Reforming Fiscal and Economic Management in Afghanistan

180 Pages·2004·0.87 MB·English

by  Michael Carnahan

DDIIRREECCTTIIOONNSS IINN DDEEVVEELLOOPPMMEENNTT
THE WORLD BANK
Reforming Fiscal
and Economic
Management in
Afghanistan
MICHAEL CARNAHAN, NICK MANNING, RICHARD
BONTJER, STÉPHANE GUIMBERT, EDITORS

DIRECTIONS IN DEVELOPMENT
Reforming Fiscal and
Economic Management in
Afghanistan
Michael Carnahan, Nick Manning, Richard Bontjer,
and Stéphane Guimbert
Editors
Islamic Republic of
Afghanistan
THE WORLD BANK
Washington, D.C.
© 2004 The International Bank for Reconstruction and Development/THEWORLDBANK
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First printing
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Contents
Contributors vii
Acknowledgments viii
Acronyms ix
Glossary of Dari Terms xi
Dates and Currency xiii
Calendar xiii
Currency xiii
Preface xiv
Introduction xvii
PARTI. THE JOURNEY SO FAR 1
1. Fiscal Management in Afghanistan—Major Achievements
and Current challenges 3
Introduction 3
The Consequences of Conflict on Fiscal Management 4
Fiscal Management in Afghanistan 6
Progress in Revenue 7
Developments in the Ordinary Budget 12
Financial Management System 20
Procurement 21
Audit 22
Development Budget 23
Conclusion 29
Notes 29
iii
iv CONTENTS
2. Executing the Budget Outside of Kabul 31
The Problem 31
Provincial Allotments for Non-Salary Expenditures
Are Generally Low 32
Non-Salary Expenditures Are Even Lower
Than the Allotments 34
Cash Flow Restrictions Exacerbate Execution Problems 38
Provincial Budget Allotments for
Salary Expenditures Can Be Low 39
Challenges in the Payroll Process 40
Policy Implications 43
Notes 47
3. Case Studies in Post-Conflict Budgeting 48
Introduction 48
Post-Conflict Budgeting in East Timor 50
Post-Conflict Budgeting in Eritrea 59
Post-Conflict Budgeting in Uganda 62
Notes 64
PART II. CURRENT PRIORITIES 65
4. Priorities for Reform in Post-Conflict Finance Ministries 67
Introduction 67
Desirable Functions for a Ministry of Finance 68
Political Accountabilities—One Minister or More? 72
Note 80
5. Making the New Fiscal Constitution Work 81
APresidential System for a Unitary State 81
Implications of the 2004 Constitution 82
The Role of the Parliament 89
Conclusions and Recommendations 91
Notes 92
6. Budget Law Reform 94
Introduction 94
The Objectives of a Budget System Law 94
The Current Budget law 100
ANew Budget System Law 101
Implementation of the New Budget System Law 106
Note 106
CONTENTS v
7. Fiscal Management for the Provincial Municipalities 107
Summary 107
Municipalities within the Larger Public Sector 108
Municipal Institutional Structures 109
The Future Role of Municipalities in Implementation 114
AStrategy for Extending the Role of Afghanistan
Municipalities in Reconstruction 120
Notes 122
8. Next Steps in Reforming the Ministry of Finance 123
Introduction 123
Developing Consensus on the Core Business 124
From Theory to Practice 131
Tasks That the Ministry Should Not Undertake 142
Managing Transition 144
Notes 148
References 150
Tables
1. Traditional Process for Executing Non-Salary Payments 35
2. SY1381 Budget Execution, by Expenditure Category 37
3. Problems and Solutions in the Payroll Process 44
4. Functions and organizational responsibilities in the
Ministry of Finance 73
5. Options for Political Accountability 78
6. Budget Amendment Powers of National Legislatures 86
7. Legal and Institutional Framework of Budget Systems 103
8. Structure of the Public Expenditure and Financial
Management Law for Afghanistan 104
9. Provincial Municipalities: Revenues and Expenditures
for 1381, in afghanis 112
10. Provincial Municipalities: Staffing Structure for 1381 113
11. Employment Authorities for Staff 113
12. District Administrations by Province 115
13. Formal Central/Local Relationships in Afghanistan 117
14. Sources of, and Means of Reducing, Fiduciary Risk 119
Figures
1. Delays in Salary Payments for the Provinces(excluding police) 21
2. Execution of the Development Budget—SY1382 28
3. Distribution of SY1382 First-Quarter Allotments,
Center versus Provinces 34
vi CONTENTS
4. The Budget Cycle 125
5. Planned Structure of the Ministry of Finance 134
6. Planned Revenue Structures (Headquarters) 136
7. Planned Revenue Structures (Provinces) 137
8. Planned Customs Department 138
9. Planned Treasury Department 139
10. Planned Budget Department 140
11. Planned Department for Administrative Services 141
Boxes
1. Passage of the 1381 Budget 14
2. The Politics of the Defense Budget 15
3. Developments in Payroll Processing and Salary Payments 22
4. Issues in Managing the Development Budget 24
5. The National Development Framework 26
6. Tashkeel versus Takhsis (Allotment) 40
7. Managing the Payroll in Remote Districts 42
8. New Allotment Procedures for 1383 46
9. Organizational Restructuring Needed in Kabul Municipality 118
10. Who Is Responsible for Civil Service Policy? 143
Contributors
Ehtisham Ahmad: Division Chief, IMF
Richard Bontjer: Advisor, Ministry of Finance, Transitional Islamic State
of Afghanistan
Nicholas Calcoen: Technical Assistance Advisor, IMF
Michael Carnahan: Advisor, Ministry of Finance, Transitional Islamic
State of Afghanistan
Piyush Desai: Senior Economist, IMF
Bill Dorotinsky: Lead Public Sector Specialist, World Bank
Anne Evans: Consultant, World Bank
Ashraf Ghani: Minister of Finance, Transitional Islamic State of
Afghanistan
Soraya Goga: Urban Specialist, World Bank
Stéphane Guimbert: Economist, World Bank
Malcolm Holmes: Consultant, World Bank
Thierry Kalfon: Economist, IMF
Peter Kohnert: Technical Assistance Advisor, IMF
Ian Mackintosh:Manager, World Bank
Nick Manning: Lead Public Sector Management Specialist, World Bank
Peter Middlebrook: Consultant, World Bank
Allister Moon: Lead Public Sector Management Specialist, World Bank,
formerly Chief Economic Advisor to the Ugandan Ministry of Finance,
Planning and Economic Development
Bernard Myers: Consultant, World Bank
Dimitar Radev:Technical Assistance Adviser, IMF
Eivind Tandberg: Deputy Division Chief, IMF
Linda van Gelder:Senior Economist, World Bank
Gebreselassie Yosief Tesfamichael: Finance Minister of Eritrea from 1997
to 1999, formerly Head of the Office of Management and Budget in the
President’s Office
Joachim Wehner: Department of Government, London School of
Economics and Political Science
vii
Acknowledgments
This edited volume presents an updated series of papers that were first
presented at a workshop jointly organized by the World Bank and the
Transitional Islamic State of Afghanistan in April 2003.
The workshop was proposed by Nick Stern, then Chief Economist of the
World Bank, and Ashraf Ghani, Minister of Finance of the Transitional Islamic
State of Afghanistan. Materials for the workshop were prepared with guidance
from Alastair Mckechnie, World Bank Country Director for Afghanistan, and
Sadiq Ahmed, Director, South Asia PREM network, World Bank.
Linda van Gelder and Sarah Cliffe, from the World Bank, and James
Wallar, from the U.S. Treasury, sent additional materials and useful
comments. Many other colleagues from the Government of Afghanistan
and from the World Bank are also acknowledged and thanked for their
valuable contributions and comments. Al Friendly and Juliet Teodosio
assisted in the preparation of the papers for this publication.
The study builds on an array of previous analytic and operational
reports prepared by the Transitional Islamic State of Afghanistan, the
World Bank, and other organizations—very particularly including:
“Securing Afghanistan’s Future: Accomplishments and the Strategic Path
Forward—Prepared for International Conference, March 31–April 1,
2004.” 2004. Kabul: Transitional Islamic State of Afghanistan and interna-
tional agencies. Found on the Internet at http://www.af/recosting/index.html.
“Mid Term Budget Review.” 2003. Kabul: Transitional Islamic State of
Afghanistan.
Many more detailed explanations of the existing institutional arrange-
ments are provided in a joint Afghanistan Research and Evaluation
Unit/World Bank publication:
Evans, Anne, Nick Manning, Yasin Osmani, Anne Tully, and Andrew
Wilder. 2004. AGuide to Government in Afghanistan. Kabul: AREU and
the World Bank.
viii