UN Warns of the collapse of Afghan Banking System
The United Nations urges immediate action to prop up Afghanistan’s bank, over and over again. On Monday, they warn that there will be a spike of Afghans unable to pay back loans, lower deposits, and a cash liquidity crisis that leads to financial chaos within months. Abdallah al Dardari, head of United Nations Development Programme (UNDP) in Afghanistan told Reuters that “We are in such a dire situation that we need to think of all possible options and we have to think outside the box” in addition, he also said that what used to be unthinkable three months ago has to become thinkable now.
In the reports UNDP has released about financial and banking systems in Afghanistan, The UN said that the negative impact and cost of the collapse of Afghanistan banks would be ‘colossal’. Within a complex situation, the UN said the way to save the chaos is limited by international sanctions and the leadership of the Taliban. Al Dardari told that the UN wants to make sure if they support Afghan banks, they are not supporting the Taliban.
On the other hand, liquidity also become a big problem. Afghan banks heavily relied on physical shipments of US dollars, which have stopped since the Taliban overthrown Ashraf Ghani’s government. Even there are estimated $4 billion worth of afghanis in the society, only about $500.000 in circulation, and “The rest is sitting under the mattress or under the pillow, because people are afraid” said Al Dardari.
Afghanistan’s financial state has been awful even before the Taliban came, but the sudden change of politics makes it go deeper. An abrupt withdrawal of international support happened as the Taliban take over the government on August 15. Afghan government relied massively on foreign support. In fact, 40% of their gross domestic product came from international aid according to World Bank.
Syed Moosa Kaleem Al-Falahi, the Chief Executive of the Islamic Bank of Afghanistan even suggests the Taliban find another financial source. Falahi told BBC that sooner or later Taliban would get international aid and “They are looking forward to China and Russia, and some countries as well.” Yet Afghan financial system is getting worse now.
From The UNDP’s proposal seen by Reuters, it suggests conserving the banking system with 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. If the banking system goes downhill, it will take decades to build back according to the UNDP. In the meantime, the UNDP’s report stated that Afghanistan’s 40 % deposit will be lost by the end of the year.