The United Nations has called for urgent action to support Afghan banks, warning that an increase in the number of people unable to repay their loans, falling deposits and a shortage of liquidity could cause the financial system to collapse within months.
In a three-page report on the Afghan banking and financial system seen by Reuters on Monday, the United Nations Development Program (UNDP) said the economic cost of a banking system collapse – and the negative social impact that would result – “would be colossal”.
A sharp withdrawal of most foreign development aid after the Taliban seized power on August 15 from the West-backed Afghan government sent the economy into free fall, straining the banking system which set prices weekly withdrawal limits to stop a race for deposits.
“Afghanistan’s financial and banking payment systems are in disarray. The problem of bank management must be resolved quickly to improve Afghanistan’s limited production capacity and prevent the banking system from collapsing.” indicates the UNDP report.
Finding a way to avoid a collapse is complicated by international and unilateral sanctions against the Taliban leadership.
“We have to find a way to make sure that if we are supporting the banking sector, we are not supporting the Taliban,” Abdallah al Dardari, head of UNDP in Afghanistan, told Reuters.
“We are in such a dire situation that we have to think of all the possible options and we have to think outside the box,” he said. “What was unthinkable three months ago must become thinkable now.”
The Afghan banking system was already vulnerable before the Taliban came to power.
But since then development aid has dried up, billions of dollars in Afghan assets have been frozen abroad, and the United Nations and aid groups are now struggling to bring in enough. money in the country.
UNDP’s proposals to rescue the banking system include a deposit insurance system, measures to ensure adequate liquidity for short- and medium-term needs, as well as credit guarantees and options for late repayment of loans.
âCoordination with international financial institutions, with their vast experience of the Afghan financial system, would be essential to this process,â UNDP said in its report, referring to the World Bank and the International Monetary Fund.
The United Nations has repeatedly warned since the Taliban took power that the Afghan economy is on the brink of collapse that would likely fuel further a refugee crisis.
UNDP has said that if the banking system fails, reconstruction could take decades.
Australian Associated Press