Afghanistan
Reforms in Budget Preparation
Budget Department, Ministry of Finance
January, 2012
Basic Principles of Effective PFM
FISCAL SUSTAINABILITY
Taking into account fiscal
pressures and ensure we can
afford budget in the medium
term
OPERATIONAL
EFFICIENCY
ALLOCATIVE
EFFICIENCY
Budget ceilings are
linked to the actual
services to be delivered
by the government
Funds are allocated to
the highest strategic
priorities
Budget Preparation: A Two Way Process
Top-down (MoF and Government):
• Calculates overall available resources
• Select policy priorities & set ceilings
National Budget
Bottom-up (Line Ministries):
• Develop programs, service delivery targets and costings
Bottom-up (Provincial Departments):
• Develop activities that address specific provincial needs with the
programs
Afghanistan’s Approach is ‘Program Budgeting’, which is
International Best Practice
Strategy/NPPs
Budget
Formulation
Process
Money Allocated to
Strategy
• The budget process allocates financial resources to the Government
strategy / policy (ANDS and National Priority Programs, PRSP)
• Money is allocated for the medium-term (3 years)
• Line ministries must define (and report against) what results will be
achieved
Program Budget as a Key Reform
• The most important change has been the introduction of
program budgeting.
• Program budgeting presents budget requests by program,
linking :
each program
policy objectives
output targets
budget is linked to the services to be delivered over the next years
• The end result is a budget which focuses on the delivery of
defined outputs rather than a focus on financial inputs.
Achievements
• Considerable efforts have been made in recent years to
improve the quality and effectiveness of the budget process.
• Mechanisms:
1. Medium-Term Budget Framework (MTBF) or ‘Pre-Budget
Statement’ – for setting budget priorities to be funded
from the existing fiscal envelope (available resources)
• ensures essential budget policies are sustainable;
• identifies desirable policy changes
2. National Budget – for detailed budget costing and
provinical allocation
• ensures budget is cost effective
Budget Process: Overview
– linking strategy, budget and service delivery Budget Circular 2 is the
instruction to prepare detailed
costs and outputs, within budget
ceilings
Budget Circular 1 is the
instruction to submit estimated
costs for baseline programs and
any new proposed initiatives
Baseline
program costs
and new
initiatives
Line Ministry
results
frameworks
& NPPs
Programs
Programs
Outcomes
Expenditure (Prg)
Program costs
Program costs
(baseline and new)
Outputs
Activities & Outputs
Expenditure (Opt)
Detailed costs
Performance
monitoring
Detailed
budgets
Outcomes
MTBF, donor
commitments
and budget
ceilings
Outputs
Benefits of the New Approach
Main benefits of the new approach include:
– Implements ANDS/NPPs - links ministry objectives and priorities to
budget
– Enables effective prioritization/budget allocation - gives better
information on benefits and costs of plans (using Cluster
mechanism).
– Enables more effective and efficient delivery of services – focues on
what outputs will be produced with the allocated money
– Integrates ordinary and development budgets - captures full
recurrent cost implications of new investment projects.
– Attracts funds from the External to Core budget - satisfies donors
own accountability pressures by showing links between national
priorities, budget allocations and actual results.
The National Budget Formulation
Process
Ministries define
spending
priorities
Ministry of
Finance creates
the MTBF
February
June
Ministries create
detailed budgets
Parliament
approves the
National Budget
Ministry of
Finance creates
the Citizens’
Budget
July
November
December