The head of Afghanistan’s central bank, DAB, Abdul Qadir Idris, recently held a meeting with Bharat Kumar, head of the Indian technical team in Kabul, to discuss the economic situation, banking issues and cooperation, ET has learnt.
DAB general manager Siddiqullah Khalid emphasized the need for continued cooperation between Afghanistan and India in the banking sector and said technical cooperation would strengthen Afghanistan’s banking system.
Afghanistan’s banking system is in crisis due to embezzlement and freezing of funds. DAB has been barred from the international banking system, the financial community and other countries’ domestic banks after the Taliban takeover last year. This has prevented DAB access to nearly US$9 billion in foreign exchange reserves.
Afghanistan’s economy contracted by about 20% in 2021, according to the World Bank’s new Afghanistan Development Update, which says the economy is adjusting to a “new normal” following the Taliban takeover in August 2021.
A World Bank report released a few weeks ago showed a sharp decline in public spending, lower household incomes, and reduced consumption led to a fall in aggregate demand. It also highlighted that disruptions in payment systems and supply constraints further affected private sector activity, initially forcing many businesses to close or reduce their operations.
“Isolation from the international economy is a binding constraint to continued stabilization. The loss of correspondent banking relationships has had a significant impact on international payments, leaving both private firms and aid organizations dependent on cash remittances and informal, unregulated and opaque payment systems to domestic transactions,” the report added.
A World Bank report concluded that Afghanistan is a much smaller economy now.