The United Nations on Monday pushed for urgent action to support Afghanistan’s banks, warning that a spike in the number of people unable to repay loans, lower deposits and declining liquidity. cash can cause the financial system to collapse within months.
In a three-page report on Afghanistan’s banking and financial system reported by Reuters, the United Nations Development Program (UNDP) outlines the economic costs of banking system collapse – and the consequences. negative social impact – “will be huge”.
The abrupt withdrawal of most foreign development assistance after the Taliban took power on August 15 from Afghanistan’s Western-backed government sent the economy into a freefall, severely straining the country. important for the banking system, where weekly withdrawal limits are set to stem the flow of deposits.
“Afghanistan’s banking and financial system is in disarray. The UNDP report said the problem of banking must be resolved quickly to improve Afghanistan’s limited productive capacity and prevent the banking system from collapsing.
Finding a way to prevent a fall is complicated by unilateral and international sanctions against Taliban leaders.
“We need to find a way to make sure that if we support the banking sector, we don’t support the Taliban,” Abdallah al Dardari, head of UNDP in Afghanistan, told Reuters.
“We are in such a dire situation that we need to think through all the possible options and we have to think things through,” he said. “What was once unthinkable three months ago has become conceivable.”
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Afghanistan’s banking system was already vulnerable before the Taliban came to power. But since then development aid has dried up, billions of dollars of Afghan assets have been frozen abroad, and the United Nations and aid groups are now struggling to get enough cash into the country.
UNDP’s proposals to save the banking system include a deposit insurance scheme, adequate liquidity guarantees for short- and medium-term needs, as well as credit guarantees and maintenance options. debt deferral.
“Coordination with the International Financial Institutions, given their extensive experience with the Afghan financial system, will be critical to this process,” UNDP said in its report, recommending to the World Bank and the International Monetary Fund.
The United Nations has repeatedly warned since the Taliban took power that Afghanistan’s economy is on the verge of collapse, likely to further spark a refugee crisis. If the banking system fails, it could take decades to rebuild, UNDP said.
The UNDP report said that with current trends and withdrawal restrictions, around 40% of Afghanistan’s deposit base will be lost by the end of the year. It said banks had stopped issuing new credit and bad loans had nearly doubled to 57% in September since the end of 2020.
“If this ratio continues to be bad, banks may not have a chance to survive in the next six months. And I’m being optimistic,” al Dardari said.
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Liquidity is also an issue. Afghan banks, heavily dependent on US dollar shipments, have now ceased operations. When it comes to local afghani coins, al Dardari says that although there is about $4 billion in afghani in the economy, only about $500,000 is worth in circulation.
“The rest sit under the mattress or under the pillow because people are scared,” he said.
As the United Nations seeks to prevent famine in Afghanistan, al Dardari also warns of the consequences of a bank collapse on trade finance.
“Last year, Afghanistan imported about $7 billion of goods, products and services, mainly food… Without trade financing, the disruption would be huge,” he said. “Without the banking system, this would not have happened.”
https://globalnews.ca/news/8392106/afghanistan-banking-collapse-un/ Afghanistan’s banking system on the verge of ‘giant’ collapse: UN – Country