After a decade of reconstruction efforts and security assistance supported by the international community, Afghanistan is nowundergoing a transition. As external assistance decreases, demands on domestic revenue and budget spending will grow significantly. This underlines the need to improve public financial management and support a solid Afghan budget process to fund national political priorities.
Afghanistan’s fiscal and budgetary performance has been encouraging. Revenue grew from 3 percent of GDP in 2002/2003 to 11 percent in 2010/2011. Standardized public financial management systems have been introduced and strengthened, and fiscal discipline has been maintained.
However, there are gaps in the efficient allocation of funds from Kabul to the provinces. Centrally, budget execution rates of the development budget have been less than 70 percent per annum – the consequences of unrealistic budget formulation, large budget carryovers from previous years, deteriorating security conditions in various parts of the country and limited government capacity to implement projects on time.
Enhancing government capacity and investing in line ministries’ capacity for budget management have been highlighted as a key Ministry of Finance (MoF) priority.
UNDP’s Making Budgets and Aid Work (MBAW) project provides technical assistance to the Ministry of Finance to develop institutional capacity for improved budget planning and management, policy and strategy development, aid coordination, and better service delivery. The project strengthens links between the Afghanistan National Development Strategy, the National Priority Programmes and the national budget.
The project is embedded within the Ministry of Finance and provides technical assistance to:
help establish effective, accountable and transparent public financial administration at the national and sub-national levels;
strengthen and promote budget planning as a tool to coordinate international development assistance and improve alignment and harmonization of external aid through core budget formulation, planning and execution, and external aid budget coordination and management; and
strengthen technical and professional capacity related to budget planning, allocation, and accountability of departments within the MoF, line ministries and sub-national institutions.
What we have accomplished so far?
- Preparation of the yearly national budgets has been improved to make them more comprehensive, organized, policy-based and supportive of the national development strategy.
- Ministry of Finance public financial management capacity has been strengthened. According to the latest Public Expenditure and Financial Accountability assessment conducted by the International Monetary Fund, the Ministry of Finance scores higher than other fragile and middle income countries in terms of public expenditure management capacity.
- The execution rate of ordinary and development budgets has steadily improved. In 2012 it was 49%, in 2013 it reached 57%, and in 2014 it rose to 68%.
- Budget transparency as reported in the Open Budget Index has risen sharply to 59% for 2012, compared to 8% in 2008 and 21% in 2010.
- Service delivery has improved through sub-national financing on the preparation of the Provincial Budgeting New Approach policy paper and the pilot testing of Provincial Budgeting Reform.
- More than US$ 1.5 billion US dollars has been raised for national programmes through donor consultations supported by the project.
- Resource allocation for line ministries has become more accurate and service delivery more timely following the Ministry of Finance roll out of public financial management reforms such as Performance Budgeting and the State Budget Planning System.
- Monitoring by the Ministry of Finance of the commitments from the Tokyo Mutual Accountability Framework has improved, in terms of harmonization and alignment rules.