Afghanistan's Funding Cut Off... 'Banking System on the Brink of Collapse, Farmers Cultivating Poppy'

[Image source=Yonhap News]

[Asia Economy Reporter Ki-min Lee] Analysis suggests that Afghanistan's financial lifeline has rapidly dried up following the Taliban's takeover. The financial and banking payment systems are on the brink of collapse due to bank runs, and farmers are reportedly increasing poppy cultivation instead of crops.

On the 22nd (local time), according to major foreign media, the United Nations Development Programme (UNDP), a UN agency, stated in a three-page report on Afghanistan's banking and financial system that "Afghanistan's financial and banking payment systems are in turmoil," and analyzed that "the economic costs and negative social impacts of a banking system collapse in Afghanistan will be very significant."

Currently, Afghanistan has local currency amounting to 4 billion dollars (approximately 4.7 trillion won), but the circulating amount is said to be only 500,000 dollars (about 600 million won).

Since the Taliban takeover, economic difficulties have hit Afghanistan due to the suspension of overseas aid and freezing of foreign assets, and problems have arisen in the banking system that regulates deposit withdrawals.

UNDP warned that if the current trend worsens, about 40% of Afghan deposits could disappear by the end of this year, stating, "To improve limited production capacity and prevent the collapse of the banking system, the bank run problem must be resolved quickly."

UNDP views that rebuilding the banking system could take decades and requires cooperation from the World Bank (WB) and the International Monetary Fund (IMF), which have deep understanding of Afghanistan's financial system.

As economic difficulties deepen, farmers are turning to cultivating poppies, the raw material for drugs such as opium and heroin. Foreign media including The Wall Street Journal (WSJ) and The New York Times (NYT) reported that despite the Taliban's ban on drug production since their takeover, the drug business is intensifying. Afghanistan is known to account for 85% of the world's opium production.

WSJ and NYT cited farmers in Kandahar Province in the south, reporting that poppies are being cultivated instead of wheat and corn. According to the United Nations Office on Drugs and Crime (UNODC), Afghanistan's poppy cultivation area was 224,000 hectares last year, a 37% increase from the previous year. This trend is accelerating this year.

Factors contributing to the rapid increase in poppy cultivation include border trade disruptions with neighboring countries such as Pakistan and Iran since the Taliban's rise to power, and drought. Especially, farmers in border areas are sustaining their livelihoods through poppy cultivation and smuggling to compensate for reduced income from crop exports.

The Taliban's collection of taxes from farmers on poppy sales during their previous rule before being ousted by US forces in 2001 also makes it difficult to strongly suppress farmers' poppy cultivation. According to UNODC, the total amount of 'poppy sales tax' was estimated at 14.5 million dollars (about 1.72 billion won) as of 2019.

Taliban spokesperson Zabihullah Mujahid recently stated that there are no plans to stop poppy cultivation. On the 16th, he said, "It is not a good idea to block their only source of income."

This content was produced with the assistance of AI translation services.