Afghanistan: UNDP Report Says Cost of Banking System Collapse Will Be 'Colossal'

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Abdallah al Dardari, the head of the United Nations Development Programme (UNDP) in Afghanistan told Reuters on Monday, 22 November, that the world needed to find a way to support the country's banking sector without supporting the Taliban, because it must "improve Afghanistan's limited production capacity and prevent the banking system from collapsing."

The UN is pushing for action to support Afghanistan's banks after warning that the number of people unable to repay loans was increasing, and combined with a cash liquidity crunch, this would wreck the financial system of the warn torn country.

The UNDP's three-page report on Afghanistan's banking and financial system insisted that the economic cost of the collapse of the banking system "would be colossal."

"Afghanistan's financial and bank payment systems are in disarray. The bank-run problem must be resolved quickly to improve Afghanistan's limited production capacity and prevent the banking system from collapsing," according to the UNDP report.

Although the recently formed Taliban government has ordered the reopening of banks that had been shut for many weeks following the fall of Kabul, cash circulation in the economy is catastrophically low as the inflow of dollars has completely stopped, Deutsche Welle reported.

It was also stated by al Dardari that within Afghanistan's economy, only about $500,000 worth is circulating.

"The rest is sitting under the mattress or under the pillow because people are afraid," he added.

The International Monetary Fund expects a 30 percent reduction in the Afghan economy this year.

(With inputs from Reuters and Deutsche Welle.)