You're reading: Afganistan says will deal with IMF crisis after summer holiday

Afghanistan said on June 19 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 dollars 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.

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.