The UN warns that the Afghan financial system could collapse in months

The UN has warned that Afghanistan’s financial system could collapse in months due to an increase in the number of people unable to repay loans, It reported CNN.

According to the three-page report, the United Nations Development Program (UNDP) said the economic costs of a potential banking system collapse after a negative social impact “would be colossal.”

UNDP’s proposed plans to rescue the banking system include a deposit insurance system that creates measures to ensure sufficient liquidity for short-term needs and credit guarantees for options for delaying loan repayments, according to CNN.

“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,” the UNDP report said.

The report also added that 40 percent of the country’s deposit base will be lost by the end of the year due to current trends and restrictions, adding that banks stopped new credit, defaulted loans had doubled to 57 percent from September 2020 to the end of the year , CNN reported.

This comes as Afghanistan’s economy has been in free fall since the Taliban took control of the country in August, creating a severe strain on their banking system and causing weekly withdrawal limits to stop a run on deposits.

The country’s banking system was considered vulnerable before the Taliban took power, CNN reported.

Afghanistan’s UNDP chief Abdallah al Dardari said in an interview that the country needs to find a way to create a banking sector that does not need the Taliban’s influence.

“We need to find a way to ensure that if we support the banking sector, then we do not support the Taliban,” al Dardari told Reuters.

“We are in such a serious situation that we have to think of all sorts of possibilities and we have to think out of the box,” he said. “What used to be unthinkable three months ago must become imaginable now.”

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