The UN’s top development-monitoring agency on Monday painted a bleak picture of the banking system in Afghanistan, saying it is in "disarray."
A new situation report by the United Nations Development Program (UNDP) described the system "at a near-standstill" with humanitarian interventions thwarted by liquidity crisis, and deepened by a lack of confidence on the part of depositors and international markets.
Total banking system deposits fell from 268 billion AFN ($2.9 billion) at the end of 2020 to 194 billion ($2 billion) in September, according to the report. The figure is expected to fall to 165 billion AFN ($1.8 billion) by the end of 2021 – a loss of approximately 40%.
It called for a “prompt and decisive action," arguing that delays in decision-making could "increase the cost of a banking system collapse – a grim predicament."
Projections by the International Monetary Fund cited in the report predicted a contraction of up to 30% in the Afghan economy for 2021-2022.
Since Taliban seized power in August, development aid has dried up, and billions of dollars in Afghan assets have been frozen abroad.
In an open letter last week, the interim administration’s acting Foreign Minister Amir Khan Muttaqi warned of a mass refugee exodus from Afghanistan unless the US unblocks more than $9 billion in Afghan central bank assets and ends other financial sanctions.
Abdallah Al Dardari, UNDP's resident representative in Afghanistan, said that while the collapse of the financial system is exacerbating fast diminishing economic activity, banking is also one of the most important connectors of the country to the outside world.
“Without the banking sector, there’s no humanitarian solution for Afghanistan,” he said. “Do we really want to see Afghans completely isolated?”
The UNDP has recommended coordinated actions, including deposit insurance for depositors; adequate liquidity ensured for the system to meet both short- and medium-term needs; and credit guarantees and loan repayment delay options for the real economy.
China for lifting of sanctions
Meanwhile, China called for the lifting of sanctions on Afghanistan and demanded its foreign reserves be unfrozen.
"Unilateral sanctions on Afghanistan be lifted, and its overseas assets be unfrozen. These sanctions are punishing all Afghan people and are worsening the humanitarian crisis in the country," Zhao Lijian, a Foreign Ministry spokesman, told a news conference in Beijing.