From Covert to From Covert to Overt Overt

External External FinancingFinancingMichael CarnahanMichael Carnahan

15 September 200415 September 2004

Afghan ContextAfghan Context

How was expenditure financedHow was expenditure financed Covert FinancingCovert Financing Deficit FinancingDeficit Financing

Questionable MandateQuestionable Mandate Divided CabinetDivided Cabinet

De jure centralisedDe jure centralised De facto federal/decentralisedDe facto federal/decentralised

Rest of talkRest of talk

RevenueRevenue Operating budgetOperating budget

SY 1381 (02/03)SY 1381 (02/03) SY 1382 (03/04)SY 1382 (03/04)

Development BudgetDevelopment Budget Evolution over timeEvolution over time

Revenue 1 - TributeRevenue 1 - Tribute

From tribute to taxationFrom tribute to taxation HeratHerat Northern Afghanistan Northern Afghanistan

Setting the domestic revenue targetSetting the domestic revenue target How much is already being collectedHow much is already being collected

Revenue 2 – customs Revenue 2 – customs reformsreforms

Previous systemPrevious system Developing reform proposalsDeveloping reform proposals Organised oppositionOrganised opposition Finding a compromiseFinding a compromise Implementing the compromise Implementing the compromise

solutionsolution

The role of TA in customs reformThe role of TA in customs reform

Operating Budget – SY Operating Budget – SY 13811381

What level of precision can be What level of precision can be expectedexpected Technically?Technically? Politically?Politically?

Different audiences Different audiences DomesticDomestic InternationalInternational

What will get funded vs what builds What will get funded vs what builds capacitycapacity

Operating Budget – SY Operating Budget – SY 13821382

Actual decision-making processActual decision-making process Budget as a tool of policyBudget as a tool of policy

Forcing prioritisationForcing prioritisation Budget as a teaching deviceBudget as a teaching device

Benefits in future yearsBenefits in future years Operating Budget is Ministers’ Operating Budget is Ministers’

priority priority

Choose staff numbers and pay average – total Choose staff numbers and pay average – total less than 20less than 20

SoldiersSoldiers PolicePolice TeachersTeachers

3030 7070 101000

3030 7070 101000

3030 7070 101000

$35$35 33 66 99 22 44 66 11 33 55

$50$50 44 99 1212 33 66 88 22 44 66

$10$1000

55 1212 1818 44 88 1212 33 66 99

Operating Budget Operating Budget executionexecution

Initial salary payments Initial salary payments

The legacy of early actionsThe legacy of early actions

FMISFMIS

The importance of contextThe importance of context

Slow start to 1382 executionSlow start to 1382 execution

Development Development expenditureexpenditure

Someone else’s shopping listSomeone else’s shopping list

The wedding registryThe wedding registry

The sector/program approachThe sector/program approach

MTEF/Budget supportMTEF/Budget support

1. Someone else’s list1. Someone else’s list

Just try to find out what is actually Just try to find out what is actually happeninghappening

Supply/donor/agency drivenSupply/donor/agency driven Hostility towards anything elseHostility towards anything else

No prioritisationNo prioritisation Government played off against itselfGovernment played off against itself

Necessary evilNecessary evil Not a budget, but need to pretendNot a budget, but need to pretend

2. The wedding registry2. The wedding registry

Predominantly demand drivenPredominantly demand driven Single funding/appeal documentSingle funding/appeal document

Attempts to corral donorsAttempts to corral donors Funders provided with a prioritised Funders provided with a prioritised

list and asked to choose off the listlist and asked to choose off the list Discipline only maintained through Discipline only maintained through

moral authoritymoral authority Development partners and line Development partners and line

ministries collude to subvert disciplineministries collude to subvert discipline

3 & 4 Next steps 3 & 4 Next steps (theoretical)(theoretical)

Sector wide approachSector wide approach Projects on the wedding registry put in Projects on the wedding registry put in

a coherent contexta coherent context Donors asked to put cash in for the Donors asked to put cash in for the

dining setting, not just buy some platesdining setting, not just buy some plates MTEF/Budget supportMTEF/Budget support

All the sectors are individually at stage All the sectors are individually at stage threethree

Operating budget support is includedOperating budget support is included

Next steps (actual)Next steps (actual)

Ongoing problems with:Ongoing problems with: Government (line Ministry) ownershipGovernment (line Ministry) ownership Donor misbehaviourDonor misbehaviour

SolutionSolution ““Core budget” (funds controlled by Core budget” (funds controlled by

government)government) ““External budget” (funds spent outside External budget” (funds spent outside

government accountsgovernment accounts Goal – replace “external” with “core” Goal – replace “external” with “core”

Perennial ProblemsPerennial Problems

Planned/Committed/DisbursedPlanned/Committed/Disbursed Disbursed by whoDisbursed by who

Lack of a pipeline of projectsLack of a pipeline of projects Development expenditure will be close Development expenditure will be close

to zero in the first 18 monthsto zero in the first 18 months Recognising this may guarantee that it Recognising this may guarantee that it

isn’t zero in the next 18 months!isn’t zero in the next 18 months!

ConclusionsConclusions

Lots of progress – lots more still to Lots of progress – lots more still to be donebe done

Public finance has driven reformsPublic finance has driven reforms And will continue to do so once And will continue to do so once

Parliament sitsParliament sits Focus needs to be on Focus needs to be on

implementation for both revenue implementation for both revenue and expenditureand expenditure