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  • 1. MINISTRY OF FINANCE BUDGET REFORM UNIT PROVINCIAL DEVELOPMENT,SUB-NATIONAL BUDGETING AND INTEGRATION OF PROVINCIALDEVELOPMENT PLAN INTO THE AFGHAN NATIONAL DEVELOPMENT STRATEGY (April 2007)By Jean-Marc LepainBudget Advisor in charge of Budget Reforms and Fiscal DecentralizationDFID Public Finance Specialist
  • 2. PROVINCIAL DEVELOPMENT, PROVINCIAL BUDGETING AND INTEGRATION OF PROVINCIAL DEVELOPMENT PLAN INTO THE AFGHAN NATIONAL DEVELOPMENT STRATEGYEXECUTIVE SUMMARYAccelerating economic development and improving delivery of public services in theprovinces is considered by the Government of Afghanistan as a high priority. It can beachieved through better coordination of ministries activities at the national and provincial level,improved institutional clarity, better formulation of Provincial Development Plans, and newbudgetary mechanism to channel more funds to the provinces.Approval of the Interim Development Strategy (I-ANDS) intensified the process of nationaldevelopment planning. I-ANDS has laid down the Afghan midterm development vision, whichrepresents a foundation for preparation of the full ANDS.The Government of Afghanistan (GoA) intends to conduct the ANDS preparations in aconsultative and participatory manner. Special attention will be given to sub-nationalconsultations to ensure that the needs of communities, districts and provinces will be integratedinto the national strategy (ANDS).The preparation of the Provincial Development Plans (PDPs) is viewed as the best way toensure that the Afghan national development planning process will be based on the bottom-up rather than on the top-down approach. This will strengthen Afghan ownership over theANDS process and will improve capacity for budget planning.The Government will support preparation of the PDPs through the ANDS consultativeprocess. This will require strengthening of the capacity of the provincial administration andimplementation of sub-national consultations that will include representatives from communities,districts, civil society groups, donors, UNAMA and PRTs.The most priority needs of the PDPs will be integrated into the ANDS, and in the midtermbudget framework. This will require costing and prioritization to occur. The Governmentrecognizes that the PDP process as well as the overall process of national development planningwil improves over time.The Government expects that the PDP process and its integration into the ANDS and themidterm budget framework will lead to:  improving the national development planning process and abolishment of existing parallel processes;
  • 3.  more efficient integration of provincial needs into the national budget, resulting in an equitable development and better public service delivery; and  strengthening of the capacity of the provincial administrations and line ministries.The Government of Afghanistan is committed to reform existing budget procedures toensure a better linkage between budget formulation and provincial planning. In theAfghanistan context, provinces are not separate budgetary entities but are the lineministries’ service delivery units (often referred to as line ministries’ provincialdirectorates or ‘secondary budgetary units’).1 Thus, provincial budgeting is defined asthe provincial allocation of budgetary resources by the Afghanistan Government toachieve its national priorities as articulated in the Interim Afghanistan NationalDevelopment Strategy (I-ANDS).The progressive introduction of program budgeting will simplify existing budgetprocedures and improve service delivery by line-ministries. Ministries programs willbe directly linked to ANDS sectors.Outcome of the provincial budgeting pilot projects introduced in July 2006 havebeen positives. Important lessons have been learned and the pilot project will beexpended for 1387 budget preparation. Although, the pilot project has clarified whatprovincial budgeting could be in the short term, long term plans will depend on how a number ofissues will be solved such as reform of the provincial administration, municipalities, and any newlegal framework, level of decentralization, fiscal reforms at the national, provincial and municipallevel, role of democratically elected assembliesProvincial and Program Budgeting are inherently linked. Programs need to beimplemented on a provincial basis. Program management structures will have to be put inplace at the provincial level to ensure efficient service delivery. Programs will be linkedto performance indicators and performance reviews will be conducted on a regular basis.Provincial and Program Budgeting should be implemented in the wider context ofbudget integration. Dual budget system, i.e. separate ordinary (recurrent and capital)and development (recurrent and capital) budgets is a key cause of weak public financialmanagement in Afghanistan This dual system leads to planned and completed capitalprojects lacking the operating funds to function properly (e.g. hospitals lack funding formedical staff and supplies; teacher recruitment and procurement of supplies (includingtext books) are not coordinated with school construction programs; and roads haveinadequate funds to maintain them). Budget integration will ensure that all aspect of aprojects are taken in consideration and that there is one single line of management madeaccountable.1 In Afghanistan, the municipalities are the second tier of government (i.e. sub-national) and have thepower to raise their own revenues and are responsible for functions such as waste management etc. Overtime, budgetary reforms will be introduced to capture more information on this level of government.
  • 4. Within the framework of the budget integration reform, Provincial Units will be created inline-ministries for assisting in program implementation in the provinces, monitoring programindicators, ensuring linkages with ANDS and PDPs and providing essential reporting on theirministries’ provincial activities.Based on their Sector Strategies, ministries will prepare “Provincial Strategies” or“Provincial Implementation Plans” defining how programs will be implemented in theprovinces, setting geographic priorities and determining provincial performance indicators basedon Millennium Development Goals and ANDS benchmarks. Provincial Strategies will providethe rationales to allocate funds across provinces and will be presented to the Cabinet for approvalInstitutional clarity and reform of the administrative and legal framework appearto be a prerequisite for defining a long term approach for provincial budgeting.Institutional clarity requires a complete reform of the sub-national legal framework.Review of proposed legislation must be accelerated to ensure that and efficient operatingframework is in place by the end of the ANDS formulation process.Additional fiscal pressure resulting from budget reforms, sector strategies andimplementation of PDPs will be identified and integrated in a Medium TermExpenditure Framework by the end of the ANDS formulation process. Sector strategieswill be costed and provincial ceilings will be allocated to all ministries. ARTF and donors’funding gaps will be identified and a funding plan, taking in consideration fiscal sustainability,will be presented to the donor community.The National Capacity Development Strategy for the Common Functions should befinalized, since it offers great hope in coordinating and disciplining ministries and donor effortsto build capacity at the national, provincial and local levels. Once finalized it should be carefullymonitored and adjusted to meet budget and financial management objectives. This will maximizethe value of technical assistance.A specific capacity building plan will be put in place at the national and sub-national level for assisting line-ministries and provincial directorates in order toachieve budget reforms and meeting objectives.
  • 5. . I. INTRODUCTION AND GENERAL BACKGROUNDDuring the past two years, provincial development has emerged as one of the most importantissues for Afghanistan’s reconstruction. The quality of public service delivery has not measurablyimproved in the provinces of Afghanistan over the past five years. This is one of the major publiccriticisms of the international efforts to reform the government. Underlying this visible lack ofimprovement are deep seated institutional impediments that have diluted the impact most effortsto improve the situation. Accelerating economic development and improving delivery of publicservices in the provinces is considered by the Government of Afghanistan as a high priority. Itcan be achieved through better coordination of ministries activities at the national and provinciallevel, improved institutional clarity, better formulation of Provincial Development Plans, and newbudgetary mechanism to channel more funds to the provinces.1. Provincial AdministrationAfghanistan is defined by its constitution as a unitary state. Provincial administrations areextensions of the Central Government and as such do not have their own budgets, nor the fiscalauthority to collect revenues.2There are 34 provinces. Each province is headed by a Governor appointed by the Presidentor by the Ministry of Interior. Governors have a dual line of reporting through the presidentoffice and through the Ministry of Interior. Each province is divided in a number of districtsadministered by a district Governor appointed by the Provincial Governor.Key ministries are represented by a “Provincial Directorate” in most of the provinces.Provincial directorates of line ministries are directly subordinated to central line ministries ratherthan to provincial governors.In 2005, the Cabinet approved an initiative to establish Provincial Development Committees(PDCs) made of line ministries provincial directors. Provincial governors chair the sessionsand the provincial departments of the Ministry of Economy serve as the secretariat for the PDCs.The role of the PDCs is to coordinate ministries’ activities in the provinces. The Governor caninvite to PDC meetings representatives of the PRTs, NGOs and civil society as non votingmembers to ensure a better coordination of all stakeholders in development activities. The mainroles of the PDCs are:  to coordinate activities of the line ministries  to prepare Provincial Development Plans2 “Afghanistan shall be an Islamic Republic, independent, unitary and indivisible state” (Article One of theAfghanistan Constitution).
  • 6.  to improve donor coordination  to monitore the implementation of development projects; and  to enhance the capacity of the provincial administration for public service delivery.To date the PDCs have been established in almost all provinces in different forms.Provincial Councils, the only elected bodies at sub-national level, have an ambiguous role.Under the Constitution, the PCs are to take part in securing the development targets of the stateand improving its affairs in a way stated in the law (Article 138, Chapter 8, and Article 4). Underthe ‘Law of Provincial Councils’, PCs have the duty and authority to participate in determiningthe development objectives of government and to provide consultation about the design of theprovincial development plan before proposing to Government (Article 4). However, they lackany instruments to supervise the work of the provincial governors or provincial departments whoreceive funds directly from the Core (national) budget and are nominated either by the President(governors) or ministers (heads of the Provincial Departments).As part of the National Solidarity Program and of the National Areas Based Program of theMinistry of Rehabilitation and Rural Development, Village Councils, and District DevelopmentAssemblies have been created. Although they are recognized by the Government of Afghanistanthey are not part of the Constitutional set-up of the country and not regulated by the law.Municipalities are part of the provincial administration. Although the Constitution calls forthe election of mayors, they are still appointed by Governors. Municipalities are fiscallyindependent as they have the power to raise their own revenue. However, due to inflation their taxbase has been reduced and they raise hardly enough revenue to cover their operating cost. Thelack of resources of municipalities, with the lack of capacity, has been the main cause of thedeterioration of the urban infrastructure. Integrating municipality in the budget if unavoidable isurban reconstruction projects are to be financed.2. Lack of Institutional clarityThe GOA recognizes that one objective of its state-building agenda is to create a strategicinstitutional framework to improve the operational capacity of sub-national governing units.Afghanistan has a highly centralized administrative setup with provinces being the arms of thecentral government. However, there is a lack of clarity on the roles, functions, relationship andresource allocation for the various governance entities located at the sub-national level. That lackof clarity has been identified as one of the main obstacles to provincial development.Some of the pillars of this framework have been established at various times in Afghanistan’shistory, but the current policy framework for sub-national governance has not yet been assessedin a comprehensive manner. Over the past few years, the framework has been rapidly changingand evolving with ad hoc and de jure innovations such as the Provincial Reconstruction Teams,the election of Provincial Councils, and the establishment of Provincial DevelopmentCommittees, District Development Assemblies and Community Development Councils. Atpresent, the governor is appointed by the President, the provincial council is elected by the localpeople, and district governors, department heads and mayors are national civil servants reportingto their respective ministries. Each element of sub-national governance operates under different
  • 7. laws. This combination is not supportive of effective and efficient delivery of public goods andservices.The status of provinces is uncertain in terms of political, administrative and economic issues.There is also no clarity on role of provincial administration especially in relation to economicplanning, budget execution and service delivery. Although the Constitution provides for transferor delegation of authority to provincial administrations, there have been no significant steps takento ensure that these authorities can be carried out. The relationship between the governor andprovincial departments need to be clarified. In addition, the structure of the governor’s officeneeds to be addressed so the chief executive of the province is able to effectively oversee theplanning and monitoring roles.3. Public Finance ManagementCurrently the Government has 466,270 civil servants employed across Afghanistan’s 36provinces (of which 65% are employed outside of Kabul province). These staff work in 44 lineministries /agencies (not all of which have programs and activities delivered in the provinces).The Government’s operating budget for these civil servants is forecast to be $1 billion for 1386which is currently funded by domestic (i.e. tax and non-tax) government revenues in the order of70%. After the budget is approved by Parliament, operating funds for these civil servants (i.e.salaries, goods and services, and some minor capital) are sent to each province through theMustofiats which are the provincial offices of the Ministry of Finance. The funding is transferredfrom the Government’s central bank (DAB) to its provincial branches (situated in everyprovince). Quarterly and/or monthly fund transfers are made from the central DAB to itsbranches in accordance with approved allotments and cash plans. Each ministry’s provincialdirectorate prepares forms detailing payroll and other requirements and accesses the physical cashfrom the bank for distribution to staff. However verified payroll reforms are in progress whichincludes receipt of salaries via direct bank transfers into personal bank accounts.The Government’s core development budget is approximately $1.5 billion for 1386 and isimplemented centrally by the line ministries/agencies through the Government’s accounts inKabul. However, the programs and activities are often conducted in the provinces. There aresome provincial health and education development projects whereby funds are transferredthrough the Mustofiats to the DAB provincial branches although these are the exception.Apart from the operating costs of the Government being distributed to the line ministries’provincial directorates, the only budget allocation made to the provincial authorities is throughthe Ministry of Interior to finance the Governors’ offices historically for some securityexpenditures and also for the administrative costs of running the offices.Currently the external development budget – those programs implemented directly by donorsoutside the Government’s accounts - for 1386 is forecast to be approximately $1 billion althoughcomplete data is not known. Information on this budget is collected by the Aid Coordination Unitof the Ministry of Finance in the Government’s Donor Assistance Database and efforts are beingmade to collect information at the provincial level. However, large gaps remain (e.g. activities ofPRTs).
  • 8. II. PROVINCIAL PLANNING1 . Current SituationIn 2006, the Ministry of Economy started forming Provincial Development Councils and, actingas PDC Secretariat, facilitated the formation of sectoral working groups. However, due to a lackof capacity at the provincial level, the planning process started with no clear objective and noclear definition of responsibilities and ownership. As a result MoEc, MRRD, UNAMA and PRTshave been providing competitive approaches and methodologies which are now difficult tointegrate. Linking existing PDPs to the budget appears extremely difficult.As a part of the National Solidarity Program (NSP), MRRD supported the establishment of16,000 Community Development Councils (CDCs). MRRD also supported the process ofbuilding the District Development Assemblies (DDAs) to enhance the National Area BasedDevelopment Plan (NABDP).DDAs have played a major role in developing the District Development Plans based on extensivecommunity level consultations organized within all 16,000 CDCs. Approximately 250 DistrictDevelopment Plans have already been developed. However, they have not been integrated intothe PDPs. The process for developing the remaining 114 District Development Plans isunderway.Approximately 20 provinces have initiated the process of developing PDPs. However, only a fewof them have been fully analyzed, either by MoF or by ANDS. 11 additional provinces havestarted the planning process.2 Assessment of the current processAlthough the preparation of PDPs can be described as welcome, the processes utilized fordeveloping them proved to be very weak for a number of reasons, including the following ones:  Preparation of the PDPs was largely donor or PRT driven and aimed at securing additional donor funding;  PDPs have been prepared without a common format or methodology;  The majority of PDPs were prepared in the form of project lists without strategic content and thus lacked proper prioritization against available resources;  The process for developing the PDPs was not linked with the national process of developing the ANDS. Furthermore, participation of line ministries and the MoF was not significant;  The PDPs written thus far have not been linked with community and district level efforts to create development plans tailored to local needs. In most cases the PDPs have not included the priority needs already identified in District Development Plans ( DDPs);
  • 9.  PDPs have not been prepared in consultation with line-ministries at the central level. They do not reflect sector strategies, programs or ministries’ priorities.  They have not been fully costed and often reflect unrealistic expectations in terms of financing  The feasibility of a number of large project is questionable. In many cases, feasibility studies will be necessary.  Not enough capacity in the provinces for their implementation local ownership.3. Way forward.MoF and ANDS Office have established the following objectives:  ANDS in consultation with MoF, MRRD and other stakeholders will put in place a common format (template) and a common methodology that will be used by all PDPs.  MoF will provide fiscal envelope for all provinces  ANDS, with the support of MoF and MRRD, will accelerate the preparation of PDPs to have all 34 PDPs ready by XXXX  ANDS will integrate output of the PDP in the National Development Strategy  ANDS will provide high level of prioritization of PDP  MoF will put in place in the Budget Department a structure in charge of integrating PDPs in the budget formulation processThe PDP process, when it will benefit from a common format and methodology approved at thecentral level, will support preparation of the ANDS by:  Enhancing the ANDS consultative process;  Improving planning capacity national-wide; and by  Strengthening the ANDS sector strategies by facilitating the integration of the most priority provincial needs.Effective integration of prioritized provincial development needs (PDPs) into the ANDS will bedependent on:  Conducting extensive sub-national consultations in all 34 provinces;  Ensuring strong involvement of the line ministries (including MoF) and their provincial departments in the ANDS sub-national consultations; and  Ensuring effective work of the PDCs and proper prioritization of development needs at the provincial level while taking into consideration the limited fiscal and donor resources.
  • 10. 3.1. Sub-national consultations: the most important vehicle for integration of the PDPs into the ANDSThe ANDS sub-national consultations will commence in mid-May 2007. Drafts of the ministryand/or sector strategies will serve as the basis for the consultations. Governors’ offices will befacilitating the process. The main forum for consultations will be the PDCs. The ANDSSecretariat and Governors’ offices will ensure that representatives from the community anddistrict levels as well as from civil society groups, donors, UNAMA and PRTs will be included inthe consultative process.Sub-national consultations have already been piloted in several provinces. The pilot consultationsenabled the ANDS Secretariat to gain important experience on how to carry out the sub-nationalconsultations and integrate the PDPs.The main objectives of the sub-national consultations are:  To consult widely within all parts of Afghan society to decipher what the development priorities at the sub-national levels are;  To set the stage for integrating PDPs into the ANDS;  To strengthen, streamline and provide uniformity to the national development planning process, including to the preparation of the PDPs.The final output from the sub-national consultations will be:  Costed, prioritized, sequenced and timely sub-national inputs into the ANDS sector strategies that will come out of the PDP process.3.1.1. Sub-national consultations in the provinces with PDPsSub-national consultations in the provinces that have already developed a PDP will aim tointegrate the most priority provincial needs identified within the PDPs into the ANDS.This process will include the following:  Prioritization of the PDPs: Most of the existing PDPs resemble a wish list and are not in the form of a properly prioritized development plan. The ANDS sub-national consultations will initiate the process of prioritization of the PDPs while giving adequate consideration to the resource framework that will be provided by the Ministry of Finance (MoF);  Increase provincial ownership of the PDPs: The PDPs will not substitute the consultative process. Representatives from the community and district level will review the PDPs in order to ensure that their needs are included. This will require consideration and integration of the previously completed District Development Plans under the MRRD’s leadership.  Provide uniformity to the process of preparing the PDPs: The PDPs that were already developed were written through using different formats and methodologies. The ANDS Secretariat prepared a template that will help ensure that existing and future PDPs will
  • 11. be written in a uniform manner. This will enable the national planning process to become more effective and efficient.3.1.2. Sub-national consultations in the provinces without PDPs Sub-national consultations in the provinces that have not developed the PDPs will be based on the same principles. Some provinces have initiated the process of preparing the PDPs. Yet, in some provinces this process has not been initiated. In those provinces that have initiated but not completed the PDP preparations the ANDS sub- national consultations will help to: (i) prioritize; (ii) create uniformity of the PDPs; and, (iii) strengthen local ownership of the overall process. In those provinces that have not initiated preparation of the PDPs the ANDS sub-national consultations will help to: (i) initiate this process and (ii) strengthen the capacity of provincial administrations for completion of the PDPs.In both cases the sub-national consultation will result in identification of the sub-national inputinto the ANDS which will be used as a basis for developing the full PDP under the uniformedmethodology provided by the ANDS Secretariat3.2. Ensuring local ownership of the PDPs and integration of the sub-national inputs into the ANDS sector strategiesThe PDPs and sub-national inputs (where there is no PDPs) must include the needs of the wholepopulation. It is essential to ensure that the community and district levels take an active part in theconsultative process. It will be equally important for the PDPs to include the priority needsidentified within the previously prepared District Development Plans, which were developed onthe basis of MRRD-led consultations that took place within 16,000 communities.In order to respond to these challenges the ANDS Secretariat will:  Ensure that representatives from the community and district level as well as civil society groups and donors are part of the consultative process;  Ensure that provincial inputs into the ANDS include the priority needs identified within District Development Plans that have already been developed;  Ensure that Governors’ offices and PDC secretariats receive adequate technical assistance for managing the consultative process and documenting the comments received during the sub-national consultations;  Ensure that the line ministries receive the sub-national inputs to the sector strategies in a timely manner and that these inputs are discussed by the ANDS WGs; and  Ensure that the heads of all provincial departments are involved in finalization of the sector strategies.3.3. Prioritization of the PDPsMost PDPs that have already been prepared resemble wish lists rather than documents that willassist in formulating development policy and planning at the national and sub-national level. TheANDS sub-national consultations will need to ensure that the PDPs and the sub-national inputs
  • 12. (where there is not PDPs) will be prioritized in line with the resource envelope allocated to eachprovince by the MoF and in line with the overall ANDS Macroeconomic Framework.Comments: in order to be prioritized within a fiscal envelope, PDPs need to be reformulatedaccording to ministries programs on the basis of their provincial strategies. Fiscal enveloped aregiven to ministries not to provinces.In order to respond to these challenges the ANDS Secretariat will:  Ensure that the MoF will prepare the medium-term fiscal framework as a part of the ANDS Macro Framework for the period in which the ANDS will be implemented (2008/13);  Ensure that the MoF will provide line ministries with the sector (ministries) and provincial budget ceilings; and  Ensure that the PDCs, in consultation with line ministries, will prioritize the PDPs and the provincial needs against budget ceilings. The PDCs will be able to prepare PDPs in which costing may exceed the medium-term budget ceilings. However, provincial administrations must recognize that the ANDS sector strategies will include only the most priority needs that will fit within the budget ceiling limits. The provinces will be allowed to address funding of the other projects from the External (donor) budget. However, such efforts will need to be coordinated with the MoF.4. TimingThe ANDS will need to be finalized by March 2008. Given this tight deadline, coupled with theweak capacities of provincial administrations, lack of the prioritization within the existing PDPsand integration of the communities’ and districts’ needs, non-existence of the PDPs in number ofthe provinces, it is clear that the ANDS sub-national consultations will not provide enough timefor finalization of prioritized, costed and sequenced PDPs.Provincial development planning must continue to be strengthened beyond the deadline set forthe approval of the ANDS. The ANDS and the PDPs should be viewed as living documentssubject to periodic revisions. Thus, at this stage the ANDS sub-national consultations will:  enhance the PDP process by prioritizing provincial needs within the the PDPs that were already developed and to place the prioritized needs into a format that will facillitate their integration into the ANDS; and  initiate and enhance the PDP process in the provinces in which the PDPs were not developed. The priority needs identified for integration into the ANDS will serve as the basis for developing the PDPs.In order to overcome these challenges the ANDS Secretariat will:  Ensure that the prioritized provincial needs identified in the PDPs or during the sub- national consultations will form the basis for preparing the fully prioritized, costed and sequenced PDPs;  Ensure that the preparation of the full PIP will include provincial needs;
  • 13.  Ensure that fully prioritized, costed and sequenced PDPs will be prepared by mid 2008 and integrated in the first ANDS Update and the full PIP, which are planned to be completed by March 2009.5. Questions for further discussion:  How to ensure that provincial administrations are strengthened and that the work of the PDCs becomes more effective?  How to clear ambiguities in the work of the provincial administrations, including the role of the Governor and the role of PCs?  How to ensure that the program budget and provincial budgeting are completed as soon as possible?  How to ensure stronger links between line ministries and their provincial departments?  How to ensure that the District Development Plans will be developed in the rest of the country?  How to ensure that undeveloped provinces and the provinces affected by insurgency are adequately funded in order to provide equitable growth and decrease factors of conflict?  What is the best strategy for addressing the diverse needs of the Afghan population – developing PDPs or regional strategies?
  • 14. III. PROVINCIAL BUDGETING 1. Background and objectives of provincial budgetingMore than half of the national budget is accounted for centrally (Kabul) reflecting currentaccounting procedures where payments are recorded where they are made rather than where theservice is delivered. This results in inaccurate and unclear information related to Government(and donor core budget) service delivery in the provinces contributing to a negative perception ofthe reconstruction process by the population. In addition, more information on service delivery bydonors outside the Government’s budget is needed.The Ministry of Finance, in partnership with others, intends to address these perceptions and dataissues through program and provincial budgeting by linking line-ministries’ budgets to I-ANDSpriorities and objectives and addressing process, procedure and system constraints. A strategywill also be put in place to improve the rationale and transparency of the allocation by lineministries of budgetary funds across provinces.Thus the pilot project was designed with the following objectives:  Analyze available data and identify information, procedure and system impediments to facilitate transparent and comprehensive reporting to the Parliament of both Government and donor expenditures in the provinces.  Ensure that provincial stakeholders increase their participation in the 1386 budget preparation process to better reflect provinces’ development needs in the context of a defined and limited fiscal envelope assigned to the line ministries  Facilitate a more equitable and transparent allocation of resources across provinces  Identify current roles of provincial structures such as the Provincial Development Committees, Governors etc and input to developments in terms of their future role, responsibilities and authority  Identify local development issues and facilitate solutions and linkages to the National Development Strategy and annual budget process.1.1 Financing Model – Current stateCurrently appropriations (legally approved budgetary allocations) are approved by Parliament forline ministries as part of the annual budget process. However, given current capacity and systemconstraints, the provincial distribution has not been prepared as part of the budget preparationprocess although Parliament has recently requested a breakdown for the 1386 budget.Reforms are in train to ensure that line ministries prepare provincial allocations for theirnational programs as part of the 1387 budget preparation process and that the rationalebehind the distribution is clearly explained. Lessons learnt from the pilot conducted during the1386 budget process will be used to prepare procedures to assist in this task. This will ensure thatParliament is provided with information that allows it to assess and approve the distribution ofbudgetary resources across the Government’s provincial service delivery units.
  • 15. The Government and donors have committed to improving aid effectiveness through theParis Declaration and meetings are held regularly to discuss issues and to facilitate the flowof information. Donor activities both through the Government’s core budget and the externalbudget are reported to Cabinet and the National Assembly.To improve public expenditure management, the Government is encouraging more fundingto go through its core budget so increased information is known on donor activitiesparticularly in the provinces. At the provincial level, the external budget already plays animportant role and that role is expected to increase until provincial budgeting processes arestrengthened.Donors are often discussing investment projects directly with Governors without consultationwith the Government. As a result, a substantial part of economic assistance to provinces is notcaptured by the Government’s accounting and reporting system. In many cases, it makes analysisof service delivery across provinces impossible given the data gaps both from the donor side andthe Government side (system enhancements are currently in train). For example, in someprovinces the Basic Package of Health Services is implemented by some NGOs financed throughthe core budget, and in some other provinces the NGOs are financed through the external budget.As a result a comparison of Government funding between provinces is distorted and does notreflect ministries activities. In other cases, aid provided directly to some provinces might increasedisparities. This lack of data quality and access to information is one of the key reasons why theParliament recently rejected the budget (based on claims of provincial inequities based onavailable information).2. Overview of the 1385 Pilot Project2.1. Constraints AnalysisThe pilot highlighted the following constraints:  There is a provincial governance structure but it has no or limited legal authority and the roles and responsibilities in budget formulation and execution are unclear: o The Constitution states that the local administrative unit is a province and in every province a Provincial Council will be formed. It also states that the Government, while preserving the principle of centralism, shall delegate certain authorities to local administration units for the purpose of expediting and promoting economic, social, and cultural affairs, and increasing the participation of people in the development of the nation. (Article 137, Chapter 8, Articles 1, 2 and 3). o Provincial Development Committees (PDCs) are not democratic institutions and do not have the authority to make fiscal decisions. Their role is limited to coordinating activities of line ministries’ provincial directorates. o Provincial Councils (PCs) functions as an elective assembly but in operation have purely an oversight role given their lack of capacity. o Provincial Governors are supposed to play a coordinating. However, they currently have no supervisory authority over line departments operating in the
  • 16. provinces. Thus, involvement of the Governors’ offices in economic and financial issues varies from province to province. o Limited capacity exists in the line-ministries’ provincial directorates. The Soviet style planning approach is still prevalent and no procedures currently exist. o Only municipalities have some degree of fiscal autonomy and have the power to raise their own revenues. There are several institutional mechanisms and a legislative framework in existence that makes them a potentially effective tool to deliver services to the people. This provides an opportunity for the Government to implement systems for the delivery of services at the city level. The Public Finance and Expenditure Management Law (Articles 23-26) clarifies some of the accountability and reporting relationships for the municipalities, including allowing transfers to municipalities from the national budget and reporting on budget execution through the Mustofiats. However, for this level of government to be utilized, a number of legal, financial, administrative and service delivery changes will be required.  Pilot ministries currently do not have the capacity to clearly communicate their strategies, policies and procedures to their provincial directorates. Thus, provincial directorates of the pilot ministries have little knowledge of their Sector Strategy.  There were delays in pilot ministries defining their programs to be resourced which compressed the timeframes available for consultation with provincial directorates. Thus, it became evident during the pilot that program budget reforms should precede provincial budget reforms.  Provincial Development Plans were still in an early stage in all three pilot provinces and the planning process had already started without clear objectives or methodology, resulting often in unclear goals and unrealistic expectations.  Complete and consistent information on the development needs and priorities of the provinces was not available. Some provinces had a provincial profile and/or District Development Plans (DDP). However, these DDPs are in the process of being consolidated into Provincial Development Plans so inadequate information was available at the time of the pilot.  Information on the provincial allocation of some programs and projects was often not readily available (e.g. a national road project)2.2. Selection of pilot ministries and pilot provincesPilot ministries were selected on the basis of their impact on the I-ANDS and provincialdevelopment, and their capacity to implementing reforms. Selected pilot ministries were:Ministry of Rehabilitation and Rural Development, Ministry of Agriculture and Ministry ofEducation.The selection of provinces was made on different criteria: Balkh was selected as an example of aprovince with good capacity, Panjshir was selected as an example of a newly established andimpoverished province, and Kandahar was selected as an example of a southern province withsecurity problems.
  • 17. 2.3. Pilot project designThe pilot was conducted during the 1386 budget preparation process covering the period fromJuly 2006 to February 2007 when the national budget was submitted to Parliament for approval.The following steps were followed during the pilot: 1. Ministry of Finance prepared general budget instructions as part of the annual budget process and requested additional information on the proposed provincial allocations of line ministry activities. Detailed additional instructions were provided to those ministries participating in the pilot. 2. In the pilot phase, it was decided that provincial budgeting would not include projects financed by the PRT or by the external budget. [However, to minimize duplication and enhance development outcomes, a more complete picture of provincial expenditures is needed in the future.] 3. PDCs were the selected institution for all budget discussions given that they had the capacity and were already engaged in this process by MRRD/MoE. 4. As Provincial Development Plans were not ready during the first phase of the pilot project, it was decided that provincial directorates, after consultation with the PDCs, would send a budget proposal to their respective ministries. After revision, the ministries would return a budget proposal to be approved by the PDC. 5. Provincial allocations of line ministry budgets were included in the budget documentation presented to Parliament for the pilot ministries only given the poor quality of the data received by the other line ministries.2.4. Pilot project outcomesThe results of the pilot project were encouraging and have demonstrated that the improvement ofengagement of the provinces in budget formulation is possible in Afghanistan.Positives  Pilot line ministries have been able to disaggregate their national ceilings by province and by programs. Refer handout – extract from 1386 budget documentation.  All pilot ministries have held direct consultation with their provincial directorates prior to preparing their provincial allocations.  All provincial directorates have sent to their ministries their budget proposals.  All pilot ministries’ budgets have been successfully presented to the PDCs for approval.  PDCs have provided feedback that reflects their interest in expanding their role in the national budget process.Negatives
  • 18.  In general, the quality of consultation between pilot ministries and the provinces was poor. Although consultation took place, the input of PDCs in the initial pilot phase was limited.  Budget proposals submitted by provincial directorates lacked quality and were based more on a local political agenda than on a real assessment of population needs and provincial priorities.  Ministries’ provincial directorates currently do not have enough capacity to implement line ministry policies and programs. Their budget proposals did not answer population needs and priorities but focused on infrastructure, construction of new offices and facilities and large administrative projects with unclear outputs and outcomes. In all cases, results from population consultations conducted by NABDP through District Development Plans were ignored.  Except for MRRD, control of pilot ministries over their provincial directorates appeared weak. In most cases, there was no formal reporting system in place and projects were not systematically monitored and did not have well identified objectives and outcomes.  Exchanges of information between ministries, their directorates and the Governors’ offices appear limited.  Due to current lack of capacity, PDCs do not appear to be in a position to play a leading role in economic development, unless capacity in injected in line-ministries’ provincial directorates.  Provincial Development Plans have been prepared without clear objectives and methodology and, in their present state, cannot be linked to the budget.Preliminary impactThe pilot project has made ministries more aware that more needs to be achieved in the provinceswith very limited funds. Although the ministries allocated increased funds to the pilot provinces,due mainly to the project focus, a more equitable allocation is needed. Ministries will need todefine multi-year geographic priorities based on provincial needs, national priorities and ANDSbenchmarks.3. Lessons learnedProvincial and Program Budgeting are inherently linkedExperience from the pilot project shows that program budgeting cannot be separated fromprovincial budgeting. Programs, defined as activities that have a common policy objective, needto be implemented in the provinces. Hence, line ministries need to consider the provincial contextwhen formulating their programs and designing activities for implementation in the provinces.Program and Provincial Budgeting should be implemented in the wider context of budgetintegrationBudget integration requires organization restructure structure to facilitate improved budgetpreparation dialogue regarding national priorities and programs that achieve policy targets.Currently within ministries, two distinctly separate units are responsible for the operating budgetand the development budget with limited consultation and coordination. This situation leads tothe recurrent costs of major donor funded capital expenditures not being identified and, forexample only, schools being built without consideration of Compact benchmarks and the teachersalary recurrent cost.
  • 19. Other than the internal integration of the operating budget and development budget departments,the establishment of provincial units within ministries is considered to be essential. Provincialunits would be responsible for assisting in the restructuring of provincial directorates, gatheringeconomic data relevant to the sector, assessing local development needs, monitoring programactivities and program indicators in the provinces, assisting in provincial development planpreparation and implementation, and providing training and technical assistance.More institutional clarity is requiredThe lack of a clear legal framework is a serious impediment to provincial budgeting. Role andresponsibilities of the Governors, Provincial Councils and the Provincial DevelopmentCommittees need to be clarified. The role of the current sub-national administration i.e.municipalities in provincial development should also be clarified and more information on theiractivities provided in the Government’s budget documentation submitted to Parliament.Without effective governance structures and clear sub-national legislation, economicdevelopment at the provincial level will remain seriously impeded. It is recommended that ananalysis of the current policy and legislative framework should be initiated as soon as possibleand options presented to Government.The large number of provinces is a concern for effective planning and budgeting. Many activitiessuch as irrigation, water and natural resource management, transport, electricity distribution,environment, etc., require cooperation and coordination between provinces. Discussions shouldbe held on whether a supra-provincial entity should be created such as “regions” or a “RegionalCouncil of Governors” to coordinate such activities.Information from donors on provincial activities needs to be improvedAt the moment, Ministry of Finance has limited information on provincial activities undertakenby donors under the External Budget (except from USAID and EC who have provided extensiveinformation in tight timeframes). Also, it currently has no information on projects fundedthrough PRTs (except from USAID) and other military organizations and how much funding ischanneled through them. Although initially PRT funds were earmarked for small developmentprojects at the local level, some PRTs have started to fund larger infrastructure projects at theGovernors’ request. This approach to expenditure management runs the risk of setting up ‘slushfunds’ for the use of Governors that have no connection to national priorities and programs. Inaddition, no information is made available on the use of this funding so the impact on provincialdevelopment cannot be measured.PRT representatives are already observers in PDC meetings, but their activities are not reported atthe central level either to line-ministries or to the Ministry of Finance. PRT activities in theprovinces often amount to a parallel budget controlled by the Governors, which undermines theauthority of the Government and leads to ineffective public expenditure management decisions. IfPRT activities are included in PDPs this may offer an opportunity to integrate PRT activities inthe overall Government’s national development strategy.If the Government and donors are to meet the development needs of the country, aid coordinationshould be done in accordance with the Paris Declaration and in addition could be based on anumber of principles:
  • 20.  Aid through the external budget should be provided to the provinces in a transparent way and information provided to the Government to ensure effective policy, planning and budgeting decisions (e.g. to reduce duplication, enhance outcomes)  Aid to the provinces should not exacerbate disparities between the provinces but, on the contrary, try to counter balance such disparities  Aid should be complementary to the budget and be in line with the I-ANDS benchmarks and priorities and done in consultation with the relevant line ministry  Donors should report to MoF on all funds made available to the provinces.  Donor assistance to the provinces should aim at strengthening Government’s authority and should not interfere with local politics.Good provincial budgeting should have a strong link to policy and planning to ensureGovernment priorities are implemented.Different planning mechanisms are currently in operation in the provinces eg UNAMA,MRRD/NAPDP currently have no link to the budget process or budgetary outcomes. This couldlead to confusion especially in light that present plans are unrealistic and have the impact ofraising expectations of the population.More effort is needed to: define the objectives of provincial planning; establish a common formatand methodology; ensure line-ministry leadership; and provide capacity building technicalassistance to both the line ministries and their provincial directorates.Development plans could provide a mechanism for consultation on national budget priorities.However the provincial planning process has been largely ineffective to date due to a lack ofleadership and coordination. Project/program prioritization should be made within a realisticresource envelope within the fiscal parameters of the Government (i.e. top down approach).Future financing mechanisms should be considered once capacity is builtThere are plans to provide the provincial allocations of the national budget for both the operatingand development budgets (and of programs once the budgets are integrated).Once procedures are defined and the capacity of staff in the provincial directorates improved,consideration should be given to providing the total provincial budget allocation direct to theprovince (not just the operating budget as currently is the case).Current procedures also need to be reviewed. All provincial directors complained about thedifficulty to access funds through the Mostofiats. Disbursement procedures should be reviewedand the reform of budget execution must become part of the Mostofiats Reform Project with thesupport of the Treasury and Budget Departments.Information to the Parliament on provincial allocations and expenditures should be improvedThe Aid Coordination Unit of the Ministry of Finance will continue to work with donors toimprove the level of information and reporting of provincial activities in the core and externalbudget. Donors should provide a disaggregation of their financial assistance by province.
  • 21. Modifications to the accounting system of the Government (AFMIS) and the budget preparationand aid tracking software (Donor Assistance Database or DAD) need to be made to ensure theaccurate capturing of proposed provincial allocations and expenditures. Currently, the coding ofmany projects is incorrectly shown at Kabul when the services are delivered in the provinces.Refer to the handouts for a summary of the analysis of current provincial expenditures.4. Fiscal pressures resulting from provincial budgetingBudget integration, program budgeting and provincial development planning processes willadd additional fiscal pressures on the national budget. This needs to be considered in thecontext of IMF benchmarks that restrict the flexibility of the Government to increase its operatingbudget above certain levels, in line with fiscal sustainability targets.However, the main cost will be in the development budget required for improving Governmentservice delivery at the provincial level. Once sector strategies are developed and programsidentified to ensure the Compact and ANDS benchmarks are met, these programs will need to becosted and sequenced over the medium term in line with government and donor revenueavailability. As part of this process, transparent reporting of the rationale behind the provincialallocation of the annual budget over the medium term will need to be undertaken.5. Future MoF plans for Provincial Budgeting PilotFor 1386, MoF is considering increasing the number of Ministries piloting program budgetingfrom three to eight. Identified candidates for the next phase of program budgeting are:  Ministry of Public Work  Ministry of Urban Development  Ministries of Energy and Water  Ministry of Agriculture  Ministry of FinanceThese ministries have been selected because of their key role in provincial development.The number of Ministries on provincial budgeting will not be increased in 1386. The same theepilot ministries will prepare their 1387 budgets according to an improved procedure that will givemore time for consultation with the provinces.Rather than moving all ministries already on program budgeting to provincial budgeting, MoFwill require those ministries to focus on budget integration and implementation of programbudgeting in the provinces. A dedicated provincial unit will be created in those selected ministriesas part of the new organization put in place under budget integration.
  • 22. 6. Conclusion and RecommendationsAlthough, the pilot project has clarified what provincial budgeting could be in the short term,long term plans will depend on how a number of issues will be solved such as:  Reform of the provincial administration, municipalities, and any new legal framework  Level of decentralization  Fiscal reforms at the national, provincial and municipal level  Role of democratically elected assembliesIn the short term, the Ministry of Finance recommends:  Provincial Units being created in line-ministries to assist in program implementation in the provinces, monitoring of program indicators, ensuring linkages with ANDS and PDPs and to provide essential reporting on their ministries’ provincial activities.  Based on their Sector Strategies, ministries should prepare “Provincial Strategies” or a “Provincial Implementation Plan” showing how programs will be implemented in the provinces, defining geographic priorities and provincial performance indicators based on Millennium Development Goals and ANDS benchmarks.  The current approach of PDPs should be revised. Preparation of PDPs should become a joint effort between MoEc, MoF, MRRD and ANDS based on a common format and methodology. PDPs should be a short and simple document focusing on strategic issues and development indicators prepared in collaboration with ministries (i.e. Provincial Unit) and based on sector strategies and programs.  Institutional clarity and reform of the administrative and legal framework appear to be a prerequisite for defining a long term approach for provincial budgeting. A study should be undertaken on the way forward.  A capacity building plan must be put in place for assisting line-ministries and provincial directorates in order to achieve budget reforms and in bringing objectives.Donors should support a harmonized reporting format being designed by MoF Aid CoordinationUnit. The objective is to provide complete information on funding to the provinces and toimprove project prioritization according to Government’s guidelines.
  • 23. IV. CAPACITY BUILDING1. Lack of capacity of the provincial administrationsProvincial administrations are faced with the acute problem of lacking the capacity. Furthermore,the link between line ministries and their provincial departments remains weak. The role of theprovincial governors and the provincial councils is ambiguous in regard to the overallcoordination and supervision of the work of the provincial departments of line ministries. Thisfurther inhibits the provincial administrations from effectively preparing the PDPs.In order to respond to these challenges the ANDS Secretariat will:  Ensure that representatives of line ministries (including MoF) and heads of the provincial departments are involved in the sub-national consultations;  Ensure that Governors’ offices are the main facilitators of the sub-national consultations;  Ensure that the development of PDPs will be properly facilitated and discussed within the PDCs;  Ensure that the sub-national inputs into the ANDS (PDPs) will be presented to the provincial councils (PCs) prior to their submission to the ANDS Secretariat. 2. Capacity neededThe Ministry of Finance and the ANDS understand that “the National Capacity DevelopmentStrategy for the Common Function” provide the necessary umbrella for developing a capacitybuilding plan that will aim at strengthening the planning, budgeting and implementation processrequired for improving the delivery of public services at the sub-national level and acceleratingeconomic development in the provinces. When “The National Capacity Development Strategy”will be finalized a specific plan will be prepared to cover the development of capacity forfinancial management at the sub-national level.Additional capacity will be needed at the following levels:  Ministry of Finance  Mostofiyats  Line-Ministries  Provincial Directorates of line-ministries  Governor OfficesThe question of including Municipalities in the Capacity Development Plan could be discussedduring the ADF or at a latter stage.
  • 24. The Ministry of Finance will need to put in place a complete team at the central level to analyzePDPs, allocate provincial ceilings, identify funding gaps, monitor line-ministries program, andcoordinate budget implementation with line-ministries. Additionally, Mostofiyat will have torecruit additional staff to contribute more efficiently to budget discussion and budgetimplementations. Budget execution bottlenecks will need to be identified and remedied.Line Ministries will need additional capacity to put in place budget integration and programbudgeting. Additional staff will need to be recruited to create a Finance Department and tomanage programs.Ministries will need to restructure their provincial directorate to improve service delivery and toalign their structure on the program structure. Additional staff will need to be recruited forprogram implementation. An extensive capacity building plan will be required.A common structure will be put in place in all Governor Offices. According to the Civil ServiceCommission plan Governors’ offices will include a Monitoring & Evaluation Unit, a DonorRelations Unit and a Policy and Program Units providing outreach services to thedistricts and municipalities.
  • 25. V. PRE-ADF WORKING GROUPS RECOMMENDATIONSPrior to the ADF Meeting, the Ministry of Finance, in cooperation with ANDS, MoEco, MoI,MRRD and the CSC has organized from April 14th to April 18th, three pre-ADF working groupsthat have been meeting on the following themes: -Provincial budgeting financing model and aid coordination -Institutional clarity, capacity building and technical assistance -Provincial planning strategyThe three conferences have been well attended with all majors stakeholders represented, includedUSAID, DfID, CIDA, JICA, ADB, UNAMA and UNDP on the donor side, representatives of theprovinces such as Governors PC members provincial directors of ministries, and MoF, MoEc,ANDS, MoEdu, MoPH, MRRD, MoI, OAA, CSC on the Government side.A Secretariat Committee has been formed to draft the final recommendations based on notestaken during the meetings. Members of the committee included representatives of MoF, ANDS,CSC, UNDP, UNAMA and USAID. Although, some of the recommendations of the pre-ADFWorking Groups do not represent the official position of the Government of Afghanistan, netherthe less they offer a good platform for ADF discussion.The main recommendations of the pre-ADF Working Groups are:1. Institutional reform and clarity of the legal framework  An inter-ministerial committee, comprising of Ministry of Economy (MOEc), Ministry or Rural Rehabilitation and Development (MRRD), Ministry of Finance (MOF), Ministry of Interior (MoI), the Civil Service Commission (IARCSC), ANDS Office and any other relevant governmental agencies, should be created to look at institutional roles and functions, economic strategy and financing issues at the provincial level with a view to having an effective institutional and administrative structure in place in the provinces to implement the ANDS (once finalized in 2008). The ToR of the Committee could include:  Overseeing all reforms of the budget formulation process, including budget integration in the line-ministries to ensure that reforms receive enough political support.  Overseeing institutional reforms in the provinces  Coordinating ministries policies in the provinces  Defining a unified Government vision on the objectives and financing mechanism of provincial economic development and ensuring any planning mechanism is linked to the annual budget process and the national budget  Coordinating technical assistance and capacity building activities  Clarifying of the role of the PRTs in relation to the ANDS, PDPs, and economic development in general  Identifying a mechanism to coordinate inter-provincial projects such as water management, electricity distribution, transport, etc...
  • 26.  Clarifying role and membership of Provincial Development Councils. A number of representatives of the Provincial Councils, District Governors and Mayors should be included as voting members to make the Committees more representative of the population.  As part of the Government urban strategy, undertaking a study to improve municipalities’ service delivery and to reach a better integration of their activities with the I-ANDS.  Defining Government second tier administration in relation to provinces and municipalities  Clarifying role of the Governors in relation to economic development  Clarifying role of the Governors and Ministry of Economy for coordinating ministries activities in their provinces  Revising role of the Governors in budget execution  Clarifying Governors’ line of reporting (MoI/Office of Local Affairs / President Office / President)  Clarifying relationship between elected assemblies (Provincial Councils) and appointed assemblies (Provincial Development Committees)  Clarifying the relationship between municipalities and provinces and restructuring the regional provinces responsive to the needs with addition of M&E, donor relations, Policy and Program units providing outreach services to the provinces surrounding nearby regional centers.  Oversight the restructuring to ensure that human resources and a coordination mechanism are in place to implement ministries’ programs and provincial development plans and to drive social and economic development in the provinces.Consideration should be given to providing capacity building support to the Inter-ministerialcommittee to undertake its terms of reference.2. Planning  With the assistance of ANDS, and under the oversight of the Inter-ministerial Committee, a PDP common format and methodology will be put in place linking PDPs to Sector Strategies, and budget formulation.  PDCs should be developed in consultation with the population, either through the process put in place by MRRD/NABDP process or through any other process approved by the Inter-ministerial Committee. PDCs, while preparing PDPs, should seek inputs from DDAs as an important source for identifying community needs.  Provincial Councils should be systematically consulted during the formulation of the Provincial Development Plans, as it is stipulated in the Provincial Council Law (see Art. 4.4)  Municipalities should be integrated in the Provincial Development Plan.  PDPs should, as much as possible, be prepared within a fiscal envelope prepared by the Ministry of Finance and including an estimate of the external budget.
  • 27.  PDPs should identify all financing sources: Government (within the defined fiscal envelope communicated as part of the budget process), military organizations (e.g. PRTs), donors and the private sector. This PDP should be provided to MoF to ensure it reports to Parliament on all provincial activities to ensure duplication is minimized and better public expenditure decisions made related to the budget.3. Budget Reforms  Within the 1387 budget formulation process, the program budgeting pilot project will be expanded to a number of key ministries still under discussion, most probably seven or eight. Program budgeting will be used as a tool to reach complete integration of the ordinary and development budgets in the pilot ministries. Under the oversight of the Inter-ministerial Committee, a new organizational model will be implemented in those pilot ministries with the objective of separating financial management functions from policy formulation. In cooperation with MoF, a capacity building plan, including some provisions for technical assistance, will be put in place to assist ministries in implementing the new recommended structure.  The Ministry of Finance proposes that, within the 1387 budget preparation process, the provincial budgeting pilot project be extended to seven new provinces. As part of the pilot project, ministries’ provincial directorates will be asked to prepare and manage their recurrent (ordinary) budget with the help of technical assistance. The pilot project will take in consideration the following points:  Management at the local level of “Good and Services” and “Asset Acquisition”  Goods and services will be increased for the pilot provinces to 10% of the salary and wages budget (to be funded by donors through ARTF). IMF consultation is required.  Coordination of activities with the Civil Service Commission for implementation of administrative reforms  Strengthening role of coordinating body and authority (Role of the Governors and of the Directorate of Economy in coordinating ministries activities needs to be determined. If they don’t have this role, need to determine who should)  Capacity building required for managing programs at the provincial level and implementing Provincial Development Plans  Within the framework of the budget integration reform, Provincial Units will be created in line-ministries for assisting in program implementation in the provinces, monitoring program indicators, ensuring linkages with ANDS and PDPs and providing essential reporting on their ministries’ provincial activities.  Based on their Sector Strategies, ministries will prepare “Provincial Strategies” or “Provincial Implementation Plans” defining how programs will be implemented in the provinces, setting geographic priorities and determining provincial performance indicators based on Millennium Development Goals and ANDS benchmarks. Provincial
  • 28. Strategies will provide the rationales to allocate funds across provinces and will be presented to the Cabinet for approval.  Costing of sector strategies will be undertaken by the Ministry of Finance and ANDS with the objective of preparing a Medium Term Expenditure Framework by the end of the ANDS formulation process, and identifying ARTF and donors’ funding gaps.4. Aid Coordination  For the medium term, recurrent expenditures currently funded by donors need to be identified and a strategy developed for their gradual transfer to the Government’s budget while still ensuring fiscal sustainability. Principles should be developed on what should be moved to the Government’s budget and in what sequence. Sector strategies, once developed, costed and sequenced, will help with this task.  Donors should support a harmonized reporting format being designed by MoF Aid Coordination Unit. The objective is to provide complete information on funding to the provinces and to improve project prioritization according to Government’s guidelines. Donors should also recommit to the principles of the Paris Declaration.5. Capacity Building  The National Capacity Development Strategy for the Common Functions should be finalized, since it offers great hope in coordinating and disciplining GoA and donor efforts to build capacity at the national, provincial and local levels. Once finalized it should be carefully monitored and adjusted to meet budget and financial management objectives. This will maximize the value of technical assistance.