The UN has called for too swift action to support Afghanistan’s banks and warned that an increase in the number of people unable to repay loans, lower deposits and a cash liquidity crunch could cause the financial system to collapse within months.
In a three-page report on Afghanistan’s banking and finance system, which Reuters saw on Monday, the United Nations Development Program (UNDP) said the economic cost of a banking system collapse – and the consequent negative social consequences – “would be colossal.”
A sharp withdrawal of most of the foreign development aid after the Taliban seized power on August 15 from Afghanistan’s Western-backed government has sent the economy into free fall, putting a heavy strain on the banking system, which sets weekly withdrawal limits to stop a race. 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,” the UNDP report said.
Finding a way to avert a collapse is complicated by international and unilateral sanctions against Taliban leaders.
“We need to find a way to ensure that if we support the banking sector, then we do not support the Taliban,” Abdallah al Dardari, head of UNDP in Afghanistan, 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.”
Afghanistan’s 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 UN and aid groups are now struggling to get enough money into the country.
UNDP’s proposals to rescue 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 options to delay loan repayments.
“Coordination with the international financial institutions, with their extensive experience with the Afghan financial system, would be crucial to this process,” the UNDP said in its report, citing the World Bank and the International Monetary Fund.
The United Nations has repeatedly warned since the Taliban took over that Afghanistan’s economy is on the brink of a collapse that is likely to boost a refugee crisis.
UNDP said that if the banking system fails, it could take decades to rebuild.