UNDP warns Taliban-controlled Afghanistan's banking system is 'on brink of collapse'

A recent report from the United Nations has revealed that the banking and financial systems of Afghanistan are on the edge of collapse following the Taliban's capture of the nation's capital on August 15. As per the situation report released by the United Nations Development Programme (UNDP) on Monday, “Afghanistan’s financial and bank payment systems are in disarray.”

The UNDP further added that bank-related issues must be solved soon to increase Afghanistan's low production capacity and avoid the banking system from crumbling. 

Shortly after the Taliban took over the government, agencies like the World Bank and the International Monetary Fund (IMF) had suspended payment of allocations to Afghanistan. In the meantime, the United States had also blocked nearly $9 billion in Afghan Central Bank accounts, along with freezing Afghanistan's international reserves.  

Following this, numerous humanitarian organisations as well as other countries halted funding to Afghanistan, resulting in a significant shortage of food, emergency aid, and other essential commodities, according to the UN Office for the Coordination of Humanitarian Affairs (OCHA). 

Afghanistan banking system crisis

According to the Sputnik website, Afghanistan's national bank is now unable to satisfy deposit requests, causing the Taliban to set weekly withdrawal limitations of USD 200. The price had just been upped to USD 400. Further, the report stated that the overall deposits to the banking system declined from 268 billion of Afghan currency that is nearly $2.9 billion, at the end of last year to 194 billion Afghan currency (US$2 billion) in September of 2021. Additionally, by the end of this year, deposits are estimated to drop to 165 billion Afghani (US$1.8 billion) which is evaluated to be a 40% drop. 

The UNDP report also noted that according to IMF forecasts, the Afghan economy will decline by up to 30% between the time period of 2021-2022. However, non-performing credits in the financial system's small lending market have risen from roughly 30% at the end of 2020 to 57% in September of this year. Furthermore, the nation's credit market is deteriorating, with USD 33 billion reported by the end of last year, total credits plummeted to USD 307 million in September 2021. 

Meanwhile, when the breakdown of the financial system is worsening rapidly, declining economic activity, UNDP Resident Representative in Afghanistan Abdallah Al Dardari points out that banks are one of the nation's most essential links to the outside world. He stated, “Without the banking sector, there’s no humanitarian solution for Afghanistan. Do we really want to see Afghans completely isolated?” as per the UNDP report. 

In addition to this, the report suggests a variety of coordinated initiatives to revive the banking system, which include deposit protection for depositors, appropriate system liquidity to fulfill both short- and medium-term demands, and credit guarantees and debt repayment delay alternatives for the real economy. 

(Image: AP)