The Umsobomvu Youth Fund is not in financial crisis, says the ANC Youth League.
The fund, which seeks to promote youth entrepreneurship, failed to secure the R400million it had requested from the national treasury for the 2008-09 financial year.
Instead, the treasury allocated only R5million to the fund, which would force it to stop operating at the end of the year.
But Floyd Shivambu, youth league spokesperson, said the fund would merge with the National Youth Commission to form the National Youth Development Agency.
This, said Shivambu, was a resolution taken at the ANC's national conference last December.
"The new structure will deal more with policy advocacy on youth issues, increasing economic participation of young people.
"So basically it is not a crisis because the Umsobomvu Youth Fund will be phased out in due course," said Shivambu.
Thoraya Pandy, National Treasury spokesperson, said one of the reasons that might have caused this funding gap is that priorities have to be drawn up when allocating funds.
"There are many departments that made it clear that they need more funds to execute other projects, but we also made them aware of the priorities that govern allocations of the amount of money available in the medium-term expenditure framework (a three-year funding period)."