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September 1, 2021

Afghan banks to resume operations under the Taliban

By Mohamed Dabo

Afghanistan’s banking system, which ground to a halt last month after the Taliban seized power, is set to resume services as the central bank begins operation under Taliban rule.

“We would like to inform all our customers to wait for Da Afghanistan Bank to start its operations and as soon as Da Afghanistan Bank starts its operations, the private banks will also start their services,” a local radio channel Spogmai reported, quoting a statement from local banks.

The country’s banking system is on the verge of collapse as aid and other foreign grants – which make up a bulk of Afghanistan’s public spending – have stopped amid the political upheaval in the country.

Withhold aid to Afghanistan to hold Taliban to account

The International Monetary Fund said earlier this month that it would restrict Afghanistan’s access to about $450m in special drawing rights or debt provided to the lender’s poorer nations after the US rallied to prevent the transfer of funds in an effort to cut financing to Taliban.

The World Bank too said last week it would halt all financial support to Afghanistan amid the uncertainty.

Although rural areas are largely unbanked, many government employees receive their salaries through the financial institutions. The continued closure of banks has led to a cash crunch.

An economy in crisis after Taliban take-over

The Taliban are in control of Afghanistan for the first time in 20 years. But while they no longer have any military opposition, they now face an economy on the brink of collapse, which threatens to worsen an already devastating humanitarian crisis.

Afghanistan’s outgoing central bank governor issued a warning last week that inflation could rise while the country’s currency weakens amid the current crisis.

“Inflation will likely increase to double digits as the currency weakens and inflation pass-through is high,” said Ajmal Ahmady, who left the country this month.

Even before the US troop withdrawal, Afghanistan’s economy was already reeling under challenges such as the Covid-19 pandemic, declining trade, lower donor aid and a drought.

Ongoing political uncertainty further strained growth in the country, leading the IMF to lower its growth forecast in June to 2.7% this year, from a previous 4% estimate. The fund had projected inflation would increase to 5.8% by the end of this year.

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