By Michelle Nichols

UNITED NATIONS – Monday was a day of urgent action by the United Nations to rescue Afghanistan’s banks. The United Nations warned that a surge in people unable repay loans, lower deposits and a cash crunch could result in the financial system crashing within months.

Three-page U.N. Development Programme report (UNDP), on Afghanistan’s banks and financial system, was published by Reuters. It stated that the “colossal” economic consequences of a bank system failure – as well as the negative social impacts resulting from it – were likely to be devastating.

After the Taliban overtook the Western-backed Afghan government on Aug. 15, the abrupt withdrawal of almost all foreign development aid has caused the economy to plunge into chaos. The banking system was forced to limit withdrawals each week in order stop deposits from running amok.

“Afghanistan’s bank and financial payment systems are in chaos.” According to UNDP, the bank-run crisis must be addressed quickly to reduce Afghanistan’s low production capability and avoid the collapse of the banking system.

The international and unilateral sanctions placed on Taliban leaders are making it more difficult to avoid a complete collapse.

Abdallah al Dardari (head of UNDP Afghanistan) stated that he needed to figure out a way to ensure support for the banking sector does not go to Taliban.

“We are so in dire situations that we need think of all possibilities and think outside the box,” said he. What was three months ago impossible is possible now.

Afghanistan’s bank system was already at risk before the Taliban came to power. However, development assistance has stopped and billions in assets from Afghanistan have been frozen overseas. The United Nations and other aid organizations are struggling to bring enough money into the country.

‘UNDER MATTRESS’

UNDP has proposed to save banking systems a deposit-insurance scheme and measures to provide adequate liquidity for both short-term and medium-term requirements.

UNDP reported that “coordination with the International Financial Institutions with their extensive knowledge of Afghanistan’s finances would be essential to this process.” This refers to both the World Bank (World Bank) and the International Monetary Fund.

The United Nations warned repeatedly since Taliban’s overthrow that Afghanistan is at the edge of economic collapse. It would also likely fuel the refugee crisis. UNDP warned that the rebuilding of Afghanistan’s banking system could be decades-long if it collapses.

UNDP’s report stated that 40% of Afghanistan’s deposit base would be gone by 2015 due to current withdrawal restrictions and trends. The UNDP reported that banks had stopped lending new credit to Afghanistan and that the number of non-performing loans has almost doubled, from 57% at 2020’s end.

Banks may be unable to survive the next six months if this non-performing loan rate is maintained, al Dardari said. And I am being optimistic,” al Dardari said.

Also, liquidity has been an issue. Afghan banks relied heavily on U.S. dollars being physically shipped to them. Al Dardari stated that although there are approximately $4 billion in afghanis, just $500,000 is available in local currency.

He said, “The rest of us are under the pillows or the mattresses because we fear.”

The United Nations is trying to prevent the famine in Afghanistan. Al Dardari warned of the potential consequences of the collapse and loss of trade finance.

According to Afghanistan’s last annual imports, $7 billion in goods and services was spent on products and services. The bulk of these were food items. He said that if there’s no trade finance, the disruption is massive.” Without the banking system none of these things can occur.”