1

US Treasury – Office of Technical Assistance

Overview: GIRoA Budget Processes

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Overview

• Local Governance and GIRoA Budget Basics• Planning and Budget Formulation• Show Me The Numbers: 1390 Budget• Budget Trends• Sustainment• Provincial “Budgeting”• How PRT’s Can Help• Resources and Contacts

– Provincial Budget and Development Website– Advisor’s Toolbox– Provincial Financial Overview

• Additional Lessons Learned

3

GIRoA Budget and Local Governance

BasicsGIRoA Budget and Local Governance Basics

Local Governance andGIRoA Budget

Basics

4

Budget at a Glance

In Afghanistan, programs are funded through the:– Core or On-Budget, which consists of operating and development funds.

Transactions are recorded in AFMIS and reported.– External funds or Off-Budget, which are administered directly by the donor and

the funds are not in the custody of the Ministry of Finance (MoF). The World Bank estimates the unknown external budget in 1389 was between $6 - $16 billion USD.

Allocations assign budget limits by program and province. Before 1390, line ministries (LM) did not publish the provincial allocations. In 1390, LM’s provinces will inform their directorates of their annual development allocation.

Allotments provide authority to incur commitments, or spending authority.– Allotment is distributed at the Major Object Class level (21, 22, 22.1, 24 and 25)– Allotments for operations (Codes 21 and 22) are made on a monthly/quarterly

cycle, depending on the primary budget unit– Allotment is normally provided 10 days prior to the end of a month/quarter and

entered into AFMIS

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Process Who Authority Action

Budget LawMoF, CoM, Parliament, President

• Article 75,98 Constitution• Public Financial Management

Expenditure Law (PFEML)

Provides legal authority to spend public funds on programs

Allocations Line Ministries (LM)• PFEML• Financial Regulations

Establishes the accounting framework to facilitate control, monitoring, and reporting

Allotments LM, MOF, Mustofiat• PFEML• Financial Regulations• Budget Circulars

Gives permission to commit public funds to purchase goods and services to support programs

ExecutionLM, Provincial Directorates (PD)

• Procurement Law, and related guidelines• Financial Regulations• Treasury Circulars

Procures goods and services to support programs

Voucher PD, LM• Financial Regulations•Treasury Circulars

Prepares the documentation package to support disbursement

Disbursement MoF, Mustofiat• Financial Regulations• Treasury Circulars

Pays

Reconciliation Mustofiat, Bank• Financial Regulations• Treasury Circulars

Confirms payments

Audit LM, MoF, CAO• PFEML• CAO Law

Confirms processes followed

GIRoA Budget Framework

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LM1 LM2 LM3 LM4MoF IDLG

LD1 LD2 LD3 LD4Mustofiat Governor

District Governor

DistrictFinance D1 D2 D3 D4

Provincial Development Committee

Funds flow through the primary budgetary units (BU) to their subordinate units. There is no “provincial” budget. Subnational budgets are allocated through the relevant central line ministries to their provincial directorates, as illustrated below:

– Needs are communicated upwards, from line departments to line ministries– Line ministries determine allocations by program and province

Provincial “Fund Flow”

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Provincial Governance

Key Concepts

• Provinces are administrative units of government; not political units. (See Chapter 8, Afghan Constitution)

• Provincial directorates are secondary budget units (BU) their relevant line ministry, the primary budget unit.

• The Governor is not elected. IDLG prepares a list of nominees, vets them, and forwards it to the President for selection. Their appointment is not confirmed by Parliament or the Provincial Council.

• The Governor’s expenditure over line directorate budgets is unclear and ambiguous. In general, the Governor exercises influence, but not authority.

• The Provincial Council is the only representative body at the provincial level.

• The Mustafyat is the Ministry of Finance’s arm in the province. These offices are responsible for revenue collection and treasury operations in the province. They disburse salary and operation payments.

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GIRoA Budget and Local Governance

BasicsGIRoA Budget and Local Governance Basics

Planning and Budget Formulation

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Idea to Implementation

The complete budget cycle, through initial project identification to operation is a multi-year process. The planning phase is an input to budget formulation, which is an input to implementation and operations.

Project Formulation

Budget Execution

Budget Formulation

BY-3 BY-2 BY-1 BY

Planning

Provincial Development

Plan

Investment Project Template

(proposed)

Budget circular instructions

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Putting a Project On-Budget

The Budget Committee has established criteria to put a project “on-budget:”– Completion of project preparation and documentation– Completion of procurement plan, cost, and time estimation– Completion of feasibility study (if required) and project design– Readiness of project documentation for solicitation– Donor (for non-discretionary projects) and Budget Committee agreement

Working with provincial directors to “jumpstart” project documentation, and to obtain commitments from donors, will smooth the process.

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Budget Formulation Process

Action Description Provincial Participation

Development strategy established

• Clear understanding of baseline spending

• Allowed assessment of any planned new spending against development strategy

April-May: Budget unit’s (BU) define spending priorities (Budget Circular #1)

• Clear understanding of baseline spending

• Allowed assessment of any planned new spending against development strategy

• Primary BU (e.g. line ministry) prepares BC1 instructions for their provincial directorates (or secondary BU)

• Provincial directorates submit inputs

Aug-Sep: BU’s prepare detailed budgets (Budget Circular #2)

• All line ministries and agencies prepare a program, results-based budget

• Primary BU (e.g. line ministry) prepares BC2 instructions for their provincial directorates (or secondary BU)

• Provincial directorates submit inputs

Oct-Nov: BU’s defend budgets to Budget Committee

• Budget Committee focuses on programs rather than line items

• BU’s must be able to justify their requests

• Provide solid justification in their submissions

• Be available to support BU

Dec-Jan: Cabinet approves draft budget

Feb-Mar: Parliament approves budget

Mar: President signs

Source: MoF brief to ISAF, 11 April 2011

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GIRoA Budget and Local Governance

BasicsGIRoA Budget and Local Governance BasicsShow Me the Numbers

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Core ($5.4B USD)

1390 National Budget

Operating (60%)

External*

Development (40%)

Discretionary(25%)

Non-Discretionary(75%)

GIRoA 1390 Budget

• The national budget is a political and strategic document

• Focuses on achieving ANDS goals and delivering services to the people

• Includes both core and external budgets

• Provinces are NOT budgetary units

• Funded through combination of domestic revenues and donor contributions

*External budget includes all donor funding outside of the GIRoA budget process; Estimates of external funding are between $6 -

$16 Billion USD

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1390 Budget Funding Sources

Operating budget ($3192m) Development budget ($2154m)

Source: MoF MTBF 11/2/2011

$1,788

$1,419

Domestic Rev Donor Grants

$280

$1,488

$386

Domestic Rev Donor Grants Other

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1390 National Budget

Development Budget – $2.2 BOperating Budget– $3.2 B

Carry Forward Non Discretionary– $538 M

New Non Discretionary – $1.1 B

New Discretionary – $379 M

Carry Forward Discretionary– $136 M

Total Core Budget – $5.4 B

75% 25%

40%60%

External Budget – TBD

Non Discretionary – $1.7 B Discretionary – $515 M

Source: MoF MTBF 11/2/2011

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Core Budget – By Sector

Development spending creates future obligations to support the asset

Core Development Budget By Sector

Core Operating Budget By Sector

Source: 1390 budget

Source: 1390 budget

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Operating Budget – Driven by Salaries

Up over 30% from 1389 to 1390

Employee compensation accounts for over 70% of the operating budget

Majority of all growth in the operating budget is from employee compensation (primarily teachers, ANA/ANP and pay and grade reform)

Maintenance costs are insufficiently covered in the budget

1 2 3 4 50

50000

100000

150000

200000

250000

Operating Budget by Expenditure Code

Code 21 (Salaries)

Code 22 (Goods & Services)

Code 25 (Capti-tal Exp)

Contingency Fund

Total Operating Budget

Mil

lio

n A

FS

Source: MTBF 11/2/2011

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GIRoA Budget and Local Governance

BasicsGIRoA Budget and Local Governance BasicsBudget Trends

1919

Budget Summary 1388-1390

Operating Budget Salaries

Operating Expenses

Disbursed through quarterly allotments to provincial Mustafiats from Line Ministries

Development Budget Donor funding through the Afghanistan

Reconstruction Trust Fund

Disbursed through MOF central treasury to central line ministries (portion spent in provinces)

Discretionary projects identified through consultative process

Non-Discretionary projects are earmarked by donors

1390 includes carry forwards

1388 1389 1390$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$4,038

$4,778$5,346

Core Budget Distribution

Operating Development Total

Mil

lio

n U

SD

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Historical Budget Execution

• Delays in budget approvalby Parliament

• Poor procurement planning

• Communication problems between Kabul and the Provinces

• Lack of qualified contractors and other supply chain issues 1385 1386 1387 1388 1389 1390*

0

500

1000

1500

2000

2500

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

1320

1790

22402170

2308

2154

730

960 900 880907

923

55.3%

53.6%

40.2% 40.6%39.3%

42.9%

1385 - 1390 Development Budget

Allocation Expenditure Execution Percentage

Mil

lio

n U

SD

* As of 11/26/2011Source: MoF

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Domestic Revenues

• Domestic revenues have been growing around 20 billion Afs ($400 million) per year

• Taxes account for the majority of domestic revenue

• In 1390 domestic revenue contributes to 62% of the core operating budget and 43% of the total core (operating and development) budget

1387 1388 1389 1390 1391 1392 13930

50,000

100,000

150,000

200,000

250,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

60%

73%73%

62%

62%65% 73%

Fiscal Sustainability

Domestic Revenues Operating Budget Fiscal Sustainability

Mil

lio

n A

FS

1390 Domestic Revenue Million AFS Million USD

Income, Property, Capital Gain Taxes 24,193 515

International Trade Tax 32,543 692

Domestic Goods and Services Tax 18,996 404

Other Taxes 3,006 64

Non Tax Revenue 14,927 318

Total Domestic Revenue (1390 Projection) 93,665 1,993

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Provincial Expenditures 1388-1389

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GIRoA Budget and Local Governance

BasicsGIRoA Budget and Local Governance BasicsSustainment

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Sustainment Impacts

The ability of GIRoA to sustain projects is based upon timely information to estimate the fiscal requirements to support programs

On-budget development projects:– Conforms with ANDS, sectoral, and ministerial objectives– Generally aligns with Constitutional obligation to assure balanced development

and equitable distribution of resources– Three year window: budget year, plus two– Identifies fiscal impact of staffing and operational support

Off-budget:– Supports donor’s policy objectives, not necessarily GIRoA’s– Increases risk of duplication of projects at the local level– Does not conform with GIRoA standards for projecting support requirements– Delays funding for sustainment

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Source: USAID

Before Troop Reduction

( 2000)

After Troop Reduction

(2003)

0

50

100

150

200Kosovo

Before Troop Reduction

(2003)

After Troop Reduction

(2009)

-

500

1,000

1,500

2,000 Iraq

0

150

Haiti

0

150

Bosnia

Following the withdrawal or significant reduction in troop levels, Iraq, Kosovo, Haiti, and Bosnia saw significant decreases in development assistance levels

When troops transition out, the government must be able to stand up

Technical and professional competency must be built so the local government can operate (using their own systems and procedures) when PRTs and the international community transition

Recent Case Studies

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Provincial CERP Spending

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GIRoA Budget and Local Governance

BasicsGIRoA Budget and Local Governance BasicsProvincial “Budgeting”

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Why is a Pilot Program Necessary?

• Years of limited discretionary funding at the center and seemingly unlimited donor funding at the provincial level has distorted the budget formulation process and rendered the PDP’s and DDP’s irrelevant

• External funding is beginning to decline; Some of it is moving on budget and some is disappearing, without linking the provinces to the center in the budget formulation process, Afghanistan’s budget formulation will continue to be highly centralized without the external resources available for the provinces

• In most provinces, reviving the provincial development plan process that feeds from districts to provinces to Kabul with projects that are fully planned, vetted, and in line with national priorities is a multiyear process

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1390 Pilot Program Achievements

• Five ministerial participants in the pilot program: MAIL, MRRD, MoPH, MoED, & IDLG– Program was implemented country wide– Budget Symposium in May brought 8 representatives from each

province to Kabul to meet with central ministry officials and learn about the pilot program

– 10 Regional training conducted Afghan to Afghan by the MoF and Central Ministries going out to the provinces to train on submissions for Budget Circular’s #1 and #2

– Out of 170 total possible submissions, 168 of the provincial line directorates completed their project submissions for inclusion into the 1391 budget

– Increased communication between Kabul and the provinces as a result of the trainings and outreach

– Several other ministries requesting to be included in the 2nd year expansion of the pilot program

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Ideal Budget Formulation Process (Bottom Up)

LM1 LM2 LM3 LM4IDLG

LD1 LD2 LD3 LD4

D1 D2 D3 D4

Provincial Development Committee

• The budget is developed to implement the Afghan National Development Strategy (ANDS) and National Priority Programs (NPP) are the main vehicles to implement the ANDS

• April – May: BC 1 is issued providing instruction to Ministries on how to support the ANDS; Ministries have informed line directorates on NPP strategy and how to identify projects that support both the NPP and local priorities

• Aug – Sept: BC 2 is issued. Line directorates submit projects to the central ministries within the budget envelop.

• March: The budget is passed and contains projects the line directorates chose which support National priorities and local preferences.

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Externally Funded Project Coordination

• Donors should be building off the training provided during the Provincial Budget Pilot Program– Use forms 2A and 2B for all externally funded projects– Line directors will continue to gain experience in project formulation and

costing– Central Ministries and the MoF will be aware of the externally built

projects and understand what the ongoing operations costs are• Externally funded project packets currently available

– Currently coordinating between GIRoA and Donors to make it mandatory to use the GIRoA forms for all externally built projects

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Linking Local Priorities toNational Strategy

Line Ministry Provincial Directorate

Provincial Development

Council

District Development

AssemblyLine Ministry

Provincial Directorate

Strategy

Provincial Development

Plan

District Development

Plan

Line Ministry Strategy

Source: MoF Briefing to ISAF, December 2010

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Strengthening the Provincial Role

MoF, with the Ministry of Economy, IDLG, and the line ministries are strengthening the role of provincial directorates in the budget process, specifically:

– Building finance capacity of mustufiats and provincial line ministry departments to engage in planning and budgeting

– Facilitating communication between provincial departments and central line ministries

– In the center, regular coordination with donors, UN organizations and others– In the provinces, regular consultation and coordination with PRTs, RCs and

locally active donors– Providing provincial allocation information by budget units to provincial officials– Piloting norms-based allocation (15 provinces for Ministry of Education)

Source: MoF Briefing to ISAF, December 2010

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GIRoA Budget and Local Governance

BasicsGIRoA Budget and Local Governance BasicsHow PRT’s Can Help

35

How Can PRTs Help? (General)

Activity How Can PRTs Help?Partner with Relevant LM and MoF

Create a strong relationship with relevant GIRoA officials (Governor, Provincial Council, Mustofiat, Line Directors, District officials, etc.)

Ensure all activities are vetted with GIRoA (LMs and MoF) Work more with elected officials (Provincial Council)

Operate Using GIRoA Processes

Ensure all funding and capacity building is in line with GIRoA processes and procedures

Operate within the GIRoA budget framework and ministerial programs Align activities with the Afghan National Development Strategy (ANDS) The Sub-National Governance Policy is not “law” . New sub-national financing

mechanisms are being considered, but have not yet been implemented When in doubt, obtain input from the Ministry of Finance; they will have good ideas

Pursue Effective Aid Align with the GIRoA Operational Guide for Off-Budget Financing All projects should be identified by GIRoA as priorities Obtain “sign-off” from the right individuals; Governors and Directors of Economy do

not have the authority to accept projects, although they can sign off on completion of projects

Only the Ministry of Finance has the authority to allow other entities to accept capital projects

Civ-Mil Cooperation Ensure the RC, TF, PRT and other USG entities are implementing the same plan Coordinate LM and MoF agreement with plans and that they have “bought into” the

process

Prepare for Transition Enable GIRoA to implement budgeting polices and good governance practices in preparation for transition

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How Can PRTs Help? (Specific)

Activity How Can PRTs Help? Required DocumentsDocument Familiarization

Become familiar with primary GIRoA budget related documents and websites

Public Financial Expenditure Management Law Procurement Law and Financial Regulations Budget and treasury circulars and other guidance COMIJC Aid Effectiveness policy letter Paris Declaration Assessment MoF Guide to Off-Budget Assistance Draft 1390 budget statement 1390 development budget (once completed)

Website Familiarization

Obtain logon/password access to all relevant databases prior to arriving in theatre

Provincial Budgeting and Economic Development website (including Ronna in general)

Donor Assistance Database

Mustofiat Interaction

Create a strong partnership with the Mustofiat

Obtain detailed financial reports outlining the allocations and spending within the province

DG of Treasury approval memo for provinces to release AFMIS information to PRTs

Helmand case study example

Improve Provincial Development Plans (PDP)

Only fund projects on the PDP Provide assistance on PDP updating

Provincial development plan for province Afghan National Development Strategy Kabul Conference documents

Budget Formulation

Work with LDs on budget formulation submissions (assign individuals to each LD)

BC1 (and related forms) BC2 (and related forms) Template/checklist being created by MoF (timing TBD)

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How Can PRTs Help? (Specific)

Activity How Can PRTs Help? Required DocumentsConsultation and Coordination

Assist (when requested) with MoF training events in provinces

Work with MoF advisors (OTA and IJC) to understand when PBU events will be taking place in your province

Create strong links with OTA and IJC representatives

If you are interested in an OTA visit once in theater, Lynda Roades can work with you on developing a concept note

PBU1390 action plan outlining capacity building training events and consultation and coordination workshops

1390 Budget Execution

Facilitate budget execution of 1390 projects and programs

Understand projects “on-budget” and their status per LD

1390 development budget (once completed) Reports generate for province through AFMIS

Sustainment Ensure all projects are accompanied by an appropriate sustainment letter

Sustainment letters should include related O&M costs

Sustainment letters should be forwarded to appropriate central ministry officials

Understand Other Sources of Funding

Become familiar with other funding sources for provinces

Ensure alignment with all of the above

Performance Based Governor’s Fund (IDLG website)

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GIRoA Budget and Local Governance

BasicsGIRoA Budget and Local Governance Basics

Resources andContacts

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Start Here – PBED Website

The Afghanistan Provincial Budgeting and Economic Development website

• Go to https://ronna-afghan.harmonieweb.org/Pages/Default.aspx

• On the right hand side, click on “request a ronna account”• It will take you to the log in screen, again click “request an

account”• Fill out the require info: Name, Email (e-mail address you

want updates sent to), etc• In the justification section enter “Provincial Budgeting and

Economic Development Ronna group”• Verify the information is accurate and hit the submit

button• You will receive an confirmation e-mail with your details

when the account is approved; follow the directions in the email to log in. (while waiting for your account to be approved you can view the site by following the steps below.

The Afghanistan Provincial Budgeting and Economic Development (PBED) website has been set up as source of budget information for PRT’s and Provincial Officials. It has been designed as a tool for low bandwidth users to be able to access budget documents, laws, presentations, ask questions, and participate in discussions. The site is being managed out of the Ministry of Finance provincial budget unit. It is currently only in English but we are developing the site to have all information eventually in Dari and Pashtu as well. The site is for users in the provinces and any feedback and requests for improvement are welcome.

How To Request An Account

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Additional Resources and Contacts

• Web Sites– Ministry of Finance: www.mof.gov.af– Donor Assistance Database: http://dadafghanistan.gov.af– Ministry of Finance (Budget): www.budgetmof.gov.af– Ministry of Finance (Treasury): www.treasury.gov.af– Procurement Policy Unit: www.ppu.gov.af– Independent Directorate of Local Governance (IDLG):

http://www.idlg.gov.af/IDLG/ – CIMIC Web: https://www.cimicweb.org/Pages/PRTConference2010.aspx – Ronna: https://ronna-afghan.harmonieweb.org/Pages/Default.aspx – Peace Dividend Trust:

http://www.peacedividendtrust.org/en/index.php?sv=&category=PDT%20Afghanistan&title=PDT%20Afghanistan

– USIP: http://www.usip.org/– Interagency Provincial Affairs (IPA) website:

http://www.intelink.gov/wiki/Portal:Afghanistan_Provincial_Reconstruction Teams

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Provincial Budget Unit:Afghan Support

Dr. Najimullah Qasimi, Manager, Provincial Budget Unit, najimullah@gmail.com The PBU coordinates all Capacity Building Training (CBT) and Consultation and

Coordination (C&C) events in each province Attendees include representatives from the Governor’s Office, Provincial Council, Line

Directors, District officials and others as necessary Provincial officials should coordinate these events without assistance from the PRT

(expect for very specific requests); PRT officials can potentially observe sessions Composed of Afghan nationals funded through GIRoA, UNDP, and USAID

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Provincial Budget UnitInternational Support

Advisors from the US Treasury’s Office of Technical Assistance (OTA) and IJC focus on explaining the Afghan system to the PRTs and working with them to improve their ability to support or mentor their Afghan counterparts

On-site consultation and coordination with PRTs, Human Terrain Teams, military civil affairs teams, Afghan officials

Provincial Financial Overview template (in-progress) On-line reference material Advisor’s Toolbox (1 June release)

43

Additional Resources and Contacts

• USG and ISAF Contacts– Primary Contact

• Ms. Lynda Roades• MoF PBU Advisor, lroades@otatreas.us• Cell: (0) 796-146-157

– Mr. Kirk Schmidt, MoF PBU Advisor, kschmidt@otatreas.us, cell: (0) 702-591-559– Ms. Rhonda Reinke, MoF Treasury Advisor, rreinke@otatreas.us, cell: 706-797-200– Ms. Najla Farzana, IJC Provincial Budgeting Advisor, Najla_Farzana@yahoo.com

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Additional Lessons Learned

45

Additional Lessons Learned

• Afghans must take the lead; at this point we cannot do it for them

• Legitimacy is the key to local governance

• Structural problems must be solved before human capital can have an impact

• Economic development is imperative if GIRoA is to be able to fund their long-term budget needs; ensure it is a priority

• Parallel structures can destroy value if not transparently implemented with GIRoA approval and buy-in

• Civ-Mil cooperation on all fronts is necessary to create a consistent and predictable message

• What we fund, and how we fund it, will have a long-lasting impact (positive or negative) and we must think through unintended consequences