MINISTRY OF FINANCE BUDGET REFORM UNIT

PROVINCIAL DEVELOPMENT,

SUB-NATIONAL BUDGETING AND

INTEGRATION OF PROVINCIAL

DEVELOPMENT PLAN INTO THE

AFGHAN NATIONAL

DEVELOPMENT STRATEGY

(April 2007)

By Jean-Marc Lepain

Budget Advisor in charge of Budget Reforms and Fiscal Decentralization

DFID Public Finance Specialist

PROVINCIAL DEVELOPMENT, PROVINCIAL BUDGETING AND INTEGRATION

OF PROVINCIAL DEVELOPMENT PLAN INTO THE AFGHAN NATIONAL

DEVELOPMENT STRATEGY

EXECUTIVE SUMMARY

Accelerating economic development and improving delivery of public services in the

provinces is considered by the Government of Afghanistan as a high priority. It can be

achieved through better coordination of ministries activities at the national and provincial level,

improved institutional clarity, better formulation of Provincial Development Plans, and new

budgetary mechanism to channel more funds to the provinces.

Approval of the Interim Development Strategy (I-ANDS) intensified the process of national

development planning. I-ANDS has laid down the Afghan midterm development vision, which

represents a foundation for preparation of the full ANDS.

The Government of Afghanistan (GoA) intends to conduct the ANDS preparations in a

consultative and participatory manner. Special attention will be given to sub-national

consultations to ensure that the needs of communities, districts and provinces will be integrated

into the national strategy (ANDS).

The preparation of the Provincial Development Plans (PDPs) is viewed as the best way to

ensure 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 the

ANDS process and will improve capacity for budget planning.

The Government will support preparation of the PDPs through the ANDS consultative

process. This will require strengthening of the capacity of the provincial administration and

implementation 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 midterm

budget framework. This will require costing and prioritization to occur. The Government

recognizes that the PDP process as well as the overall process of national development planning

wil improves over time.

The Government expects that the PDP process and its integration into the ANDS and the

midterm budget framework will lead to:

improving the national development planning process and abolishment of existing

parallel processes;

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 to

ensure a better linkage between budget formulation and provincial planning. In the

Afghanistan context, provinces are not separate budgetary entities but are the line

ministries’ service delivery units (often referred to as line ministries’ provincial

directorates or ‘secondary budgetary units’).1 Thus, provincial budgeting is defined as

the provincial allocation of budgetary resources by the Afghanistan Government to

achieve its national priorities as articulated in the Interim Afghanistan National

Development Strategy (I-ANDS).

The progressive introduction of program budgeting will simplify existing budget

procedures and improve service delivery by line-ministries. Ministries programs will

be directly linked to ANDS sectors.

Outcome of the provincial budgeting pilot projects introduced in July 2006 have

been positives. Important lessons have been learned and the pilot project will be

expended for 1387 budget preparation. Although, 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 assemblies

Provincial and Program Budgeting are inherently linked. Programs need to be

implemented on a provincial basis. Program management structures will have to be put in

place at the provincial level to ensure efficient service delivery. Programs will be linked

to performance indicators and performance reviews will be conducted on a regular basis.

Provincial and Program Budgeting should be implemented in the wider context of

budget integration. Dual budget system, i.e. separate ordinary (recurrent and capital)

and development (recurrent and capital) budgets is a key cause of weak public financial

management in Afghanistan This dual system leads to planned and completed capital

projects lacking the operating funds to function properly (e.g. hospitals lack funding for

medical staff and supplies; teacher recruitment and procurement of supplies (including

text books) are not coordinated with school construction programs; and roads have

inadequate funds to maintain them). Budget integration will ensure that all aspect of a

projects are taken in consideration and that there is one single line of management made

accountable.

1 In Afghanistan, the municipalities are the second tier of government (i.e. sub-national) and have the

power to raise their own revenues and are responsible for functions such as waste management etc. Over

time, budgetary reforms will be introduced to capture more information on this level of government.

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 Strategies will provide

the rationales to allocate funds across provinces and will be presented to the Cabinet for approval

Institutional clarity and reform of the administrative and legal framework appear

to 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 operating

framework is in place by the end of the ANDS formulation process.

Additional fiscal pressure resulting from budget reforms, sector strategies and

implementation of PDPs will be identified and integrated in a Medium Term

Expenditure Framework by the end of the ANDS formulation process. Sector strategies

will 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 be

finalized, since it offers great hope in coordinating and disciplining ministries 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.

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 to

achieve budget reforms and meeting objectives.

.

I. INTRODUCTION AND GENERAL BACKGROUND

During the past two years, provincial development has emerged as one of the most important

issues for Afghanistan’s reconstruction. The quality of public service delivery has not measurably

improved in the provinces of Afghanistan over the past five years. This is one of the major public

criticisms of the international efforts to reform the government. Underlying this visible lack of

improvement are deep seated institutional impediments that have diluted the impact most efforts

to improve the situation. Accelerating economic development and improving delivery of public

services in the provinces is considered by the Government of Afghanistan as a high priority. It

can be achieved through better coordination of ministries activities at the national and provincial

level, improved institutional clarity, better formulation of Provincial Development Plans, and new

budgetary mechanism to channel more funds to the provinces.

1. Provincial Administration

Afghanistan is defined by its constitution as a unitary state. Provincial administrations are

extensions of the Central Government and as such do not have their own budgets, nor the fiscal

authority to collect revenues.2

There are 34 provinces. Each province is headed by a Governor appointed by the President

or by the Ministry of Interior. Governors have a dual line of reporting through the president

office and through the Ministry of Interior. Each province is divided in a number of districts

administered 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 rather

than 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 sessions

and 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 can

invite to PDC meetings representatives of the PRTs, NGOs and civil society as non voting

members to ensure a better coordination of all stakeholders in development activities. The main

roles of the PDCs are:

to coordinate activities of the line ministries

to prepare Provincial Development Plans

2 “Afghanistan shall be an Islamic Republic, independent, unitary and indivisible state” (Article One of the

Afghanistan Constitution).

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 state

and improving its affairs in a way stated in the law (Article 138, Chapter 8, and Article 4). Under

the ‘Law of Provincial Councils’, PCs have the duty and authority to participate in determining

the development objectives of government and to provide consultation about the design of the

provincial development plan before proposing to Government (Article 4). However, they lack

any instruments to supervise the work of the provincial governors or provincial departments who

receive 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 the

Ministry of Rehabilitation and Rural Development, Village Councils, and District Development

Assemblies have been created. Although they are recognized by the Government of Afghanistan

they 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 for

the election of mayors, they are still appointed by Governors. Municipalities are fiscally

independent as they have the power to raise their own revenue. However, due to inflation their tax

base has been reduced and they raise hardly enough revenue to cover their operating cost. The

lack of resources of municipalities, with the lack of capacity, has been the main cause of the

deterioration of the urban infrastructure. Integrating municipality in the budget if unavoidable is

urban reconstruction projects are to be financed.

2. Lack of Institutional clarity

The GOA recognizes that one objective of its state-building agenda is to create a strategic

institutional framework to improve the operational capacity of sub-national governing units.

Afghanistan has a highly centralized administrative setup with provinces being the arms of the

central government. However, there is a lack of clarity on the roles, functions, relationship and

resource allocation for the various governance entities located at the sub-national level. That lack

of 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’s

history, but the current policy framework for sub-national governance has not yet been assessed

in a comprehensive manner. Over the past few years, the framework has been rapidly changing

and evolving with ad hoc and de jure innovations such as the Provincial Reconstruction Teams,

the election of Provincial Councils, and the establishment of Provincial Development

Committees, District Development Assemblies and Community Development Councils. At

present, the governor is appointed by the President, the provincial council is elected by the local

people, and district governors, department heads and mayors are national civil servants reporting

to their respective ministries. Each element of sub-national governance operates under different

laws. This combination is not supportive of effective and efficient delivery of public goods and

services.

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 economic

planning, budget execution and service delivery. Although the Constitution provides for transfer

or delegation of authority to provincial administrations, there have been no significant steps taken

to ensure that these authorities can be carried out. The relationship between the governor and

provincial departments need to be clarified. In addition, the structure of the governor’s office

needs to be addressed so the chief executive of the province is able to effectively oversee the

planning and monitoring roles.

3. Public Finance Management

Currently the Government has 466,270 civil servants employed across Afghanistan’s 36

provinces (of which 65% are employed outside of Kabul province). These staff work in 44 line

ministries /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 1386

which is currently funded by domestic (i.e. tax and non-tax) government revenues in the order of

70%. 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 the

Mustofiats which are the provincial offices of the Ministry of Finance. The funding is transferred

from the Government’s central bank (DAB) to its provincial branches (situated in every

province). Quarterly and/or monthly fund transfers are made from the central DAB to its

branches in accordance with approved allotments and cash plans. Each ministry’s provincial

directorate prepares forms detailing payroll and other requirements and accesses the physical cash

from the bank for distribution to staff. However verified payroll reforms are in progress which

includes 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 is

implemented centrally by the line ministries/agencies through the Government’s accounts in

Kabul. However, the programs and activities are often conducted in the provinces. There are

some provincial health and education development projects whereby funds are transferred

through 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 through

the Ministry of Interior to finance the Governors’ offices historically for some security

expenditures and also for the administrative costs of running the offices.

Currently the external development budget – those programs implemented directly by donors

outside the Government’s accounts - for 1386 is forecast to be approximately $1 billion although

complete data is not known. Information on this budget is collected by the Aid Coordination Unit

of the Ministry of Finance in the Government’s Donor Assistance Database and efforts are being

made to collect information at the provincial level. However, large gaps remain (e.g. activities of

PRTs).

II. PROVINCIAL PLANNING

1 . Current Situation

In 2006, the Ministry of Economy started forming Provincial Development Councils and, acting

as PDC Secretariat, facilitated the formation of sectoral working groups. However, due to a lack

of capacity at the provincial level, the planning process started with no clear objective and no

clear definition of responsibilities and ownership. As a result MoEc, MRRD, UNAMA and PRTs

have been providing competitive approaches and methodologies which are now difficult to

integrate. Linking existing PDPs to the budget appears extremely difficult.

As a part of the National Solidarity Program (NSP), MRRD supported the establishment of

16,000 Community Development Councils (CDCs). MRRD also supported the process of

building the District Development Assemblies (DDAs) to enhance the National Area Based

Development Plan (NABDP).

DDAs have played a major role in developing the District Development Plans based on extensive

community level consultations organized within all 16,000 CDCs. Approximately 250 District

Development Plans have already been developed. However, they have not been integrated into

the PDPs. The process for developing the remaining 114 District Development Plans is

underway.

Approximately 20 provinces have initiated the process of developing PDPs. However, only a few

of them have been fully analyzed, either by MoF or by ANDS. 11 additional provinces have

started the planning process.

2 Assessment of the current process

Although the preparation of PDPs can be described as welcome, the processes utilized for

developing 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);

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 process

The PDP process, when it will benefit from a common format and methodology approved at the

central 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 be

dependent 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.

3.1. Sub-national consultations: the most important vehicle for integration of the PDPs

into the ANDS

The ANDS sub-national consultations will commence in mid-May 2007. Drafts of the ministry

and/or sector strategies will serve as the basis for the consultations. Governors’ offices will be

facilitating the process. The main forum for consultations will be the PDCs. The ANDS

Secretariat and Governors’ offices will ensure that representatives from the community and

district levels as well as from civil society groups, donors, UNAMA and PRTs will be included in

the consultative process.

Sub-national consultations have already been piloted in several provinces. The pilot consultations

enabled the ANDS Secretariat to gain important experience on how to carry out the sub-national

consultations 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 PDPs

Sub-national consultations in the provinces that have already developed a PDP will aim to

integrate 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

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 input

into the ANDS which will be used as a basis for developing the full PDP under the uniformed

methodology provided by the ANDS Secretariat

3.2. Ensuring local ownership of the PDPs and integration of the sub-national inputs into

the ANDS sector strategies

The PDPs and sub-national inputs (where there is no PDPs) must include the needs of the whole

population. It is essential to ensure that the community and district levels take an active part in the

consultative process. It will be equally important for the PDPs to include the priority needs

identified within the previously prepared District Development Plans, which were developed on

the 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 PDPs

Most PDPs that have already been prepared resemble wish lists rather than documents that will

assist in formulating development policy and planning at the national and sub-national level. The

ANDS sub-national consultations will need to ensure that the PDPs and the sub-national inputs

(where there is not PDPs) will be prioritized in line with the resource envelope allocated to each

province 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 reformulated

according to ministries programs on the basis of their provincial strategies. Fiscal enveloped are

given 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. Timing

The ANDS will need to be finalized by March 2008. Given this tight deadline, coupled with the

weak capacities of provincial administrations, lack of the prioritization within the existing PDPs

and integration of the communities’ and districts’ needs, non-existence of the PDPs in number of

the provinces, it is clear that the ANDS sub-national consultations will not provide enough time

for finalization of prioritized, costed and sequenced PDPs.

Provincial development planning must continue to be strengthened beyond the deadline set for

the approval of the ANDS. The ANDS and the PDPs should be viewed as living documents

subject 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;

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?

III. PROVINCIAL BUDGETING

1. Background and objectives of provincial budgeting

More than half of the national budget is accounted for centrally (Kabul) reflecting current

accounting procedures where payments are recorded where they are made rather than where the

service 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 of

the reconstruction process by the population. In addition, more information on service delivery by

donors outside the Government’s budget is needed.

The Ministry of Finance, in partnership with others, intends to address these perceptions and data

issues through program and provincial budgeting by linking line-ministries’ budgets to I-ANDS

priorities and objectives and addressing process, procedure and system constraints. A strategy

will also be put in place to improve the rationale and transparency of the allocation by line

ministries 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 state

Currently appropriations (legally approved budgetary allocations) are approved by Parliament for

line ministries as part of the annual budget process. However, given current capacity and system

constraints, the provincial distribution has not been prepared as part of the budget preparation

process although Parliament has recently requested a breakdown for the 1386 budget.

Reforms are in train to ensure that line ministries prepare provincial allocations for their

national programs as part of the 1387 budget preparation process and that the rationale

behind the distribution is clearly explained. Lessons learnt from the pilot conducted during the

1386 budget process will be used to prepare procedures to assist in this task. This will ensure that

Parliament is provided with information that allows it to assess and approve the distribution of

budgetary resources across the Government’s provincial service delivery units.

The Government and donors have committed to improving aid effectiveness through the

Paris Declaration and meetings are held regularly to discuss issues and to facilitate the flow

of information. Donor activities both through the Government’s core budget and the external

budget are reported to Cabinet and the National Assembly.

To improve public expenditure management, the Government is encouraging more funding

to go through its core budget so increased information is known on donor activities

particularly in the provinces. At the provincial level, the external budget already plays an

important role and that role is expected to increase until provincial budgeting processes are

strengthened.

Donors are often discussing investment projects directly with Governors without consultation

with the Government. As a result, a substantial part of economic assistance to provinces is not

captured by the Government’s accounting and reporting system. In many cases, it makes analysis

of service delivery across provinces impossible given the data gaps both from the donor side and

the Government side (system enhancements are currently in train). For example, in some

provinces the Basic Package of Health Services is implemented by some NGOs financed through

the 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 not

reflect ministries activities. In other cases, aid provided directly to some provinces might increase

disparities. This lack of data quality and access to information is one of the key reasons why the

Parliament recently rejected the budget (based on claims of provincial inequities based on

available information).

2. Overview of the 1385 Pilot Project

2.1. Constraints Analysis

The 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

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 provinces

Pilot ministries were selected on the basis of their impact on the I-ANDS and provincial

development, and their capacity to implementing reforms. Selected pilot ministries were:

Ministry of Rehabilitation and Rural Development, Ministry of Agriculture and Ministry of

Education.

The selection of provinces was made on different criteria: Balkh was selected as an example of a

province with good capacity, Panjshir was selected as an example of a newly established and

impoverished province, and Kandahar was selected as an example of a southern province with

security problems.

2.3. Pilot project design

The pilot was conducted during the 1386 budget preparation process covering the period from

July 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 outcomes

The results of the pilot project were encouraging and have demonstrated that the improvement of

engagement 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

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 impact

The pilot project has made ministries more aware that more needs to be achieved in the provinces

with 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 to

define multi-year geographic priorities based on provincial needs, national priorities and ANDS

benchmarks.

3. Lessons learned

Provincial and Program Budgeting are inherently linked

Experience from the pilot project shows that program budgeting cannot be separated from

provincial budgeting. Programs, defined as activities that have a common policy objective, need

to be implemented in the provinces. Hence, line ministries need to consider the provincial context

when formulating their programs and designing activities for implementation in the provinces.

Program and Provincial Budgeting should be implemented in the wider context of budget

integration

Budget integration requires organization restructure structure to facilitate improved budget

preparation dialogue regarding national priorities and programs that achieve policy targets.

Currently within ministries, two distinctly separate units are responsible for the operating budget

and the development budget with limited consultation and coordination. This situation leads to

the recurrent costs of major donor funded capital expenditures not being identified and, for

example only, schools being built without consideration of Compact benchmarks and the teacher

salary recurrent cost.

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. Provincial

units would be responsible for assisting in the restructuring of provincial directorates, gathering

economic data relevant to the sector, assessing local development needs, monitoring program

activities and program indicators in the provinces, assisting in provincial development plan

preparation and implementation, and providing training and technical assistance.

More institutional clarity is required

The lack of a clear legal framework is a serious impediment to provincial budgeting. Role and

responsibilities of the Governors, Provincial Councils and the Provincial Development

Committees 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 their

activities provided in the Government’s budget documentation submitted to Parliament.

Without effective governance structures and clear sub-national legislation, economic

development at the provincial level will remain seriously impeded. It is recommended that an

analysis of the current policy and legislative framework should be initiated as soon as possible

and options presented to Government.

The large number of provinces is a concern for effective planning and budgeting. Many activities

such as irrigation, water and natural resource management, transport, electricity distribution,

environment, etc., require cooperation and coordination between provinces. Discussions should

be held on whether a supra-provincial entity should be created such as “regions” or a “Regional

Council of Governors” to coordinate such activities.

Information from donors on provincial activities needs to be improved

At the moment, Ministry of Finance has limited information on provincial activities undertaken

by donors under the External Budget (except from USAID and EC who have provided extensive

information in tight timeframes). Also, it currently has no information on projects funded

through PRTs (except from USAID) and other military organizations and how much funding is

channeled through them. Although initially PRT funds were earmarked for small development

projects at the local level, some PRTs have started to fund larger infrastructure projects at the

Governors’ request. This approach to expenditure management runs the risk of setting up ‘slush

funds’ for the use of Governors that have no connection to national priorities and programs. In

addition, no information is made available on the use of this funding so the impact on provincial

development cannot be measured.

PRT representatives are already observers in PDC meetings, but their activities are not reported at

the central level either to line-ministries or to the Ministry of Finance. PRT activities in the

provinces often amount to a parallel budget controlled by the Governors, which undermines the

authority of the Government and leads to ineffective public expenditure management decisions. If

PRT activities are included in PDPs this may offer an opportunity to integrate PRT activities in

the overall Government’s national development strategy.

If the Government and donors are to meet the development needs of the country, aid coordination

should be done in accordance with the Paris Declaration and in addition could be based on a

number of principles:

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 ensure

Government 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 could

lead to confusion especially in light that present plans are unrealistic and have the impact of

raising expectations of the population.

More effort is needed to: define the objectives of provincial planning; establish a common format

and methodology; ensure line-ministry leadership; and provide capacity building technical

assistance 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 of

leadership and coordination. Project/program prioritization should be made within a realistic

resource envelope within the fiscal parameters of the Government (i.e. top down approach).

Future financing mechanisms should be considered once capacity is built

There are plans to provide the provincial allocations of the national budget for both the operating

and 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 the

province (not just the operating budget as currently is the case).

Current procedures also need to be reviewed. All provincial directors complained about the

difficulty to access funds through the Mostofiats. Disbursement procedures should be reviewed

and the reform of budget execution must become part of the Mostofiats Reform Project with the

support of the Treasury and Budget Departments.

Information to the Parliament on provincial allocations and expenditures should be improved

The Aid Coordination Unit of the Ministry of Finance will continue to work with donors to

improve the level of information and reporting of provincial activities in the core and external

budget. Donors should provide a disaggregation of their financial assistance by province.

Modifications to the accounting system of the Government (AFMIS) and the budget preparation

and aid tracking software (Donor Assistance Database or DAD) need to be made to ensure the

accurate capturing of proposed provincial allocations and expenditures. Currently, the coding of

many 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 budgeting

Budget integration, program budgeting and provincial development planning processes will

add additional fiscal pressures on the national budget. This needs to be considered in the

context of IMF benchmarks that restrict the flexibility of the Government to increase its operating

budget above certain levels, in line with fiscal sustainability targets.

However, the main cost will be in the development budget required for improving Government

service delivery at the provincial level. Once sector strategies are developed and programs

identified to ensure the Compact and ANDS benchmarks are met, these programs will need to be

costed and sequenced over the medium term in line with government and donor revenue

availability. As part of this process, transparent reporting of the rationale behind the provincial

allocation of the annual budget over the medium term will need to be undertaken.

5. Future MoF plans for Provincial Budgeting Pilot

For 1386, MoF is considering increasing the number of Ministries piloting program budgeting

from 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 Finance

These 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 thee

pilot ministries will prepare their 1387 budgets according to an improved procedure that will give

more time for consultation with the provinces.

Rather than moving all ministries already on program budgeting to provincial budgeting, MoF

will require those ministries to focus on budget integration and implementation of program

budgeting in the provinces. A dedicated provincial unit will be created in those selected ministries

as part of the new organization put in place under budget integration.

6. Conclusion and Recommendations

Although, 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 assemblies

In 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 Coordination

Unit. The objective is to provide complete information on funding to the provinces and to

improve project prioritization according to Government’s guidelines.

IV. CAPACITY BUILDING

1. Lack of capacity of the provincial administrations

Provincial 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 the

provincial governors and the provincial councils is ambiguous in regard to the overall

coordination and supervision of the work of the provincial departments of line ministries. This

further 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 needed

The Ministry of Finance and the ANDS understand that “the National Capacity Development

Strategy for the Common Function” provide the necessary umbrella for developing a capacity

building plan that will aim at strengthening the planning, budgeting and implementation process

required for improving the delivery of public services at the sub-national level and accelerating

economic 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 for

financial 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 Offices

The question of including Municipalities in the Capacity Development Plan could be discussed

during the ADF or at a latter stage.

The Ministry of Finance will need to put in place a complete team at the central level to analyze

PDPs, allocate provincial ceilings, identify funding gaps, monitor line-ministries program, and

coordinate budget implementation with line-ministries. Additionally, Mostofiyat will have to

recruit additional staff to contribute more efficiently to budget discussion and budget

implementations. Budget execution bottlenecks will need to be identified and remedied.

Line Ministries will need additional capacity to put in place budget integration and program

budgeting. Additional staff will need to be recruited to create a Finance Department and to

manage programs.

Ministries will need to restructure their provincial directorate to improve service delivery and to

align their structure on the program structure. Additional staff will need to be recruited for

program 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 Service

Commission plan Governors’ offices will include a Monitoring & Evaluation Unit, a Donor

Relations Unit and a Policy and Program Units providing outreach services to the

districts and municipalities.

V. PRE-ADF WORKING GROUPS RECOMMENDATIONS

Prior 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 groups

that have been meeting on the following themes:

-Provincial budgeting financing model and aid coordination

-Institutional clarity, capacity building and technical assistance

-Provincial planning strategy

The three conferences have been well attended with all majors stakeholders represented, included

USAID, DfID, CIDA, JICA, ADB, UNAMA and UNDP on the donor side, representatives of the

provinces 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 notes

taken 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-ADF

Working Groups do not represent the official position of the Government of Afghanistan, nether

the 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...

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-ministerial

committee 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.

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

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.