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The United Nations said on Thursday it had set up a special trust fund to provide urgently-needed cash directly to Afghans through a system tapping into donor funds frozen since the Taliban takeover last August.

With the local economy "imploding", the aim is to inject liquidity into Afghan households to permit them to survive this winter and remain in their homeland despite turmoil, it said.

Achim Steiner, the U.N. Development Programme's (UNDP) administrator said that Germany, a first contributor, had pledged 50 million euros ($58 million) to the fund, and that it was in touch with other donors to mobilise resources.

"We have to step in, we have to stabilise a 'people's economy' and in addition to saving lives we also have to save livelihoods," Steiner told a news briefing.

"Because otherwise we will confront indeed a scenario through this winter and into next year where millions and millions of Afghans are simply unable to stay on their land, in their homes, in their villages and survive. The implications of that are not difficult to understand," he said.

The International Monetary Fund said on Tuesday that Afghanistan's economy is set to contract up to 30% this year and this is likely to further fuel a refugee crisis that will affect neighbouring countries, Turkey and Europe.

The Islamists' takeover saw billions in central bank assets frozen and international financial institutions suspend access to funds, although humanitarian aid has continued. Banks are running out of money, civil servants have not been paid and food prices have soared.

Steiner said the challenge is to repurpose donor funds already earmarked for Aghanistan, where the Taliban, the de facto authorities, are not recognised.

"Discussions over the last few weeks have focused on how we do find a way to be able to mobilise these resources in view of the economic implosion that is now unfolding and the international community's repeated commitment not to abandon the people of Afghanistan," he said.

Kanni Wignaraja, director of UNDP's regional bureau for the Asia Pacific, said that cash will be provided to Afghan workers in public works programmes, such as drought and flood control programmes, and grants given to micro-enterprises. Temporary basic income would be paid to the vulnerable elderly and disabled, she said.

The UNDP had costed activities to be covered over the first 12 months at approximately $667 million, she said.

"The effort here is to try to make sure that it is local currency that continues to fire up the local economy. And by doing that, that keeps also the macro economy from completely crashing," she said.

"Yes banking system is extremely fragile, it still has a little bit of life left in it." (Reuters)