From Covert to Overt External Financing

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
Soldiers Soldiers Soldiers Police Police Police Teachers Teachers Teachers
30 70 100 30 70 100 30 70 100
35 3 6 9 2 4 6 1 3 5
50 4 9 12 3 6 8 2 4 6
100 5 12 18 4 8 12 3 6 9
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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 elses shopping list
• The wedding registry
• The sector/program approach
• MTEF/Budget support

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1. Someone elses 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

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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

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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

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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 isnt 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