The United States will resume talks with the Taliban next week in Qatar, addressing among other issues the fight against terrorism and the humanitarian crisis in Afghanistan.

The American delegation will be led by the US special representative for Afghanistan, Tom West, for the planned two weeks of discussions, State Department spokesman Ned Price said Tuesday.

The two sides will discuss "our vital national interests," which include counterterrorism operations against the Islamic State group and Al-Qaeda, humanitarian assistance, Afghanistan's devastated economy, and safe passage out of Afghanistan for US citizens and Afghans who worked for the United States during the 20-year war.

West met with two weeks ago in Pakistan with representatives of the hardline Islamist movement that seized power in August as US forces completed their withdrawal.

A first session between the two sides was held October 9-10 in the Qatari capital Doha, where US diplomats overseeing relations with Afghanistan transferred after the Taliban takeover.

West on Friday reiterated US conditions for the Taliban to receive US financial and diplomatic support: fight terrorism install an inclusive government, respect the rights of minorities, women and girls, and provide equal access to educations and employment.

He said the United States would continue to have a dialogue with the Taliban and for now provide only humanitarian aid.

Amir Khan Muttaqi, foreign minister of the Taliban government, which is not recognized by the international community, called last week in an open letter to the US Congress for the release of Afghan assets frozen by the US.

Afghan banking system on the brink

The Afghan financial system is staring at a collapse within months as it reels from a worsening cash liquidity crunch and a spike in bad loans, a new report by the United Nations Development Programme (UNDP) said.

The UN body called for urgent "prompt and decisive" action, warning that the economic cost of a collapse and the resulting social fallouts would be "colossal."

Afghans have been facing an acute cash shortage since the Taliban's takeover of Kabul in August that led to international sanctions. The latter saw the country's international reserves frozen and most foreign grants suspended. The liquidity crunch forced the Taliban regime to cap weekly bank deposit withdrawals.

Abdallah al Dardari, head of UNDP in Afghanistan, said the collapse of the financial system was slowing down the fast-diminishing economic activity in the country and could undermine international aid efforts as "banking is also one of the most important connectors of the country to the outside world."

"Without the banking sector, there's no humanitarian solution for Afghanistan," he said in a statement. "Do we really want to see Afghans completely isolated?"

Total banking system deposits in the country fell to 194 billion afghanis (€1.8 billion, $2 billion) in September from 268 billion afghanis at the end of 2020, the report found. The deposits are expected to fall further to 165 billion afghanis by the end of 2021, a drop of about 40% from last year.

Bad loans have also been climbing in what is a relatively small credit market. Nonperforming loans soared to 57% in September from around 30% at the end of 2020.

The current crisis has prompted banks to stop extending new loans, worsening the predicament, especially for smaller firms.

"In addition to the decline in economic activity, problems in the banking system will further reduce MSMEs' [Micro, Small & Medium Enterprises) probability of survival, which is critical for the Afghan economy and people," the report said.

The International Monetary Fund (IMF) expects the Afghan economy to shrink by up to 30% this year.

"The Islamic Emirate [of Afghanistan] must open the accounts of businessmen. If the bank accounts of traders are not opened and exports and imports do not take place, normal people will be faced with problems, Mir Dawlat, a Kabul resident told DW's media partner in Afghanistan, ToloNews.

Risking two decades of progress

The Afghan financial system, while still underdeveloped, had been growing steadily since the ouster of the Taliban in 2001 when the banking sector had virtually collapsed.

The banking sector has 12 commercial lenders, including six private commercial banks, one private Islamic bank, three state-owned banks and two foreign bank branches. Private domestic banks accounted for roughly two-thirds of overall banking sector assets at the end of 2020.

The majority of the banks' over 400 branches are in the capital Kabul, Herat and Mazar-e-Sharif.

The banking system is heavily reliant on dollars, with about 60% of bank deposits made in foreign currencies.

While the Taliban have ordered banks to reopen after weeks of closure following the Taliban's victory, the lenders are struggling to find enough cash to service their customers as dollar inflows have stopped and worried Afghans stash cash for even worse times.

"I had come to get my money from the bank. There are cash issues here. I have a dollar account, but when I try and withdraw cash, they tell me that they would give the money in the local afghani currency. The exchange rate they offer is very low compared to the market," Mohammad Emal, another Kabul resident, told ToloNews.

Al Dardari told Reuters news agency that of the $4 billion worth of afghanis in the economy only about $500,000 worth is in circulation.

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

Preventing a collapse

Among measures to prevent a collapse of the Afghan banking system, the UNDP has proposed a deposit insurance scheme, adequate liquidity for the banking system to meet both short- and medium-term needs and credit guarantees plus loan repayment delay options.

"The longer the delay in the full restoration of the financial and banking systems, the longer the recovery period, due to the subsequent lack of confidence by international markets," the UNDP report said. "This erosion is hard to repair and could take decades."

UN appeal for Afghan aid meets $600m target

The United Nations said Tuesday that its flash appeal for more than $600 million to support the humanitarian response in Afghanistan until the end of the year was now fully funded.

According to the UN, Afghanistan is on the brink of a humanitarian catastrophe, with more than half of its population at risk of not having enough to eat during the coming winter.

Following the Taliban takeover of the country in August, the UN held a ministerial meeting in Geneva in September, asking international donors for urgent support.

"We can now report that the flash appeal is 100 percent funded," Jens Laerke, a spokesman for the UN humanitarian agency OCHA, told reporters in Geneva.

The main donors were the United States, European countries and Japan, who helped reached the total funding goal of $606 million (539 million euros). 

The funds are directed towards helping the 11 million most deprived people in Afghanistan.

Laerke said that between September 1 and November 15, the UN and its non-governmental organisation partners provided food assistance to 7.2 million people. They also provided healthcare to nearly 900,000 people.

Nearly 200,000 drought-affected people have been assisted with water trucking and 178,000 children under the age of five have been treated for acute malnutrition, he added.

"However, not all funding has been translated into action because of the crisis in Afghanistan's banking and financial system. And half of the population still need emergency aid," he said.

Laerke added that access had recently improved and the humanitarian effort now had access to all areas in Afghanistan.

"The big problem now is impeding the economic collapse of the country," he said.

Afghanistan's food shortage is caused by a drought coupled with an economic crisis that has deepened since the Taliban took power.

The financial crunch was aggravated after Washington froze about $10 billion of assets held in its reserve for Kabul and deteriorated further after the World Bank and International Monetary Fund halted Afghanistan's access to funding.

With inputs from DW