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From Covert to Overt External Financing

From Covert to Overt External Financing. Michael Carnahan 15 September 2004. Afghan Context. How was expenditure financed Covert Financing Deficit Financing Questionable Mandate Divided Cabinet De jure centralised De facto federal/decentralised. Rest of talk. Revenue

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From Covert to Overt External Financing

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  1. From Covert to Overt External Financing Michael Carnahan 15 September 2004

  2. Afghan Context • How was expenditure financed • Covert Financing • Deficit Financing • Questionable Mandate • Divided Cabinet • De jure centralised • De facto federal/decentralised

  3. Rest of talk • Revenue • Operating budget • SY 1381 (02/03) • SY 1382 (03/04) • Development Budget • Evolution over time

  4. Revenue 1 - Tribute • From tribute to taxation • Herat • Northern Afghanistan • Setting the domestic revenue target • How much is already being collected

  5. Revenue 2 – customs reforms • Previous system • Developing reform proposals • Organised opposition • Finding a compromise • Implementing the compromise solution • The role of TA in customs reform

  6. Operating Budget – SY 1381 • What level of precision can be expected • Technically? • Politically? • Different audiences • Domestic • International • What will get funded vs what builds capacity

  7. Operating Budget – SY 1382 • Actual decision-making process • Budget as a tool of policy • Forcing prioritisation • Budget as a teaching device • Benefits in future years • Operating Budget is Ministers’ priority

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

  9. Operating Budget execution • Initial salary payments • The legacy of early actions • FMIS • The importance of context • Slow start to 1382 execution

  10. Development expenditure • Someone else’s shopping list • The wedding registry • The sector/program approach • MTEF/Budget support

  11. 1. Someone else’s list • Just try to find out what is actually happening • Supply/donor/agency driven • Hostility towards anything else • No prioritisation • Government played off against itself • Necessary evil • Not a budget, but need to pretend

  12. 2. The wedding registry • Predominantly demand driven • Single funding/appeal document • Attempts to corral donors • Funders provided with a prioritised list and asked to choose off the list • Discipline only maintained through moral authority • Development partners and line ministries collude to subvert discipline

  13. 3 & 4 Next steps (theoretical) • Sector wide approach • Projects on the wedding registry put in a coherent context • Donors asked to put cash in for the dining setting, not just buy some plates • MTEF/Budget support • All the sectors are individually at stage three • Operating budget support is included

  14. Next steps (actual) • Ongoing problems with: • Government (line Ministry) ownership • Donor misbehaviour • Solution • “Core budget” (funds controlled by government) • “External budget” (funds spent outside government accounts • Goal – replace “external” with “core”

  15. Perennial Problems • Planned/Committed/Disbursed • Disbursed by who • Lack of a pipeline of projects • Development expenditure will be close to zero in the first 18 months • Recognising this may guarantee that it isn’t zero in the next 18 months!

  16. Conclusions • Lots of progress – lots more still to be done • Public finance has driven reforms • And will continue to do so once Parliament sits • Focus needs to be on implementation for both revenue and expenditure

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