Provincial Budget Discussion Paktiya Province

1. Islamic Republic of Afghanistan Ministry of Finance Budget Department Lynda Roades, Provincial Budgeting AdvisorJoe Banavige, Provincial Budgeting Advisor 15 Jun 2010 Provincial Budget Discussion Paktiya Province

2. Overview • Introduction • Update on 1389 Budget (Joe Banavige) • 1388 Issues • 1389 Overview • Issues and Reforms • 1390 Budget Formulation (Lynda Roades) • Budget Processes • Budget Cycle • Putting Project on Budget • Key Contacts • Discussion

3. Update on 1389 BudgetJoe Banavige

4. 1389 Budget Overview National Budget* External (45%) Core (55%) Operating (54%) Development (46%) Discretionary (23%) Non-Discretionary (77%) • The national budget is a political and strategic development tool • Focused on achieving Afghan National Development Strategy (ANDS) goals and delivering services to the people • Includes both core and external budgets • Governed by the Public Finance Expenditure Management (PFEM) Law • Central line ministries receive a budget, not provinces *Percentages based on GIRoA 1388 budget

5. 1388 Issues • Election • New Cabinet ministries without ministers / teams. • Delay in MYR approval by Parliament • Low Capacity of Line Ministries in Planning and Implementation • Security

6. 1389 Budget Overview • Total core budget $ 4.4bn (Afs 215.1bn) $2.0bn 46% $2.3bn 54% $1.8bn 45% $2.3bn 55%

7. Summary of 1389 Budget *Note: “Ordinary” and “Operating” are often times used interchangeably to describe the recurring portion of the GIRoA core budget

8. Sectors & Provinces Core Development Budget by Sector Core Operating Budget by Sector Contingent 15% Security 53% Agriculture 26% Education 17% Infrastructure 17% Education 11%

9. Challenges & Reforms Challenges Reforms • Lack of fiscal sustainability • Low capacity of budgetary units (planning and execution) • Low absorptive capacity of line ministries • Lack of transparency in making provincial allocations by respective line ministries • Weak budget formulation processes • Bottlenecks in procurement • Better understanding of problems in executing the budget • External budget information not reported timely and poor coordination with GIRoA • Donor projects not fully aligned with national and sectoral priorities • London Conference: • Goal – 50% of aid delivered through GIRoA budget in the next two years • Conditional on: • Strengthening public financial mgt systems • Reducing corruption • Improving budget execution • Developing a financing strategy Kabul Conference (July 2010)

10. 1390 Budget Process Timetable Bottom Up Process

11. PRT Recommendations PRT Recommendations Major Resources • PRTs should collaborate with provincial officials and Mustofiats on major steps of the 1390 budget process • PRTs should ensure CERP and any other programs are in line with the ANDS and support GIRoA priorities and processes and reported to the government • Continue to support regional budget conferences and workshops. • Continue transfer of CERP data to Ministry of Finance databases to improve transparency and budgeting practices • Monitor cluster implementation • Websites • Ministry of Finance (http://www.budgetmof.gov.af) • Afghanistan Reconstruction and Development Services (http://www.ards.org.af) • Procurement Policy Unit (http://www.ppu.gov.af) • Ronna (www.ronna-afghan.org) • Donor Assisted Database(www.dadafghanistan.gov.af) • Laws • Public Finance and Expenditure Management Law • Procurement Law • Provincial Council Law • Municipalities Law

12. 1390 Budget FormulationLynda Roades

13. Introduction • We all share a common goal of a safe, and secure Afghanistan, but different interpretations of the benefit in achieving that goal: • For the PRTs, you will return to your homes and families. • For us Afghans, a country for our children and their children, where they can live in peace and enjoy opportunities for economic well-being. • Working together and coordinating our efforts will realize both short-term and long-term objectives. • This presentation will update my Afghan colleagues and the PRTs on the: • Status of the 1389 budget • Upcoming 1390 budget cycle • Progress in moving US government funds onto the core budget • On-going public financial management reforms

14. Key Points Afghanistan is a unitary system of government • Provinces and districts are administrative units of the central government • There is ONE national budget, with provincial allocations under the line ministries • Provinces and districts have no political, administrative, or budgetary powers embodied in the Constitution. This has significant impact on budget policy, planning, formulation, execution, and reporting. There is no provincial budget in the sense that there is one source document describing provincial, much less district, budget resources. Mustofiats can answer many questions regarding allotments and expenditures through reports generated through AFMIS.

15. Provincial Development • Provincial development is a pivotal issue for Afghanistan reconstruction and the credibility of the Government. Implementing provincial and district level reforms has not proceeded as quickly as we had hoped in 1386 (2007-08) with the provincial budget pilot. • The public financial management reforms we have implemented will form the foundation to: • Strengthen local involvement into development planning • Improve transparency and accountability in budgeting and expenditure • Our focus is to move these sustainable policy reforms from the center to implementation at the local level and improve the efficiency and effectiveness of public service delivery throughout Afghanistan. To accomplish this requires communication, close coordination not only within the Afghan government, but with the Afghan people, and the international community.

16. Legal/Regulatory Framework The legal and regulatory framework of public finance: • Defines roles and responsibilities of key actors, as well as supporting processes and procedures (i.e. transparency) • Describes oversight, monitoring, and control mechanisms • Provides the authority to incur commitments, expend public funds, and collect revenues • Foundation of anti-corruption efforts (e.g., complaints, investigations, and prosecutions) Laws alone are not enough: • Enacted through regulations, guidance, instructions • Reinforced through supervision, training, and professional development • Supported through relevant tools (e.g., forms, databases, applications)

17. Budget Process The budget process is composed of several steps: • Planning the staffing, resource, and investment (i.e. capital or development) • Programming to complete the supporting documents to submit a budget request • Budget Formulation • Appropriation • Budget Execution • Audit In Afghanistan, planning, programming, and budgeting are compressed into budget formulation.

18. 1390 Budget Formulation • Budget formulation is a process of coordination, communication, and compromise as shown in the following graphic. The result is a national budget, reflecting: • National development priorities in ANDS • Fiscal discipline from the medium term fiscal framework • Donor prioritization and commitment • The budget formulation cycle for 1390 began with the approval of Budget Calendar by the Budget Committeeon April 14. • The process includes a period of consultation between the line ministries (LM) and their provincial directorates, and with civil society organizations, before the budget is drafted.

19. Ministry of Finance Linking with Local Priorities The graphic below illustrates the navigation of provincial and district priorities through this process: استرانیژی انکشاف ملی افغانستان

20. Budget Cycle Budget preparation Budget execution Budget financing Budget approval

21. Highlights of the1390 Budget Calendar • Two main outputs of the Budget Calendar: • Medium-Term Budget Framework (MTBF), or ‘Pre-Budget Statement,’ which sets out budget priorities to be funded from the available resources (starts with Budget Circular No1) • sets budget ceilings • ensures essential budget policies are sustainable • identifies desirable policy changes • National Budget – for detailed budget costing and provinical allocation (starts with Budget Circular No2) • requires detailed costing and project documents • ensures budget is cost effective

22. Budget Formulation Budget Circular 2 is the instruction to prepare detailed costs and outputs, within budget ceilings Provincial budget submissions provincial priorities (provincial development plan) Budget Circular 1 is the instruction to submit estimated costs for programs and priorities of budgetary units

23. Budget Timetable budget submission assessment by budget committee submission of circular No. two 14 Oct. 16 Oct. first phase of donor financial review 02 Aug. 15 Aug. budget submission preparation by budgetary Units budgetary priorities preparation 12 Jul. 17 Jul. mid-term fiscal frame-work and budget ceiling preparation submission of circular No. one 26 Apr. budget approval by budget committee 22 May conducting workshop for budgetary units to prepare budget 22 Apr. 2010

24. Budget Timetable budget approval by national assembly budget draft submission to council of ministers 20 Jan. 30 حوت conducting budget hearing sessions 03 Jan. 2011 13 Jan. budget submission to national assembly first phase of donor financial review 20 Nov. finalizing budget draft by budget committee 20 Nov. to 15 Dec. tripartite meetings on finalizing funds 10 Nov.

25. Required Information For the line ministries, there are two important tasks to comply with BC1: Calculate the baseline cost of existing level of activities and identify existing output levels Indentify and estimate costs for no more than five new spending initiatives to meet output targets from their ANDS results framework. Ministries/budgetary units may submit separate supplementary requests but these will only be reviewed in the event of funds being available The results from BC1 submissions will be used to identify priorities, determine budget ceilings and prepare the Pre-Budget Statement (MTBF) that will be adopted by Cabinet in mid-August and form the basis for BC2 submissions. The deadline of the BC1 submission to the Ministry of Finance is 22 May 2010.

26. In August, BC2 will be released with the budget ceilings established in the MTBF. The LM’s will then consult with their provincial and district officers to develop the ministry’s budget request. To prepare for these consultations, provincial directors should: Identify their baseline costs to continue current level of activity (e.g., operating budget estimates, follow-on costs for on-going development projects) Ensure that priority projects are documented in the PDP The Provincial Budget Unit has drafted a local development plan template which will be released after consultation with key stakeholders. Provincial Level Impact

27. Afghanistan National Development Strategy Ministry of Finance Identifying Projects The Ministry of Finance is revising the format of the Provincial Development Plan (PDP) to make it a more useful document for budgeting. The new format will included in the provincial resource allocation pilot with the Ministry of Education. The proposed changes will: • Standardize submissions • Strengthen the linkages with national, sectoral, and ministerial priorities

28. Putting Projects On Budget • The Budget Committee has established criteria to put a project “on-budget:” • Completion of project preparation and documentation • Completion of feasibility study (if required) and project design • Completion of procurement plan, cost, and time estimation • Readiness of contract for signature • Donor (for non-discretionary projects) and Budget Committee agreement • Line ministries are fully responsible for managing development projects, to include procurement, monitoring project activities, and reporting on cash management to donors. • Working with provincial directors to “jumpstart” project documentation, and to obtain commitments from donors, will smooth the process.

29. Challenges • Discretionary funds deficit • Low capacity of budgetary units (planning and execution) • Donor projects not fully aligned with government priorities • External budget info not reported timely • Decrease role of Provinces in budget formulation and execution

30. Recommendations • Implementing program budgeting by 1390 FY • Designing national programs initiative • Strengthening budget implementation by province • Simplifying budget execution procedures • New plan of Developmental cooperation with donor countries • Improving financial system • Improving performance monitoring • Need for timely donor information on DFR

31. Key Contacts • Budget Department, Ministry of Finance • Ahmad Jalali, Director General (Budget) • Email: ahmad.j.jalali@gmail.com • Aid Management DirectorateCoordination • Hamid Jalil, Director (Aid Management & Coordination Directorate) • Email: hamid.jalil@yahoo.com • Cell: +93 (0) 700 229 148 • Provincial Budget Unit • Najimullah Qasimi, Manager (Provincial Budgeting Unit) • Email: najimullah@gmail.com • Cell: +93 (0) 700 774 524

32. Discussion