But even granting those caveats, I agree with the core message from Better Markets, namely that the central bank could and should have been far more proactive in acknowledging (and tackling) the risks of its post-crisis policies, not least because this now leaves the Fed — and investors — in a nasty hole.

In an ideal world, the least bad exit from the debacle would be for Congress to abolish the debt-ceiling rules and create a bipartisan plan to get borrowing under control; and for the Fed publicly to acknowledge that it was a mistake to keep money so cheap for so long, and thus normalise ever-rising levels of leverage.

Maybe that will occur. Last week senator Joe Manchin floated some ideas about social security reform, suggesting that there might be a path to a bipartisan deal to avoid default. But if this does not emerge, the coming months will deliver rising market stress, and/or a scenario in which the Fed is forced to step in and buy Treasuries itself — yet again.

Investors and politicians would undoubtedly prefer the latter option. Indeed, many probably assume it will occur. But that would again raise the threat of moral hazard and create even more trouble for the long term. Either way, there are no easy solutions. America’s monetary chickens are coming home to roost. 

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