The national budget is of significant importance as it provides a framework under which the government plans how to spend public resources. For instance, development budget, an integral part of national budget, enables the government to plan for addressing the development needs of a country. Appropriate allocation and effective implementation of development budget means hospitals, schools, physical infrastructure, capacity building, and other development interventions that would not only meet the current needs, but also pave the road for the economic growth in future. This is one of the reasons why there is so much focus on its appropriate planning and effective execution.
In Afghanistan, the national budget has two main components namely development budget and operational budget. The operational budget mainly covers the salaries, fuel and other operating expenditures and as such spending this portion of the budget has not been a point of concern. The development budget, on the other hand, is used to finance development interventions. In Afghanistan, where war and conflict left human capital, economic pillars and physical infrastructure in tatters, the development budget is a mean to fill the development gaps using available international financial support and cure its economic and social wounds through appropriate allocation and effective execution. However, the country has been able to execute only half of its total development budget, on average, since 1386(2005). Despite such poor performance, the issue was never raised seriously. It was in late 1395 (2016), when the national plague gained needed attention as the MoF reported an overall poor execution rate of development budget. This stirred anger among parliament members who used their constitutional power and dismissed seven ministers with poor execution rates. The process turned into turmoil after the parliament rejected the 1396 (2017), causing serious delay in approval process.
The parliament finally passed the 1396(2017) budget on January 15, 2017. Given the fact that the Afghan Fiscal year begins on December 21, the delay in approval of parliament allowed only around 11 months to execute annual budget of AFN 429 billion with AFN 161 billion development and AFN 268 billion operational budget. The Ministry of Finance (MoF) reported major achievement at the end of fiscal year starting an execution rate of 67 percent development budget, 13 percent higher than previous year. However, a critical look at the data and figures reveals a different scenario. As per absolute figures released by MoF, AFN 95 billion development budget was spent during 1395 while AFN 102 billion was spent in 1396. As such, there was only an increase of AFN 7 billion compared to previous year; an increase of around 7 percent only. Hence, it would not be fair to compare the percentages as the planned development budget of 1395 was around AFN 15 billion higher.
Apart from the technical perspective, one of the challenges in budget planning, approval and execution is the political pressure posed by parliamentarians during the approval process. For instance, after the National Budget 1396 (2017) was rejected by 136 MPs out 140, the parliament started bargaining with MoF to include projects as per their request. Consequently, each parliament member added projects of his own choice resulting in 350 projects of $70 million, as reported by Integrity Watch Afghanistan (IWA). Without technical feasibility and economic viability studies, such projects are nothing more than a wish-list. In the same way, arranging funds in context where the international aid is on decline and domestic revenues are not sufficient, it is not easy to finance such unforeseen projects. Again, a regular individual follow up by parliament members on such projects with relevant ministries, makes the job of ministers cumbersome.
Looking at future, the proposed development budget for the fiscal year 1397 (2018) presents a dismal picture. The MoF has proposed development budget of AFN 90 billion in the draft submitted to parliament. While looking back at the planned development budgets from 1393 (2012) to 1396(2017), the planned figure has always been above AFN 150 billion, with lowest figure being AFN 148 billion for 1393 (2014) and highest being 175 billion for 1395(2016). These figures turn out to be even bigger if we make adjustments for exchange rate. Given the fact that the development budget is in foreign currency, the annual development budget figures for the previous four fiscal years would be even higher if we make adjustments for the lower dollar exchange rates against Afghani during that period.
The slump in development budget figure is in contradiction with the commitments that Afghanistan has made with international community. The Afghan government has committed in strategic document Afghanistan National Peace and Development Framework or ANPDF (2017-2021) that it would increase the development budget expenditures by 15- 19 percent each year as part of Fiscal Strategy for the country. Here it is important to understand that it is more important to achieve higher development budget expenditure in absolute figure rather than percentage. As such, the AFN 90 billion development budget (if passed) might help government to improve the percentage by 10 to 15 percent, but if we compare the absolute figures AFN 161 billion and AFN 90 billion for 1396 and 1397 respectively, it would reveal a 40 percent decrease in development budget expenditure.
The appropriate planning and effective implementation of development budget can again pave the way for economic growth in medium to long term. In ANPDF, the Afghan government has committed to deliver an average growth rate of 5 percent each year until 2020. However, the growth picture is very gloomy compared to the commitment. While we missed the estimated 3 percent growth rate in 2017, the World Bank estimations are 3 and 3.6 percent for 2018 and 2019 respectively. At present, the private sector investment is constrained by the security situation of the country. As such, the public investment can not only fill the current investment gap to a great extent but also lay down foundations for the long run drivers of economic growth i.e. agriculture, mining and inter- regional trade to play their due role when the international aid significantly declines after 2020. In the same way, it would fill the gaps in the social sectors particularly education, health, and poverty alleviation.
The MoF has presented the reduction in international aid, removal of unfeasible wishful projects, and commitment to prepare a more realistic budget as reasons behind the plunge of development. This could be partly true. There are no two views that the budget should be planned realistically. However, it is also a common observation that complex procurement, poor budgeting practices and weak contract management are factors behind poor implementation of development projects for which donor funding is available. As per the expenditures list issued by MoF, a number of ministries and directorates displayed poor expenditure rates of their available development budget last year; with some as low as 20 percent. Therefore, the focus should be to improve expenditures by addressing the bottlenecks rather than reducing the budget.
If we keep the total absolute figure of development budget aside, it can be seen that the budget for 1397 (2018) has many unique features compared to previous national budgets. The budget is cleaned up, more realistic and credible compared to previous ones as the total resources for the budget are comprehensively presented. It has removed the carry-forward phenomena which passed on the unused budget in a given year to next year. Most importantly, it has significantly reduced the contingency budget category which is open to be used less transparently and associated with risks of corruption. These reforms are in line with commitments made in ANPDF.
The National Budget 1397 (2018) is going through typical challenges. We are in the second week of January and the fiscal year 1397 has already started more than three weeks back, but the budget is waiting to be passed by the parliament. The National Budget was rejected by Wolesi Jirga (Lower House) in December and it is yet to be finalized before it is passed. The parliamentary elections are around the corner, and there is a high probability that the MP’s opt for projects in a bid to earn public support as part of election campaign. In the wake of these circumstances, it seems that it might take two or three weeks more to be passed. This delay would seriously affect the due payments particularly for the development projects as well as affect the timeline of new projects. Hence, the fate of national budget might not be different from previous ones if it is not planned, passed and executed effectively and efficiently.
Shoaib Ahmad Rahim is a development practitioner, lecturer of international economics and analyst on national and regional political economy. Rahim holds an MSc. Degree in Development Economics from University of Sussex, England. Follow him on Twitter: @ShoaibBinRahim