US Treasury – Office of Technical Assistance

1. Overview: GIRoA Budget Processes US Treasury – Office of Technical Assistance

2. Overview • Local Governance and GIRoA Budget Basics • Planning and Budget Formulation • Show Me The Numbers: 1390 Budget • Budget Trends • Sustainment • Provincial “Budgeting” • How PRT’s Can Help • Resources and Contacts • Provincial Budget and Development Website • Advisor’s Toolbox • Provincial Financial Overview • Additional Lessons Learned

3. GIRoA Budget and Local Governance Basics Local Governance andGIRoA BudgetBasics GIRoA Budget and Local Governance Basics

4. Budget at a Glance In Afghanistan, programs are funded through the: • Core or On-Budget, which consists of operating and development funds. Transactions are recorded in AFMIS and reported. • External funds or Off-Budget, which are administered directly by the donor and the funds are not in the custody of the Ministry of Finance (MoF). The World Bank estimates the unknown external budget in 1389 was between $6 - $16 billion USD. Allocations assign budget limits by program and province. Before 1390, line ministries (LM) did not publish the provincial allocations. In 1390, LM’s provinces will inform their directorates of their annual development allocation. Allotments provide authority to incur commitments, or spending authority. • Allotment is distributed at the Major Object Class level (21, 22, 22.1, 24 and 25) • Allotments for operations (Codes 21 and 22) are made on a monthly/quarterly cycle, depending on the primary budget unit • Allotment is normally provided 10 days prior to the end of a month/quarter and entered into AFMIS

5. GIRoA Budget Framework

6. Provincial “Fund Flow” • Funds flow through the primary budgetary units (BU) to their subordinate units. There is no “provincial” budget. Subnational budgets are allocated through the relevant central line ministries to their provincial directorates, as illustrated below: • Needs are communicated upwards, from line departments to line ministries • Line ministries determine allocations by program and province

7. Provincial Governance

8. GIRoA Budget and Local Governance Basics Planning and Budget Formulation GIRoA Budget and Local Governance Basics

9. Idea to Implementation The complete budget cycle, through initial project identification to operation is a multi-year process. The planning phase is an input to budget formulation, which is an input to implementation and operations. BY-3 BY-2 BY-1 BY Provincial Development Plan Planning Project Formulation Investment Project Template (proposed) Budget Formulation Budget Execution Budget circular instructions

10. Putting a Project On-Budget • The Budget Committee has established criteria to put a project “on-budget:” • Completion of project preparation and documentation • Completion of procurement plan, cost, and time estimation • Completion of feasibility study (if required) and project design • Readiness of project documentation for solicitation • Donor (for non-discretionary projects) and Budget Committee agreement • Working with provincial directors to “jumpstart” project documentation, and to obtain commitments from donors, will smooth the process.

11. Budget Formulation Process Source: MoF brief to ISAF, 11 April 2011

12. GIRoA Budget and Local Governance Basics Show Me the Numbers GIRoA Budget and Local Governance Basics

13. GIRoA 1390 Budget 1390 National Budget • The national budget is a political and strategic document • Focuses on achieving ANDS goals and delivering services to the people • Includes both core and external budgets • Provinces are NOT budgetary units • Funded through combination of domestic revenues and donor contributions External* Core ($5.4B USD) Operating (60%) Development (40%) Discretionary (25%) Non-Discretionary (75%) *External budget includes all donor funding outside of the GIRoA budget process; Estimates of external funding are between $6 - $16 Billion USD

14. 1390 Budget Funding Sources Development budget ($2154m) Operating budget ($3192m) Source: MoF MTBF 11/2/2011

15. 1390 National Budget Total Core Budget – $5.4 B External Budget – TBD 60% 40% Operating Budget– $3.2 B Development Budget – $2.2 B Non Discretionary – $1.7 B Discretionary – $515 M 25% 75% New Discretionary – $379 M Carry Forward Discretionary– $136 M Carry Forward Non Discretionary– $538 M New Non Discretionary – $1.1 B Source: MoF MTBF 11/2/2011

16. Core Budget – By Sector Development spending creates future obligations to support the asset Core Development Budget By Sector Core Operating Budget By Sector Source: 1390 budget Source: 1390 budget

17. Operating Budget – Driven by Salaries • Up over 30% from 1389 to 1390 • Employee compensation accounts for over 70% of the operating budget • Majority of all growth in the operating budget is from employee compensation (primarily teachers, ANA/ANP and pay and grade reform) • Maintenance costs are insufficiently covered in the budget

18. GIRoA Budget and Local Governance Basics Budget Trends GIRoA Budget and Local Governance Basics

19. Budget Summary 1388-1390 • Development Budget • Donor funding through the Afghanistan Reconstruction Trust Fund • Disbursed through MOF central treasury to central line ministries (portion spent in provinces) • Discretionary projects identified through consultative process • Non-Discretionary projects are earmarked by donors • 1390 includes carry forwards • Operating Budget • Salaries • Operating Expenses • Disbursed through quarterly allotments to provincial Mustafiats from Line Ministries

20. Historical Budget Execution • Delays in budget approvalby Parliament • Poor procurement planning • Communication problems between Kabul and the Provinces • Lack of qualified contractors and other supply chain issues

21. Domestic Revenues • Domestic revenues have been growing around 20 billion Afs ($400 million) per year • Taxes account for the majority of domestic revenue • In 1390 domestic revenue contributes to 62% of the core operating budget and 43% of the total core (operating and development) budget

22. Provincial Expenditures 1388-1389

23. GIRoA Budget and Local Governance Basics Sustainment GIRoA Budget and Local Governance Basics

24. Sustainment Impacts The ability of GIRoA to sustain projects is based upon timely information to estimate the fiscal requirements to support programs On-budget development projects: • Conforms with ANDS, sectoral, and ministerial objectives • Generally aligns with Constitutional obligation to assure balanced development and equitable distribution of resources • Three year window: budget year, plus two • Identifies fiscal impact of staffing and operational support Off-budget: • Supports donor’s policy objectives, not necessarily GIRoA’s • Increases risk of duplication of projects at the local level • Does not conform with GIRoA standards for projecting support requirements • Delays funding for sustainment

25. Recent Case Studies • Following the withdrawal or significant reduction in troop levels, Iraq, Kosovo, Haiti, and Bosnia saw significant decreases in development assistance levels • When troops transition out, the government must be able to stand up • Technical and professional competency must be built so the local government can operate (using their own systems and procedures) when PRTs and the international community transition Source: USAID

26. Provincial CERP Spending

27. GIRoA Budget and Local Governance Basics Provincial “Budgeting” GIRoA Budget and Local Governance Basics

28. Why is a Pilot Program Necessary? • Years of limited discretionary funding at the center and seemingly unlimited donor funding at the provincial level has distorted the budget formulation process and rendered the PDP’s and DDP’s irrelevant • External funding is beginning to decline; Some of it is moving on budget and some is disappearing, without linking the provinces to the center in the budget formulation process, Afghanistan’s budget formulation will continue to be highly centralized without the external resources available for the provinces • In most provinces, reviving the provincial development plan process that feeds from districts to provinces to Kabul with projects that are fully planned, vetted, and in line with national priorities is a multiyear process

29. 1390 Pilot Program Achievements • Five ministerial participants in the pilot program: MAIL, MRRD, MoPH, MoED, & IDLG • Program was implemented country wide • Budget Symposium in May brought 8 representatives from each province to Kabul to meet with central ministry officials and learn about the pilot program • 10 Regional training conducted Afghan to Afghan by the MoF and Central Ministries going out to the provinces to train on submissions for Budget Circular’s #1 and #2 • Out of 170 total possible submissions, 168 of the provincial line directorates completed their project submissions for inclusion into the 1391 budget • Increased communication between Kabul and the provinces as a result of the trainings and outreach • Several other ministries requesting to be included in the 2nd year expansion of the pilot program

30. Ideal Budget Formulation Process (Bottom Up) • The budget is developed to implement the Afghan National Development Strategy (ANDS) and National Priority Programs (NPP) are the main vehicles to implement the ANDS • April – May: BC 1 is issued providing instruction to Ministries on how to support the ANDS; Ministries have informed line directorates on NPP strategy and how to identify projects that support both the NPP and local priorities • Aug – Sept: BC 2 is issued. Line directorates submit projects to the central ministries within the budget envelop. • March: The budget is passed and contains projects the line directorates chose which support National priorities and local preferences. IDLG LM1 LM2 LM3 LM4 Provincial Development Committee LD3 LD2 LD4 LD1 D2 D4 D1 D3

31. Externally Funded Project Coordination • Donors should be building off the training provided during the Provincial Budget Pilot Program • Use forms 2A and 2B for all externally funded projects • Line directors will continue to gain experience in project formulation and costing • Central Ministries and the MoF will be aware of the externally built projects and understand what the ongoing operations costs are • Externally funded project packets currently available • Currently coordinating between GIRoA and Donors to make it mandatory to use the GIRoA forms for all externally built projects

32. Linking Local Priorities toNational Strategy Line Ministry Line Ministry Provincial Directorate Provincial Development Council District Development Assembly Line Ministry Strategy Provincial Directorate Strategy Provincial Development Plan District Development Plan Source: MoF Briefing to ISAF, December 2010

33. Strengthening the Provincial Role MoF, with the Ministry of Economy, IDLG, and the line ministries are strengthening the role of provincial directorates in the budget process, specifically: • Building finance capacity of mustufiats and provincial line ministry departments to engage in planning and budgeting • Facilitating communication between provincial departments and central line ministries • In the center, regular coordination with donors, UN organizations and others • In the provinces, regular consultation and coordination with PRTs, RCs and locally active donors • Providing provincial allocation information by budget units to provincial officials • Piloting norms-based allocation (15 provinces for Ministry of Education) Source: MoF Briefing to ISAF, December 2010

34. GIRoA Budget and Local Governance Basics How PRT’s Can Help GIRoA Budget and Local Governance Basics

35. How Can PRTs Help? (General)

36. How Can PRTs Help? (Specific)

37. How Can PRTs Help? (Specific)

38. GIRoA Budget and Local Governance Basics Resources andContacts GIRoA Budget and Local Governance Basics

39. Start Here – PBED Website The Afghanistan Provincial Budgeting and Economic Development website The Afghanistan Provincial Budgeting and Economic Development (PBED) website has been set up as source of budget information for PRT’s and Provincial Officials. It has been designed as a tool for low bandwidth users to be able to access budget documents, laws, presentations, ask questions, and participate in discussions. The site is being managed out of the Ministry of Finance provincial budget unit. It is currently only in English but we are developing the site to have all information eventually in Dari and Pashtu as well. The site is for users in the provinces and any feedback and requests for improvement are welcome. How To Request An Account • Go to https://ronna-afghan.harmonieweb.org/Pages/Default.aspx • On the right hand side, click on “request a ronna account” • It will take you to the log in screen, again click “request an account” • Fill out the require info: Name, Email (e-mail address you want updates sent to), etc • In the justification section enter “Provincial Budgeting and Economic Development Ronna group” • Verify the information is accurate and hit the submit button • You will receive an confirmation e-mail with your details when the account is approved; follow the directions in the email to log in. (while waiting for your account to be approved you can view the site by following the steps below.

40. Additional Resources and Contacts • Web Sites • Ministry of Finance: www.mof.gov.af • Donor Assistance Database: http://dadafghanistan.gov.af • Ministry of Finance (Budget): www.budgetmof.gov.af • Ministry of Finance (Treasury): www.treasury.gov.af • Procurement Policy Unit: www.ppu.gov.af • Independent Directorate of Local Governance (IDLG): http://www.idlg.gov.af/IDLG/ • CIMIC Web: https://www.cimicweb.org/Pages/PRTConference2010.aspx • Ronna: https://ronna-afghan.harmonieweb.org/Pages/Default.aspx • Peace Dividend Trust: http://www.peacedividendtrust.org/en/index.php?sv=&category=PDT%20Afghanistan&title=PDT%20Afghanistan • USIP: http://www.usip.org/ • Interagency Provincial Affairs (IPA) website: http://www.intelink.gov/wiki/Portal:Afghanistan_Provincial_Reconstruction Teams

41. Provincial Budget Unit:Afghan Support • Dr. Najimullah Qasimi, Manager, Provincial Budget Unit, najimullah@gmail.com • The PBU coordinates all Capacity Building Training (CBT) and Consultation and Coordination (C&C) events in each province • Attendees include representatives from the Governor’s Office, Provincial Council, Line Directors, District officials and others as necessary • Provincial officials should coordinate these events without assistance from the PRT (expect for very specific requests); PRT officials can potentially observe sessions • Composed of Afghan nationals funded through GIRoA, UNDP, and USAID

42. Provincial Budget UnitInternational Support • Advisors from the US Treasury’s Office of Technical Assistance (OTA) and IJC focus on explaining the Afghan system to the PRTs and working with them to improve their ability to support or mentor their Afghan counterparts • On-site consultation and coordination with PRTs, Human Terrain Teams, military civil affairs teams, Afghan officials • Provincial Financial Overview template (in-progress) • On-line reference material • Advisor’s Toolbox (1 June release)

43. Additional Resources and Contacts • USG and ISAF Contacts • Primary Contact • Ms. Lynda Roades • MoF PBU Advisor, lroades@otatreas.us • Cell: (0) 796-146-157 • Mr. Kirk Schmidt, MoF PBU Advisor, kschmidt@otatreas.us, cell: (0) 702-591-559 • Ms. Rhonda Reinke, MoF Treasury Advisor, rreinke@otatreas.us, cell: 706-797-200 • Ms. Najla Farzana, IJC Provincial Budgeting Advisor, Najla_Farzana@yahoo.com

44. Additional Lessons Learned

45. Additional Lessons Learned • Afghans must take the lead; at this point we cannot do it for them • Legitimacy is the key to local governance • Structural problems must be solved before human capital can have an impact • Economic development is imperative if GIRoA is to be able to fund their long-term budget needs; ensure it is a priority • Parallel structures can destroy value if not transparently implemented with GIRoA approval and buy-in • Civ-Mil cooperation on all fronts is necessary to create a consistent and predictable message • What we fund, and how we fund it, will have a long-lasting impact (positive or negative) and we must think through unintended consequences