Afghanistan’s banking system is in a deep crisis and risks collapse, according to a report released by the United Nations Development Programme on Monday.
Aid groups must navigate sanctions and Taliban to help Afghanistan
In the wake of the Taliban taking control of Afghanistan, aid and development workers are left with a lot of uncertainties.
“The economic cost of a banking system collapse, with its concomitant negative social consequences, would be colossal,” the report warned. UNDP stressed that a functional banking system is vital for the continuation of many humanitarian programs.
“Without the banking sector, there’s no humanitarian solution for Afghanistan,” said Abdallah al-Dardari, UNDP resident representative in Afghanistan, in a statement.
Cut off: Since the Taliban takeover of Afghanistan in August, the country has largely been cut off from much of the global financial system, and assets abroad were frozen. International sanctions have contributed to a severe cash crisis. UNDP said the conditions created “a perfect bank-run scenario.”
Bank deposits fell from $2.9 billion last year to $2 billion in September, and a further deterioration is expected, UNDP said. This is compounded by credit markets freezing, as nonperforming loans spiked from about 30% in 2020 to 57% in September.
Humanitarian impact: The humanitarian sector’s $606 million “flash appeal” for Afghanistan is now fully funded, the U.N. Office for the Coordination of Humanitarian Affairs said separately, but the financial crisis is getting in the way.
“While humanitarians remain grateful for the generous contribution by the donor community, all commitments have not been translated to actions on the ground as partners continue to face financial system challenges amid the cash and liquidity crisis,” OCHA said.
The U.N. called for “blanket humanitarian exemptions” from sanctions for humanitarians and their interlocutors. This includes finding ways to facilitate payments.
Record hunger: Food insecurity is getting worse, with the U.N. saying a “record” 22.8 million people — more than half of Afghanistan’s population — will require assistance through March 2022. This marks an increase of about 35% from the same period last year, according to OCHA.
About the author
Shabtai Gold
Shabtai Gold is a Senior Reporter based in Washington. He covers multilateral development banks, with a focus on the World Bank, along with trends in development finance. Prior to Devex, he worked for the German Press Agency, dpa, for more than a decade, with stints in Africa, Europe, and the Middle East, before relocating to Washington to cover politics and business.