Afghanistan Reforms in Budget Preparation

1. AfghanistanReforms in Budget Preparation Budget Department, Ministry of Finance January, 2012

2. Basic Principles of Effective PFM

3. Budget Preparation: A Two Way Process Top-down (MoF and Government): • Calculates overall available resources • Select policy priorities & set ceilings National Budget • Bottom-up (Line Ministries): • Develop programs, service delivery targets and costings • Bottom-up (Provincial Departments): • Develop activities that address specific provincial needs with the programs

4. Afghanistan’s Approach is ‘Program Budgeting’, which is International Best Practice Budget Formulation Process Strategy/NPPs Money Allocated to Strategy • The budget process allocates financial resources to the Government strategy / policy (ANDS and National Priority Programs, PRSP) • Money is allocated for the medium-term (3 years) • Line ministries must define (and report against) what results will be achieved

5. Program Budget as a Key Reform • The most important change has been the introduction of program budgeting. • Program budgeting presents budget requestsby program,linking : each program budget is linked to the services to be delivered over the next years • The end result is a budget which focuses on the delivery of defined outputs rather than a focus on financial inputs. policy objectives output targets

6. Achievements • Considerable efforts have been made in recent years to improve the quality and effectiveness of the budget process. • Mechanisms: • Medium-Term Budget Framework (MTBF) or ‘Pre-Budget Statement’ – for setting budget priorities to be funded from the existing fiscal envelope (available resources) • ensures essential budget policies are sustainable; • identifies desirable policy changes • National Budget – for detailed budget costing and provinical allocation • ensures budget is cost effective

7. Budget Process: Overview– linking strategy, budget and service delivery - Budget Circular 2 is the instruction to prepare detailed costs and outputs, within budget ceilings Budget Circular 1 is the instruction to submit estimated costs for baseline programs and any new proposed initiatives MTBF, donor commitments and budget ceilings Line Ministry results frameworks & NPPs Detailed budgets Performance monitoring Baseline program costs and new initiatives Outcomes Programs Programs Outcomes Expenditure (Prg) Program costs Program costs (baseline and new) Outputs Activities& Outputs Outputs Expenditure (Opt) Detailed costs

8. Benefits of the New Approach Main benefits of the new approach include: • Implements ANDS/NPPs - links ministry objectives and priorities to budget • Enables effective prioritization/budget allocation - gives better information on benefits and costs of plans (using Cluster mechanism). • Enables more effective and efficient delivery of services – focues on what outputs will be produced with the allocated money • Integrates ordinary and development budgets - captures full recurrent cost implications of new investment projects.  • Attracts funds from the External to Core budget - satisfies donors own accountability pressures by showing links between national priorities, budget allocations and actual results.

9. The National Budget Formulation Process Ministries define spending priorities Parliament approves the National Budget Ministry of Finance creates the MTBF Ministries create detailed budgets Ministry of Finance creates the Citizens’ Budget February November June July December