Figures for the 2018 Afghan budget are in the public realm and show that, despite government attempts to clean up its finances, Afghanistan’s Members of Parliament (MPs) were, once again, ‘given’ projects to persuade them to vote the budget through. The draft budget presented to parliament in November 2017 had been almost balanced; the one passed in January 2018 has a deficit of more than 200 million dollars. Even so, says AAN Co-Director Kate Clark, all is not lost. There are still many good elements in what was passed. Significantly, it is much more transparent than previous years, so citizens can see detailed spending plans for 2018 and data for earlier years. It shows, for instance, that Paktia province has been getting six times the per capita funding of neighbouring Ghazni province.Photo: Christine Roehrs 2015
The way the national budget of Afghanistan has been determined over the last ten years was described by Integrity Watch Afghanistan in 2017, as “riddled with incompetence, corruption, and collusion among the Executive and the National Assembly.” The budget for this financial year – 2018/1397 – was supposed to change all that. It was ambitious, aiming to be transparent and accountable, to cut down on waste and opportunities for graft, focus resources on where they were needed and on government ministries and agencies that had spent money effectively, and to be realistic and balanced. In the words of Deputy Finance Minister, Khaled Payenda, speaking at a workshop attended by AAN in December 2017, its aims were “to disclose issues, create a debate on constraining [expenditure], and do some fixing.” What that meant, in practice, as AAN reported after the draft budget was presented to parliament on 8 November 2017 were some major reforms. Now we now that the budget only made it through parliament after a deal with MPs.
This dispatch assesses the 2018 budget:
- How the draft budget was different from earlier budgets;
- The passage of the budget through parliament
- What changes were made to get MPs’ approval;
- Reactions to the approved budget;
- Whether the 2018 budget ended up any better than earlier budgets;
- What else needs to happen to make sure the 2018 budget is the start of financial reforms, not the end of them.
What was in the draft budget?
For the first time, the Afghan national budget was written to ‘international standards’. (1) It disclosed far more information on 2018, earlier years and future projections, with detail at the level of ministry, project and province. The Ministry of Finance had tried to be realistic in terms both of Afghanistan’s revenue and spending. The budget recognised both the scale of Afghan dependence on foreign aid – uniquely large in the world (2) – and that this aid money is in decline. It sought to avoid Afghanistan falling off what it called a ‘fiscal cliff’ after 2020, when donor money is set to fall by almost half. (3) The budget also shifted away from using the previous year’s budget targets for budgeting to using the previous year’s estimated actual expenditure. Because targets are rarely met, this had meant inflated costs continuing from year to year. The new measurement was aimed at making the budget more credible.
The draft budget also tried to focus on the Afghan state’s chronic failure to spend its development budget (money for public investments and other development projects). The recurrent budget – money for running costs, including salaries – tends to get fully spent, but on average, only around half of the development budget gets spent each year (AAN reported this problem in 2012). Looked at another way, the Afghan state spends 75 dollars deploying every 25 dollars of actual development spending, a very poor rate indeed. The Ministry of Finance had hoped that various reforms in the 2018 budget would result in an execution rate of at least 95 per cent, with the knowledge that, as Deputy Finance Minister Khaled Payenda and former World Bank Afghanistan Country Manager Bill Byrd wrote in a piece for AAN in 2017, this “would help create jobs, build infrastructure, stimulate economic growth and over time generate more revenues for the government.”
The reforms in the draft budget included:
- Shifting money from under-performing to performing ministries;
- Ending automatic carry-overs of unspent funds for unfinished development projects from year to year, a practice which fosters inefficiency, delay and opportunities for graft; instead, instilling a ‘use it or lose it’ approach (4);
- Establishing the principle that if ministries wanted to propose new projects, they had to fund them from savings.
Such measures, the draft budget document said, were aimed at “lowering corruption and making the budget a much more effective tool for national development.”
Although the draft 2018 budget was better than those of previous years, it was far from perfect. There was only a minor reduction (eight per cent) in the use of contingency code budgeting, for example. Contingency funds, easily shifted to other uses and therefore vulnerable to bargaining, rent-seeking and corruption, still amounted to more than 50 billion Afghanis (more than 700m USD) in the draft budget.
Also, despite a serious portfolio review, with the Ministry of Finance using past disbursement performance to restructure or cancel some projects, not all the badly-performing ones were weeded out. Integrity Watch pointed to the many projects in the draft budget which had “amount and locations… not fixed, or programs whose individual components are not defined.” If there is room for manoeuvre as to where money is spent on a particular project, it is left vulnerable to political influence during its implementation, Integrity Watch said, because it enables “politicians to pressure a minister to allocate resources to their neighborhoods, or ministers to allocate resources to politicians as a form of patronage, after the enactment of the national budget by the parliament.” Integrity Watch found that 38 per cent of projects in the draft budget were prone to political influence, a fall from 50 per cent of the previous year’s budget, but said:
Although there has been some improvement in reducing vulnerability to political influence in development projects in the 1397 budget, it still leaves a lot of room for abuse. The majority of Members of Parliament (MPs) compel ministers to meet them throughout the year to pressure them to accept their projects and to give away contracts to their relatives and friends. Instead of addressing the issue, the [National Unity Government] has regulated this patronage by asking MPs to meet executive officials on a specific day of the week. (5)
Parliament and the budget
As AAN commented when the draft budget was presented to parliament, getting it past the MPs was always going to be tough. The constitution gives them important blocking powers. They can also put pressure on individual candidate ministers, who have to get MPs’ votes of confidence to be appointed (a procedure which took place most recently, on 4 December 2017) and on ministers, whom they can summon to parliament and give votes of no confidence, in a procedure known as estizah. The consequence of these powers has been a persistent record of deal-making on budgets.
In 2017, for example, the budget was only passed after the Ministry of Finance agreed to allow each MP to have ‘their’ projects included in the budget (cited in this report). These projects, which also featured in earlier budgets, are widely known as ‘the MPs’ projects’ and in 2016 and 2017 appeared in an annex to the national budget. When the Ministry of Finance started drafting the 2018 budget, it faced this historical legacy – two billion dollars’ worth of ‘development projects’ which had been introduced under parliamentary pressure in earlier years and agreed by the government without specific funding sources (more on which later). These had, said Finance Minister Eklil Hakimi, made the budget “unreliable and bogus.” One of the Ministry of Finance’s strategies was to end the practice of having an annex of projects. Rather, it brought all that it thought worthwhile and could be funded into the main budget document. “Our biggest struggle,” Deputy Minister Payenda told AAN, “was to reduce the number of projects.”
On 13 December 2017, MPs voted on the draft budget and rejected it (for the ninth consecutive year). They cited the ‘inadequate’ development budget for their constituencies in 2018 compared to 2017 and the way development projects which had not been implemented in 2017 were dropped. They pointed to the large amounts of money still being allocated to the offices of the president (Afs 3.43b/49m USD) and the chief executive (Afs 678m/9.8m USD). They also said the budget document was too complicated.
There were ongoing meetings between MPs and officials and the Minister of Finance responded officially to parliament on 30 December 2017 by explaining that the budget was written according to international standards and that it was realistic, taking into account that while domestic revenues had increased, the share of the budget covered by donors had declined.
MPs were adamant that they needed those development projects back in the planned expenditure, to show their constituents that their representatives were working for them. In some sense, this is legitimate, although one would want to look at whether projects were representative of the MPs’ provinces as a whole, or only benefited their district or indeed village.
Faced with questions about where the money to pay for the projects would come from, one MP who was at the workshop referred to earlier said it would be “very difficult for us to convince our people, the nation, civic society with regard to [the unamended] budget… We have heavy, hard work ahead.” His solution was for the “international community” to provide more funds. He also warned that if it and the Ministry of Finance were not “flexible,” it would “create a lot of mistrust.”
The budget was revised and presented again to parliament on 17 January at a plenary session. MPs passed it by 122 to 30 votes. It has now been published (read it here, in Dari and in English here). The scale of the additions are clear. Afghanistan has ended up with a deficit of more than two hundred million dollars.
What was in the approved budget? New and re-instated projects
The budget gives a list of ‘new projects’, which appear to be projects which did not appear in the budgets of earlier years: some were in the draft budget; others only appeared in the revised budget. However, they add up to just 5.6bAfs/84m US, so do not entirely explain the overall increase in expenditure. Other new projects, mostly schools and clinics which the Ministry of Finance told AAN it added to the approved budget (more on these below), also do not completely explain the new expenditure – they added up to costing 31m USD. Rather, the bulk of the increased spending appears to be made up of projects which had been approved in earlier years and which the Ministry of Finance had rejected from the draft budget and which it reinstated after the MPs’ outcry. The approved budget document is not explicit about which development projects have been ‘reinstated’, but Finance Minister Hakimi told MPs that 80 per cent of the development projects from fiscal years 1395 and 1396 had been added to the amended 2018 budget. (6) Naser Timory from Integrity Watch Afghanistan, calling them the “the MPs projects,” described them as “bogus.”
Of most concern to parliamentarians had been road-building. The cost of the roads that previous budgets had agreed to amounted to four times the total amount of the government’s discretionary funds. Because that is unaffordable and roads are not a government priority, the draft budget had featured almost no road-building from discretionary funds. However, the budget approved by parliament saw the reinstatement of all the road-building projects that had already been surveyed and procurement procedures finalised. (7) Chairman of the Wolesi Jirga Finance and Budget Commission Amir Khan Yar and member of the Wolesi Jirga Finance and Budget Commission MP Sediq Ahmad Usmani told MPs that projects whose procurement procedures had not been finalized would be given priority in next year’s budget. (8)
The result is a slew of underperforming projects brought back into the budget, fewer than in previous years, but, still, bad enough. Notably, those MPs who voted against the budget complained only about its ‘imbalance’, that not enough development projects from their areas had been included in the final list.
Returning briefly to the 200 small-scale projects introduced into the approved budget, the Ministry of Finance is happy about these. Deputy Minister Payenda told AAN that, under the previous system, the various ministries had proposed projects, but only drew up the list of locations after the budget had been approved by MPs, a system that was prone to misuse and political influence. For example, last year, he said the government decided to build 52 new mosques around the country; 16 ended up in one province, which had a very strong MP with good contacts. This year the ministry had tried to be more systematic:
“This year, we had requests from different ministries for over 1400 projects, costing more than half a billion dollars. We could not fund them all, so we set criteria, and the president tasked us with setting up a committee and prioritizing public health and education, and we also looked also at the geographical location. We said we have this much money – 30 million dollars – and selected 233 projects, mainly schools and clinics.”.
Altogether, the new and reinstated projects have created a budget deficit of 14 billion Afghanis (roughly 209m USD). The approved budget document says:
… in 1397 there is AFN25 billion deficit from which an amount of AFN10 billion will be funded from 1396 cash balances, AFN908 million from loans but for the AFN14 billion remaining amount is left without any specific funding source. (9)
One might ask why the MPs were so keen to get unfunded projects onto the books. Development projects in Afghanistan can be subject to a number of scams – and it is worth stressing here, as Integrity Watch’s Timory does, that this is not limited to the MPs’ projects. As soon as a project has an approved budget and number, one official said, people can start selling contracts and sub-contracts on it. Any MPs and corrupt officials who had already ‘auctioned off’ rights to contracts for projects that had been agreed in earlier years, which they then saw excluded from the draft 2018 budget, would have been under a lot of pressure to get them reinstated. Timory said it was the projects ‘belonging to’ the strongest, best-connected MPs, not the strongest projects, which would actually see money spent on them. There are many stages in a project which have ‘rent-seeking opportunities’, including: the feasibility study, design, procurement, contract and sub-contract management, monitoring and evaluation, and invoicing, when a ‘facilitation payment’ may be required for a payment to be released to the contractor.
“From beginning to end,” one official said, “there are multiple opportunities to steal. It’s one reason why not much gets constructed.” Other reasons for the poor execution rate of Afghanistan’s development budget centre on unrealistic or non-credible budgeting or planning, as Bill Byrd of the US Institute of Peace and Deputy Minister Payenda wrote as AAN guest authors in 2017:
Although a common perception is that poor budget execution is due to low capacity in implementation of projects, in reality, budget execution issues in Afghanistan are more complex. One of the main reasons for low budget execution is the quality of project preparation. Currently, many projects get pushed into the budget that are poorly prepared, or in some cases are not prepared at all and in reality are little more than vague concepts. Also, no matter how well-designed and prepared, a project cannot achieve spending targets if the plan is not realistic.
Hence improving the front end of the budget process is important, including ensuring that the projects in the budget are fully costed, with a realistic spending timetable.
Worth mentioning are two other elements in the approved budget which were improvements. Firstly, there was a reigning in of the ‘special operations budget’, which is part of contingency funding. A government agency or ministry with such a budget does not have to give any sort of account for expenditure to the supreme audit of the Ministry of Finance. Last year, ten ministries or state bodies were given this type of budget which they could spend as they pleased. Under pressure from MPs – it was one of their twelve demands said Payenda – this was reduced to three: the defence and interior ministries and the National Directorate of Security (NDS) (with some room for transferring expenditure between codes given also to the National Security Council). Those no longer getting operative budgets are the Tribal and Border Affairs Ministry and the Independent Directorate of Local Government (IDLG), the Ministry of State for Parliamentary Affairs, the Supreme Court, the Directorate of Kuchi Affairs and the Attorney General’s Office.
Secondly, in terms of new information and analysis presented, a section appears in the approved budget which compares provincial spending. It is fascinating. It reveals, for example, that Ghazni has received less than a sixth of the per capita spending which neighbouring Paktia has seen over the last eight years – 313 USD compared to 50 USD. The budget document itself says, “This demonstrates a level of inequality that the Government will need to address in future budgets.” The top five receivers of per capita government spending have been: Paktia, Nimruz, Kandahar, Helmand and Nuristan. The bottom five were: Ghazni, Ghor, Faryab, Badghis and Sar-e Pul. The approved budget document goes on to say:
The top five and bottom five provinces in per capita Government spending by province have been quite stable in terms of their relative level compared to all other provinces over the last eight years. The rest, a majority, have seen a relatively high level of volatility in Government spending in their provinces. Some have seen one-off increases in a year associated with major projects, while the on-going security situation has meant that some provinces have moved back and forth between secure and insecure.
This volatility reflects the relatively centralized nature of Government in Afghanistan over the period. There are no independent sub-national administrations and there has been no development of inter-governmental transfers to provinces aimed at fiscal equalization that are common in most countries.
Reactions to the Approved Budget
The Afghan media reported on parliament passing the budget with few details and little comment (see for example, TOLO News and the Afghanistan Times; Pajwok reported the hike in ‘development spending’ approvingly. It was left to Integrity Watch’s executive director, Sayed Ikram Afzali, to describe parliament’s role as “distortive” and failing to “reflect the interest of the Afghan people.” Accusing MPs of rejecting the budget as a way to “negotiate their personal benefits,” he said parliament had “misused its oversight authority in the budget process.”
Given that donors’ money still makes up a large proportion of Afghanistan’s revenues, the donors have been remarkably quiet about all this. AAN could only find statements issued by the European Union mission and UNAMA (not a donor). Both ignored the deal-making. A day before the MPs’ vote in January, the European Union mission, speaking as a ‘strong supporter of democracy’, said, “A vote on a national budget is one of these pivotal moments when the pact between the citizens, their elected representatives and the Government can be renewed.” No comment was made after the vote, when the ‘pact’, in effect, excluded citizens’ interests. The Secretary-General’s Special Representative for Afghanistan, Tadamichi Yamamoto, described the budget as having been “finalized after extensive collaboration between the executive and legislative branches of Afghanistan’s government, and following important civil society discussions.” He praised Afghanistan’s “commitment… to accountability and to its self-reliance strategy” and its “positive, realistic and concrete efforts to meet its financial reform obligations.”
Was the approved 2018 budget any better than previous ones?
After last year’s budget (2017), 70 million dollars’ worth of additional projects were introduced to get MPs’ approval. The deal-making this year, on the face of it, looks even worse, given the 200 million dollar deficit. However, because the Ministry of Finance had pre-emptively cut many bogus projects during their portfolio review, the eventual outcome is not as dire as it appears. Looking at the figures for 2017, the planned expenditure was 438 billion Afghanis, of which it is estimated that the government will have spent 381 billion. The new budget expenditure is 385 billion Afghanis, making a decrease in the ‘non-credible’ budget of 12 per cent. Importantly, the 2018 budget still envisages an increase in actual expenditure of seven per cent. This budget, in fiscal terms, is not contractionary and has reduced, to some extent, the room for corruption.
In other areas, the improvements are clearer. Measured in terms of Deputy Minister Payenda’s aims of ‘disclose, constrain and fix’, one can say that there is much fuller disclosure in the 2018 budget. Concerned citizens can see where money is being spent or supposed to be spent. Some constraint also made it through to the finished document, including, significantly, the removal of automatic carryovers and the ‘fiscal cliff’, the reduction in half of donor money between 2020 and 2021, being embedded in future revenue calculations.
What needs to happen next?
Whether 2018 is the start of reforms or just a blip in ‘business as normal’ will start to become evident at the mid-year point when the Ministry of Finance is due to review all projects with “a full-scale supplementary budget process in mid-1397” with the aim of “finding efficiency savings in the operating budget and allocating more resources to high performing development programs.” Ministries and agencies will be instructed to prepare new policy proposals in line with national priorities, fully costed and with economic evaluations. Priorities for the supplementary budget are, according to the budget document: infrastructure, agriculture, urban development, and culture and development. Deputy Minister Payenda admitted, however, that it was “really difficult to do major changes in mid-year.”
At the end of the year, we will also be able to see what Payenda chose as the key indicator of the government’s performance, the development budget execution rate:
Compare the plan with the execution. In the past, there was huge variance…. Have we reduced the gap? Look not just at the headline figures though, but also at the details. For example, if we planned to build 200 schools around country, look at if they were built and whether they were in their intended locations. Last year, the development budget execution rate was 67 per cent. If that figure is higher, we are doing better and the 2018 [budget] was more credible.
If this year’s budget is to be just the first step towards increasingly aligning the annual budget with national priorities and reducing the space for those wanting to appropriate resources, more and deeper reforms will need to feature in next year’s budget.
Work remains to be done on restructuring or cancelling development projects which are not performing. This means another serious review of projects, both those paid for with discretionary funds (which the government controls), such as the MPs’ projects, and the far larger, non-discretionary funds (which are earmarked by donors). The rules governing the latter, such as the Afghanistan Reconstruction Trust Fund (ARTF) and other donor preference funds, are also resulting in blockages and inefficiencies. Under these funding mechanisms, once a project is approved, it gets a sub-account from which funds cannot be moved, even, as one person familiar with the process said, if a project is poorly designed or not being implemented:
For year after year, the money stays locked into that sub-account instead of being moved to some other place where it could be useful. This is also why you say so many ‘extensions’ in the ARTF portfolio; instead of just admitting that they are programmes that aren’t working out and re-allocating the funds to something more successful, they get extended over and over again or even brought into a ‘Phase 2’ to hide the fact that Phase 1 was a failure. This issue of ARTF rigidity is not just about locking away money; it is also about not building things that the country needs. In the past the Ministry of Finance has been party to this: even when projects weren’t working, they would still disburse ‘studies’, nonsense design reviews and other meaningless programmes that achieve nothing, but go to favoured firms.
Another way to improve budgeting would be something that Integrity Watch has been advocating for a long time: popular consultation on development whereby, instead of MPs and government officials deciding what gets built (where politics can skew decisions), local people get a chance to say what they need. “We have offered support in establishing ‘participatory budgeting’,” Nasser Timory told AAN. “They never came back to us. Let’s start with one province, see how we can engage the people and start making this a people’s budget, not an elites’ or politicians’ budget.” (Read about this in more detail, here.)
Contingency budgets – and note the scale of them, 700 million US dollars, which dwarfs the MPs’ deal-making – need to be slashed and rationalised. If MPs saw this being done they just might be happier seeing their own opportunities for graft reduced. Some contingency funding is necessary because of genuinely unforeseen circumstances. But in reality, much exists to create opportunities for making money illicitly or because systems are not working. Deputy Minister Payenda gave a couple of examples of the latter. Maintaining roads, he said, should not need contingency funding. The Ministry of Finance was now working with the Ministry of Public Works to get a better system for planning its maintenance schedule, so that it could be paid for out of normal funds. With the Ministry of Martyrs and Disabled, and with paying pensions, the Ministry of Finance is helping establish biometric systems, so that the government can know the exact number and identities of beneficiaries and the total money required, with benefits paid directly into individuals’ bank accounts.
Integrity Watch’s Timory says that getting a biometric data base of civil servants should reduce leakages from the operating budget. With the police, local police and army, this is already happening after pressure from the United States military, either directly or with other donors. Actions included withholding funds for salaries until ministries verified that individual police officers and soldiers did exist and were getting the salaries due to them. The motive here was to drive ghost soldiers and police from the ranks (ie those which only exist on paper, while others pocket their wages), in the face of the Taleban insurgency (see here and here for details). The problem of ‘ghosts’, including ‘ghost’ pensioners, teachers and others is thought to be widespread. However, not all ministries are reliant on a powerful, highly motivated player like the US military who can help leverage change. Reformers elsewhere with no strong backer – either from higher up in government or a foreign donor – can find themselves isolated and vulnerable to threats from those stealing systematically from the nation’s budget.
More support to budget reforms from donors would be helpful, with honest appraisals about bad practice on all sides. More scrutiny and better reporting from the media and focussed demands from citizens and civil society could also encourage greater accountability. Civil society, for example, could push for annual outcome reporting of all big projects and ‘MPs’ projects’ – how was money spent, what was achieved. They could demand ministry-specific annual reports detailing how projects had been delivered and giving reasons for budget execution rates. People from Ghazni and the other provinces languishing at the bottom of the per capita spending table could rightly take up their relative neglect by central government to those in charge. The increase in transparency in this year’s budget gives citizens, the media and donors information, evidence and tools to demand answers from the government. Given that MPs have proved unable to hold the executive to account over the country’s budget, pressure from these other quarters to support reforms and reformers will be needed.
Edited by Sari Kouvo
(1) International Standards are a set of rules that indicate good practice as reached through consensus by world experts. The 2018 Afghan budget used the Government Finance Statistics (GFS) system for financial statements. The GFS was developed by the International Monetary Fund in conjunction with the Organisation for Economic Cooperation and Development (OECD), European Union and United Nations) and sets the standards on how government revenue, spending, assets and liabilities are classified and reported. This is primarily to help ensure that GDP figures across countries are comparable through the linked standard for the System of National Accounts.
The budget was also informed by certain Public Expenditure Financial and Accountability (PEFA) performance indicators like medium term budgeting, classification standards, and disclosures. PEFA is the standard used most often around the world and basically grades every component of a government’s public finance system between D (bad) and A (good).
(2) Afghanistan, said the World Bank in 2016, “is unique worldwide in its extraordinary dependence on foreign aid.” It quoted a 2013 figure of aid amounting to 45 per cent of Gross Domestic Product (GDP). The dependence on foreign aid has declined and the government’s own generated revenues have increased, but Afghanistan is still far ahead of other countries when it comes to aid financing government services and to its percentage of GDP.
(3) An earlier reduction in aid – from record highs – was seen as the US ‘civilian surge’ finished. American aid funds channelled through USAID alone shrank from 4.5 to 1.8 billion dollars between 2010 and 2012 (see here).
(4) This approach has been criticised in other contexts, when for example, the drive to spend funds at the end of the financial year so as not to lose out on matched funds the following year leads to inappropriate spending and waste. For the moment, that is the lesser risk in Afghanistan.
(5) ‘Pork-barrelling’ is also familiar in other countries, including the United States.
(6) It looks like details of these can be found in a table “Sub Projects Details of Development Projects: Details of Projects (1396 and 1397)” at the end of the approved budget. However, it is not entirely clear.
(7) Any road project that had already been contracted for reappeared in the approved budget. However, if the contracts were for only a section of the planned road, that was all that was reinstated.
(8) Hakimi told MPs that, while 80 per cent of development projects from fiscal years 1395 and 1396 had been included in the amended 2018 budget, the remaining 20 per cent that had not been reinstated – rural road building projects whose design and procurement processes had not been completed – would be included later in the budget of the Ministry of Rehabilitation and Rural Development after discussion with the World Bank. (The World Bank told AAN they did not know what this referred to.) Hakimi was deploying something of a sleight of hand. The contracted road-building projects did amount to 80 per cent, in terms of numbers, of the MPs’ projects. In terms of cost, though, they added up to only 20 per cent of the supposed expenditure.
(9) The Ministry of Finance had presented parliament with an almost balanced budget in November 2017 (the small deficit was financed from cash balances and some minor concessional borrowing).
This article was last updated on 9 Mar 2020