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Document of
The World Bank
FOR OFFICIAL USE ONLY Report No: PAD2479
INTERNATIONAL DEVELOPMENT ASSOCIATION
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED GRANT
IN THE AMOUNT OF SDR 17.8 MILLION
(US$25 MILLION EQUIVALENT)
AND
A PROPOSED GRANT
FROM THE AFGHANISTAN RECONSTRUCTION TRUST FUND
IN THE AMOUNT OF US$75 MILLION TO THE
ISLAMIC REPUBLIC OF AFGHANISTAN
FOR A
FISCAL PERFORMANCE IMPROVEMENT SUPPORT PROJECT (FSP) November 28, 2017
Governance Global Practice
South Asia Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective November 19 2017)
Currency Unit = AFN
AFN68.6335 = US$1
US$0.7119 = SDR 1
FISCAL YEAR
July 1 - June 30 (World Bank)
December 22 – December 21 (Government of Afghanistan)
Regional Vice President: Annette Dixon
Country Director: Shubham Chaudhuri
Senior Global Practice Director: Deborah L. Wetzel
Global Practice Directors: Practice Manager:
Edward Olowo-Okere, James A Brumby Fily Sissoko, Alexandre Arrobbio
Task Team Leader(s): Yousif Mubarak Elmahdi, Adenike Sherifat Oyeyiola
ABBREVIATIONS AND ACRONYMS
ACCA ACD ACBR
Association of Chartered Certified Accountants Afghanistan Customs Department Afghanistan Central Business Registry
AEITI Afghanistan Extractive Industries Transparency Initiative AFMIS Afghanistan Fiscal Management Information System AMIS ANPDF
Audit Management Information System Afghanistan National Peace and Development Framework
APFM Afghanistan Public Financial Management AOP Administrative Office of the President ARD Afghanistan Revenue Department ARTF Afghanistan Reconstruction Trust Fund ASA Advisory Services and Analytics ASYCUDA Automated Systems for Customs Data BPIS CBR CCTV
Budget and Planning IT Solution Capacity Building for Results Facility Closed Circuit Television
CGE COFOG
Computable General Equilibrium Classification of Functions of Government
CPA CPA
Citizen Participatory Audit (CPA). Certified Professional Accountants
CPV CRG CSO DA
Common Procurement Vocabulary Core Reforms Group Civil Society Organizations Designated Account
DAB Da Afghanistan Bank DAD DBI
Development Assistance Database Doing Business Indicators
DG Director General DLI Disbursement Linked Indicators DM Deputy Minister DO DSA ECF
Development Objective Debt Sustainability Analysis Extended Credit Facility
EFI e-GP EITI EU
Equitable Growth, Finance, and Institutions Electronic Government Procurement Extractive Industries Transparency Initiative European Union
FPIP Fiscal Performance Improvement Plan FSP Fiscal Performance Improvement Support Project FY Fiscal Year GoA GC
Government of Afghanistan General Conditions
GDP GIS
Gross Domestic Product Geographic Information System
GRS GRB
Grievance Redress Service Gender Responsive Budgeting
HDI HEC
Human Development Index High Economic Council
HR Human Resources IAD Internal Audit Department ICT IDA
Information and Communications Technology International Development Association
IFR Interim Financial Report IIA IMF INTOSAI
Institute of Internal Auditors International Monetary Fund International Organization of Supreme Audit Institutions
IOC Incremental Operating Costs IP Incentive Program IPF IPF IPR
Infrastructure Preparation Facility Investment Project Financing Intellectual Property Rights
IPSAS International Public Sector Accounting Standards IT LTO
Information Technology Large Taxpayer Office
MA Monitoring Agent MFPD Macro-Fiscal Policy Department MOF Ministry of Finance MSG Multi Stakeholders Working Group MTBF MTEF MTFF MTO
Medium Term Budget Framework Medium Term Expenditure Framework Medium Term Fiscal Framework Medium Tax Payers Office
NATO North Atlantic Treaty Organization NCB National Competitive Bidding NPA National Procurement Authority NPPs National Priority Programs NSW National Single Window NTA O&M
National Technical Assistant Operations and Maintenance
OBI Operational Business Intelligence OCDS OCP ODA PAC PACT PAD PDO
Open Contracting Data Standards Open Contracting Partnership Official Development Assistance Public Accounts Committee Policy Action Coordination Platform Project Appraisal Document Project Development Objective
PEFA Public Expenditure and Financial Accountability PFM Public Financial Management PFMR-II PIM
Second Public Financial Management Reform Project Public Investment Management
PMIS Procurement Management Information System
PMRS PIU
Performance Management and Reporting System Project Implementation Unit
PMT Performance Management Team PPP PPSD
Public Private Partnership Project Procurement Strategy for Development
RIMU Reform Implementation and Management Unit SAO Supreme Audit Office SAIs SBD
Supreme Audit Institutions Standard Bidding Documents
SBPS State Budgeting Planning System SDR SDU
Special Drawing Rights Special Disbursements Unit
SIGTAS Standard Integrated Government Tax Administration Systems SIP SMAF
Shared Information Platform Self-Reliance through Mutual Accountability Framework
SOEs State Owned Enterprises SOCs State Owned Corporations SOCB STEP STO
State Owned Commercial Banks Systematic Tracking of Exchanges in Procurement Small Taxpayers Office
TA TAF
Technical Assistance Technical Assistance Facility
TPDC UN UNDP US
Tax Policy Development Committee United Nations United Nations Development Programme United States
VAT WTO
Value Added Tax World Trade Organization
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BASIC INFORMATION
Is this a regionally tagged project? Country(ies) Financing Instrument
No Investment Project Financing
[✔] Situations of Urgent Need of Assistance or Capacity Constraints
[ ] Financial Intermediaries
[ ] Series of Projects
Approval Date Closing Date Environmental Assessment Category
19-Dec-2017 28-Dec-2022 C - Not Required
Bank/IFC Collaboration
No
Proposed Development Objective(s) To contribute to the improvement of domestic revenue mobilization and public expenditures management, and of reinforcing a performance oriented management culture in the Ministry of Finance. Components Component Name Cost (US$, millions)
Component 1: Budget as Tool for Development 10.00
Component 2: Revenue Mobilization 40.00
Component 3: Treasury Management, Accountability, and Transparency 30.00
Component 4: Institutional Capacity Building and Performance Management 20.00
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Organizations Borrower :
Islamic Republic of Afghanistan
Implementing Agency : Ministry of Finance National Procurement Authority Supreme Audit Office
PROJECT FINANCING DATA (US$, Millions)
[ ] Counterpart Funding
[ ] IBRD [ ] IDA Credit
[ ✔ ] IDA Grant
[ ✔ ] Trust Funds
[ ] Parallel Financing
FIN_COST_OLD
Total Project Cost: Total Financing: Financing Gap:
100.00 100.00 0.00
Of Which Bank Financing (IBRD/IDA):
25.00
Financing (in US$, millions) FIN_SUMM_OLD
Financing Source Amount
Afghanistan Reconstruction Trust Fund 75.00
IDA-D2630 25.00
Total 100.00
Expected Disbursements (in US$, millions)
Fiscal Year 2018 2019 2020 2021 2022 2023
Annual 11.93 25.00 26.14 15.09 21.84 0.00
Cumulative 11.93 36.93 63.07 78.16 100.00 100.00
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INSTITUTIONAL DATA
Practice Area (Lead)
Governance
Contributing Practice Areas
Energy & Extractives Finance & Markets Macro Economics & Fiscal Management Trade & Competitiveness Climate Change and Disaster Screening
This operation has been screened for short and long-term climate change and disaster risks
Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF Yes b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment Yes c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes
SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)
Risk Category Rating
1. Political and Governance High
2. Macroeconomic High
3. Sector Strategies and Policies Substantial
4. Technical Design of Project or Program Substantial
5. Institutional Capacity for Implementation and Sustainability High
6. Fiduciary Substantial
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7. Environment and Social Low
8. Stakeholders Substantial
9. Other High
10. Overall High
COMPLIANCE
Policy
Does the project depart from the CPF in content or in other significant respects?
[ ] Yes [✔] No
Does the project require any waivers of Bank policies?
[ ] Yes [✔] No
Safeguard Policies Triggered by the Project Yes No
Environmental Assessment OP/BP 4.01 ✔
Natural Habitats OP/BP 4.04 ✔
Forests OP/BP 4.36 ✔
Pest Management OP 4.09 ✔
Physical Cultural Resources OP/BP 4.11 ✔
Indigenous Peoples OP/BP 4.10 ✔
Involuntary Resettlement OP/BP 4.12 ✔
Safety of Dams OP/BP 4.37 ✔
Projects on International Waterways OP/BP 7.50 ✔
Projects in Disputed Areas OP/BP 7.60 ✔
Legal Covenants
Conditions
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PROJECT TEAM
Bank Staff
Name Role Specialization Unit
Yousif Mubarak Elmahdi Team Leader(ADM Responsible)
Governance- Corporate Backbone HR Assessment
GGO18
Adenike Sherifat Oyeyiola Team Leader Public Financial Management GGO24
Aimal Sherzad Procurement Specialist(ADM Responsible)
Procurement GGO06
Rahimullah Wardak Procurement Specialist Procurement GGO06
Ahmed Shah Ahmadzai Financial Management Specialist
Financial Management GGO24
Ahmed Mohamed Tawfick Rostom
Team Member Finance Sector -SOEs, Debt, Sukuk
GFM06
Anand Kumar Srivastava Team Member Procurement (NPA) GGO06
Bernard James Haven Team Member Revenue (ARD) GGO18
Ehsanullah Shamsi Team Member Energy/Extractives (AEITI) GEEX1
Hasan Afzal Zaidi Team Member Customs (ACD) GTI05
Janardhanan Ramanujam Team Member Disbursement WFALA
Juan Carlos Alvarez Counsel Legal LEGES
Luiza A. Nora Team Member Citizen's Engagement GSU06
Mohammad Aman Farahi Team Member Macro and Fiscal Management GMF06
Mohammad Arif Rasuli Team Member Environmental Safeguards GEN06
Najla Sabri Team Member Gender GSU06
Obaidullah Hidayat Environmental Safeguards Specialist
Environmental Safeguards GEN06
Pragya Shrestha Team Member operations GGO24
Raul Felix Junquera-Varela Team Member Revenue (ARD) GGO28
Saurabh Shome Team Member Economic Analysis GMF06
Shankar Narayanan Social Safeguards Specialist Social Safeguards GSU06
Shughla Hellali Team Member Gender GSU06
Si-Ambhaivan Sisombat Team Member Leadership Development GGO28
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Syed Waseem Abbas Kazmi Team Member PFM GGO24
Taehyun Lee Team Member Economic Analysis GMF06
Victor Manuel Ordonez Conde
Team Member Disbursement WFALA
Extended Team
Name Title Organization Location
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AFGHANISTAN
FISCAL PERFORMANCE IMPROVEMENT SUPPORT PROJECT (FSP):
TABLE OF CONTENTS
I. STRATEGIC CONTEXT ...................................................................................................... 9
A. Country Context ................................................................................................................. 9
B. Sectoral and Institutional Context ................................................................................... 10
C. Higher Level Objectives to which the Project Contributes ............................................. 12
II. PROJECT DEVELOPMENT OBJECTIVES ............................................................................ 13
A. PDO ................................................................................................................................... 13
B. Project Beneficiaries ......................................................................................................... 13
C. PDO-Level Results Indicators ........................................................................................... 13
III. PROJECT DESCRIPTION .................................................................................................. 13
A. Project Components ......................................................................................................... 13
B. Project Cost and Financing ............................................................................................... 18
B. Project Cost and Financing ............................................................................................... 18
C. Lessons Learned and Reflected in the Project Design ..................................................... 18
IV. IMPLEMENTATION ........................................................................................................ 19
A. Institutional and Implementation Arrangements ........................................................... 19
B. Results Monitoring and Evaluation ................................................................................. 21
C. Sustainability .................................................................................................................... 22
D. Role of Partners ................................................................................................................ 23
V. KEY RISKS ..................................................................................................................... 23
A. Overall Risk Rating and Explanation of Key Risks ........................................................... 23
VI. APPRAISAL SUMMARY .................................................................................................. 27
A. Economic and Financial (if applicable) Analysis .............................................................. 27
B. Technical ........................................................................................................................... 29
C. Financial Management ..................................................................................................... 30
D. Procurement ..................................................................................................................... 31
E. Social (including Safeguards) ............................................................................................ 31
F. Environment (including Safeguards) ................................................................................ 32
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G. Other Safeguard Policies (if applicable) .......................................................................... 32
H. World Bank Grievance Redress ....................................................................................... 32
VII. RESULTS FRAMEWORK AND MONITORING .................................................................... 33
ANNEX 1: DETAILED PROJECT DESCRIPTION ......................................................... 45
ANNEX 2: INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS ............. 55
ANNEX 3: IMPLEMENTATION SUPPORT PLAN ......................................................... 59
ANNEX 4: BANK’S PROGRAMMATIC APPROACH TO SUPPORT FPIP .................. 60
ANNEX 5: INITIAL FSP WORK PLAN ........................................................................... 63
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I. STRATEGIC CONTEXT
A. Country Context
1. Afghanistan is a poor, deeply fragile and conflict affected country. It has been in
almost constant conflict for over 35 years with no durable political settlement established. This
has had a destabilizing effect on social cohesion, exacerbating ethnic divisions and weakening
government institutions and rule of law. GDP per-capita is among the lowest in the world,
poverty is deep and widespread, and social indicators are still at very low levels. About 39
percent of the population lives in poverty and roughly another one third is susceptible to
dropping below the poverty line. Widespread poverty and limited access to services lead to poor
living standards for the majority of the population; Afghanistan’s HDI ranking is 171st out of 188
countries.
2. Following a sustained period of impressive development progress after the fall of the
Taliban, Afghanistan is currently undergoing a difficult adjustment. With an influx of aid
since 2002, Afghanistan sustained rapid economic growth and improvements against important
social indicators for more than a decade. Annual growth averaged 9.4 percent between 2003 and
2012. With the withdrawal of international security forces1 starting in 2011 and with the
subsequent political transition in 2014, economic and social progress has substantially slowed.
Internal divisions within the National Unity Government slowed vital reforms and delayed the
appointment of key officials, undermining policy certainty. Afghanistan also currently faces a
humanitarian crisis arising from large numbers of return refugees (approximately 800,000 in
2016) and a large and growing internally displaced population (1.2 million). Armed conflict in
Afghanistan has claimed the lives of 26,512 civilians and injured 48,931 others between 1
January 2009 and 30 June 2017 and continues to cause severe harm to civilians across
Afghanistan.2
3. Reduced aid and security presence led to a rapid weakening of demand with follow-
on impacts across the economy. Aid flows decreased from around 75 percent of GDP in 2012
to 45 percent of GDP, in 2015 annual firm registrations have declined by more than half since
2012 while unemployment has increased (from 13.5 percent in 2008 to 22.6 percent in 2014),
both reflecting falling confidence. With slowing economic activity, fiscal revenues declined from
11.6 percent of GDP in 2011 to 8.7 percent of GDP in 2014, before recovering slightly to 10.7
percent of GDP in 2016. The security situation has also led to reversals and increasing disparities
in access to services. Recent evidence from household surveys suggests that access to services is
declining among the poor.
1 The number of NATO troops declined from about 130,000 in 2011, to around 15,000 by end-2014. 2 Afghanistan Protection of Civilians in Armed Conflict Midyear report 2017, United Nations Human Rights
https://unama.unmissions.org/protection-of-civilians-reports.
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4. With an undiversified productive base, the economy relies heavily on foreign aid
and public expenditure. The private sector is extremely narrow, with employment concentrated
in low-productivity agriculture. Investment since 2001 has focused around the aid-driven
contract economy. Private sector development is constrained by weak institutions, inadequate
infrastructure, widespread corruption3, and a difficult business environment
4. Public expenditure
constitutes 25.6 percent of GDP; however, foreign grants currently finance more than two-thirds
of budget expenditure and substantial off-budget security needs. A large trade deficit, of around
38 percent of GDP in 2016, is also financed almost entirely by aid inflows. With aid expected to
decline from around 46 percent of GDP in 2017 to 20 percent of GDP by 2030, and in the
context of a rapidly growing population, new sources of growth, employment, revenues, and
exports are desperately needed, as are savings from improved management of public
expenditure.
B. Sectoral and Institutional Context
5. Afghanistan has made significant progress in establishing a functioning and credible
Public Financial Management (PFM) system that has contributed to increasing revenues
from about US$130 million in 2002 to over US$2.1 billion in 2016. The legal framework
underpinning PFM (Public Finance and Expenditure Management Law, and Public Procurement
Law) has been established. The Afghanistan Financial Management Information System
(AFMIS) has been rolled out across provinces, and is being used for payment processing,
accounting and reporting. The Government’s PFM performance is generally portrayed as one in
which public finances are, by and large, used for their intended purposes as authorized by the
budget, which is processed with transparency and where the fiscal aggregates are well controlled.
This is demonstrated by Afghanistan’s 2013 Public Expenditure and Financial Accountability
(PEFA) scores, which were above the average for low-income states and fragile contexts, and
equaled middle-income country results for control, reporting, and external scrutiny.
6. Despite maintaining aggregate fiscal discipline, Afghanistan’s PFM systems are not
fully developed to ensure strategic allocation of resources and efficient service delivery. Almost half of the development budget remains unspent (execution rate is 54 percent), leading to
an overall budget execution rate of 76 percent. The low execution rate being the result of
inefficiencies in budget planning, poor appraisal of development projects, protracted
procurement processes, and overall low government capacity. Public expenditure is currently not
aligned with the fiscal sustainability objectives of the government. Moreover, public spending is
expected to grow over the medium-term while resources are projected to remain tight. Further,
the operations and maintenance of public assets are reportedly weak, constraining the delivery of
public services.
7. Improving revenue collection is central to Afghanistan’s self-reliance5 agenda, but
remains constrained. 2016 domestic revenues reached 10.8 percent of GDP, while expenditure
3 Afghanistan was ranked 169th of 176 countries according to the 2016 Corruption Perception Index. 4 Afghanistan was ranked 183rd of 190 countries in the 2017 Doing Business Survey 5 The Government presented its vision for building self-reliance in the context of declining international assistance to the
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was 26.9 percent of GDP, with the deficit largely financed through development partner grants.
The Government of Afghanistan (GoA) has recently taken policy and administrative measures to
increase domestic revenue collection. A 10 percent telecom services fee was introduced in 2015.
While there is a possibility that it could be suspended through legislative action in the future, this
is not likely in the immediate future and the fee continues to be collected. Value Added Tax
(VAT) is planned for implementation by 2020, and is particularly important in the context of
Afghanistan’s accession to the World Trade Organization (WTO), as the VAT must offset
revenues that will be lost to tariff reductions. However, a narrow tax base, low capacity, weak
internal controls, and a decentralized tax administration remain significant challenges. GoA also
faces a difficult trade-off balancing strict compliance measures with a conducive business
environment.
8. Despite the direct and indirect support that state-owned enterprises (SOEs) receive
from the budget in the form of subsidies, equity injections, deferred taxes, other payment
arrears and loan guarantees, their ultimate performance remains weak. Presently,
Afghanistan has 50 SOEs which account for only 2 percent of national revenues and about 4
percent of GDP. 15 of these SOEs are corporatized and commercialized (state-owned
corporations or SOCs) and three are state-owned commercial banks (SOCBs). Non-financial
SOEs operate in strategic sectors such as energy, mining, and telecom. No diagnostic study to
date appears to have properly documented the size and the market concentration of each SOE in
the sub-sectors in which they operate. The financial performance of SOEs is not monitored and
contingent liabilities are unknown, posing a fiscal risk.
9. Afghanistan currently relies on unsustainable donor-financed project consultants
(often called ‘second civil service’) to execute core government programs. This reliance has
eroded government capacity and impedes the use of country systems to build accountability,
fight corruption, mobilize domestic revenue and attract investment. There is a shortage of skilled
staff capable of developing and applying procedures and establishing institutions. Professional
training for the public sector, especially for experts and managers, and training resources in
general are insufficient.
10. The Government recognizes that it is critically important to address these
challenges, all of which impact negatively on service delivery. In this regard, the GoA’s PFM
Road Map provides significant opportunities to build on previous progress and further strengthen
Afghanistan’s PFM system. The Road Map is underpinned by a 5-year rolling Fiscal
Performance Improvement Plan (FPIP). The FPIP is an ambitious and comprehensive reforms
program that covers the whole breadth of public financial management. It is intended to both
reinvigorate progress as Afghanistan seeks to move to the next level of performance, and also
introduce a new emphasis on sustainability, capacity building, and government leadership of
reforms. It does so by providing a comprehensive approach to fiscal management reforms that
expands beyond core PFM, for example through the inclusion of revenue administration and
policy, HR reform, and macro-fiscal policy analysis. FPIP clearly reflects a desire to move
international community at the London Conference in December 2014.
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beyond business as usual. In contrast to many PFM reform plans, the FPIP includes a strong
focus on implementation. The plan does not simply state what will be done, but also examines in
detail how incentives and structures can be established to ensure implementation and periodically
measure progress. In line with this, the Ministry of Finance (MOF) has decided to use the FPIP
as the only vehicle to implement PFM reforms and clarified to donors to channel all their support
to MOF only for FPIP, rather than separate projects. Donors are also invited to participate in the
annual planning and evaluation of rolling plans.
11. In line with MOF’s directive and to support the government’s FPIP reform
initiative, the Bank has designed a new engagement model (“programmatic approach”)
that consolidates existing activities into three interrelated and complementary instruments.
The FSP, constitutes the implementation arm of the new engagement model and is intended to
provide critical inputs in the form of upfront investments drawn directly from FPIP work plans.
Government has demonstrated strong ownership of the FSP, committing up to US$100 million in
parallel financing over five years, to support related infrastructure that will not be directly
financed from FSP, and an internal incentive program to reward strong performing FPIP teams.
The FSP will be underpinned through the FPIP Advisory Facility, a programmatic package of
Advisory Services and Analytics (ASA). The FPIP Advisory Facility scales up resources for
foundational Bank-executed technical assistance to operationalize and inform FPIP
implementation. The third instrument is the Incentive Program (IP) Plus, which is the major
channel for multi-donor policy-based budget support to the GoA, providing approximately
US$300 million per year. This will provide the overall reward structure for the FPIP. Refer to
Annex 4 for further details on the FPIP and the Bank’s programmatic approach.
C. Higher Level Objectives to which the Project Contributes
12. The higher-level objective to which the FSP contributes is that of self-reliance. The
FSP is a direct derivative of the GoA’s strategic vision entitled “Realizing Self-Reliance:
Commitments to Reforms and Renewed Partnership”. This vision has been translated into two
key flagship reform programs. The first is the Afghanistan National Peace and Development
Framework (ANPDF), which provides a credible framework for improving security, political
stability, and economic and fiscal stabilization. The ANPDF includes plans to advance good
governance, including electoral reform and strengthening democratic institutions, promoting the
rule of law, and respect for human rights, particularly in relation to women and girls, fighting
corruption and the illicit economy including narcotics. These reforms are intended to pave the
way for enhanced private sector investments and sustainable social, environmental and economic
development.
13. The second complementary reform program – to which the FSP directly contributes
through implementation support to the FPIP – is the GoA’s PFM Road Map. Specifically,
this focuses on building the country’s public administration capacity to accelerate aid utilization,
provide faster and better services, and ensure transparency and accountability of public
expenditure to take the reconstruction agenda forward and win back the trust of citizens.
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14. The FSP is intended to make key contributions to both fiscal and institutional self-
reliance. The FSP includes strong focus on macro-fiscal policy analysis, as well as options for
improving revenue collection and expenditure management. While designed primarily as an all-
of- MOF Technical Assistance (TA) facility, the FSP will not “substitute” but rather supplement
the development of government systems and core institutional capacity. This includes capacity
development in core PFM areas, in customs, revenue etc. but also to help build the MOF as an
institution through constitution of its backbone and shared services including information
technology (IT), human resources (HR), and fiduciary. In line with Government’s commitment
to gradually reduce the dependence on parallel systems, the FSP will not include a Project
Implementation Unit (PIU) but would be focused on project implementation through country
systems.
II. PROJECT DEVELOPMENT OBJECTIVES
A. PDO
15. To contribute to the improvement of domestic revenue mobilization and public
expenditures management, and of reinforcing a performance oriented management culture in the
Ministry of Finance.
B. Project Beneficiaries
16. The departments of MOF and non-MOF FPIP departments [the Supreme Audit Office
(SAO) and National Procurement Authority (NPA)] are the primary project beneficiaries.
Through contributions to improved domestic revenue mobilization and public expenditures
management, the GoA at large stands to benefit from the FSP.
C. PDO-Level Results Indicators
17. The key results of the FSP are based around the strategic objectives of the
government PFM Road Map. These are as follows:
Improved development budget execution rate.
Increase in domestic revenue as a percentage of GDP.
Increased compliance with audit recommendations.
Improvement in core institutional capacity, represented by a reduction in the number of
long-term technical assistants.
III. PROJECT DESCRIPTION
A. Project Components
18. The FSP is organized around four complementary investment components
supporting Government-executed technical assistance, capacity building, and IT
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infrastructure. For purposes of clarity and coordination, and because FSP includes a multitude
of joined-up actions along thematic lines between departments, the four investment components
are categorized around the PFM cycle.
19. The FSP is designed to align with the government’s own work program (the FPIP),
and will therefore support the FPIP in its entirety. It does so sequentially, through “locking-
in” of “early wins”, especially given that the project spans the period pre- and post-election. The
project is prioritized around flagship reforms particularly in neglected thematic areas, and the
bedding down of achievements in more-advanced areas. Support within these areas is sequenced
along critical path dependencies. The FSP is also designed with greater flexibility in allocating
resources where they are needed – it embeds an FPIP ‘cycle of trial and error’, building-in
flexibility that is significantly greater than in previous PFM projects. Sub-components with
limited traction can be dropped or simplified during implementation, and funds unspent in one
department could be shifted to another (within and across components) or to address emergent
gaps. This will be done through changes in work and procurement plans, which are to be updated
regularly. The below outlines sequenced priority areas to be locked-in by the FSP along its four
components (refer to Annex 5 for an initial FSP work plan capturing these areas, and Annex 1
for a detailed project description capturing full component outlines and context).
20. Component 1: Budget as Tool for Development [$10m]. This component aims to
increase budget credibility by improving the efficiency of budget processes, realistic budget
estimation and costing, linking budget with policy and introducing medium term budgeting. It is
organized along the following inter-linked sub-components:
21. Budgeting Processes: This sub-component would support the Budget Department to
revise budget processes with a focus on realistic cost estimation, better commitment controls and
gender-sensitivity. This first requires linking the budget to Public Investment Management
(PIM) systems and to procurement planning, and development and implementation of forward
estimates for multi-year budget planning, particularly for development projects. Gender
mainstreaming will require the development of a framework for gender disaggregated statistical
analysis to feed into the budget. Implementation of new processes derived from the provincial
budgeting policy delegating financial authority to the provinces, development and roll-out of an
Operations and Maintenance (O&M) policy, and improving budget disclosures and
comparability of budget and accounts are the other key reforms to be implemented.
22. Fiscal Policy: This sub-component would continue support to the Macro Fiscal
Performance Department (MFPD). The MFPD currently produces a medium-term fiscal
framework (MTFF) that provides economic and fiscal projections. Further support will be
provided in improving the quality of the MTFF in developing a well-designed medium term
budget framework (MTBF) and a medium term expenditure framework (MTEF). Within the
overarching framework of the MTFF, the MTBF aims at allocative efficiency and the MTEF
enhances efficiency of the expenditures, all within a three to five-year horizon. The MTBF thus
aligns multi-year budgets with national priorities leading to budgetary ceilings thereby reducing
financing volatility. The MTEF critically examines expenditure performance against budgeted
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targets for identifying how expenditures can be made more effective. Institutionalizing these
practices will entail improving the fiscal strategy, including alignment of the budget with
Government priorities, , as well as strengthening PIM systems. MFPD will also target
development and implementation of a sustainable debt policy. Support to MFPD will include
enhancing the capacity of secretariat and advisory services to the High Economic council (HEC),
and Tax Policy Development Committee (TPDC).
23. Development Policy: This sub-component will continue support to the Policy
Department, also working closely with the Ministry of Economy and sector ministries, to
increase the efficiency of public spending and linking fiscal strategy to budget strategy. This
involves support to operationalizing the ANPDF implementation mechanism through finalization
and M&E of updated, consolidated and costed sector strategies (National Priority Programs or
NPPs) and work plans, and ensuring their alignment with the budget. It also involves the
development of a PIM framework to improve project identification, appraisal, review and
approval. FSP will work in close collaboration on Public Private Partnership (PPP) issues with
the upcoming Bank Infrastructure Preparation Facility (IPF). The IPF is still to be fully designed,
but it is currently foreseen that the IPF will fund the appraisal and preparation of pre-feasibility
and feasibility studies of both public (PIM) and PPP infrastructure projects. For public (PIM)
projects going forward, support from the IPF will end with the feasibility studies and other
required TA support for these projects is to be facilitated through the FSP. Support to the Policy
Department will include enhancing the capacity of secretariat and advisory services to the
Development Councils6.
24. Component 2: Revenue Mobilization [$40m]. This component is designed to
strengthen capacities of various revenue administration departments to increase tax compliance
and facilitate timely filing and payment. It further aims to enhance Government’s capacity to
effectively regulate Afghanistan’s minerals and hydrocarbon resources sector. It is organized
along the following sub-components:
25. Tax Administration: This sub-component will build on existing support to the
Afghanistan Revenue Department (ARD) through business process reengineering that will feed
into further improvements of basic IT infrastructure and systems, especially Standard Integrated
Government Tax Administration Systems (SIGTAS) and e-payments. It will continue taxpayers
support services and outreach, and further advance implementation of the ARD reform plan,
including restructuring on a functional basis, and strengthening reporting and accountability
structures between mustofiats and ARD. Ongoing reforms to tax policy and the introduction of
VAT will also be supported.
26. Customs Administration: This sub-component will build on existing support to the
Afghanistan Customs Department (ACD), including consolidation of efforts to improve
enforcement (data analysis and collection, anti-corruption policies and plans, and post clearance
6 Development Councils, equivalent to thematic committees around which the National Cabinet has been reorganized, are
intended to provide a forum for related ministries to develop strategic frameworks and prioritize programs (built around results)
to increase efficiency in budgetary allocations.
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audit and mobile verification), simplify and standardize customs clearance and processes, and
HR reforms. The development and implementation of a National Single Window (NSW) system,
deployment of a Trade Information Portal7 and the continued geographical and functional rollout
of Automated Systems for Customs Data (ASYCUDA) will underpin support under this sub-
component.
27. Afghanistan Extractive Industries Transparency Initiative (AEITI): This sub-
component will support required key actions to be undertaken with respect to the Extractive
Industries Transparency Initiative (EITI) implementation in Afghanistan, before and post-
validation. This primarily includes addressing AEITI recommendations of Validation and
Reconciliation reports.
28. Component 3: Treasury Management, Accountability, and Transparency [$30m].
This component aims to consolidate basic core PFM functions to underpin more ambitious
aspects of planned PFM and budget reforms. It is organized along the following sub-
components:
29. Treasury: This sub-component will build on existing support to the Treasury
Department through further strengthening of core systems and ensuring full implementation and
compliance. This would include consolidation of financial management systems including
AFMIS, improved commitment controls, production of complete and comprehensive financial
accounts, and introduction of new payroll controls. The Treasury will also prepare annual
financial statements pertaining to the core budget using Cash Basis International Public Sector
Accounting Standards (IPSAS). Strengthened accounting and auditing practices of the corporate
sector will be facilitated through support to development of the Certified Professional
Accountants (CPA) Law and curriculum. Treasury will also be supported to develop a
framework for Sukuk Bonds.
30. Audit and Financial Reporting: This sub-component will build on the development of
the Accountancy Law through technical assistance to support implementation – including to
assist the Internal Audit Department (IAD) to improve audit follow-up and strengthen the
internal audit function of line ministries. External audit efficiency will be supported through an
HR and capacity building strategy for the SAO, and in the interim, contracting with consultancy
firms for Grants audit, and for quality control and quality assurance. The SAO will also be
supported to automate manual audit processes through the roll-out of an Audit Management
Information System (AMIS) to automate manual audit processes.
31. Procurement: This sub-component will build on the long-standing partnership with the
NPA to advance a third generation of public procurement reforms. This involves first reviewing
and stabilizing current reforms and the supportive legal, regulatory, and policy framework. This
will be built upon through new reforms related to implementing open contracting to improve
collection and disclosure of public procurement data across the full contracting cycle; and
7 The Trade Information Portal will provide a single on line and user friendly platform where all the information relating to trade
regulations, procedures, fees, forms etc. from all the various trade related agencies is aggregated and presented on one website.
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establishing countrywide Framework Agreements for procuring large volume small value items
of repetitive purchase by various Government entities. The most significant third generation
reforms relate to assessment and piloting implementation of Electronic Government Procurement
(e-GP) that will follow comprehensive process re-engineering.
32. SOEs, Insurance, and Properties: This sub-component will be guided by a diagnostic
assessment to measure the size, composition, market share as well as economic weight of SOEs,
and financial, operational and fiscal performance of the entire SOE sector. The sub-component
will also support the development of an insurance sector policy, and of procedures and policies,
and an information management system for public properties.
33. Citizen’s Engagement: This sub-component will support the GoA in establishing and
implementing a proper mechanism for budget transparency, accountability and participation,
consistent with international best practices, in two areas: (1) Under MOF, this sub-component
will help to mobilize Civil Society Organizations (CSOs) in order to establish and implement a
framework where CSOs collaborate with MOF for further citizens’ awareness in the planning
and oversight of the budget at both the national and sub-national levels; and (2) Under the
Auditor General, this sub-component will support Citizen Participatory Audit (CPA). The SAO
will engage with CSOs in an effective manner around the audit cycle to jointly monitor the
quality of public expenditures to strengthen their impact in exercising public oversight.
34. Component 4: Institutional Capacity Building and Performance Management
[$20m]. This component aims to build capacity of MOF staff and the requisite systems for
effective functioning of the ministry, and to reinforce overall performance management and
coordination of the FPIP. It is organized along the following sub-components:
35. Backbone/shared services: This sub-component will support the functioning of the
corporate backbone and shared services of MOF, including through implementation of a strategic
planning exercise (functional review) to be supported through the Capacity Building for Results
(CBR) Facility. This will involve the development of a competency framework (to be supported
through the FPIP Advisory Facility) to assess the current capacity gaps at MOF and accordingly
guide recruitment and TA migration (working with the CBR Facility) performance management,
training and professional development. The sub-component will support MOF Administration
business process reengineering and automation, and digitalization of MOF’s archive system.
Measures to enhance aid management and projects’ coordination and monitoring, and public
outreach by MOF including of the FPIP, will also be facilitated.
36. Information Systems: This sub-component will be guided by an all-of-MOF Information
and Communications Technology (ICT) Assessment being undertaken through the FPIP
Advisory Facility. This is intended to lead to an ICT Strategy that informs the IT investments to
be carried out under FSP and enhanced systems connectivity, as well as institutional and staffing
aspects which need to be addressed.
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37. Performance Management: Based on the recommendations of a Scoping Report
completed as part of the FPIP Advisory Facility, this sub-component will provide support to
enhance collaborative leadership skills and to strengthen the cohesiveness and effectiveness of
leadership teams in the context of FPIP. This will involve the development of a Communications
Strategy including measures to institutionalize the process of behavioral change, to assist new
policy processes, and provide timely support to bridge policy and implementation gaps revealed
over the course of project implementation. Technical assistance will be provided to support the
MOF Performance Management Team (PMT) in the development of annual and mid-year
performance assessment reports of the FPIP, and the development of a publicly accessible web-
based Performance Management and Reporting System (PMRS).
B. Project Cost and Financing
B. Project Cost and Financing
Amount US$ in Millions
Project Components Project cost IDA Financing ARTF
Component 1: Budget as Tool for
Development 10.00 - 10.00
Component 2: Revenue Mobilization 40.00 15.00 25.00
Component 3: Treasury Management,
Accountability, and Transparency 30.00 5.00 25.00
Component 4: Institutional Capacity
Building and Performance Management 20.00 5.00 15.00
Total Costs 100.00 25.00 75.00
C. Lessons Learned and Reflected in the Project Design
38. The main lesson learned and that has driven both the initial conceptualization and
now design of the FSP relates to the need to de-fragment program assistance. Development
partners are providing support to MOF through multiple projects and instruments. These include
ARTF-funded government executed investment and capacity building projects (Second Public
Financial Management Reform Project [PFMR-II], Technical Assistance Facility [TAF], and
Second Customs Reform & Trade Facilitation Project), donor-executed technical assistance
projects, and policy-and-results based programs which provide discretionary budget support. The
fragmentation of donor assistance across these different instruments poses several challenges and
implementation frustrations for MOF. For example, the selective approach of each assistance
project leaves important areas within MOF under-resourced (e.g. MOF backbone and shared
service functions). The proliferation of projects also imposes high coordination cost across the
different stakeholders. The fragmentation of projects and governance structures undermines the
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efforts of MOF to consolidate reform planning and policy discussions within one single
leadership team. There is limited flexibility to mobilize assistance in new areas both on a timely
basis, and for emerging priorities while valuable resources get stuck in projects that
underperform.
39. The Bank’s programmatic approach to supporting the FPIP and most specifically
the FSP (the implementation arm of the programmatic approach), is envisioned to
overcome these challenges. It has resulted from the GoA’s request to the development
community to rethink its MOF assistance portfolio and approach, with MOF emphasizing its
desire to move to more programmatic, performance-based financing. The FSP and the other two
pillars of the Bank’s programmatic approach are a first step, allowing ARTF partners to
overcome the above challenges within the ARTF and World Bank portfolio. As a second step,
other development partners will be encouraged to pool their resources for FPIP implementation
behind the Bank program, or to align their assistance with the program’s unified governance
structure.
40. One of the lessons from the report on non-technical drivers of PFM reforms is that
there can be a tendency to move from reform to the next reform, rather than ensuring
greater bedding down of recently introduced systems – and this is particularly important in
a low capacity/ fragile and conflict affected context. The FSP does exactly this by
consolidating and building upon core PFM achievements such as in treasury function where
further roll-out and upgrade of AFMIS will continue. In other areas, there has been strong past
success but challenges remain. For instance, there are still no accounting standards in the
country. This is partly due to the previous overreliance on parallel systems that have constrained
capacity development within the SAO, which the FSP will now help to move on with an HR and
capacity building strategy. In other areas, considerable progress has been made – from a very
low base - in terms of setting the institutional foundations and establishing the legal framework.
Proposed reforms under the FSP will help to make the leap to implementation e.g. procurement
law implementation.
41. After 15 years of substantial efforts at PFM strengthening, a baseline institutional
capacity has been established but national capacity remains largely weak and spread thin.
Building from this lesson and in line with the Government’s self-reliance strategy, the FSP
prioritizes the building up of institutional capacities instead of relying on unsustainable donor-
financed project consultants. While it is designed primarily as a TA facility, the FSP will not
support “substitution” but rather the development of government systems and institutional
capacity. Consequently, a key result of the FSP relates to gradually reducing reliance on parallel
structures.
IV. IMPLEMENTATION
A. Institutional and Implementation Arrangements
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42. Governance of the FSP, as of the other two pillars of the Bank’s programmatic
approach, will be firmly anchored in the leadership structure of the FPIP. Governance of
the FSP (and the programmatic approach as a whole) will be centered within the MOF
Leadership Team. The MOF Leadership Team - chaired by the Minister of Finance and
consisting of the Chief of Staff of MOF, the four MOF Deputy Ministers, all MOF Director
Generals and key Directors - meets twice per month and will meet at least three times per year on
FPIP, including heads of external FPIP partner agencies (NPA, SAO).
43. More frequent FPIP related meetings will be held through the Core Reforms
Group, which is the steering committee for the implementation of the FSP. The Core
Reforms Group (CRG) is composed of all members of the Leadership Team with the exception
of the Minister of Finance. The CRG, chaired by the Deputy Minister for Finance, will meet at
least once every two months and on an ad hoc basis as needed. It is fully authorized to provide
strategic guidance for the FSP, approve annual budgets and plans (including reallocation), and
review progress quarterly, as well as to ensure that the objectives of the FSP are aligned with the
FPIP, and the strategic vision of the GoA in fiscal reforms and other policy decisions. As
required, the MOF Leadership Team will validate decisions taken at the CRG. This arrangement
facilitates better implementation by providing more time and space for discussion and ensuring
swift decision making. Moreover, with the CRG – not the individual MOF beneficiary – guiding
the implementation of the program, it will ensure that support to MOF is no longer insulated
within individual departments, but assists all departments within MOF with FPIP
implementation. This will ensure 100% alignment with the FPIP.
44. The PMT, reporting to the Deputy Minister for Finance, will provide day-to-day
operational backstopping and coordination across beneficiary departments. The PMT
serves as the coordinating bridge, responsible for communication and follow up of decisions
between the steering committee and teams. The PMT acts as secretariat to both the Leadership
Team and Core Reform Group. In this role, the PMT provides an evidence-based decision
support system and coordinates teams’ efforts towards the achievement of the overall PDO of the
FSP. The PMT is responsible for ensuring that the FPIP work plans supported by the FSP are
synergized and add up, providing technical support to teams in reform planning, investment
planning and implementation monitoring. The PMT which comprises 6 members, has built up
considerable experience and knowhow and is planned to be buttressed with additional expertise
in M&E and change management.
45. The MOF, NPA and SAO will manage the implementation of the program through
corporate systems without the assistance of parallel PIUs. An overall Project Director – the
current MOF Director for Finance – has been appointed for the FSP. Each MOF Deputy
Ministry, the NPA and SAO will nominate a dedicated focal point (component coordinator) and
team with primary responsibility to implement FPIP plans, and who will be provided leadership
and project management training and coaching. On a quarterly basis, teams will report to the
PMT to prepare consolidated progress reports. Existing institutional arrangements will be used
for financial management which will be under the overall responsibility of the Finance
Directorate of MOF’s Deputy Ministry for Administration. The Procurement Directorates of
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MOF, NPA, and SAO respectively will be responsible for procurement. To empower and help
expedite beneficiary department’s implementation, the MOF Deputy Ministry for Administration
will second financial management and procurement staff to each MOF Deputy Ministry and to
the SAO, including key staff from existing MOF PIUs that are to be discontinued upon FSP
effectiveness. The selected PIU staff will be transitionally integrated into relevant core
departments (Tashkeel) within 18 months.
46. Beneficiary departments will be primarily responsible for implementation of their
respective FSP activities. In line with the in-built flexibility of the FSP, activity and
procurement plans would be updated regularly in close coordination with the PMT and in
consultation with the Core Reform Group. Refer to Annex 2 for detailed institutional and
implementation arrangements.
B. Results Monitoring and Evaluation
47. FSP, as a tool to support implementation of the FPIP and its performance
management framework, will draw on this established monitoring and reporting system.
The FSP Results Framework will utilize the mid-year and annual independently validated
assessments for monitoring, whereby data around FSP indicators would be collected by the PMT
through the PMRS it is developing. The PMT would report on implementation of the FSP as part
of twice yearly published and disseminated FPIP reports. Brief progress reports would also be
made available at the end of each quarter through the PMRS which will be online and open to
access of external users, to follow-up on targets and learn on bottlenecks and their resolution.
MOF is prepared to restructure its assessment reports to introduce additional measures, if
necessary, especially with respect to quality, accuracy and timeliness of data collection and
reporting, as well as measures to ensure timely corrective action.
48. The FPIP performance management framework provides a good structure but
needs improvement to make indicators specific and measurable. The performance
management cycle starts with directorates (SAO is not yet included) establishing rolling five
year plans at the start of the fiscal year. The rolling five years’ plan encompasses a number of
activities/actions that are largely inputs, as well as mostly general outputs and outcomes. These
are prioritized in terms of impact and risk, and on the basis of which, a list of flagship reforms is
prepared. The PMT is responsible to collate the information from directorates and prepare
performance reports, however, the baseline, the unit of measurement and sources of data are not
defined, and judgement is applied to monitor and evaluate indicators. The performance
management cycle includes independently validated mid-year progress and end year
performance assessments based on three weighted criteria: (i) Quality; (ii) Timeliness; and (iii)
Effectiveness.
Figure 1: FPIP Performance Management Framework
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49. The FSP Results Framework drills down to the key issues relevant to each of its
selected priority areas, drawn from the FPIP work plans. In recognition that the FSP is just
one of a three-pronged approach to support FPIP which itself is intended to be evolving
(“rolling”), this is done by specifying results at the level of intermediate outcomes, considered
priority and therefore continually relevant to FPIP. Where selected indicators are not currently
included in the FPIP rolling plans, MOF will incorporate these starting from the plans for 2018,
ensuring the FSP results framework is fully aligned with FPIP. Associated targets have also been
set to capture a sub-set of the broader program, reflecting realistic but meaningful
progress/functional improvements directly attributable to the project. capture progress within the
broader program.
C. Sustainability
50. The FPIP is derived from the GoA’s self-reliance strategy. Consequently, self-reliance
is a higher-level objective of the FSP, which is intended to make key contributions to both fiscal
and institutional self-reliance. Contributions through FSP to the goals established in the FPIP
would represent major advances in Afghanistan’s capacity to manage its public sector and
support improved domestic revenue mobilization, economic management and service delivery.
51. The FSP moves beyond business as usual. While TA projects over the past 15 years
have delivered important gains in developing a relatively strong-performing PFM system, the
FPIP signals a desire to improve on past performance. The programmatic approach (including
the FSP as its key implementation pillar) is intended to both reinvigorate progress as Afghanistan
seeks to move to the next level of performance, and also introduce a new emphasis on
sustainability, capacity building, and government leadership of reforms.
52. Through the FPIP, GoA has strongly committed to reforms to address corruption,
improve transparency and strengthen integrity. This focus on building the foundations for
stronger governance, supported tangibly by the FSP, will support government’s goal of
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mobilizing an increasing proportion of aid on-budget, as well as contributing to government’s
broad state-building agenda.
D. Role of Partners
53. The World Bank and development partners are providing support to MOF through
multiple projects and instruments. Support includes a range of investment and capacity
building projects. There are also a number of policy and results based programs with linkages to
the FPIP such as the results-based and Bank administered ARTF Incentive Program (IP), the
United States (US)-funded New Development Partnership Program, the European Union (EU)-
funded State Building Contract, and the new World Bank Development Policy Grant, all of
which provide discretionary budget support. The International Monetary Fund (IMF) also
approved a US$45 million three-year Extended Credit Facility (ECF) for Afghanistan in July
2016. The program will support a policy mix that aims to preserve macro-financial stability by
strengthening fiscal and external balances, keeping inflation low, and maintaining exchange rate
flexibility and strong buffers.
54. As part of FPIP implementation, MOF is taking the lead role in donor coordination. To avoid duplication and leverage comparative advantages, the current ARTF Working Group is
being expanded and reorganized into a budget support donor platform. This is to be co-chaired
by DMs Finance (FPIP) and Policy (ANPDF). The Policy Action (PACT) Coordination Platform
will coordinate and monitor reform commitments that are anchored in multi- or bilateral policy-
based programs and are managed by MOF. The new platform aims at: (1) improving MOF
governance of policy-based programs, and ultimately their performance; (2) enhancing
Government ownership, as well as; (3) improving Government-Donor coordination and
alignment across policy-based programs and Government strategies. Given the central role of the
FPIP in policy and results based programs, the PACT Coordination Platform is expected to also
play an important role in the coordination of international donor support around the FPIP. To
buttress this, MOF has been inviting donor partners to participate in FPIP annual planning and
assessment process. It has also communicated to donors to complete and close their TA projects
that are outside FSP.
V. KEY RISKS
A. Overall Risk Rating and Explanation of Key Risks
55. The overall risk rating for the project is “High”. This is acknowledged upfront and
reflects the comprehensiveness and ambition of the FSP vis-à-vis the difficult and fragile
operating context of Afghanistan, political economy factors, and inconsistencies in stakeholder
ownership, cooperation and capacity. Risks in four areas are most pronounced and could
potentially jeopardize the achievement of project results. These risk areas, discussed below, are:
(i) political and governance risks; (ii) macroeconomic risks; (iii) institutional capacity for
implementation and sustainability risks; and (iv) security risks.
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56. Political and Governance: There are multiple sources of political and governance risk
in Afghanistan. Power-sharing arrangements under the National Unity Government are a
continued source of tension and potential future instability. Current political arrangements and
the possibility of a new government pose risks of potential changes in the level of political
support for the FPIP. With a short window until the next election in 2019, the potential political
disruptions could delay FSP implementation. This risk is planned to be mitigated through trying
to move fast initially by “locking-in” priority flagship, underserved and more-advanced “quick
win” areas ahead of elections. There may be some slow down before another push (until project
completion) with potential adjustments once a new Government is established.
57. Macroeconomic: Afghanistan’s macroeconomic outlook is subject to substantial risks. The country remains heavily reliant on aid, and any reduction in security and civilian support
below expected levels would place pressure on fiscal sustainability and service delivery. Access
to continued external support is most likely to be sustained at expected levels if progress can be
sustained against key structural reforms. Successful implementation of the reforms planned
under FPIP (through FSP), including on revenue mobilization and expenditure management will
therefore help mitigate this risk, along with continued World Bank policy dialogue on fiscal
management and structural reforms under the IP Plus.
58. Institutional Capacity for Implementation and Sustainability: The public sector in
Afghanistan is characterized by highly uneven and thinly spread technical capacity. The context
of long-term aid dependency had left some agencies and reform processes heavily dependent on
international technical assistance, and vulnerable to associated delays, discontinuities, and
coordination problems. The Government is fully aware of these capacity deficiencies. This is
reflected in the design of the FPIP (and thereby the FSP), which places strong emphasis on
institutional transformation, across technical directorates but also within the corporate backbone
of MOF. This risk is further mitigated through the FPIP Advisory Facility which has provided an
entry point for the carry-out of Bank-executed upfront work critical to the implementation of the
FSP, especially in the absence of a PIU (refer to Annex 3 for the Bank’s implementation support
plan and Annex 4 for further details on activities supported by the FPIP Advisory Facility).
59. Security (Other): Continued insurgent activity represents another source of risk to
achievement of the PDO. Deterioration in the security situation could divert government capacity
and policy attention from supported reforms, impede the provision of technical assistance, or
undermine the expected impact of supported reforms. Previous experience has shown that the
Bank can successfully monitor and support implementation of reform programs even with a
limited in-country presence.
60. In addition, risks in several areas are rated “Substantial”, including:
a. Technical Design of Project: The breadth and technical sophistication of certain aspects
of the FPIP may prove excessively ambitious. Attempting to implement such a broad
range of reforms may also spread available capacity too thin, potentially slowing
progress. The scope of the FSP will not be narrowed - MOF has been clear that the FPIP
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should be supported in its entirety to ensure that interdependencies and
complementarities between different aspects of reforms are recognized and managed as
part of a coherent cross-ministry planning process. Moreover, the FSP includes several
new areas of support (e.g. HR, SOEs, AEITI), some of which (e.g. backbone/shared
services) are precisely where MOF is keenest for Bank support. However, FSP support
will be staggered to front-load reforms that are the most likely to be robust, feasible and
critical from a political economy perspective and with the greatest buy-in. This will
consider the implementation window until the 2019 elections, technical complexity and
inherent context-driven challenges.
b. Sector Strategies and Policies: Linked to the technical design of the project is the
political sensitivity of some of the planned reforms, for instance on linking HR systems
with a payroll generation module, the implementation of AEITI, which has not
progressed much since 2009, and issues around incentives that might prevent some areas
of reform such as customs enforcement to succeed. Another element is the inherent lack
of predictability of a fragile and aid dependent environment, which might impact, for
instance, medium term fiscal and expenditure frameworks. With this in mind, the FSP is
designed to allow the Bank together with government to periodically reassess the
appropriateness of policy actions supported by technical assistance. The programmatic
approach as well as the built-in financing flexibility of the FSP also gives the project the
agility to respond to changes as certain reforms unexpectedly gain or lose traction.
Another issue relates the performance management framework of the FPIP. Target scores
against ‘aspirational’ benchmark indicators, if achieved, would place Afghanistan among
the top tier of developing countries in terms of the comprehensiveness of its PFM
systems and adoption of best practices. While establishing aspirational goals can be
useful, there are risks that such goals are perceived as unrealistic. To mitigate these risks,
results supported by the FSP while directly linked and feeding into the overall
performance management framework, would be specified at the level of intermediate
outcomes rather than as specific technical reforms. In this way, the Bank would be
supporting achievement of the objectives of the FPIP while avoiding “cherry-picking”,
and incentivizing across plan actions.
c. Fiduciary: The FSP will be implemented by MOF, NPA, and SAO using country
systems. This is a necessary step to promote self-reliance, in terms of both fiscal
sustainability and core institutional capacity, but poses fiduciary risks in the short-term.
Financial Management and Procurement assessments have been undertaken by the Bank
as part of project preparation. These highlight specific risks arising from gaps in fiduciary
systems (including low civil service capacity) and recommend mitigation. MOF’s plan to
retain key staff from discontinued PIUs to support procurement, manage contracts
(including for SAO) and help build MOF’s corporate backbone, is one avenue through
which fiduciary risks can be significantly managed. Risks associated with failure to build
capacity by these staff due to for instance, perverse incentives, will be mitigated through
their integration into core civil servant positions within 18 months. This has already been
agreed with the selected staff and will be facilitated through MOF’s existing CBR
managed-TA transfer program which allows staff to retain higher National Technical
Assistant (NTA) salaries as (CBR-recruited) Tashkeel. NPA will conduct its own
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procurement and has adequate capacity to do so, and it will carry out large procurement
packages on behalf of SAO. The SAO’s Procurement Directorate will be responsible for
the SAO’s small procurement packages. As an additional mitigation measure, the Bank
has also recommended that an International Procurement Consultant be hired to provide
overall support to all three entities over the first 6-12 months of FSP implementation.
Moreover, much of the advance work carried out through the FPIP Advisory Facility has
focused on fiduciary aspects, carried out in tandem with preparation of the project
procurement plan. This includes preparation of a Project Procurement Strategy for
Development (PPSD). Supporting analysis (all-of-MOF ICT Assessment) informing
complex design and procurement, specifically of IT systems (and their connectivity),
both new and expanded IT systems is also underway. MOF already has considerable
experience and success with IT reforms, notably AFMIS, secured through PFMR-II.
Reform Implementation and Management Unit (RIMU) (PFMR-II PIU) staff including
those that contributed to IT reforms, are amongst the staff that have agreed to be
integrated into the core Tashkeel of MOF.
d. Stakeholders: Varying degrees of FPIP buy-in and ownership (and complexity of
reforms across the different teams) poses risks to implementation. The success of the
FPIP requires upfront commitment and coordination to be institutionalized across the
whole of MOF, starting with the MOF Leadership Team. The capacity of some teams to
achieve their goals will depend on actions by other teams. Coordination will need to be
both systematized and incentivized. This is partly addressed by the three-pronged
approach to FPIP, with: (a) the FPIP Advisory Facility helping to lay foundations; (b) the
FSP financing relevant investments; and (c) the IP Plus incentivizing results. The built-in
flexibility of the FSP to move away from underperforming areas and teams further helps
to reduce impact on overall implementation. The placement of the PMT responsible for
day-to-day coordination of the FPIP as a secretariat to the MOF Leadership Team and
CRG anchored within the Office of the Deputy Minister for Finance (chairing the CRG)
is also a sensible approach. Additionally, a Change and Performance Management
Scoping Mission undertaken through the FPIP Advisory Facility, has provided concrete
recommendations to enhance collaborative leadership skills and to strengthen the
cohesiveness and effectiveness of leadership teams in the context of FPIP. Another
stakeholder risk relates to the heavy emphasis on MOF and potential underserving of
other government entities (outside of NPA and SAO). The majority of targeted reforms
while led by MOF, require the coordination and inputs of other line ministries. MOF’s
important role in strengthening capacity of other ministries needs to be considered. The
FPIP may not completely capture some key activities where MOF staff will need to
provide capacity support to other ministries. One example where it does, is in internal
audit. Another example where it may not do, is in the implementation of medium-term
budget framework, which will likely depend on the availability of accurate bottom-up
costing information from line ministries which they may not currently have systems and
capacity to produce. Similarly, it is unclear how PFM constraints are affecting the
delivery of services in health and education. To address this issue, CBR will be utilized to
strengthen links to other ministries. A new phase of CBR is currently under preparation
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and foresees support to the functional streamlining and reform of priority ministries. This
will help to build a larger coalition around the project beyond MOF.
61. Environmental and Social risk is rated as “Low” given that no physical works are
anticipated to be directly funded under the project.
VI. APPRAISAL SUMMARY
A. Economic and Financial (if applicable) Analysis
62. There are three main channels through which there will be a first order impact of
the FSP on growth and development. Broadly, most of the activities are likely to lead to three
outcomes – enhanced revenue mobilization which in turn will result in increased expenditures,
increase in the budget execution rate and an improvement in the efficiency of public
expenditures.
63. The proposed VAT in Afghanistan is expected to widen the tax base and promote
efficiency. The FSP aims to build capacity in the Government to raise taxes in the most optimal
manner where the deadweight loss to the economy is minimized. Moreover, the FSP’s approach
to revenue mobilization is primarily focused on improving tax and customs administration to
maximize revenues in the existing tax policy regime. The resulting improvements are likely to
lead to faster pace of revenue accretion i.e. improved revenue buoyancy without major changes
in the tax policy regime.
64. Improved budget execution will lead to an increase in spending. The degree to which
expenditure policy supports growth depends on the level or quantum of expenditures. If every
condition in the environment in which spending occurs were to be held unchanged, more public
expenditure would necessarily result in greater realization of current development outcomes,
simply because there would be more resources available to commit to the development problem.
The current budget execution rate is at 76 percent of the budgeted amount. An increase in the
budget execution rate will improve the level or quantum of spending and lead to greater
outcomes.
65. An increase in the efficiency of expenditures will improve development outcomes for
each incurred unit of expenditure. The other channel through which expenditures support
development outcomes is through improving the efficiency with which these resources are spent
or improvement in the fiscal multiplier. Recent cross country research by the World Bank has
identified that in low income countries ‘Absorptive Capacity’ of the government plays an
important role in the effect of government spending on the real GDP growth. Absorptive
Capacity is the ability of the Government to identify, attract and efficiently use financial
resources (domestic and external) (Asea, 2016). In effect, it’s the ability of the Government to
marshal and use all its resources - economic and human - in support of its stated economic
policies. The research quantifies that a one standard deviation change in absorptive capacity
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leads to an increase of 18 percent in the multiplier effect, compared to the average. As stated
earlier, this increase in the absorptive capacity works through improving the quantum of the
fiscal multiplier.
66. The FSP will help the government spend more and spend better. The economic
analysis will try and quantify the effects on the overall level and growth of the economy. While
these are first order effects, second order effects will work through many channels because more
and better managed public expenditures will affect all sectors of the economy. Identifying all
these channels is beyond the scope of the analysis and quantifying them is even more
problematic. Therefore, the economic analysis focuses on the direct or first order impact of the
project.
67. Through increasing budget execution rates, the FSP could increase GDP growth by
0.5 percentage points annually. The execution rate of the total budget is at 76 percent in 2016 –
90 percent for the operating budget and 54 percent for the development budget. The relative
proportion of the operating and development budget is about 62: 38. Assuming that their relative
proportions remain unchanged, the FSP target of improving the execution rate of the
development budget from 54 to the targeted 75 percent would mean an improvement in the
overall budget execution rate from the current 76 percent to 84 percent in 2021. It is assumed
that this improvement occurs in a linear manner. As estimated by the World Bank, the current
fiscal multiplier for Afghanistan is at 0.78, i.e. an increase in public spending by 1 percentage
point of GDP leads to a 0.78 percent increase in nominal output (GDP) (The World Bank, 2017).
Given these conditions, the increase in the development budget execution rate from 54% to 75%
by 2021, could expand the GDP by about USD 1.8 billion between 2017 and 2021.
68. Bank analysis indicates that improvement in the efficiency of expenditures could
also generate important gains. The FSP directly addresses parameters that will enhance this
absorptive capacity, particularly through better public investment management. Cross-country
empirical studies indicate that an improvement by one standard deviation in the absorptive
capacity of a country, compared to the average absorptive capacity of the sample of countries,
can lead to an increase of 18 percent in the multiplier effect. Assuming the absorptive capacity of
the government will improve by one fifth of the standard deviation, over the next five years
(until 2021) in a linear manner each year, then by 2021, the fiscal multiplier for Afghanistan
could improve from 0.78 to 0.81. In nominal terms this will amount to USD 50 million gain in
the GDP over five years. While the initial gains may sound benign, efficiency gains will persist
and grow exponentially over time even after the program concludes.
69. The estimated first order impact of the FSP on economic growth via both the
channels – increase in execution rate and more efficient resources allocation – will be an
increase in the growth rate by an average of 0.5 percentage points each year from 2017 to
2021. As a result, the size of the economy will expand by more than 2 percent over the baseline
scenario with no FSP. Hence the first order impact of FSP investment of USD 100 million has
the potential to expand the economy by a cumulative of USD 1.85 billion between 2017 and
2021.
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Table 1: First order impact of FSP on GDP (USD million current prices)
Year Nominal GDP
(US$ millions)
Nominal GDP:
increased
expenditure
Nominal GDP:
improved
efficiency
Total % of GDP
2017 21309 87 1 87 0.41
2018 22777 193 3 196 0.86
2019 24281 330 7 338 1.39
2020 25852 491 14 506 1.96
2021 27266 699 25 724 2.65
70. Second-order impacts of the FSP are potentially large. The FSP will make a
substantial contribution towards reducing corruption, improving the business environment, and
fostering a more rule-based approach. The impact of these changes is potentially very large. For
example, recent research using a panel of 106 countries estimated that 10% reduction in the level
of corruption increases the growth of real per capita growth by 7.86% (d'Gostino, Dunne, &
Pieroni, 2016). Similarly, work by Djankov and others has quantified the economic gains from
improving a country’s performance against the Doing Business Indicators (DBIs) and the impact
on economic growth. Specifically, Djankov et al (2006)8 find that a country that can improve its
ranking by one place gains an additional 0.04 percentage point increase in the rate of economic
growth. In addition, the introduction of VAT from 2020, is expected to improve revenues by 1.5
percentage points from 2020 onwards.
B. Technical
71. FSP is strategically relevant to and reflects government priorities. World Bank
support to implementation of the FPIP, and specifically the FSP, was requested by the President
and the Minister of Finance. It is required to support Government’s efforts to improve domestic
revenue mobilization and public expenditures management, and reinforce a performance oriented
management culture in the Ministry of Finance and related entities. It is not only based on the
existing government program but also directly aligns with the government’s vision of self-
reliance. Specifically, the FSP is focused towards supporting activities of the Five-Year Plan
across MOF and non-MOF FPIP entities (SAO and NPA).
72. The Project is technically sound for the following reasons: (i) it builds on previous
PFM reform efforts and investments through consolidating disparate pieces of the PFM
institutional and systems regime, and working towards integration, sustainability and deepening
reforms; and (ii) the Project is focused on building institutional capacity and reducing reliance on
consultants which is an important element of the government’s self-reliance vision. Moreover,
8 See for example Djankov, McLiesh and Ramalho (2006), Djankov, Freund, and Pham (2010) and Corcoran, and Gillanders
(2015) examine the links between the ease of doing business and economic growth.
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while the Project is ambitious in its scope (reflecting the government’s full FPIP program), its
design takes into account the political economy risks and the short window to elections. During
appraisal, the Bank team worked with government on applying readiness criteria which could
help to prioritize and sequence (“front-load”) activities, and for which the preparation of annual
project work plans could be leveraged. On this basis, the FSP “locks-in” flagship, underserved or
more-advanced (“quick win”) reform areas included under the FPIP in the first 18 months of
implementation (up to elections). Consistent with international lessons regarding basics first and
“problem driven” approaches, it was agreed that the program would initially focus on: (a) core
PFM functions that underpin and must precede the more ambitious aspects of the FPIP; and (b)
areas where current weaknesses are presenting serious threats to economic management and
service delivery. The project design also includes flexibility to reallocate resources from low
performing to high performing (sub) components. Refer to Annex 2 for more detailed description
of readiness criteria.
73. Anchorage of the FSP in MOF has been assessed as feasible and consistent with the
Government’s request. This direct recipient execution model which positions the GoA in the
lead is grounded in lessons from TA facilities in several countries as well as similar projects in
Afghanistan where government ownership has often been weak, especially during design and in
early implementation. This arrangement also responds to Government’s commitment to enhance
the capacity of core Government functions and gradually transition away from parallel
implementation structures.
74. Outputs produced under the FSP will remain in ownership of the Government.
These will not be attributed as Bank’s own work; however, the Bank’s strong involvement will
be there to support MOF’s capacity for ensuring fiduciary compliance. The task team will also
bring in the Bank’s global knowledge and expertise – across and beyond the Equitable Growth,
Finance, and Institutions (EFI) Vice Presidency - through the technical oversight, quality
assurance and monitoring of outputs, as well as in the deployment and synergy of
complementary instruments (FPIP Advisory Facility, ARTF Incentive Program, CBR etc.) for
the benefit of the FSP, and FPIP at large.
C. Financial Management
75. The MOF will carry out the financial management functions for the project through
its Finance Directorate. MOF guidelines for budget preparation will be followed. Project
accounts will be maintained in MOF Treasury Department in AFMIS, which records all project
expenditures and receipts in the government’s accounting system. The Finance Directorate will
maintain subsidiary books of records using MS Excel. IAD of the MoF will carry out the
Project’s semi-annual internal audit. Disbursements will be report based. A Designated Account
(DA) will be opened at Da Afghanistan Bank (DAB, Central Bank). The Finance Directorate will
process all payment requests through the Special Disbursements Unit (SDU) of MOF. Semi-
annual interim financial reports (IFRs) will be prepared by the Finance Directorate and submitted
to the Bank within 45 days from the end of the period. The Project follows the centralized
payment mechanism applied in Afghanistan and controlled by MOF. Internal controls are
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adequate both at the central and implementing agency levels. An annual project audit will be
carried out by the Supreme Audit Office (SAO) with technical assistance from an audit agent
funded under the project and based on the project financial statements prepared by MOF. The
audited financial statements will be submitted not later than 6 months after end of each fiscal
year in which the Project is implemented. There are no overdue audit reports, IFRs or unsettled
ineligible expenditure in respect of MOF. The FM risk rating is Substantial. Refer to Annex 2 for
detailed financial management arrangement.
D. Procurement
76. Procurement will be carried out in accordance with the Bank’s Procurement
Regulations for Borrowers for Goods, Works, Non-Consulting and Consulting Services and
applicable to Investment Project Financing (IPF) hereinafter referred to as “Regulations”. The
Project will be subject to the Bank’s Anticorruption Guidelines, dated October 15, 2006, and
revised in January 2011 and July 1, 2016. The World Bank’s Procurement Manual, Standard
Procurement Documents (SPDs), Requests for Proposals and Forms of Consultant Contract will
be used. The government has prepared and shared a PPSD which details the procurement
methods and approaches. Procurement staff are also attending the necessary procurement
training under another Bank funded project (PFMR-II). The Project will implement the
Systematic Tracking of Exchanges in Procurement (STEP): a World Bank planning and tracking
system, which would provide data on procurement activities, and establish benchmarks.
77. Based on the initial procurement capacity assessment, the threshold of High Risk
Implementing Agency will apply for the prior review of the contracts under the Project. A
PPSD outlining the oversight arrangements for procurement processes as well as contract
execution has been prepared. In terms of capacity, while MOF initially planned to recruit a
procurement and contract management agent to support the transition away from the use of PIUs,
it now plans to retain key staff (including for SAO) from discontinued PIUs (to be integrated into
Tashkeel within 12 months). Several of these have experience with IT procurement, notably
AFMIS through PFMR-II. An all-of-MOF ICT Assessment to guide new and upgraded systems
and infrastructure is also under way through the FPIP Advisory Facility. The NPA will conduct
its own procurement and has adequate capacity to do so, and it will carry out large procurement
packages on behalf of SAO while NPA helps build up the capacity of SAO’s Procurement
Directorate. The SAO will be responsible for its small procurement packages through its
Procurement Directorate. As an additional mitigation measure, the Bank has also recommended
that an International Procurement Consultant be hired to provide overall procurement support
over the first 6-12 months of implementation. Refer to Annex 2 for detailed procurement
arrangement and Annex 6 for the FSP Procurement Plan.
E. Social (including Safeguards)
78. The Citizen Participatory Audit would be a new exercise for the Supreme Audit
Office. While the SAO has developed the framework for citizen participatory audits based on
knowledge exchange with other Supreme Audit Institutions (SAIs), this has not been
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implemented for Afghanistan. The citizens are not much aware about PFM systems in the
country and the mechanism of participatory audits. Initially, the SAO will focus on information
dissemination using a combination of workshops, seminars, round table discussions, forums and
trainings to educate and sensitize citizens about the role of external audit and areas of
cooperation. Moreover, the external audit reports will also be made publicly available. Few
CSOs will be identified and training sessions will be organized on how to operationalize citizen
participation in public oversight.
F. Environment (including Safeguards)
79. No environmental safeguards are triggered. The Project does not include any physical
works and will therefore not have any environmental impacts.
G. Other Safeguard Policies (if applicable)
80. None of the World Bank’s safeguard policies are triggered. Considering that there are
no potential negative social and environmental impacts expected, the Project has a safeguards
risk rating of “Category C”.
H. World Bank Grievance Redress
81. Communities and individuals who believe that they are adversely affected by a World
Bank (WB) supported project may submit complaints to existing project-level grievance
redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that
complaints received are promptly reviewed in order to address project-related concerns.
Project affected communities and individuals may submit their complaint to the WB’s
independent Inspection Panel which determines whether harm occurred, or could occur, as a
result of WB non-compliance with its policies and procedures. Complaints may be submitted
at any time after concerns have been brought directly to the World Bank's attention, and Bank
Management has been given an opportunity to respond. For information on how to submit
complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit
http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service.
For information on how to submit complaints to the World Bank Inspection Panel, please visit
www.inspectionpanel.org. .
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VII. RESULTS FRAMEWORK AND MONITORING
Results Framework COUNTRY : Afghanistan
Fiscal Performance Improvement Support Project (FSP): Project Development Objectives
To contribute to the improvement of domestic revenue mobilization and public expenditures management, and of reinforcing a performance oriented management culture in the Ministry of Finance. Project Development Objective Indicators
Indicator Name Core Unit of Measure
Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection
Name: Increased development budget execution rate
Percentage 54.00 75.00 Annual
Annual audited financial statement and Qatia accounts of GoA and quarterly budget execution reports for development budget prepared by MOF.
Budget and Treasury directorates of MOF to prepare financial statements, Qatia accounts and budget execution reports. SAO to conduct audit.
Description: This indicator measures the proportion of actual development expenditure during the fiscal year against development budget approved by the legislature at the start of the fiscal year.
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Indicator Name Core Unit of Measure
Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection
Name: Increased domestic revenue as a percentage of GDP
Percentage 10.70 12.20 Annual
Macro-Fiscal Policy Department, Afghanistan Revenue Department, and Afghanistan Customs Department reports.
Government of Afghanistan
Description: This indicator measures revenue collected and reported by the government as a percentage of the country's GDP.
Name: Effective implementation by budgetary units on the external audit recommendations
Percentage 15.00 60.00 Annual
Report from Audit Management Information System (AMIS) established and implemented at SAO, verified by third party.
Supreme Audit Office
Description: This indicator measures for each audit year, the number of audit recommendations implemented by the 10 largest spending ministries against total number of audit recommendations agreed between the SAO and respective ministry during annual audit.
Name: Improvement in core institutional capacity, represented by a reduction in the number of long-term technical assistants
Number 499.00 250.00 Annual
Monitoring report of the MOF, verified by the Bank.
MOF Administration Deputy Ministry (Human Resources Department)
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Indicator Name Core Unit of Measure
Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection
Description: This indicator measures the performance by MOF civil servants of functions previously performed by consultants, by tracking the reduction in long-term consultant numbers.
Intermediate Results Indicators
Indicator Name Core Unit of Measure
Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection
Name: Increased budget execution rate of the provinces by implementing new provincial budgeting policy.
Percentage 57.00 75.00 Annual
MOF budget execution reports by each province.
Budget Directorate
Description: This indicator measures the proportion of total expenditure at each of the 34 provinces during a fiscal year against the budget approved by the legislature at the start of the fiscal year.
Name: Improved gender disaggregated statistical analysis and documentation
Text Gender disaggregated budget and expenditure data not available
Gender disaggregated budget and expenditure data, and statistical analysis available for 6 pilot ministries
Annual
Budget and Expenditure reports with gender disaggregated statistical analysis.
Budget Directorate and Gender Responsive Budget (GRB) unit of MOF
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Indicator Name Core Unit of Measure
Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection
Description: This indicator measures improved gender disaggregated statistical analysis and documentation in the public financial management system within six GRB pilot ministries.
Name: Large projects are properly appraised with the support of a new PIM Unit to be established
Percentage 10.00 50.00 Annual
BC-1 forms of projects costing more than US$10 million appraised during a financial year, verified by the Bank.
MOF Policy Deputy Ministry (PIM Unit)
Description: This indicator measures the proportion of projects of more than US$100 million that are properly appraised, evidenced through Budget Circular (BC) 1 forms including economic analysis and detailed costing.
Name: Effective M&E of development projects through development of a proper M&E system
Percentage 0.00 100.00 Annual
MOF Policy Deputy Ministry M&E reports.
MOF Policy Deputy Ministry (M&E Department)
Description: This indicator measures the proportion of all development projects monitored and evaluated through the new M&E framework and system to be developed by the MOF Policy Deputy Ministry.
Name: Implement ARD Re-Organization and Modernization Plan
Text Plan approved by cabinet
All regional revenue offices report to ARD
Annual
Periodic progress reports on plan implementation by ARD, verified by the Bank.
Afghanistan Revenue Department
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Indicator Name Core Unit of Measure
Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection
Description: This indicator measures implementation progress against ARD Re-organization and Modernization Plan that has been approved by the Cabinet.
Name: Increased number of active tax filers
Text LTO: 195; MTO: 5325; STO: 3137
LTO: 380; MTO: 10400; STO: 6713
Annual
Number of tax returns by tax payer as reported by SIGTAS.
ARD
Description: This indicator measures the number of income tax returns filed by large tax payers, medium tax payers, small tax payers, and corporate entities.
Name: Staff and business processes are in place for VAT implementation in 2020
Text No staff or processes in place
VAT business processes developed and staff trained
Annual
ARD approved plan and progress reports.
ARD
Description: This indicator measures the progress of ARD against the agreed work plan to build its human resources and systems for VAT implementation in 2020.
Name: Percentage increase in custom duties through enhancement of ASYCUDA customs automation
Percentage 5.00 100.00 Annual
ASYCUDA implementation report and ACD Annual Report
ACD
Description: This indicator measures progress on the introduction of new ASYCUDA modules (including automation of customer service center, and single window extension), to support increased annual customs duty collected by ACD and deposited in Treasury.
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Indicator Name Core Unit of Measure
Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection
Name: Web based AFMIS extended to embassies and selected districts, municipalities, and SOEs
Text No embassy, district, municipality, and SOE connected to AFMIS
All embassies, 300 districts, 20 municipalities, and at least 5 SOEs connected to AFMIS
Annual
AFMIS extension progress reports against approved rollout plan.
Treasury Department
Description: This indicator measures progress on extension of AFMIS to embassies and selected districts, municipalities, and SOEs, through provision of access rights and training to users at targeted spending units.
Name: Afghanistan Institute of Certified Public Accountants (CPA) established and two batches trained
Text Institute not established
Institute established, CPA law enacted, and curriculum developed
Annual
Treasury Department CPA establishment progress reports
Treasury Department
Description: This indicator measures progress towards establishing the accountancy profession in Afghanistan.
Name: Number of IADs in Line Ministries that are strengthened and functioning based on
Number 0.00 26.00 Annual
MOF Internal Audit Department progress reports
MOF Internal Audit Department
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Indicator Name Core Unit of Measure
Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection
standards set out by IIA
Description: This indicator measures the number of line ministry internal audit departments strengthened (by MOF IAD) in line with standards set by the Institute of Internal Auditors. Currently, with the exception of MOF IAD, no IAD is functioning per standard.
Name: Rolling out e-GP in the pilot phase in 3 or more departments
Number 0.00 3.00 Annual
National Procurement Authority progress reports based on data from e-GP system.
National Procurement Authority
Description: This indicator measures progress towards procurement, commissioning and roll-out of e-GP system in 3 identified pilot departments.
Name: Simplification and standardization of MOF Administration business processes
Text MOF Administration business processes not simplified and standardized
MOF Administration business processes simplified and standardized
Annual
MOF Administration business process simplification and standardization progress report.
MOF Deputy Ministry of Administration
Description: This indicator measures progress towards simplification and standardization of MOF Administration business processes.
Name: Improvement in Number 90.00 140.00 Annual FPIP assessment reports Performance
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Indicator Name Core Unit of Measure
Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection
performance management coverage, represented by an increase in the number of teams adopting FPIP
Management Team
Description: This indicator measures the number of teams that use the FPIP to regularly report and evaluate progress.
Name: Transparency and citizen engagement in reform planning, represented by timely publication of annual and mid-year FPIP assessment reports
Yes/No N Y Bi-annual
MOF website, Performance Management and Reporting System, media etc.
MOF
Description: This indicator measures transparency and citizen engagement in the FPIP reform process, through timely public disclosure of annual and mid-year FPIP assessment reports.
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Target Values Project Development Objective Indicators FY
Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End Target
Increased development budget execution rate
54.00 57.00 62.00 66.00 70.00 75.00 75.00
Increased domestic revenue as a percentage of GDP
10.70 10.90 11.20 11.60 12.00 12.20 12.20
Effective implementation by budgetary units on the external audit recommendations
15.00 20.00 30.00 40.00 50.00 60.00 60.00
Improvement in core institutional capacity, represented by a reduction in the number of long-term technical assistants
499.00 450.00 400.00 350.00 300.00 250.00 250.00
Intermediate Results Indicators FY
Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End Target
Increased budget execution rate of the provinces by implementing new provincial budgeting policy.
57.00 60.00 65.00 69.00 72.00 75.00 75.00
Improved gender disaggregated statistical analysis and documentation
Gender disaggregated
Framework for gender disaggregated
For 1 pilot ministry, gender
For 2 pilot ministries, gender
For 4 pilot ministries, gender
For 6 pilot ministries, gender
Gender disaggregated
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Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End Target
budget and expenditure data not available
statistical analysis developed and rolled-out.
disaggregated budget and expenditure data, and statistical analysis compiled in a report
disaggregated budget and expenditure data, and statistical analysis compiled in a report
disaggregated budget and expenditure data, and statistical analysis compiled in a report
disaggregated budget and expenditure data, and statistical analysis compiled in a report
budget and expenditure data, and statistical analysis available for 6 pilot ministries
Large projects are properly appraised with the support of a new PIM Unit to be established
10.00 15.00 20.00 30.00 40.00 50.00 50.00
Effective M&E of development projects through development of a proper M&E system
0.00 20.00 40.00 60.00 80.00 100.00 100.00
Implement ARD Re-Organization and Modernization Plan
Plan approved by cabinet
Readiness Phase Completed: All preparatory steps to implement ARD Re-organization and Modernization plan carried out
Phase 1 Completed: Leadership Cadre and Corporate Support Services established
Phase 2 Completed: Kabul and two other regional revenue offices report to ARD
Phase 3 Completed: Kabul and four other regional revenue offices report to ARD
Phase 4 Completed: All regional revenue offices report to ARD
All regional revenue offices report to ARD
Increased number of active tax filers LTO: 195; MTO: 5325; STO: 3137
LTO: 232; MTO: 6340; STO: 3850
LTO: 269; MTO: 7355; STO: 4450
LTO: 306; MTO: 8400; STO: 5150
LTO: 343; MTO: 9400; STO: 5850
LTO: 380; MTO: 10400; STO: 6713
LTO: 380; MTO: 10400; STO: 6713
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Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End Target
Staff and business processes are in place for VAT implementation in 2020
No staff or processes in place
VAT Work Plan established, including staffing plan
VAT staff recruited and trained
Preparatory work to develop business processes and implementation finalized
Business processes developed and implementation plan ready
VAT business processes developed and staff trained
VAT business processes developed and staff trained
Percentage increase in custom duties through enhancement of ASYCUDA customs automation
5.00 10.00 30.00 60.00 80.00 100.00 100.00
Web based AFMIS extended to embassies and selected districts, municipalities, and SOEs
No embassy, district, municipality, and SOE connected to AFMIS
10 districts and 10 municipalities connected to AFMIS
10 embassies, 50 districts, and 20 municipalities connected to AFMIS
15 embassies, 100 districts, and 20 municipalities connected to AFMIS
20 embassies, 200 districts, and 20 municipalities connected to AFMIS
All embassies, 300 districts, 20 municipalities, and at least 5 SOEs connected to AFMIS
All embassies, 300 districts, 20 municipalities, and at least 5 SOEs connected to AFMIS
Afghanistan Institute of Certified Public Accountants (CPA) established and two batches trained
Institute not established
CPA law drafted and curriculum outline developed
CPA law enacted and curriculum developed
Training completed for first batch (including at least 5 females), and reciprocal membership agreement signed with two international/r
Training initiated for second batch (including at least 10 females)
Institute established, CPA law enacted, and curriculum developed
Institute established, CPA law enacted, and curriculum developed
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Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End Target
egional accountancy bodies
Number of IADs in Line Ministries that are strengthened and functioning based on standards set out by IIA
0.00 5.00 10.00 15.00 20.00 26.00 26.00
Rolling out e-GP in the pilot phase in 3 or more departments
0.00 0.00 1.00 2.00 2.00 3.00 3.00
Simplification and standardization of MOF Administration business processes
MOF Administration business processes not simplified and standardized
Mapping of 50% of relevant MOF administration processes completed
Mapping of 100% of relevant MOF Administration processes completed
Standardization of 30% of relevant MOF Administrative processes completed
Standardization of 70% of relevant MOF Administrative processes completed
Standardization of 100% of relevant MOF Administrative processes completed
MOF Administration business processes simplified and standardized
Improvement in performance management coverage, represented by an increase in the number of teams adopting FPIP
90.00 100.00 110.00 120.00 130.00 140.00 140.00
Transparency and citizen engagement in reform planning, represented by timely publication of annual and mid-year FPIP assessment reports
N Y Y Y Y Y Y
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Annex 1: Detailed Project Description
1. Component 1: Budget as Tool for Development [$10m]. This component aims to
increase budget credibility by improving the efficiency of budget processes, realistic budget
estimation and costing, linking budget with policy and introducing medium term budgeting. It is
organized along the following inter-linked sub-components:
2. Budgeting Processes: Weaknesses in the existing budgeting processes and systems
contribute to low budget execution: (a) budget processes are focused on allotments rather than
realistic costing; (b) provinces have no financial autonomy to prepare budgets; (c) large
development projects are included in the budget without appraisal; (d) information systems used
for budgeting and accounting are not integrated; and (e) ministries prepare procurement plans but
these are not integrated with budgeting; procurement plans are often prepared after budget
approval.
3. As part of the FSP, budget processes will be revised with a focus on realistic cost
estimation, better commitment controls and gender-sensitivity. Budget disclosures and
comparability of budget and accounts will also be improved. This first requires linking the
budget to PIM systems. Under the FPIP Advisory Facility, the Bank is conducting a PIM
Assessment, the recommendations of which will be implemented under the FSP. Incorporating
procurement planning into the preparation of budgets, particularly for development projects, and
development and implementation of forward estimates for multi-year budget planning are the
other measures planned to help formulate realistic budgets. Implementation of new processes
derived from the provincial budgeting policy delegating financial authority to the provinces;
development and roll-out of an Operations and Maintenance (O&M) policy; and improving
budget disclosures and comparability of budget and accounts are the other key reforms to be
implemented.
4. Gender Responsive Budgeting (GRB) was introduced as part of the budget procedures in
Afghanistan by the MOF with technical support from the United Nations Development
Programme (UNDP) and United Nations (UN) Women. MOF has been piloting GRB in six
ministries and although the program has had some achievements, including the drafting of a
GRB Strategic Action Plan and the development of a GRB manual, it continues to be limited in
scope due to technical capacity issues, scarcity of human resources and finances, and lack of
gender-disaggregated data. The Gender Budget Cell within MOF was to be comprised of a group
of senior and mid-level officers from various departments, but only has one senior GRB
Specialist on hand. The FSP will support gender mainstreaming in the budget process by
complementing the capacity building activities of UN Women with a focus of making the GRB
Cell at MOF a functional cross-cutting unit. This will include proper staffing of the GRB Cell,
institutionalizing the GRB Cell as a unit of the Budget Department, supporting its capacity to
develop a framework for gender disaggregated statistical analysis, and aligning GRB
implementation with ongoing and planned budget reforms
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5. In terms of information systems, the FPIP Advisory Facility is supporting the preparation
of a medium-term ICT Strategy for MOF. This will be critical to aligning information needs
with future investments in technology. At present, MOF operates different information systems
for budgeting, treasury, revenue, customs, and debt/grants management that are not integrated.
MOF has hired some IT staff but support services are largely being provided by the software
vendors. Based on the recommendations of a study currently being undertaken to evaluate
available options and MOF’s ICT Strategy, the FSP may support the implementation of an
interfaced Budgeting and Planning IT Solution (BPIS), including rollout to line ministries.
6. Fiscal Policy: The development of well-designed medium term frameworks, taking into
consideration the resource ceilings and fiscal sustainability constraints, is critical. The FSP will
thus support MFPD in improving the fiscal strategy, including alignment the government budget
with Government priorities, enhancing the quality of the MTFF, as well as strengthening PIM
systems. Support to MFPD will include enhancing the capacity of secretariat and advisory
services to the HEC, TPDC, and development and implementation of a sustainable debt policy.
Professional development opportunities for MFPD, including trainings and formal qualification
programs will also be provided.
7. Development Policy: To increase the efficiency of public spending and linking fiscal
strategy to budget strategy, FSP will support the preparation and M&E of updated, consolidated
and costed sector strategies and work plans, and ensuring their alignment with the budget. It will
also involve the development of a PIM framework to improve project identification, appraisal,
review and approval. The Policy Department will lead this activity working closely with the
Ministry of Economy and sector ministries. FSP will work in close collaboration on PPP issues
with the upcoming Bank financed Infrastructure Preparation Facility (IPF), including on PIM-
PPP coordination (already ongoing). The FSP will further support the Policy Department in its
secretarial and advisory function to the Development Councils. This will involve ensuring that
Development Council work plans are implemented; regular high level and technical meetings are
organized; and their decisions are recorded, distributed, and archived. For these purposes, the
Policy Department will develop a handbook outlining rules, procedures, and operation and
coordination mechanisms for the Development Councils. A task force will be established to
oversee the Development Councils’ gate keeping function of all financial and legislative matters.
The Policy Department will also ensure that remaining National Priority Programs (NPPs) are
drafted (in alignment with the ANPDF) including implementation and financial plans, are
consulted with stakeholders, and are integrated in the national budget.
8. Component 2: Revenue Mobilization [$40m]. This component is designed to
strengthen capacities of various revenue administration departments to increase tax compliance
and facilitate timely filing and payment. It further aims to enhance Government’s capacity to
effectively regulate Afghanistan’s minerals and hydrocarbon resources sector. It is organized
along the following sub-components:
9. Tax Administration: The ARD has strengthened its administration of core taxes over the
past several years, but important challenges remain, including human resources capacity,
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complex business processes, and limited IT systems. To address these challenges, the FSP will
support the ARD in completing a series of administrative reforms. These complementary reforms
will pilot new processes in the Large Taxpayer Office (LTO) before rolling them out to the
Medium and Small Taxpayer Offices and the provinces. In the near term, this support is expected
to significantly improve the taxpayer experience. In the medium term, the ARD will raise
significant new revenues through the introduction of VAT. The main interventions are as
follows:
i. Business process reengineering in the LTO to support revision of the taxpayer registries,
introduce hybrid electronic filing compliant with the existing legal framework and establish
processes for VAT rollout in 2020. To support automation and ICT including SIGTAS and
e-payments, a Master Plan and Change Management Plan will be created and a data
warehouse is envisaged.
ii. Audit training and mentoring program, enhancing the quality of the risk-based audit
system. The implementation of the Disputes Resolution Board will be supported in the
medium-term. To strengthen internal controls, an Anti-Corruption Strategy will be created,
with an internal audit function to respond to taxpayer complaints.
iii. Implementation of the ARD’s Re-Organization and Modernization Proposal that was
approved by the Cabinet in early 2017. The FSP support will include a training needs
assessment, development of curriculum for the tax academy, and (merit-based and gender-
balanced) job descriptions and match to training program.
iv. To support communication with taxpayers, a communications strategy will be developed
and taxpayer guides will be updated with new legislation and filing procedures. Service
standards will be established, and annual taxpayer surveys will measure performance. In
terms of female tax payer, specific arrangements will be done to address the needs of
female tax payers ensuring proper facilitation for collecting their tax and providing
technical assistance to them as they are relatively new in the formal economy.
v. The FSP will also support the Revenue Planning Department to build analytical capacity to
support the revenue analysis and forecasting functions, with analytical training.
10. Customs Administration: ACD has made significant progress in recent years, including
automation of declaration processing9 and the progressive adoption of practices and procedures
consistent with international standards and good practice norms. However, it remains an
unfinished agenda as evidenced by the country’s low position on global rankings10
. Further
investments are required to build on and deepen the ACD’s reform and modernization program.
11. The FSP will support a range of technical assistance activities that build on previous
engagements by the Bank and other development partners and respond to changing operational
requirements, including: (i) the establishment of a fully operational Customs Enforcement
capability, including integration of the former Customs Police into the ACD; (ii) supporting the
adoption of sound human resource management policies to ensure they promote merit-based, and
to the extent possible, gender-balanced recruitment, mobility, advancement, performance
9 Over 95% of all formal trade is now processed via the ASYCUDA World customs declaration processing system.
10 Afghanistan was ranked at 138 out of 160 countries on the Customs and border management component of the 2016 Logistics
Performance Index and at 175 on the Doing Business (Trading Across Borders) indicator.
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appraisal, remuneration practices, and policies to support the flexible deployment of human
resources; (iii) the development of an enhanced human resource development and training
curriculum and its incorporation into staff planning and deployment policies; and (iv) the
development of enhanced performance monitoring and evaluation capabilities covering all key
organizational objectives, including establishment of an Internal Compliance Unit11
. Extensive
support will also be provided to bring Afghanistan into compliance with the provisions of the
recently concluded WTO’s Trade Facilitation Agreement. Work will also be undertaken in the
areas of corruption prevention/detection, and Customs to Customs cooperation with neighboring
countries, including real time data exchange to limit opportunities for fraud.
12. The FSP will also support major investments in ICT, including the development and
implementation of a NSW system, deployment of a Trade Information Portal and the continued
geographical and functional rollout of ASYCUDA. Attention will also be paid to developing
mechanisms ensuring the long-term sustainability of ASYCUDA and related ICT investments
and infrastructure. It will also support technology integration in the automation process,
including weigh-in-motion system, automatic gates, biometrics, Closed Circuit Television
(CCTV) and cameras and vehicle number plate readers, to enhance operational efficiency and
improve controls.
13. In addition, to support and underpin the above described activities, the Bank will
undertake as part of FPIP Advisory Facility a comprehensive functional review of ACD to
strengthen management control and oversight of national activities, and ensure the organization
adequately supports strategically important functions, including monitoring of internal controls,
consistency in application of Customs procedures throughout the country, and Customs specific
HRM capacity.
14. AEITI: EITI was launched in Afghanistan in March 2009, and started its formal
implementation in February 2010 when Afghanistan was declared an EITI candidate country.
The National Multi Stakeholders Group (MSG) with a wide participation of government, private
sector and civil society groups was set up to oversee EITI implementation processes in
Afghanistan. However, Afghanistan is yet to meet EITI requirements and become an EITI
compliant country. The FSP will support required key actions to be undertaken with respect to
EITI implementation in Afghanistan, before and post-validation. These include: (i) training and
capacity enhancement activities for MSG; (ii) support to addressing AEITI recommendations of
Validation and Reconciliation reports; and (iii) operational support to efficient AEITI
implementation. These actions will enable Afghanistan to become and maintain EITI Compliant
Country status in line with the new EITI Standards, and will further help to establish a sound
EITI implementation mechanism. This will help to enhance Government’s capacity to effectively
regulate Afghanistan’s minerals and hydrocarbon resources sector in a transparent manner,
fostering private investment in the sector and ensuring that extractive industries benefit those
who are most impacted.
11
As mandated by Cabinet approved ACD HR Policy (Cabinet resolution No. 20 dated September 2, 2015).
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15. Component 3: Treasury Management, Accountability, and Transparency [$30m].
This component aims to consolidate basic core PFM functions to underpin more ambitious
aspects of planned PFM and budget reforms. It is organized along the following sub-
components:
16. Treasury: One of the most significant achievements of MOF is the AFMIS, established
in Treasury in 2002 and extending to each of the 34 Provinces in Afghanistan. The system is
extensively used within MOF for payment processing and periodic budget execution reporting.
AFMIS provides the platform to move to the next generation of reforms to improve system
coverage, payment processing and financial reporting. The FSP will support AFMIS extension,
including providing access rights and training to 300 additional users at designated spending
units so they can enter expenditure data at the transaction level and generate budget execution
reports. AFMIS is to be rolled out to all Afghan embassies, selected districts and municipalities,
and at least 5 SOEs.
17. Maintaining standards of timely transaction processing, accounting and reporting will
continue to be an important objective during the next 5 years. Interface with Da Afghanistan
Bank (DAB) will be developed for Electronic Fund Transfer that will eliminate manual cheques
and will expedite payment processing. In terms of financial reporting, from 2017 (FY 1396), the
Treasury will also prepare annual financial statements pertaining to the core budget using Cash
Basis IPSAS. Activities for enhancing the credibility and efficiency in payroll generation and
distribution will continue. Transitioning salary payments away from bonded trustees to system-
based alternatives will be a primary goal. The Treasury plans to move forward on linking HR
systems with a payroll generation module. In terms of training and professional development, the
Treasury will establish a trainee program, and CPA Afghanistan will be established. The body
will serve as the node for certification of accountants and development of accounting standards
for Afghanistan.
18. Treasury will also be supported to develop a framework for Sukuk Bonds.
19. Audit and Financial Reporting: FSP will continue institutional reform and capacity
building to improve management oversight by the IAD. Though, IAD developed the audit
methodology and guidelines, and an Accountancy Law has now been developed, capacity
building and institutionalization of internal audit in line ministries remains limited due to
absence of an enforcing authority. FSP will support IAD in setting up and operationalizing audit
committees in line ministries, improving the process of audit recommendations follow up;
providing professional certifications to internal auditors and implementation of Institute of
Internal Auditors (IIA) standards. Since 2002, the Bank has contracted a third-party Monitoring
Agent (MA) to monitor, support, and report on the efficient and effective implementation of the
Recurrent Cost Window of the ARTF. Capacity building efforts will support the IAD to work
along with the MA for transfer of skills and knowledge to enable that function to be transferred
from the MA to the IAD.
20. PFMR-II established the foundations for external audit where SAO adopted International
Organization of Supreme Audit Institutions (INTOSAI) Standards up to level 3 and submitted
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audit reports to the legislature within 6 months of the close of the fiscal year. Some preliminary
work was also done to introduce performance audits and citizen engagement. A significant
investment was also made to build the capacity of SAO, but there remains considerable reliance
on external consultants. FSP will support SAO to build on these PFMR-II reforms with a focus
on building its human resource capacity and utilizing technology for efficient audits. SAO is in
the process of developing a detailed HR strategy with an aim to develop a workforce equipped
with modern tools; FSP will support implementation of the HR strategy. Use of Computer
Assisted Audit Techniques and implementation of AMIS are the two important interventions
planned to increase efficiency. SAO also plans to adopt level 4 of the INTOSAI standards which
will require some changes to the existing audit guidelines and staff training. For citizen
engagement in audit and better communication with stakeholders, a communication strategy will
be developed and implemented. As the government, will start preparing IPSAS based annual
financial statements, FSP will also provide consultant support to conduct financial audits.
21. Procurement: Government procurements account for 19 percent of GDP and almost 50
percent of the national budget; however, a number of stern challenges have been associated with
the public procurement system. These challenges include ineffective planning; ineffectual
implementation and enforcement of laws, regulations, processes and procedures; lack of access
and openness to procurement data/information; and lack of a mechanisms to monitor contracts’
implementation. To address these challenges, GoA is fostering institutional reforms in public
procurement to provide value for money and better services through an effective, efficient,
transparent and sustainable procurement system.
22. The NPA is the custodian of procurement rules and regulations, and provides facilitation
and capacity building service to procuring agencies, and serves as the secretariat of the high level
National Procurement Commission. The Bank has a long-standing partnership with NPA and has
been supporting procurement reforms through PFMR-II and CBR. NPA has made significant
strides in implementing first and second generation public procurement reforms. These included
the establishment of NPA (its structures, systems, processes and procedures), the adoption and
later review and amendment of the Procurement Law upon Presidential decree, the development
of an eProcurement readiness assessment, and implementation strategy and rollout of early
activities, as well as foundational governance and anti-corruption activities.
23. The FSP is required to advance this progress through a third generation of reforms. This
work first involves improving compliance of enacted regulations through further strengthening
the current legal, regulatory and policy framework, including by comprehensively revising the
Rules of Procedures and Standard Documents. This will be complemented through application of
Open Contracting Data Standards (OCDS)/Open Contracting Partnership (OCP) and complaints
handling mechanisms that will help to institutionalize procurement ethics within government and
expand the “Coalition for Reform” through strengthened collaboration between Government,
Private Sector, Civil Society and international development partners. These measures will
support the NPA to strengthen its institutional framework and management capacity to ensure
institutional sustainability. This involves revisiting the NPA’s reform strategy “Blue Print”
linked to strengthening of its Tashkeel through CBR. The Blue Print process would be
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consultative via conduct of consultation workshops within government, with the private sector,
civil society, academia and the media, to be supported by FSP. Similar focus will be given to
improve “enabling factors” of ministries’ and procurement entities’ such as strengthening of their
organization of procurement and human resource capacity. The standardization of Procurement
Department Tashkeel and Mass Recruitment has already been accomplished by NPA in
cooperation with CBR and will be built upon to ensure more ministries receive capacity
certification and become enabled to conduct their procurement proceedings on stand-alone basis.
Complementary to this, NPA will continue the professionalization of the procurement cadre
through CBR.
24. The other key and by far the most important focus area of third generation procurement
reform to be supported by FSP is introduction of e-GP including its change management, cultural
integration, increased awareness and socialization within the government and users. It initially
entails upgrade of the Procurement Management Information System (PMIS) through process
mapping and reengineering and the integration of the PMIS with other relevant apparatus such as
tax offices, AFMIS and the Afghanistan Central Business Registry (ACBR). The risk mitigation
here is that the e-GP implementation and institutionalization will be gradual and incremental
both in terms of modules and piloted ministries. Other efficiency reforms to be supported by FSP
include the creation of a Central Procurement Agency for commonly Used Items via Framework
Agreements. This will start initially with creation of a specific team to be gradually expanded
into an agency. The NPA will carry out an assessment of market practices that will follow the
FSP PPSD, and support development of Common Procurement Vocabulary (CPV), price index
and cost estimate mechanisms, public access to contract information and civil society/public
engagement, and procurement process competency assessment and facilitation. Provincial
Procurement Reform modality and implementation is another area where the NPA has developed
a draft mechanism in line with the MOF’s Provincial Budgeting Policy. This is awaiting cabinet
approval before implementation can commence.
25. SOEs, Insurance, and Properties: Ownership and oversight function over SOEs is
inadequate to assess SOEs’ financial, operational and fiscal performance, and to bring the most
needed reforms. The FSP would conduct a thorough diagnostic of the performance—financial,
operational and fiscal—of the entire sector. The diagnostic study would measure the size,
composition, market share as well as economic weight of SOEs (both individually and by sub-
sector), and financial, operational and fiscal performance (the latter quantifying fiscal costs and
fiscal risks) of the entire SOE sector (again both individually and by sector). This will help to
guide the most needed SOE reforms grounded in international best practices that can later be
supported through FSP. The FSP will also support strengthening of the legislative framework for
insurance through development of insurance sector policy and capacity building in Takaful law
and registration, as well as the development of procedures and policies, and an information
management system for public properties.
26. Citizen’s Engagement: GoA recognizes that voice, accountability and participation are
critical elements of good governance. Key factors are the political will of the leadership of MOF,
as well as the government’s desire to improve its international ratings. The government drew up
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an action plan to improve its Open Budget Index (OBI) scores12
and begun producing Citizen
Budget and making Pre-budget statement and executive’s budget proposal public. As part of this
roadmap, CSOs and researchers have started engaging with the government, primarily through
MOF, on budget-related issues, publishing budget analyses and organizing public awareness
campaigns through the media. Furthermore, under the Self-Reliance through Mutual
Accountability Framework (SMAF) 2015, the government recognizes as one of the principles:
“Transparent, citizen-based, monitoring of development and governance benchmarks provides
accountability to the Afghan people, and reinforces the reciprocal commitments of donors and
the government to improved development performance.” The framework also calls for a
Memorandum of Understanding between the Government and Civil Society.
27. While efforts have been made by the GoA to support transparency, participation has still
been very weak13
. Therefore, the FSP will support GoA in establishing and implementing a
proper mechanism for budget transparency, accountability and participation consistent with
international best practices in two areas: (1) Under MOF, the project will mobilize CSOs in order
to establish and implement a proper framework where CSOs collaborate with the MOF for
further citizens’ awareness in the planning, budgeting and oversight from budget execution at
national and sub-national levels. The Office of the Minister of Finance will lead the public
disclosure of key fiscal information and progress on FPIP implementation through disclosure on
the MOF’s website, as well as print and electronic media. For increased transparency and citizen
engagement in procurement, the NPA will implement OCDS; (2) Under the Auditor General, the
FSP will also support CPA. The SAO will engage with CSOs in an effective manner around the
audit cycle to jointly monitor the quality of public expenditures to strengthen their impact in
exercising public oversight. Specific measures will consist of: (i) assessing existing challenges
(participatory diagnostic) and opportunities for the SAO to leverage CSOs to increase the
effectiveness of external audit; (ii) in-depth capacity building programs and technical support on
how-to implement citizen engagement practices and tools around the audit cycle; and (iii)
supporting the development of a “Framework for Engagement” and actionable plans for
implementation development of guidelines how CSOs can be engaged by the SAO in the conduct
of performance audits
28. Component 4: Institutional Capacity Building and Performance Management
[$20m]. This component aims to build capacity of MOF staff and the requisite systems for
effective functioning of the ministry, and to reinforce overall performance management and
coordination of the FPIP. It is organized along the following sub-components:
29. Backbone/shared services: Recently, the GoA began the shift to a “Tashkeel first”
agenda, using CBR. While performance has improved in many areas, even with less external
support, there are still teams with significant capacity gaps. The corporate backbone of MOF –
12
Overall Afghanistan scored 42 out of 100 in Open Budget Survey 2015 which is an international survey about budget
transparency conducted in 102 countries 13 It also scored low at 27 on public participation for lack of provisions of opportunities for the public to engage in the budget
process which is weak. Also, according to the Worldwide Governance Indicators, Afghanistan scores low in comparison to the
rest of South Asia in all six areas. Access to information law for Afghanistan was enacted in 2014 but underlying systems are not
fully established for its implementation.
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Administration, Human Resources, Finance and Accounting, Procurement and IT – remains
gravely weak and not fully able to support the operations of MOF technical departments and, by
extension, implementation of the FPIP. Professional development (at the individual level) is also
almost non-existent across the MOF. The FSP will therefore support the functioning of the MOF
(including its corporate backbone and shared services) through implementation of the
recommendations of a strategic planning exercise (functional review) to be supported through
CBR. This will involve the development of a competency framework (to be supported through
the FPIP Advisory Facility) to assess the current capacity gaps at MOF and accordingly guide
recruitment and TA migration (working with the CBR Facility) performance management,
training and professional development. The sub-component will support MOF Administration
business process re-engineering and automation, and digitalization of MOF’s archive system.
Measures to enhance aid management and projects’ coordination and monitoring, and public
outreach by MOF including of the FPIP, will also be facilitated.
30. In terms of staffing and capacity building, women constitute around 11 percent of
employees in MOF, including one Deputy Minister and three heads of departments. Almost all of
women employed in the MOF are based in Kabul; only 134 (out of 891 total female employees)
are based in the provinces. Although through the PFMR-II there have been some efforts to
increase the number of female professionals in the sector by offering scholarships for the
Association of Chartered Certified Accountants (ACCA) programs, the FSP will further assist
MOF to increase women’s participation in the sector and within the ministry. This will entail the
provision of internship programs for female graduates, reviewing HR policies and procedures, as
well as making the work environment more conducive for women; as well as implementing anti-
harassment guidelines of the government in close coordination and collaboration with the Gender
Unit of the ministry.
31. Information Systems: IT is one of MOF’s corporate areas in need of upgrade. The
development and improvement of IT systems (to meet current and future needs for efficiency,
flexibility, coverage and process integrity) is also highlighted as an ‘enabling factor’ for
implementation of the FPIP. While a large investment in additional and upgraded management
information systems approved by the Minister of Finance is an important next step, basic IT
functionality continues to be deficient across MOF. The MOF only recently acquired its own
email server and is in need of advancing towards setup of a full intranet system to support
information and workflow within and across its departments. The MOF is also interested in
improving its workforce planning and more comprehensive personnel recording-keeping through
the setup of HR systems. These upgrades would provide opportunity for improved
communication between systems, which would allow for greater efficiency where PFM
processes cross systems and for improved information analysis and transparency. This work will
be guided by an all-of-MOF ICT Assessment and ICT Strategy currently being prepared through
the FPIP Advisory Facility. Investments in upgrading IT systems will be complemented by
capacitation of IT staff - another key bottleneck - as part of support to backbone/shared services.
32. Performance Management: FPIP is a complex program involving multiple stakeholders
and the success of the program depends on how well it addresses the complex nature of reforms
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that involve political leadership and multiple stakeholders with varying degrees of disposition
towards embracing change. This requires multilayered behavioral change approach that can help
optimize and leverage the PFM systems and processes to improve service delivery. To drive
behavioral change through the entire PFM cycle, the attitudinal barriers to change towards
achieving the reform program objectives will be addressed by applying the overarching
principles of: (i) leadership and political commitment towards change; (ii) policy space for
implementing suggested reforms; and (iii) adaptive, iterative and inclusive processes. Based on
the recommendations of a Scoping Report completed as part of the FPIP Advisory Facility, FSP
will provide support to enhance collaborative leadership skills and strengthen the cohesiveness
and effectiveness of leadership teams in the context of FPIP. This will help provide an
authorizing environment for implementation teams, as well as system-level reforms that require
ownership and support by multiple implementing directorates. A Communications Strategy will
be designed to guide measures to institutionalize the process of behavioral change to support new
policy processes, and provide timely support to bridge policy and implementation gaps revealed
during project implementation. Technical assistance will be provided to support the MOF PMT
in the development of annual and mid-year performance assessment reports of the FPIP, and the
development of a publicly accessible web-based PMRS.
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Annex 2: Institutional and Implementation Arrangements
1. Governance of the FSP (and the programmatic approach as a whole) will be
centered within the MOF Leadership Team, supported by an FSP Steering Committee (Core Reforms Group). The PMT, reporting to the Deputy Minister for Finance, will act as
secretariat to both the MOF Leadership Team and Core Reform Group and provide day-to-day
operational backstopping and coordination across beneficiary departments. MOF, NPA, and
SAO will manage the implementation of the program through corporate systems without the
assistance of parallel PIUs. Beneficiary departments will be primarily responsible for
implementation of their respective FSP activities.
Figure 1: FPIP/FSP Governance & Implementation Structure
2. In line with the in-built flexibility of the FSP, activity and procurement plans would
be updated regularly in close coordination with the PMT and in consultation with the
CRG. During Appraisal, the Bank team worked with government on applying readiness criteria
which could help to prioritize and sequence (“front-load”) initial activity and procurement plans.
In assessing the feasibility of individual activities, consistent with international lessons regarding
basics first and “problem driven” approaches, the following aspects were considered:
a. Flagship nature: whether activities contributed to flagship reforms and had the full
commitment and ownership of all relevant stakeholders.
b. Underserved areas: whether activities support areas where current weaknesses are
presenting serious threats to economic management and service delivery.
c. Critical path dependencies: whether activities required sequencing, and the extent to
which without these foundational activities underpin and must precede the more
ambitious aspects of the FPIP. This helped to support a focus on what are the early wins
Leadership Team (LT)
SAO MOF Directorates NPA
Core Reforms Group (CRG) Performance Mgmt
Team (PMT)
Finance & Procurement Directorates
LT: Headed by Finance Minister, LT is responsible for overall
FPIP oversight, including validating CRG decisions.
PMT: Reporting to DM Finance, PMT provides secretariat
support to LT and CRG, implementation support to teams, and
overall FPIP M&E.
MOF’s Finance Directorate: Manages overall FSP Finance
function. MOF, NPA, and SAO Procurement Directorates: Manage
Procurement functions respectively.
MOF Directorates, NPA, SAO: Implement their annual plans
approved by LT/CRG.
CRG: Headed by DM Finance, CRG provides strategic guidance,
approves annual budgets and plans, and reviews FPIP progress
quarterly.
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that need to be locked in, and which activities needed to be postponed until foundational
activities are completed, including through the FPIP Advisory Facility.
d. Current progress: whether activities required award of a contract or change of laws or
operating procedures. This helped to assess the extent to which operational pre-requisites
had sufficiently advanced to allow activities to immediately move ahead, or to be
deferred. Critical and naturally more-advanced activities to be rolled-over from closing
projects (PFMR-II, Customs, TAF) were considered in this regard.
3. On this basis, the FSP “locks-in” flagship, underserved, or more-advanced (“quick
win”) reform areas included under the FPIP in the first 18 months of implementation (up
to elections). In general terms, such areas include:
i. Core PFM functions. Consolidation of basic core PFM functions as included in the FPIP
will underpin more ambitious aspects of planned PFM and budget reforms. Subsequently,
the FSP prioritizes technical assistance activities designed to strengthen core systems and
ensure full implementation and compliance. This includes consolidation of AFMIS
functionality, and introduction of new payroll controls. The Bank has been closely
involved with development of the Accountancy Law and through the FSP, would provide
ongoing technical assistance to support implementation, including measures to improve
audit follow-up, with follow-up of audit findings supported as a results indicator. The
FSP would also move forward the recommendations of a readiness assessment on gradual
implementation of e-GP to facilitate more transparent, effective and efficient
procurement service delivery across government.
ii. Corporate backbone. MOF and the Bank recognize that the corporate backbone
(Administration, Human Resources, Finance and Accounting, Procurement, IT) of MOF
has long been neglected and is weak. The FSP will place stronger upfront emphasis on re-
engineering backbone systems and business processes for greater efficiency and
effectiveness. The strengthening of the corporate backbone is essential if the
implementation of the FPIP is to be successful.
iii. Tax administration. Given continued problems with revenue compliance and poor
overall revenue performance, strengthening basic tax systems is a foundation for
strengthening the public sector. FSP support would usefully focus initial support on
improvements of IT infrastructure and systems, especially SIGTAS and e-payments. FSP
would provide support to implementation of the ARD reform plan as well as ongoing
reforms to tax policy.
iv. Customs administration. Customs revenue performance remains weak, reflecting
ongoing problems with compliance. As with tax administration, the FSP would support
the strong program of reforms included under the FPIP. This includes consolidation of
efforts to improve enforcement, and HR reforms building on current World Bank support
to customs.
v. Provincial budgeting policy rollout. Implementation of provincial budgeting policy
may provide the foundation for improved local-level voice in resource allocation
decisions over time. The implementation of provincial budgeting policy, however, will
require substantial capacity building at the mustofiat level as mustofiats progressively
take increased responsibilities for budget execution. The FSP would draw on
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international experience with decentralization to support all aspects of provincial
budgeting policy implementation.
4. MOF will carry out the financial management functions for the Project through its
Finance Directorate. The Finance Directorate has experience in implementing Bank/ARTF
financed projects through the TAF which is directly implemented by MOF. The Finance
Directorate’s capacity will be augmented by transferring (into Tashkeel) the FM staff of RIMU –
the PIU managing the PFMR-II project.
5. Country systems will be used for budgeting, accounting, internal audit and external
audit. MOF guidelines for budget preparation will be followed. The Project budget will be based
on the procurement plan and work plan. At the central level, project accounts will be maintained
in MOF Treasury Department in AFMIS, which records all project expenditures and receipts in
the government’s accounting system. The Finance Directorate will maintain subsidiary books of
records using MS Excel. The IAD of the MOF will carry out the Project’s semi-annual internal
audit.
6. Funds flow arrangements will follow standard procedures applicable to all World
Bank funded/ administered projects. A DA will be opened at Da Afghanistan Bank (DAB,
Central Bank). The Finance Directorate will process all payment requests through the SDU of
MOF, and will also manage the DA. Disbursements will be report based. Withdrawal
applications for new advances will be submitted along with the IFRs for the semester indicating
the forecast expenditure for six months. The DA will be replenished based on the advance
request from MOF as per the IFRs. The Bank will provide Client Connection access to focal
finance staff for the management of the project.
7. Semi-annual IFRs will be prepared by the Finance Directorate and submitted to the
Bank within 45 days from the end of the period. The formats for these IFRs will be shared
with the Finance Directorate, and the Bank will provide training on the preparation of the IFR.
8. The Project follows the centralized payment mechanism applied in Afghanistan and
controlled by MOF. Internal controls are adequate both at the central and implementing agency
levels. There is adequate segregation of duties. Reconciliations will be done monthly. All these
controls will be periodically reviewed by the Bank. The FM Manual of the PMFR-II will be
updated to be used for the FSP.
9. An annual project audit will be carried out by the Supreme Audit Office (SAO) with
technical assistance from an audit agent funded under the Project and based on the Project
financial statements prepared by MOF. The audited financial statements will be submitted not
later than 6 months after end of each fiscal year in which the Project is implemented. There are
no overdue audit reports, IFRs or unsettled ineligible expenditure in respect of MOF
10. The FM risk rating is Substantial.
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11. Procurement will be carried out in accordance with the Bank’s Procurement
Regulations for Borrowers for Goods, Works, Non-Consulting and Consulting Services and
applicable to IPF hereinafter referred to as “Regulations”. The Project will be subject to the
Bank’s Anticorruption Guidelines, dated October 15, 2006, and revised in January 2011 and July
1, 2016.
12. Standard Procurement Documents (SPDs): Pursuant to IDA’s new General Conditions
(GCs) for Credits and Grants (July 2016) and corresponding Legal Agreements, the World
Bank’s Procurement Manual, Standard Procurement Documents (SPDs), Requests for Proposals
and Forms of Consultant Contract will be used. Goods, work, and non-consultancy services
following Open National competition shall be procured using the agreed bidding documents for
Afghanistan. This is further confirmed in Article 4(2) of the Procurement Law of the Islamic
Republic of Afghanistan dated 27/06/1395 (September 17, 2016) published in the Official
Gazette No.1223, which states that in case of conflict/contradiction between the World Bank’s
procurement procedures and any national rules and regulations, the World Bank’s procurement
procedures will take precedence.
13. Project Procurement Strategy for Development (PPSD): Based on the regulations of
the Bank’s New Procurement Framework, the government has prepared and shared a PPSD
which details the procurement methods and approaches. Procurement staff are also attending the
necessary procurement training under another Bank funded project (PFMR-II).
14. Systematic Tracking of Exchanges in Procurement (STEP): The Project will
implement STEP, a World Bank planning and tracking system, which would provide data on
procurement activities, and establish benchmarks. The details of the procurement activities,
presently prepared in the procurement plan would be transferred in the STEP system. Initial
training on the operation of the STEP system will be provided to the procurement officers of
Procurement Directorates of MOF, NPA, and SAO.
15. Procurement risk assessment: Based on the initial procurement capacity assessment the
threshold of High Risk Implementing Agency will apply for the prior review of the contracts
under the Project.
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Annex 3: Implementation Support Plan
1. The strategy for supporting the implementation of the Project is tailored to the
government’s proactive desire to use country systems and orient the Project around FPIP
implementation. Risks and challenges mentioned in the risk assessment have been considered.
2. Given the country capacity challenges, intensive support is required, particularly at
project startup. The Bank team will support implementation through the following activities:
(i) The TTLs based in Dubai will oversee the work program of, and work closely with
Bank technical experts and the various government departments involved in the
Project.
(ii) Involvement of World Bank and particularly EFI colleagues both in the country office
and other Bank offices, and from the Controllers unit, to leverage both comparative
skills to provide regular support to the Project on technical matters.
(iii) Supervision missions on a monthly basis, and formal implementation support
missions twice in a year throughout the project implementation period.
(iv) The implementation support team will be comprised of the Task Team Leaders; and
Task Team Members comprising: legal, disbursement, operational project
management, monitoring and evaluation, safeguards, macro-fiscal, revenue and
customs, extractives, finance and markets, citizens’ engagement, financial
management, procurement, payroll/HRM and public sector.
(v) GoA staff implementing the Project will be strengthened through various forms and
types of training on World Bank operational processes and procedures, financial
management, disbursement, and procurement Guidelines, monitoring and evaluation,
strategic communications, leadership, social accountability and project management.
3. To accelerate project implementation, an Implementation Action Plan has been
agreed with the GoA as follows: Table 1: Implementation Action Plan
Time Activities Skill Needed Resource Estimate
Annually
(Years 0-5)
Work-planning, prepare
operations manual, training
materials and project roll out.
Review and clearance of
documents
Task Team Leaders
Operations Support
70 staff weeks
10 staff weeks
Review FM, procurement and
disbursements
FM Specialist
Procurement Specialist
Disbursement Specialists
10 Staff weeks
8 staff weeks
2 staff weeks
Review project specific
implementation aspects Sectoral staff 20 staff weeks
M&E support M&E Specialists 4 Staff weeks
Mid Term
in 2019 Mid-Term Review
Task team, external team
and experts 20 staff weeks
Completion
in 2022
Implementation Completion
and Results Report
External team with support
from task team 30 staff weeks
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Annex 4: Bank’s Programmatic Approach to Support FPIP
1. FPIP is an ambitious and comprehensive reforms program that covers the whole breadth of
public financial management.
Box 1. The Fiscal Performance Improvement Plan (FPIP)
In March 2015, H.E the President of Afghanistan commissioned an assessment of PFM in Afghanistan. One of the
key recommendations was for the reform process to be implemented through a team-based performance
management and public expenditure reform approach. Within the MOF, a PMT was established to facilitate the
development and implementation of the FPIP.
The inaugural 5-year rolling plan was approved in February 2016. The MOF led the development of the plan with
the support of consultants and the process involved lengthy deliberations with stakeholders and donors. The plan
established broad targets, specific reform actions and utilizes a team-based performance management approach.
Work plans were articulated at the level of 66 individual teams, against which progress was monitored and self-
assessed. The first mid-year assessment was completed in September 2016 and the annual assessment was published
in April 2017. The assessment noted that 28 out of 66 teams scored 60% or above in terms of timely, quality and
effective delivery of the work plans. The directorates supported by the ongoing Bank projects scored the highest.
The services of high performing teams were recognized by a presidential award. Based on the results of the 2016
annual review, FPIP teams updated their rolling plans for 2017 and beyond. Implementation of these plans is
underway and the mid-year assessment was carried out in September 2017.
2. The Bank has adopted a programmatic approach to support the FPIP
implementation, comprising three interrelated and complimentary instruments. The FSP,
constitutes the implementation arm of the new engagement model and is intended to provide
critical inputs in the form of upfront investments drawn directly from FPIP work plans.
Government will provide parallel financing of up to US$100 million to support implementation
of the FSP, including of related infrastructure activities not directly covered by FSP financing.
The FSP will be underpinned through the FPIP Advisory Facility, a programmatic package of
ASA. The FPIP Advisory Facility scales up resources for foundational Bank-executed technical
assistance to operationalize and inform FPIP implementation. The third instrument is the IP Plus,
which is the major channel for multi-donor policy-based budget support to the GoA, providing
approximately US$300 million per year. This will provide the reward structure for the FPIP.
3. The FPIP Advisory Facility is a four-year Bank executed program that provides a
flexible structure for all World Bank ASA for FPIP implementation. This involves:
Directly supporting the MOF in all aspects of FPIP implementation (including
preparation of the FSP), with technical assistance provided flexibly to MOF teams to
support progress in achieving actions;
Supporting the management of the FPIP process, including peer reviewing FPIP
assessment reports, assisting in the development of work-plans, and supporting the
establishment of appropriate targets and actions within the plan;
Providing immediate support to short-term FPIP priorities, including achieving
improved alignment between the budget and ANPDF priorities through expenditure
analysis and reprioritization exercises and support to project assessment.
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Figure 1: Bank’s Engagement Model to Support FPIP
4. The FPIP implementation support under the facility consists of eight themes and a
number of activities are planned under each theme to be completed by FY20. For each
theme, a budget has been allocated and a team leader identified. Listed below are the ASAs and
TA to be carried out under the advisory facility, that are relevant to the FSP components.
Table 2: FPIP Advisory Facility – ASA and TA Relevant to FSP FSP Components FPIP Advisory Facility – Relevant ASA and TA
Component 1: Budget as Tool
for Development
PIM Assessment and training. Capacity needs assessment of MFPD.
Recommendation of the PIM and capacity assessment to be implemented under
FSP.
Component 2: Revenue
Mobilization
To improve customs enforcement, support will be provided to develop an action
plan including organizational structure, resource requirement and training needs.
The plan implementation will be financed by FSP.
ARD will be supported in developing ICT strategy, enhancing tax audit capacity by
developing methodology, and functional assessment of tax offices to identify
capacity gaps. FSP will finance capacity building, strengthening the audit function
and development of information systems.
Component 3: Treasury
Management, Accountability,
and
Transparency
The ongoing PEFA assessment is funded under the FPIP Advisory Facility and FSP
recognizes that resources would be required to address the gaps identified. Support
will also be provided to conduct Open Contracting Assessment and to develop the
Public Procurement Strategy (starting with an already prepared PPSD for FSP)
whereas FSP will provide financing for implementation. SOEs monitoring
framework will be developed to be implemented under FSP.
Component 4: Institutional
Capacity Building and
Performance Management
HR and ICT Assessment of MOF to develop recommendations to strengthen
MOF’s corporate backbone. Performance Management and Leadership Scoping
Report. FSP to support implementation of the recommendations.
FPIP Advisory Facility
•Bank executed TA to support FPIP implementation by providing analytical and advisory services, including assessments and preparation of implementation plans.
FSP
•Flexible government executed IPF to continue strengthening core PFM, fiscal management, and institutional capacity.
•Fous on outputs and process improvements that will contribute to acheieve FPIP strategic objectives.
IP Plus
•Budget support based on benchmarks to achieve strategic objectives of FPIP.
•Investments made through FSP to achieve benchmarks.
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5. The IP Plus will provide an estimated US$300 million budgetary support to the
government during FY18-20. The overall objective of the IP Plus is to support Afghanistan
with a reform program that aims at achieving greater fiscal self-reliance and sustainability
though increasing domestic revenue mobilization and strengthening expenditure management.
The program has two pillars namely: (i) ANDPF; and, (ii) FPIP. The IP Plus FPIP pillar includes
a Revenue Matching Grant Scheme intended to incentivize improved revenue performance and
therefore assist Afghanistan in its progress towards fiscal sustainability. It is meant to be
anchored in the annual revenue targeting negotiations between the MOF and the IMF. The FPIP
pillar also includes reform-oriented actions (triggers) which support the overall objective of the
FPIP. The IP Plus is under preparation and the FPIP pillar will be anchored within the results
framework of FSP. The table below provides examples on how IP Plus triggers will either
support FSP implementation or reward outcomes achieved under FSP.
Table 3: IP Plus – Triggers Complementing FSP
FSP Components Complementing IP Plus Triggers
Component 1: Budget as Tool for
Development The Cabinet approves the Provincial Budgeting Policy, allowing budget
allocation of discretionary resources to provinces.
MOF prepares and publishes an ex-ante and ex-post gender assessment of
the national budget (repeats annually), which have been presented in
budget hearings.
Component 2: Revenue
Mobilization The Cabinet approves a comprehensive HR reform policy for ACD.
The Cabinet approves amendments to the Customs Law. The amendments
will include provisions that regularize ACD's new enforcement wing, in
particular regarding the power for Customs to exercise their powers on the
Afghan customs territory.
The Cabinet approves a plan for the re-organization and re-structuring of
ARD, including the proposal, policy procedures and a new organization
structure.
Component 3: Treasury
Management, Accountability, and
Transparency
Cabinet approves amendments to all relevant laws governing PFM and
subnational bodies to ensure that the policy can be implemented.
DAB and MOF migrate 60% of all government salary payments by value
through the Automated Transfer System.
SAO law revised ensuring compliance with INTOSAI standards.
CBR process and salary scales implemented at SAO.
Increasing in number of performance audits conducted.
Component 4: Institutional
Capacity Building and
Performance Management
Improvement in core institutional capacity, represented by a reduction in
the number of long-term technical assistants (via ANPDF IP Plus Pillar).
Performance management streamlined over time, measured by regular
reporting on performance through publication/sharing of FPIP
assessments (repeats annually).
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Annex 5: Initial FSP Work Plan
Component 1: Budget as a Tool for Development Milestones
Priority Expected Outcome 2018 2019
Revision of budget processes A credible policy-linked budget founded on multi-year
perspectives and incorporating procurement planning.
Roll-overs, new policy calls and budget
disclosures developed.
New Budget Call circulars and budget
preparation systems developed.
Improved budget disclosures and
delivering comparability of budget and
accounts
Transparency in public financial operations. Plan to improve budget comparability
developed.
Move to Government Finance Statistics
(GFS) classification.
Classification of Functions of Government
(COFOG) functional classification included
into the budget statement.
Provincial budgeting policy and strategy Strengthened fiscal relations with provinces through de-
concentration, and improved transparency and
equitability of provincial budgets and operations.
Institutionalization of Unconditional Fund
Allocations.
Provincial budgeting policy M&E
framework developed.
O&M policy and roll-out Public assets are properly maintained and their life-cycle
is prolonged.
Public building maintenance manual
developed.
O&M reform rolled out to 11 additional
budgetary units.
O&M reform rolled out to 11 budgetary
units.
GRB implementation aligned with
ongoing and planned budget reforms
Budget is gender responsive. GRB Cell institutionalized as a unit of the
Budget Department.
Gender disaggregated budget and
expenditure data, and statistical analysis
compiled in a report for 2 pilot
ministries.
Framework for gender disaggregated
statistical analysis developed with data
collected, analyzed, defined and rolled out.
Medium term expenditure, fiscal and
budget frameworks
A credible budget that is more responsive to Government
priorities along with more efficient and effective spending
[more reliable resource envelopes (pre-budget and
budget) and fiscal space estimates].
Fiscal Strategy, Rolling Forward Estimates,
and other regular policy papers developed.
MTEF, MTFF, MTBF deployed in the
budget cycle.
MTEF, MTFF, MTBF developed.
Sustainable debt policy Sustainable debt levels. Debt strategy reviewed and updated. Debt Sustainability Analysis (DSA)
completed.
Delivering high quality advice to TPDC
on tax policy along with consistently
accurate revenue forecasts
Credible revenue estimates support informed decision
making.
Reports, policy papers, Computable General
Equilibrium (CGE) model and data
management systems developed.
Continue to implement plan for
improving tax policy advice and revenue
forecasting.
Delivering macroeconomic forecasts
and providing high-value
macroeconomic policy advice to HEC
Better macroeconomic policy delivering better fiscal
outcomes.
More reliable and relevant macroeconomic
data and briefs produced.
Macro-risk report updated and refined to
improve macroeconomic forecasts on
quarterly basis.
Operationalization of ANPDF
implementation mechanism
Improved national policies that support government
objectives and priorities.
Extractives NPP finalized.
Any remaining implementation plans and
budgets for other NPPs finalized.
Development Strategy drives national budget.
Report on the progress of Development
Councils produced on quarterly basis.
Report on implementation and budget
alignment of ANPDF/NPPs produced.
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PIM Framework and System Improved quality and efficiency of public investments. 15% of new large development projects are
properly appraised, costed, and included in
the budget.
20% of new large development projects
are properly appraised, costed, and
included in the budget.
M&E Framework and System Improved monitoring and evaluation of development
projects.
M&E framework developed, and M&E
system developed and deployed. 20% of
development projects monitored.
40% of development projects monitored.
Component 2: Revenue Mobilization Milestones
Priority Expected Outcome 2018 2019
Revenue Administration Automation
(including for VAT rollout)
Effective business processes reducing opportunities for
corruption and increasing taxpayer confidence in the tax
system.
Business process reengineering carried out
in the LTO to support revision of the
taxpayer registries, introduce hybrid
electronic filing compliant with the existing
legal framework and establish processes for
VAT rollout in 2020.
Roll out to the Medium and Small
Taxpayer Offices and provinces
Revenue Administration ICT (SIGTAS,
e-payments etc.)
ARD reporting tools and decision making enhanced. ICT Master Plan and Change Management
Plan prepared.
Data warehouse developed.
Taxpayer compliance and anti-
corruption
Increase in taxpayer confidence in the fairness of the tax
system supporting higher voluntary compliance.
Audit training and mentoring program
developed and implemented, to enhance the
quality of the risk-based audit system.
Implementation of the Disputes
Resolution Board.
Anti-Corruption Strategy to strengthen
internal controls created, with an internal
audit function to respond to taxpayer
complaints.
Taxpayer awareness More informed taxpayers supporting increased voluntary
compliance.
Communications Strategy developed, to
support communication with taxpayers.
Service standards established, and annual
taxpayer surveys carried out to measure
performance.
Taxpayer guides updated with new
legislation and filing procedures.
ARD Re-organization and
Modernization
Re-organization and modernization of ARD.
Readiness Phase Completed: Leadership
Cadre and Corporate Support Services
established.
Phase 1 Completed: Two regions and
Kabul report to ARD.
Training needs assessment carried out. Curriculum for the Tax Academy
developed.
Job descriptions and match to training
program developed.
Analytical training carried out to support
revenue analysis and forecasting capacity
of the Revenue Planning Department.
Optimization of Customs Academy and
implementation of ACD HR Reforms
Strengthened management control and oversight of
national activities, and ensuring the organization
adequately supports strategically important functions,
including monitoring of internal controls, consistency in
application of Customs procedures throughout the
Human resource management policy
developed and adopted, to promote merit-
based and gender-balanced recruitment,
mobility, advancement, performance
appraisal, remuneration practices, and
Human resource development and
training curriculum developed and
incorporated into staff planning and
deployment policies.
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country, and Customs specific HRM capacity.
policies to support the flexible deployment
of human resources.
Performance monitoring and evaluation
capabilities developed, covering all key
organizational objectives, including
establishment of Internal Compliance
Unit.
Customs Administration ICT
(ASYCUDA, NSW etc.)
Simplification and improvement of customs processes
and enhanced transparency, operational efficiency and
controls.
Geographical and functional rollout of
ASYCUDA, including module of
exemption, valuation, and Intellectual
Property Rights (IPR) database (and
capacity building).
NSW system development and
implementation, deployment of Trade
Information Portal, and technology
integration in the automation process,
including weigh-in-motion system,
automatic gates, biometrics, CCTV and
cameras and vehicle number plate
readers.
Post Clearance Audit (PCA) capacity,
mobile verification, and Anti-
Corruption
Improved efficiency in Customs clearance process. Risk base audit of import, export and transit
declarations carried out.
Audit of regional Customs (starting from
Kabul) expanded to 800 major
companies/entities.
Combating corruption and enhancing compliance.
Audit of regional Customs (starting from
Kabul) expanded to 250 major
companies/entities.
Areas of corruption prevention/detection,
and Customs to Customs cooperation with
neighboring countries developed, including
real time data exchange to limit
opportunities for fraud.
Implementation of AEITI
recommendations
AEITI compliance. Quality improvement plans and enhanced
data collection and reconciliation
procedures developed, and AEITI
recommendations incorporated into relevant
government work plans.
Quality reports in support of retaining
EITI compliance developed, and
recommendations implemented.
Component 3: Treasury Management, Accountability, and Transparency Milestones
Priority Expected Outcome 2018 2019
Treasury: AFMIS enhancement and
expansion
Standards of timely transaction processing (including
payments), credibility and efficiency in payroll
generation, and financial reporting improved through
expansion and enhancement of system coverage.
Annual financial statements on the core
budget prepared using Cash Basis IPSAS.
Roll out to more embassies,
selected districts and municipalities, and
at least 5 SOEs.
Access rights and training provided to 300
additional users at designated spending
units.
Additional functionalities added, to
strengthen payroll and HR systems.
Procedures manual developed for Ministry
of Foreign Affairs and roll out to between 2
and 10 embassies.
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Treasury: Accounting and Auditing
Practices
Strengthened accounting and auditing practices of the
corporate sector (implementation of Accountancy Law).
Trainee program established by Treasury. First batch of training and professional
accreditation carried out, including 5
females.
CPA Law and curriculum developed. Regulations, Policies, and Procedures
supporting and assisting CPA
Afghanistan set up.
CPA Afghanistan established, to serve as
the node for certification of accountants and
development of accounting standards for
Afghanistan.
Reciprocal membership agreement signed
with two international/regional
accountancy bodies.
Treasury: Sukuk Implementation Establishment of Sukuk operations in Afghanistan. Framework (Law) for Sukuk Bonds
developed.
Sukuk Bonds implementation facilitated
through approval of Framework (Law),
formation of supervisory body, and
issuance of rules and procedures.
Internal Audit
Increased implementation rate of audit recommendations
and improved internal controls, risk management and
governance process.
Requisite procurement initiated, MoUs
signed, and IAD MOF teams designated
and start work to perform quality assurance
and strengthen (per IIA standards) IA
function of 5 pilot line ministries to operate
individually and competently.
Designated IAD MOF teams continue
work in line ministries (2 years in each
line ministry), expanding to 10 pilot line
ministries.
AMIS installed and implemented in IAD
MOF (and staff trained on system), to
automate the manual audit process.
AMIS installed and implemented in line
ministries (and staff trained on system).
External Audit Increased efficiency through implementation of HR
Strategic Plan, transparency (citizen engagement)
measures, follow up of external audits and increase in
number of performance audits conducted (supported
through improved data management).
Consultancy firms for Grants audit and
quality control and quality assurance
contracted.
Consultancy firms’ performance (and
continued need evaluated.)
Development of AMIS contracted. AMIS is in place, and report on follow-
up is generated.
Professionalization/Capacity Building of
SAO advanced through first year
implementation of HR Strategic Plan,
collaboration with other SAIs, recruitment
of national and international advisors and
staff for SAO and Public Accounts
Committee (PAC), and equipping of SAO
and its regional offices.
Professionalization/Capacity Building of
SAO further advanced through second
year implementation of HR Strategic
Plan, collaboration with other SAIs, and
equipping of SAO and its regional
offices.
Citizen engagement enhanced and
awareness of CSOs, Media, Parliament and
auditees increased, including through
development of Communications Strategy.
Citizen engagement enhanced and
awareness of CSOs, Media, Parliament
and auditees increased, including through
implementation of Communications
Strategy.
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Procurement (development and rollout
of first phase E-Government
Procurement and system)
Transparent, effective and efficient procurement service
delivery across government organizations.
PMIS upgraded through: (a) mapping and
simplification of all (upstream and
downstream) procurement processes; (b)
development (as sub-systems of PMIS)
Decision Support System, Management
Reporting System, Transaction Support
System; and (c) linkage to relevant modules
of AFMIS (including tax office database),
ACBR and Banks.
E-Purchasing, E-Tendering and E-
Contract management modules pilot
expanded, including: (a) Vendors'
Classification System for services
vendors; (b) E-bidding system for
consultancy projects; (c) e-purchasing
module; and (d) e-specifications module.
Standard e-Operation Office equipped in
Procurement Entities and Provinces.
e-GP system procured. E-Purchasing, E-Tendering and E-Contract
management modules launched in pilot
phase, including: (a) Vendors' Classification
System for goods vendors; (b) E-bidding
System for goods projects; (c)
Debarment System; (d)
Administrative Review System and E-
Catalogue; and (e) upgrading of
procurement related dashboards.
SOEs Enhanced efficiency, competitive capacity, and
profitability of SOEs.
Diagnostic assessment of SOEs carried out,
to measure size, composition, market share
and economic weight of SOEs (both
individually and by sub-sector), and
financial, operational and fiscal
performance (the latter quantifying fiscal
costs and fiscal risks) of the sector.
SOEs reforms initiated based on
diagnostic recommendations.
Supervisory Board established to support
oversight and monitoring of SOEs and
SOCs and the development of policies to
enhance profitability of the sector.
Supervisory Board activated and
providing oversight and policy
development for the sector.
Insurance Strengthened strategic framework for insurance
development.
Insurance strategic vision, sector policy, and
law and regulations developed/reviewed.
Capacity building in Takaful law and
registration carried out.
Properties Increase revenue from public properties. Procedures and manuals for the clarification
of government Property Law developed.
Implementation of procedures and
manuals initiated.
AFN 580 million revenue from government
property (leases and rent) including in
provinces collected.
AFN 580 million revenue from
government property (leases and rent)
including in provinces collected.
Development of Property Information
Management System.
Deployment and data population of
Property Information Management
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System.
Number of newly registered government
properties on Property Accounts increased
by 350 through improved data collection on
property type, location, size, and owner
breakdown.
Number of newly registered government
properties on Property Accounts
increased by 350 through improved data
collection on property type, location,
size, and owner breakdown.
30% of public properties maintained. 70% of public properties maintained.
50% of Properties’ staff trained. 100% of Properties’ staff trained.
Component 4: Institutional Capacity Building and Performance Management Milestones
Priority Expected Outcome 2018 2019
MOF Re-organization
Improved functioning and structure of MOF (including its
corporate backbone).
Comprehensive organizational restructuring
and professional development plan
developed on basis of FPIP Advisory
Facility supported competency framework
(HR Assessment).
Organizational restructuring and
professional development program
initiated, including (gender-sensitive)
recruitment and TA migration (working
with CBR Facility) performance
management, training and professional
development.
MOF Administration Business Process
Re-engineering
More effective and timely transaction processing, to
better support the operations of MOF technical
departments and, by extension, implementation of FPIP.
Mapping carried out for 50% of relevant
MOF Administration processes.
Mapping carried out for 50% of relevant
MOF Administration processes
MOF Procurement Improved procurement efficiency. Procurement and contract management
database developed.
Database deployed.
MOF ICT
To meet current and future needs for efficiency,
flexibility, coverage and process integrity of IT systems.
Requisite investments in upgrading ICT
systems and connectivity, guided by all-of-
MOF ICT Assessment and ICT Strategy
currently being prepared through the FPIP
Advisory Facility.
Capacitation of MOF IT staff.
Performance Management Driving behavioral change through the entire PFM cycle,
by applying the overarching principles of: (i) leadership
and political commitment towards change; (ii) policy
space for implementing suggested reforms; and (iii)
adaptive, iterative and inclusive processes.
Implementation of recommendations of
Scoping Report completed as part of FPIP
Advisory Facility, on provision of
authorizing environment for
implementation teams, and system-level
reforms to enhance skills, strengthen
cohesiveness and effectiveness of
leadership teams in the context of FPIP.
Technical assistance provided to support
PMT in the development of annual and
mid-year FPIP performance assessment
reports.
Communications Strategy designed to guide
measures to institutionalize process of
behavioral change to support new policy
processes, and provide timely support to
bridge policy and implementation gaps
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revealed in course of FSP implementation.
Web-based PMRS developed for PMT.
TA provided to support PMT in the
development of annual and mid-year FPIP
performance assessment reports.
Development of overall Strategic Framework for the
Ministry of Finance.
Situational Analysis and Five Year
Strategic Vision for MOF developed.
Implementation of Five Year Strategy
initiated. Update and improvement of GoA PFM Reform Strategy
(PFM Road Map II).
PFM Reform Strategy improved and
updated on basis of supporting assessments
(including FPIP assessments).
Implementation of updated PFM Strategy
initiated.
Development of an Information Systems Development
and Improvement Strategy.
Situational Analysis carried out, and whole-
of-government Information Systems
Development and Improvement Strategy
developed.
Implementation of Information Systems
Development and Improvement Strategy
initiated.
Chief of Staff: Data Archiving Improved archiving and transfer of data and records to
relevant departments.
Current documents in MOF archive
categorized, and documents disposed in
accordance with MOF Archive and the
National Archive legal framework.
Design initiated for comprehensive MOF
archives’ database linked to database for
property documents in President’s Office
and the Afghanistan Land Authority.
Annual assessment of historical data
conducted, and annual workshop on
Archiving policy at MOF conducted.
Annual assessment of historical data
conducted, and annual workshop on
Archiving policy at MOF conducted.
Aid Management Improved evidence-based monitoring and reporting on
the mutual commitment expressed by the donors and
government under area six (6) of SMAF.
Official Development Assistance (ODA)
data collected from Afghanistan
development partners and entered into the
Development Assistance Database (DAD),
in accordance with the ODA Data Cycle.
ODA data analysis conducted and results
communicated to development partners;
Aid Management Policy and New Deal
Engagement advocacy activities at the
national level conducted; dissemination
of donor-specific ODA Data Score-Cards
on quarterly basis; and forward estimates
process reviewed and refined as required
DAD rolled out to at least 3 ministries,
supported through sector specific DAD
trainings and preparation of user guide.
DAD and AFMIS compatibility is
resolved.
MOF Projects’ Coordination and
Monitoring
Improved MOF projects’ planning, management and
coordination, and evaluation and reporting.
MOF projects’ coordination and monitoring
linked-up to Geographic Information
System (GIS), and M&E system
development.
MOF projects’ coordination and
monitoring improved through utilization
of GIS, and M&E system.
Public Relations Improved Ministry of Finance communication and
outreach on FPIP reform aspects and progress.
Development and distribution of relevant
media materials.
Development and distribution of relevant
media materials.