Post on 24-Mar-2018
Islamic Republic of Afghanistan
Ministry of Finance
Issue 2 | May 2012A quarterly publication of Directorate General Budget on foreign aid and budget
IMPROVING OUR DEVELOPMENT PARTNERSHIP
With the New Year comes the new
national budget. The past few months
have been busy for Directorate General
Budget (DGB) as we were putting
together this transitional budget for the
Fiscal Year 1391. FY 1391 will only have
nine months, as the new fiscal year
changes to December 22 – December
21, as opposed to March 21 – March 20.
I am pleased to share with you the
second newsletter, which we renamed
to reflect the
involvement of all Directorates within
DGB. I would like to thank my
colleagues for their input and, in
p a r t i c u l a r, A i d M a n a g e m e n t
Directorate for initiating and leading
this initiative.
Inside, along with updates on aid, my
colleagues give you a quick glance at
the 1391 national budget, an
assessment of fiscal sustainability of
Afghanistan and an interview with our
minister, Dr. Omar Zakhilwal.
We now focus our efforts on the
delivery of the budget to make sure that
it ensures services are provided in the
best way possible to the people of
Afghanistan.
Finally I would like to thank all of you
who provided comments on the first
issue of the newsletter. Please keep
sending them.
Ahmad Javed Jalali
Director General Budget
“Aid and Budget”
Contd. page 2 .../...
Over the last decade, international development efforts have evolved in
accordance with global economic shifts. This has naturally had knock-on
effects for international commitments to Afghanistan as well. The Fourth
High Level Forum (HLF -4) on Aid Effectiveness in Busan in November-
December 2011 was a defining event, as it translated these global shifts in economy and
aid architecture into a new partnership with development cooperation taking new forms
at the global level. Meanwhile, at the national level, the International Conference on
Afghanistan in Bonn, also in December 2011, renewed and deepened the international
community's long-term commitment to Afghanistan, a decade after the original Bonn
Conference.
The HLF-4, in which Afghanistan fully participated, resulted in the
and the ,
scheduled for implementation from mid-2012. The Government of Afghanistan (GoA), a
signatory to these outcomes, will incorporate the global principles of the Busan
Partnership and New Deal into its own medium to long-term development policies.
Busan Partnership for
Effective Development Cooperation New Deal for Engagement in Fragile States
With transition (2012-2014) already in progress and the transformation decade (2015-
2025) to follow, Afghanistan is passing through a critical period of security and
development. The challenges of Transition are indisputable. The withdrawal of military
forces and a possible decline in aid could leave Afghanistan facing hard budget constraints
and low economic activity in years to come. Government development spending is also
projected to shift to maintain the high operational and maintenance costs once
international assistance decreases.
Aid and Budget
Making Budgets and Aid Work Project
Supported by:
This inclusive economic pact will be presented at the Tokyo
Ministerial Conference on Afghanistan in July 2012. Tokyo will
be another landmark for Afghanistan, as the international
community will decide on economic development assistance
to the country during transition and throughout the
Transformation Decade.
The post-Bonn climate remains promising for Afghanistan for
the International Community declared its commitment beyond
Transition in pursuit of socio-economic development, security
and good governance. These commitments will hopefully
become concrete at Chicago and Tokyo this year. Combined
with the new policies and commitments to aid and
development effectiveness outlined at Busan, there is
optimism that, with political progress and enhanced security,
Afghanistan and its partners can progressively reach forward to
achieve the goal of self-sustainability.
.../...Page 1
At this juncture, therefore, close cooperation between
Afghanistan and the international community is crucial. By
2015 - after the drawdown of most international military forces
- Afghanistan aims to have taken over responsibility for its own
security and lead development processes that promote
economic growth and fiscal sustainability. To make this a reality,
leaders of NATO) states will
come together at the 25th NATO summit on 20-21 May 2012 in
Chicago to discuss their commitment to Afghanistan, through
transition and beyond, to ensure security of the country. The
expectation from the Chicago conference is that the
International Community continues its support for the Afghan
national Security Forces through 2025.
North Atlantic Treaty Organisation (
GoA has elaborated its economic transition strategy in the
document “Towards a Self-Reliant Afghanistan”, which was
initially presented at Bonn. It will be taken forward to merge
emerging policies with the commitments of Bonn and the
priorities specified in the National Priority Programs, originally
announced at the Kabul Conference in July 2010.
ENSURING MUTUAL ACCOUNTABILITYThe United States (US) is the largest donor for
Afghanistan. Since 2001, the US has pledged US$
66.76 billion to Afghanistan, out of which US$ 53.88
billion has been committed. The assistance of the US
government is implemented by various agencies
including the United States Agency for International
Development (USAID), the Department of State, the
Department of Defense, the Department of
Agriculture and US Trade and Development Agency.
The Governments of Afghanistan and the US
recently restarted the Portfolio Review (PR); a
process of jointly reviewing all US funded programs
and projects in education, health, agriculture,
economic growth, governance and infrastructure
sectors. The review was held from 13-19 March,
2012 at Ministry of Finance.
Building on an enduring partnership between the
two countries, the PR enhances the effectiveness of
projects by identifying relevant issues, improves
alignment with national priorities, promotes use of
country systems and increases coordination
between Government of Afghanistan and US
agencies.
AFGHANISTAN TO LAUNCH NEW AID MANAGEMENT POLICYThe new Aid Management Policy aims to accelerate the achievement of Afghanistan's vision to move towards increasingself reliance by 2025, a commitment made at the International Conference on Afghanistan in Bonn (December 2011). Thispolicy, which succeeds the previous Aid Policy of 2007, promotes the realization of Kabul Process commitments outlined atthe Kabul International Conference (July 2010). It specifically addresses the short to medium term impacts of decliningmilitary expenditure and the exit strategy of NATO-ISAF, with possibility of declining international aid commitments post2014. The policy also addresses the key issues of fiscal management, government capacity and donor behavior, as well as
new international agreements embodied in the two outcomes of the Fourth High Level Forum on AidEffectiveness (HLF-4), held in Busan, Republic of Korea (December 2011), namely the Busan Partnership for EffectiveDevelopment Cooperation and the New Deal for Engagement in Fragile States.
incorporating
Both sides agreed on the immense importance of the joint review in
increasing mutual accountability and helping to achieve development goals.
This is all the more crucial in the stage of state-building in this transition
period. The Government of Afghanistan looks forward to working closely with
US in the years to come to effectively utilize their generous assistance for the
sustainable development of Afghanistan.
TOWARDS A SELF SUSTAINING AFGHANISTANAn interview with H.E. Minister of Finance
What are your expectations from the International
Community over the next ten years?
Success in implementing our strategy in an environment of
diminishing resources will require increasing level of
coordination among donors, and between donors and the
Afghan Government. Moving aid on budget will allow us to
achieve higher levels of value for money. Aligning assistance
behind the National Priority Programs (NPPs) focuses our
efforts in areas where they can achieve the highest impact. We
are working closely with donors to find modalities to finance
and implement our NPPs in a phased and fiscally responsible
manner, through a mix of on and off budget systems, and
utilizing multi-lateral trust funds where possible.
Success in these measures will lead to higher levels of
employment, reduced under-employment, improved incomes,
higher domestic revenue receipts, and ultimately, improved
security.
Afghanistan recently presented the paper 'Towards a
Self-sustaining Afghanistan in Bonn conference'. What is
your strategy towards achieving that?
The strategy towards achieving the vision we have set forward
for Afghanistan over the coming 2 decades has been laid out in
the same paper. Afghanistan's National Priority Programs are
the means towards the achievement of these goals. These
programs focus on growing agricultural productivity and
increasing rural development, developing our human capital
and providing jobs, building infrastructure to support
economic growth, improving the business climate for investors,
increasing the effectiveness of our civil service, reducing
corruption and ensuring rule of law across Afghanistan. We
have set clear, quantitative targets, we seek the assistance of
our international partners in reaching them, and ask that they
join the Afghan people in holding us accountable to make this
happen.
What impact will declining aid have on the economy in
the coming years?
Reduction in aid will not have as catastrophic an impact as
some have predicted because most international spending
“on” Afghanistan is not spent “in” Afghanistan, and much of
what is spent in Afghanistan leaves the economy through
imports, expatriated profits and outward remittances.
Nevertheless, projections suggest that economic growth will
fall. Moreover, Aid has not been evenly spread across the
country. Because of the choices made by donors, some
provinces have had significantly higher aid than
other provinces. As a result, the slowdown in aid will be felt
more acutely in the conflict-affected areas and in urban
centers. If aid declines gradually so that it can be partly offset
by growth of the security, mining, and civilian public sectors,
the impact could be softened and spread over time. This would
allow the economy more time to adjust.
per capita
What are the main monetary and fiscal challenges that
the government faces?
One of the major achievements of Afghanistan during the past
decade has been providing economic stability. Although
challenges have emerged, monetary prudence and fiscal
discipline have been based on best international practices. In
the foreseeable future, challenges will remain. However,
Afghanistan can only achieve fiscal independence through
continued private sector led economic growth. The
Government seeks to make strategic investments in
agriculture, trade and transit, the production and distribution
of electricity and the required infrastructure to enable our
extractive industries. These investments will be complimented
by aggressive reform of our financial sector, our legal and
regulatory framework, and our public financial management
systems
-
to increase transparency, reduce corruption and
boost the absorptive capacity of our budgetary systems.
Dr. Omar Zakhilwal is the Minister of Finance of Islamic Republic
of Afghanistan. He has been part of many initiatives pertaining
to economics and development issues of the country since
2003. He authored Afghanistan's first National Human
Development Report. Prior to his current position, Dr. Zakhiwal
served as the President of the Afghanistan Investment Support
Agency (AISA), a member of the Supreme Council of Da
Afghanistan Bank, Acting Minister of Transport and Civil
Aviation, Chief Economic Advisor to the President and the Chief
Advisor to the Minister of Rural Development of Afghanistan.
We spoke to Minister Zakhilwal on the future of foreign aid,
economic challenges and self-sustaining future of Afghanistan.
NATIONAL BUDGET- WHAT IS IN STORE?By Zia-ur-Rahman Haleemi, Budget Policy and Reform Director - The National Budget is the tool for implementation of
Government priorities. In the national budget, objectives within the development strategy of the Government are identified with the
resources for achieving them. Over the past few years, the Ministry of Finance of the Islamic Republic of Afghanistan has made
tremendous progress in strengthening the budget preparation, execution and reporting processes. In the preparation of FY 1391
budget, the fundamental principles of fiscal sustainability and fair and inclusive allocation of resources have been respected. FY 1391 is
a transition year in the sense that a change in fiscal year is going to be implemented with this year being only 9 months.
Domestic RevenuesDomestic revenues for FY 1391 are projected to reach about
US$ 1.76 billion, which shows an increase of about 25% over
the same period of FY 1390. The encouraging performance of
domestic revenue collection is attributed to strong economic
growth, increase in trade, and the increase in efficiency of tax
collection, triggered by implementation of vast area of reforms
in revenue and custom offices.
Development BudgetOver the past few years, significant efforts and progress have
been made to strengthen the link between budget and
development strategy. Total development spending for FY 1391
will be about US$ 2.2 billion. The major share will go to the
Infrastructure sector, followed by Agriculture, Education,
Health, Economic Governance, Good Governance, Security and
Social Protection, respectively.
Financing of Core BudgetFor FY 1391, on top of US$ 1.76 billion dollars in domestic
revenues, the Government is expected to receive US$ 2.7
billion dollars in grants. Other financing includes US$ 54 million
from the sale of copper mines, US$ 88 million from treasury
balances and US$ 73 million in project loans. Out of the total
core budget of US$ 4.89 billion, FY 1391 budget is estimated to
have a US$ 250 million unfunded portion (deficit) of the
discretionary development budget.
Operating BudgetFY 1391 operating budget is going to be around US$ 2.7 billion.
The major drivers of increase in operating budget are
implementation of civil service reform, increase in personnel in
most budgetary entities and some adjustments in
macroeconomic variables (inflation etc.).
Afs (million)
Composition of revenue 1391 / 9months
Afs (million)
1391 Development Budget by Sector
Risks, challenges and uncertaintiesDespite a strong revenue performance in the past few years, the fiscal situation remains uncertain due to emerging fiscal pressures
arising from wider civil servant reforms and security forces expansion programs, as well as higher benefits to retirees by
implementation of new pension reform. The unpredictability of longer-term donor grants, the costs associated with the transition
process and operations and maintenance of existing assets add yet more uncertainties surrounding the public finance management
of the Government.
,
* The figures in this article are based on the executive budget proposal to the Parliament and are subject to change.
The fiscal year was March 21 – March 20. Now the fiscal year will change to December 22 – December 21.
(Exchange rate is Afs 50/1US$).Operating budget for full 12 months of 1391 would have been about Afs 180 billion, an increase of 20% over 1390.
Afghanistan remains one of the largest recipients of external
assistance measured as a percentage of GDP. According to
World Bank estimates, Afghanistan received donor aid almost
equal to the size of its economy (about US$16 billion) in 2010-
11. Aid has funded the delivery of essential services including
education and health, infrastructure investments as well as
government administration. There have been substantial
improvements in the lives of Afghans over the last 10 years as a
result of this aid, despite the growing concerns regarding the
local impact of these huge aid inflows.
At the Bonn International Conference on Afghanistan in
December 2011, the government highlighted again its
intention to frame its fiscal policy to improve security, foster
economic development, promote governance and reduce
dependency on donors in the long term.
The current fiscal outlook anticipates that Afghanistan will be
able to improve its domestic revenue collection to around
20.7% of GDP by 2030 as opposed to only 11% in 2011-12.
During the past 10 years, the main objective of the Government
of Afghanistan was to move towards achieving fiscal
sustainability. To this end, numerous reforms were introduced
in revenue policy and management that resulted in a huge
spike in domestic revenue collection, particularly during the
past three years (11% of GDP). Afghanistan funds around 62%
of its operating expenditures from its domestic revenues. The
operating gap (38%) and entire development budget is funded
using donor grants.
The major contributors to the revenue growth
are thought to be the introduction of VAT in
2014-15, which will generate around 4.5% of
GDP, and expected revenues coming from
mining sector beyond the transition year
(2014). However Afghanistan would seek
continuous longer-term support of the
international community to finance its
development priorities in the medium to long
term. On the expenditure side, public
expenditure would decrease as a percentage
of GDP to only 30% by 2030 as opposed to
nearly 100% in 2011-12. In other words, even
in 2030, Afghanistan would rely on donor
grants to fund its expected fiscal deficit of
around 10%, equivalent to other developing
and post-conflict countries.
The government will present its post-transition development
strategy to the international community in the upcoming
Chicago and Tokyo International Conferences on Afghanistan.
The strategy should help attain firm commitments from the
international community to fund Afghanistan's security and
development needs in the long term. The joint efforts of the
Afghan Government and International community must ensure
that Afghanistan is moving in the right direction towards
achieving fiscal sustainability.
MOVING TOWARDS FISCAL SUSTAINABILITYBy Niaz Ali Khan, Senior Fiscal Policy Analyst, Ministry of Finance
BUDGET EXECUTION ON THE RISE
The development budget execution rate reached 52% in 1390,
a significant improvement over 39% last year.
This was particularly impressive as it was achieved despite
approximately $217 million of committed funds and a further
$258 million of the discretionary budget not being available.
Otherwise, the development budget execution rate would
have been near 67%.
In absolute terms budget execution increased by almost 27 per
cent from $894 million in FY 1389 FY to $1,136 million in FY
1390. This goes beyond the 10-20% annual increase targeted
by the Ministry of Finance.
Financing gap, as % of GDP, will reduce from 90% to 30% in 2020 and to 10% in 2030. If security
expenditures are not taken into account, the financing gap will reduce to 14% in 2015 and in to 0%
in 2030.
AID HIGHLIGHTS
Produced by: Aid Management Directorate | Directorate General Budget | Ministry of Finance | Pashtunistan Watt | Kabul, Afghanistan
For queries and feedback : e-mail:jawid.omar@budgetmof.gov.af | Telephone: +93 (0) 7520 52411| www.budgetmof.gov.af
SUCCESSFUL AFGHAN-GERMAN NEGOTIATIONS
AFGHANISTAN SIGNS MoU WITH IRAN
The Afghanistan and German governments held their annual
negotiations on the allocation of development resources
channelled through the German Ministry for Economic
Cooperation and Development (BMZ) on March 5- 6, 2012, in
Berlin.
Dr. Omar Zakhilwal (Minister of Finance, Afghanistan) and Mr.
Andreas Gies (Director General for Asia, Middle East, South-
Eastern and Eastern Europe, BMZ) led the delegations, which
resulted in the allocation of EUR240 million to the 5 northern
provinces of Badakhshan, Balkh, Baghlan, Kunduz and Takhar.
Afghanistan recommended the expansion to other northern
provinces and also encouraged meeting the Kabul Process
target of achieving 50% of funding on-budget.
A Memorandum of Understanding was signed in the second
session of economic cooperation in Kabul on January 27, 2011,
between the Ministry of Finance of Afghanistan and Ministry of
Economy of Iran. Both sides decided that the private sector
investment should be encouraged, to expand economic growth
of Iran and Afghanistan. The third Session of Economic
Cooperation is to be held in July 2012 in Tehran.
ALL EYES ON RECCA
and Tajikistan discussed regional cooperation and the stability
of Afghanistan. Key topics of the conference were:
The Central Asia-South Asia (CASA-1000) Power
Transmission Project, which exports around 1000 MW
of electricity from Kyrgyz Republic and Tajikistan to
Afghanistan and Pakistan
The Turkmenistan-Afghanistan-Pakistan-India gas
pipeline (TAPI) initiative
The proposed Kyrgyzstan-Tajikistan-Afghanistan-Iran
railway network
It is envisioned that implementation of these three mega-
projects will pave the way towards further economic
development in the region.
�
�
�
Tajikistan hosted the 5 Regional
Economic Cooperation Conference
(RECCA-V) on March 26-27, 2012 where
leaders from Afghanistan, Pakistan, Iran
th
AFGHANISTAN - FRANCE TREATY
GERESHK HYDRO POWER PLANT TO BE REHABILITATED
CAPACITY BUILDING PROJECT LAUNCHED
Asian Development Bank signed an agreement to provide
US$75.4million on January 21, 2012 to upgrade the Gereshk
hydropower plant. This will ensure that 50,000 Gereshk
residents and local businesses have access to a more reliable
electricity supply. This is to run through March 31, 2015. Da
Afghanistan Breshna Sherkat (DABS), the official government
company that operates and manages electric power will
oversee construction and manage the plant.
,
The Friendship and Cooperation treaty was signed on January
27, 2012 between France and Government of Afghanistan
(GoA) in Paris. This was preceded by technical and policy
consultations between the French Embassy and the GoA. In the
light of common objectives of peaceful and prosperous
Afghanistan, France committed to support GoA in security,
health, agriculture and education sectors. Both sides agreed to
eradicate terrorism, organized crime and the narcotics trade
which are threats for both countries. The duration of the treaty
is 20 years and the development programs under the treaty will
be developed jointly by the French mission and the Ministry of
Finance with other stakeholders.
,
On December 28, 2012, the World Bank signed a $100m
agreement for the Capacity Building for Results Facility Project
(CBR). This will assist the government in improving the capacity
and performance of selected line ministries in the following
areas: 1. Technical Assistance Facility for Preparation and
Implementation of Line Ministry Capacity Building Programs;
2. Building Human Resources; 3. Civil Service Training; 4.
Project Management, Monitoring and Evaluation. The project
is to run until December 31, 2017.
ADB held the ADF) XI second and
third replenishment meetings in Dhaka and Manila, on
December 2011 and March 2012, respectively. (ADF)
is a major instrument of concessional financing that has been
supporting Asia's poorest countries since 1973. Funded by
ADB's member countries, it offers low-interest loans and grants
to help reduce poverty in the region. Afghanistan is one of the
largest recipients of ADF, which are essential for infrastructure
development, a key priority area of the Government. Since
2007, all ADF assistance to Afghanistan was on a 100% grant
basis (59% of total ADB assistance so far). In the third ADF
Replenishment meeting, donors agreed on an extended post
conflict phase-out period for Afghanistan that would resume
the phase-out in 2013 and end it in 2018.
Asian Development Fund (
5-6, 7-9,
ASIAN DEVELOPMENT FUND CONTINUES TO SUPPORT AFGH
In partnership with the Ministry of Finance (MoF), the UNDP Making Budgets and Aid Work Project provides technical assistance to MoF to develop institutional
capacity for improved budget planning and management, policy and strategy development including aid coordination for better service delivery. It strengthens the
link between the Afghanistan National development Strategy (ANDS) and the National Priority Programmes (NPPs) helping in the design of the NPPs, supports
effective delivery management and strengthens institutional development