Finding a way to avert a collapse is complicated by international and unilateral sanctions on Taliban leaders
\n UNITED NATIONS
\nThe United Nations on Monday pushed for urgent action to prop up Afghanistan\u2019s banks, warning that a spike in people unable to repay loans, lower deposits and a cash liquidity crunch could cause the financial system to collapse within months.
\nIn a three-page report on Afghanistan\u2019s banking and financial system seen by Reuters, the U.N. Development Programme (UNDP) said the economic cost of a banking system collapse – and consequent negative social impact – \u201cwould be colossal.\u201d
\nAn abrupt withdrawal of most foreign development support after the Taliban seized power on Aug. 15 from Afghanistan\u2019s Western-backed government has sent the economy into freefall, putting a severe strain on the banking system which set weekly withdrawal limits to stop a run on deposits.
\n\u201cAfghanistan\u2019s financial and bank payment systems are in disarray. The bank-run problem must be resolved quickly to improve Afghanistan\u2019s limited production capacity and prevent the banking system from collapsing,\u201d the UNDP report said.
\nFinding a way to avert a collapse is complicated by international and unilateral sanctions on Taliban leaders.
\n\u201cWe need to find a way to make sure that if we support the banking sector, we are not supporting Taliban,\u201d Abdallah al Dardari, head of UNDP in Afghanistan, told Reuters.
\n\u201cWe are in such a dire situation that we need to think of all possible options and we have to think outside the box,\u201d he said. \u201cWhat used to be three months ago unthinkable has to become thinkable now.\u201d
\nAfghanistan\u2019s 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 get enough cash into the country.
\n\u2018Under the mattress\u2019
\nThe UNDP\u2019s proposals to save 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.
\n\u201cCoordination with the International Financial Institutions, with their extensive experience of the Afghan financial system, would be critical to this process,\u201d UNDP said in its report, referring to the World Bank and International Monetary Fund.
\nThe United Nations has repeatedly warned since the Taliban took over that Afghanistan\u2019s economy is on the brink of a collapse that would likely further fuel a refugee crisis. UNDP said that if the banking system fails, it could take decades to rebuild.
\nThe UNDP report said that with current trends and withdrawal restrictions, about 40% of Afghanistan\u2019s deposit base will be lost by the end of the year. It said banks have stopped extending new credit, and that non-performing loans had almost doubled to 57% in September from the end of 2020.
\n\u201cIf this rate continues of non-performing loans, the banks may not have a chance to survive in the next six months. And I am being optimistic,\u201d al Dardari said.
\nLiquidity has also been a problem. Afghan banks heavily relied on physical shipments of U.S. dollars, which have stopped. When it comes to the local afghani currency, al Dardari said that while there is about $4 billion worth of afghanis in the economy, only about $500,000 worth is in circulation.
\n\u201cThe rest is sitting under the mattress or under the pillow because people are afraid,\u201d he said.
\nAs the United Nations seeks to avert famine in Afghanistan, al Dardari also warned about the consequences of a banking collapse for trade finance.
\n\u201cAfghanistan last year imported about $7 billion worth of goods and products and services, mostly foodstuff … If there is no trade finance the interruption is huge,\u201d he said. \u201cWithout the banking system, none of this can happen.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
Finding a way to avert a collapse is complicated by international and unilateral sanctions on Taliban leaders UNITED NATIONS The United Nations on Monday pushed for urgent action to prop up Afghanistan\u2019s banks, warning that a spike in people unable to repay loans, lower deposits and a cash liquidity crunch could cause the financial system […]<\/p>\n","protected":false},"author":2,"featured_media":228949,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[717,718,719,85],"class_list":{"0":"post-228939","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-world","8":"tag-afghan","9":"tag-banking-system","10":"tag-collapse","11":"tag-united-nations"},"yoast_head":"\n