Afghan lenders to resume services after central bank begins operations

The country's banking system ground to a halt this month after the Taliban seized power

Banks across Afghanistan, which had halted services after the Taliban seized power in the war-torn country earlier this month, said they would resume services once the country's central bank begins operations.

"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.

The International Monetary Fund said earlier this month that it would restrict Afghanistan's access to about $450 million 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.

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,” Ajmal Ahmady, who left the country this month, told The National.

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 per cent this year, from a previous 4 per cent estimate. The fund had projected inflation would increase to 5.8 per cent by the end of this year.

Updated: August 28th 2021, 3:28 PM