Editor in Chief: Moh. Reza Huwaida Monday, May 25th, 2020

Kabul Bank Case and Economic Fragility

The fragile security situation has overshadowed all other matters of concern for the country. However, economists believe that the current economic vulnerability is far more critical than the long standing security dilemma. Economic pressures and highly dependent budget is of the main challenges even at this period when huge amount of money is being poured to the country. Mismanagement of economic and financial institutions has led to notorious financial corruption and bank failures. Kabul Bank story topped the country's list of concerns as a handful of corrupt shareholders let it go bankrupt.

The government faces huge challenge in financing its operating budget as several contributing countries have stopped part of their donations. They say releasing donations are subject to International Monetary Fund's (IMF) agreement with the Afghan government over mistrust created as result of Kabul Bank failure and the government's inappropriate handling of the issue. IMF support is a crucial benchmark for most of Afghanistan's donors who pour in billions of aid. Afghan government is making struggles to convince IMF to resume payments to the Afghan Reconstruction Trust Fund which accounts for bulk of the Afghan national budget.

Following long debates over the bank failure and weak financial governance between stakeholders, the government's inability to come up with a serious solution to the Kabul Bank crisis could see the IMF withdraw its support for aid-reliant Afghanistan, which would automatically trigger an aid review among major donors.

Few days later than IMF announcement, Britain said it would delay payment of 85 million pounds in aid to Afghanistan this year. The British Department for International Development (DFID) said the payment was being delayed because of the continued absence of an IMF support program. The World Bank also demonstrates willingness to suspend funds unless the IMF gives a green light to the donor resources to resume aids.

So far, $700 million of IMF fund is lost by Afghan government and more than $500 million is suspended. A big portion of suspended funds would have financed the operating budget, in particular, the government staff salaries. Accordingly, further suspension of aids will cause an immediate financial crisis which, in the long run, can potentially destabilize the country and help more mercenary recruitment by militants.

No need to say, the government does its best to restore its damaged reputation over Kabul Bank case but it seems to be unable avoiding further crises caused by inefficient handling of financial issues. Clearly, the government will never find more opportunities such as the current one to improve its capacity to hold responsibility for more economic and financial undertakings. In such a critical juncture, further disagreement with international financial institutions and the donor community will put at risk the country and the decade-long relatively good achievements.

The country's budget may face an unexpected dilemma very immediately after it was approved by parliament following long controversies on Kabul Bank bail-out. If continued, the dispute will paralyze the country's financial system and the government operations. How the government undertakes the issue will indicate its future capability of financial and economic management. However, as yet, the government has failed to abide by the two significant requirements defined by IMF: an Afghan-funded $820 million bailout of Kabul bank and audit of a second major bank.