The United Nations on Monday called for immediate action to boost Afghanistan’s banks, warning that the financial system could collapse within months due to people unable to repay loans, low deposits and cash crunch.
In a three-page report on the banking and financial system of Afghanistan ReutersIn the United Nations Development Program (UNDP), the United Nations Development Program (UNDP) stated that the economic cost of a banking system collapse – and the resulting negative social impact – would be “enormous.”
the sudden withdrawal of most foreign development support after Taliban seized power Afghanistan’s western-backed government on August 15 sent the economy into freefall, putting a severe strain on the banking system, which has set weekly withdrawal limits to prevent a run on deposits.
“Afghanistan’s financial and bank payment systems are in disarray. The bank-driven problem must be resolved quickly to improve Afghanistan’s limited production capacity and prevent the banking system from collapsing.
Finding a way to prevent a collapse is complicated by international and unilateral sanctions on Taliban leaders
Read more: Taliban urges US Congress to clear Afghan assets, lift sanctions
“We need to find a way to make sure that if we support the banking sector, we are not supporting the Taliban,” said Abdullah al-Dardari, UNDP chief in Afghanistan. Reuters,
“We are in such a dire situation that we need to think of all possible options and we have to think out-of-the-box,” he said.
“What used to be unimaginable three months ago is now worth thinking about.”
Afghanistan’s banking system was weak even before the Taliban came to power. But development aid has dried up since then, in the billions of dollars. afghanistan assets confiscated abroad, and the United Nations and aid groups are now struggling to get enough cash into the country.
‘under the mattress’
UNDP’s proposals to insulate the banking system include a deposit insurance scheme, measures to ensure adequate liquidity for short- and medium-term needs, as well as credit guarantees and loan repayment delay options.
“Coordination with international financial institutions, with their extensive experience of the Afghan financial system, will be critical to this process,” the UNDP said in its report, citing the World Bank and the International Monetary Fund.
Since then the United Nations has repeatedly warned Taliban captured That Afghanistan’s economy is on the verge of collapse, which will likely exacerbate the refugee crisis.
Read also: US freezes around $9.5 billion in Afghan reserves to block Taliban access to funds
UNDP said that if the banking system fails, it could take decades to rebuild.
The UNDP report said that with current trends and withdrawal restrictions, about 40 percent of Afghanistan’s deposit base will be exhausted by the end of the year.
It said banks had stopped making new loans, and that non-performing loans had nearly doubled from the end of 2020 to 57 per cent in September.
“If this rate of non-performing loans continues, banks may not have a chance to survive in the next six months. And I am optimistic,” said Al Dardari.
Liquidity has also been a problem. afghan bank The US is heavily dependent on physical shipments of dollars, which have come to a halt. When it comes to the local Afghani currency, al-Dardari said that there are approximately $4 billion worth of Afghans in the economy, but only $500,000 worth of them in circulation.
“The rest are sitting under mattresses or under pillows because people are scared,” he said.
As the United Nations seeks to avert famine in Afghanistan, al-Dardari also warned of the consequences of a banking collapse for trade finance.
“Afghanistan imported nearly $7 billion worth of goods and products and services last year, mostly food items … If there is no trade finance the blockage is huge,” he said.
“Without the banking system, it can be nothing.”