Afghanistan said it won’t be able to address a key International Monetary Fund concern over a looming cash crisis, sparked by a corruption scandal at a failed bank, for more than a month because lawmakers are on holidays.
Reuters reported on Friday that the IMF had rejected Afghanistan’s plans to deal with the failed Kabulbank and other broader financial concerns, a step that automatically blocked the payment of $70 million (43 million pounds) in aid from foreign donors.
Diplomats involved in negotiations between aid-reliant Afghanistan, international donors and the IMF said Kabul had failed to address the fund’s concerns and now fear a “cash crunch” as soon as next month, Reuters reports.
Finance Minister Omar Zakhilwal said Afghanistan relied on aid for about 40 percent of its operating budget and for all of its multi-billion dollar reconstruction and development projects. He said the government would “exert every energy to reach a satisfactory agreement with donor countries.”
“Suspending aid delivery will naturally cause difficulties for a country like Afghanistan,” Zakhilwal said in a statement, the government’s first official response since the latest tranche of aid was withheld.
“So far, our difficulties are not at a level to cause us serious and immediate concern. I ask my compatriots not to be influenced by negative propaganda by some foreign media in this very critical stage in our history,” he said.
The wages of hundreds of thousands of civil servants are at risk, adding more tension and political uncertainty just as foreign forces begin handing over security control to Afghans in a gradual process that will end with all foreign combat troops leaving by the end of 2014.
No payments have been made by donors into the Afghanistan Reconstruction Trust fund (ARTF), the main vehicle for international aid to Afghanistan, for the past three months.
Payments to the ARTF have been suspended because of the continued lack of an IMF support programme, which is a seal of approval most donors need before pledging aid.
The IMF has been reviewing its support programme for Afghanistan since September.
The IMF and Afghan President Hamid Karzai’s government are at loggerheads over Kabul’s handling of the crisis over the failed Kabulbank and Afghanistan’s fractured financial system.
Karzai’s cabinet met 11 days ago and the Finance Ministry sent a letter containing proposals to address two outstanding issues — parliamentary approval of a supplementary budget and the auditing of a second Afghan bank — to the IMF.
Diplomats told Reuters the IMF rejected Kabul’s proposals as inadequate to guard against future abuses.
On Sunday, Afghanistan’s Ministry of Finance said Kabul “agrees in principle with both demands,” however parliamentary approval was needed for a supplementary budget.
“The Ministry of Finance will present a supplemental budget request to parliament immediately after the parliamentary summer vacations,” the statement said.
Afghan lawmakers began their 45-day summer recess on June 5. Lawmaker Mirwais Yasini said there were no plans to reconvene parliament to deal with the Kabulbank crisis.
$900 MILLION AT RISK
Corruption, bad loans and mismanagement cost the politically well-connected Kabulbank, Afghanistan’s biggest private lender, hundreds of millions of dollars in what Western officials in Afghanistan openly call a classic Ponzi scheme.
Kabulbank has about $926 million in outstanding loans, of which around $900 million is considered to be at risk. Afghan officials say about $347 million will be recovered, but donors want more aggressive action on asset recovery.
The bank doled out nearly half a billion dollars in unsecured, undocumented loans to a roster of Kabul’s elite, including ministers, relatives of Karzai and a vice-president, and a powerful former warlord, anti-corruption officials say.
Zakhilwal said the IMF had asked the Afghan parliament to make a commitment to approve a supplementary budget so that money spent by Afghanistan’s central bank bailing out Kabulbank could be repaid.
There has been no mention yet of how much that might be or where it might come from, but international donors fear Afghanistan, one of the poorest and most corrupt countries in the world, might dip into its limited cash reserves.
The withholding of aid began with a warning shot when the British government refused to pay 85 million pounds ($137.5 million) in promised aid in March. The ARTF was also expected to funnel about $200 million to support the Afghan government’s recurrent costs.
That represents about 25 percent of Afghanistan’s non-security wages bill, most of it in teachers’ salaries.