UN warns Afghan financial system could collapse in months.
The United Nations has warned that Afghanistan’s financial system could collapse in months due to a surge in people unable to repay loans.
According to the three-page report, the UN Development Program (UNDP) said the economic cost of a possible collapse of the banking system, as well as the negative social impact, “would be colossal.”
UNDP’s proposed plans to save the banking system include a deposit insurance system, measures to ensure adequate liquidity for short- and medium-term needs, and credit guarantees for late-payment options, according to CNN.
“Afghanistan’s banking and financial payment systems are in disarray. The bank management problem must be resolved quickly to improve Afghanistan’s limited production capacity and avoid the collapse of the banking system,” the UNDP report said.
The report noted that 40 percent of the country’s deposit base will be lost by the end of the year if current trends and restrictions continue. He also added that with banks stopping new loans, delinquent loans had doubled to 57 percent from September 2020 through the end of the year, CNN reported.
This comes after Afghanistan’s economy has been in free fall since the Taliban took control of the country in August, creating severe strain on its banking system and causing weekly withdrawal limits to halt a run on deposits.
The country’s banking system was considered vulnerable before the Taliban took office, CNN reported.
Afghanistan’s UNDP chief Abdallah al Dardari said in an interview that the country needs to find a way to create a banking sector that does not need the influence of the Taliban.
“We need to find a way to make sure that if we support the banking sector, we will not support the Taliban,” al Dardari said.
“We are in such a desperate situation that we have to think of all possible options and we have to think outside the box,” he said. “What used to be unthinkable three months ago has to become thinkable now.”