Islam Times - Afghanistan Banking System on Brink of Collapse: UN Report

Islam Times - A news report by the United Nations Development Program (UNDP) has said that the banking and financial system in Afghanistan is on the verge of collapse.

"The bank-run problem must be resolved quickly to improve Afghanistan's limited production capacity and prevent the banking system from collapsing," the UNDP report said.

In a three-page report on Afghanistan’s banking and financial system seen by Reuters, the UN 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 Taliban seized power on Aug. 15 from Afghanistan’s 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.

“Afghanistan’s financial and bank payment systems are in disarray,” the UNDP report said.

Finding a way to avert a collapse is complicated by international and unilateral sanctions on Taliban leaders.

“We need to find a way to make sure that if we support the banking sector, we are not supporting Taliban,” 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.”

Afghanistan’s banking system was already vulnerable before the Taliban 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.

Some 9 billion USD in central bank reserves held outside the country have also been frozen by the United States, despite growing calls for them to be released to help ease the financial squeeze that is strangling the economy.