The United Nations on Monday pushed for urgent action to prop up Afghanistans 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.
In a three-page report on Afghanistans 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 - "would be colossal."
An abrupt withdrawal of most foreign development support after the Islamic Emirate of Afghanistan (IEA) seized power on August 15 from Afghanistans 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.
"Afghanistans financial and bank payment systems are in disarray. The bank-run problem must be resolved quickly to improve Afghanistans 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 on IEA leaders, Reuters reported.
"We need to find a way to make sure that if we support the banking sector, we are not supporting Taliban (IEA)," Abdallah al Dardari, head of UNDP in Afghanistan, told Reuters.
"We are in such a dire situation that we need to think of all possible options and we have to think outside the box," he said. "What used to be three months ago unthinkable has to become thinkable now."
Afghanistans banking system was already vulnerable before the IEA 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.
The UNDPs 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.
"Coordination with the International Financial Institutions, with their extensive experience of the Afghan financial system, would be critical to this process," UNDP said in its report, referring to the World Bank and International Monetary Fund.
The United Nations has repeatedly warned since the IEA took over that Afghanistans 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.
LINK: https://www.ansarpress.com/english/24056
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