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

2. 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. 3 GIRoA Budget and Local Governance Basics Local Governance and GIRoA Budget Basics

4. 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. 5 ProcessWhoAuthorityAction Budget Law MoF, CoM, Parliament, President Article 75,98 Constitution Public Financial Management Expenditure Law (PFEML) Provides legal authority to spend public funds on programs AllocationsLine Ministries (LM) PFEML Financial Regulations Establishes the accounting framework to facilitate control, monitoring, and reporting AllotmentsLM, MOF, Mustofiat PFEML Financial Regulations Budget Circulars Gives permission to commit public funds to purchase goods and services to support programs Execution LM, Provincial Directorates (PD) Procurement Law, and related guidelines Financial Regulations Treasury Circulars Procures goods and services to support programs VoucherPD, LM Financial Regulations Treasury Circulars Prepares the documentation package to support disbursement DisbursementMoF, Mustofiat Financial Regulations Treasury Circulars Pays ReconciliationMustofiat, Bank Financial Regulations Treasury Circulars Confirms payments AuditLM, MoF, CAO PFEML CAO Law Confirms processes followed GIRoA Budget Framework

6. 6 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 Provincial “Fund Flow”

7. 7 Provincial Governance Key Concepts Provinces are administrative units of government; not political units. (See Chapter 8, Afghan Constitution) Provincial directorates are secondary budget units (BU) their relevant line ministry, the primary budget unit. The Governor is not elected. IDLG prepares a list of nominees, vets them, and forwards it to the President for selection. Their appointment is not confirmed by Parliament or the Provincial Council. The Governor’s expenditure over line directorate budgets is unclear and ambiguous. In general, the Governor exercises influence, but not authority. The Provincial Council is the only representative body at the provincial level. The Mustafyat is the Ministry of Finance’s arm in the province. These offices are responsible for revenue collection and treasury operations in the province. They disburse salary and operation payments.

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

9. 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. Project Formulation Budget Execution Budget Formulation BY-3BY-2BY-1BY Planning Provincial Development Plan Investment Project Template (proposed) Budget circular instructions

10. 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. 11 Budget Formulation Process ActionDescriptionProvincial Participation Development strategy established Clear understanding of baseline spending Allowed assessment of any planned new spending against development strategy April-May: Budget unit’s (BU) define spending priorities (Budget Circular #1) Clear understanding of baseline spending Allowed assessment of any planned new spending against development strategy Primary BU (e.g. line ministry) prepares BC1 instructions for their provincial directorates (or secondary BU) Provincial directorates submit inputs Aug-Sep: BU’s prepare detailed budgets (Budget Circular #2) All line ministries and agencies prepare a program, results-based budget Primary BU (e.g. line ministry) prepares BC2 instructions for their provincial directorates (or secondary BU) Provincial directorates submit inputs Oct-Nov: BU’s defend budgets to Budget Committee Budget Committee focuses on programs rather than line items BU’s must be able to justify their requests Provide solid justification in their submissions Be available to support BU Dec-Jan: Cabinet approves draft budget Feb-Mar: Parliament approves budget Mar: President signs Source: MoF brief to ISAF, 11 April 2011

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

13. 13 Core ($5.4B USD) 1390 National Budget Operating (60%) External* Development (40%) Discretionary (25%) Non-Discretionary (75%) GIRoA 1390 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 budget includes all donor funding outside of the GIRoA budget process; Estimates of external funding are between $6 - $16 Billion USD

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

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

16. 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

17. 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. 18 GIRoA Budget and Local Governance Basics Budget Trends

19. 19 Budget Summary 1388-1390  Operating Budget  Salaries  Operating Expenses  Disbursed through quarterly allotments to provincial Mustafiats from Line Ministries  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

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

21. 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 1390 Domestic RevenueMillion AFSMillion USD Income, Property, Capital Gain Taxes24,193515 International Trade Tax32,543692 Domestic Goods and Services Tax18,996404 Other Taxes3,00664 Non Tax Revenue14,927318 Total Domestic Revenue (1390 Projection)93,6651,993

22. 22 Provincial Expenditures 1388-1389

23. 23 GIRoA Budget and Local Governance Basics Sustainment

24. 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. 25 Source: USAID  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 Recent Case Studies

26. 26 Provincial CERP Spending

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

28. 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. 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 2 nd year expansion of the pilot program

30. 30 Ideal Budget Formulation Process (Bottom Up) LM1LM2LM3LM4IDLG LD1 LD2 LD3 LD4 D1 D2 D3 D4 Provincial Development Committee 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.

31. 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. 32 Linking Local Priorities to National Strategy Line Ministry Provincial Directorate Provincial Development Council District Development Assembly Line Ministry Provincial Directorate Strategy Provincial Development Plan District Development Plan Line Ministry Strategy Source: MoF Briefing to ISAF, December 2010

33. 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. 34 GIRoA Budget and Local Governance Basics How PRT’s Can Help

35. 35 How Can PRTs Help? (General) ActivityHow Can PRTs Help? Partner with Relevant LM and MoF  Create a strong relationship with relevant GIRoA officials (Governor, Provincial Council, Mustofiat, Line Directors, District officials, etc.)  Ensure all activities are vetted with GIRoA (LMs and MoF)  Work more with elected officials (Provincial Council) Operate Using GIRoA Processes  Ensure all funding and capacity building is in line with GIRoA processes and procedures  Operate within the GIRoA budget framework and ministerial programs  Align activities with the Afghan National Development Strategy (ANDS)  The Sub-National Governance Policy is not “law”. New sub-national financing mechanisms are being considered, but have not yet been implemented  When in doubt, obtain input from the Ministry of Finance; they will have good ideas Pursue Effective Aid  Align with the GIRoA Operational Guide for Off-Budget Financing  All projects should be identified by GIRoA as priorities  Obtain “sign-off” from the right individuals; Governors and Directors of Economy do not have the authority to accept projects, although they can sign off on completion of projects  Only the Ministry of Finance has the authority to allow other entities to accept capital projects Civ-Mil Cooperation  Ensure the RC, TF, PRT and other USG entities are implementing the same plan  Coordinate LM and MoF agreement with plans and that they have “bought into” the process Prepare for Transition  Enable GIRoA to implement budgeting polices and good governance practices in preparation for transition

36. 36 How Can PRTs Help? (Specific) ActivityHow Can PRTs Help?Required Documents Document Familiarization  Become familiar with primary GIRoA budget related documents and websites  Public Financial Expenditure Management Law  Procurement Law and Financial Regulations  Budget and treasury circulars and other guidance  COMIJC Aid Effectiveness policy letter  Paris Declaration Assessment  MoF Guide to Off-Budget Assistance  Draft 1390 budget statement  1390 development budget (once completed) Website Familiarization  Obtain logon/password access to all relevant databases prior to arriving in theatre  Provincial Budgeting and Economic Development website (including Ronna in general)  Donor Assistance Database Mustofiat Interaction  Create a strong partnership with the Mustofiat  Obtain detailed financial reports outlining the allocations and spending within the province  DG of Treasury approval memo for provinces to release AFMIS information to PRTs  Helmand case study example Improve Provincial Development Plans (PDP)  Only fund projects on the PDP  Provide assistance on PDP updating  Provincial development plan for province  Afghan National Development Strategy  Kabul Conference documents Budget Formulation  Work with LDs on budget formulation submissions (assign individuals to each LD)  BC1 (and related forms)  BC2 (and related forms)  Template/checklist being created by MoF (timing TBD)

37. 37 How Can PRTs Help? (Specific) ActivityHow Can PRTs Help?Required Documents Consultation and Coordination  Assist (when requested) with MoF training events in provinces  Work with MoF advisors (OTA and IJC) to understand when PBU events will be taking place in your province  Create strong links with OTA and IJC representatives  If you are interested in an OTA visit once in theater, Lynda Roades can work with you on developing a concept note  PBU1390 action plan outlining capacity building training events and consultation and coordination workshops 1390 Budget Execution  Facilitate budget execution of 1390 projects and programs  Understand projects “on-budget” and their status per LD  1390 development budget (once completed)  Reports generate for province through AFMIS Sustainment  Ensure all projects are accompanied by an appropriate sustainment letter  Sustainment letters should include related O&M costs  Sustainment letters should be forwarded to appropriate central ministry officials Understand Other Sources of Funding  Become familiar with other funding sources for provinces  Ensure alignment with all of the above  Performance Based Governor’s Fund (IDLG website)

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

39. 39 Start Here – PBED Website The Afghanistan Provincial Budgeting and Economic Development website Go to https://ronna- afghan.harmonieweb.org/Pages/Default.aspxhttps://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. 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

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

41. 41 Provincial Budget Unit: Afghan Support  Dr. Najimullah Qasimi, Manager, Provincial Budget Unit, najimullah@gmail.comnajimullah@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. 42 Provincial Budget Unit International 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. 43 Additional Resources and Contacts USG and ISAF Contacts –Primary Contact Ms. Lynda Roades MoF PBU Advisor, lroades@otatreas.uslroades@otatreas.us Cell: (0) 796-146-157 –Mr. Kirk Schmidt, MoF PBU Advisor, kschmidt@otatreas.us, cell: (0) 702-591-559kschmidt@otatreas.us –Ms. Rhonda Reinke, MoF Treasury Advisor, rreinke@otatreas.us, cell: 706-797-200rreinke@otatreas.us –Ms. Najla Farzana, IJC Provincial Budgeting Advisor, Najla_Farzana@yahoo.comNajla_Farzana@yahoo.com

44. 44 Additional Lessons Learned

45. 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