Fiscal and Economic Reforms

GOALS
Fiscal reforms over the past four years can be categorized into three sections:
  1. Improving the performance of government investments, leading to better economic outcomes and alignment of national priorities with public resources.
  2. Ensuring that the budget is more accurate, transparent and free of corruption
  3. Investments to build the capacity of the state to manage reforms, by investing in human resources, administration, finance, IT and communications across the Ministries, starting with the Ministry of Finance
OVERALL PROGRESS
Achieved (4/6): 67.0 %Achieved (4/6): 67.0 %partially achieved and ongoing (1/6): 17.0 % partially achieved and ongoing (1/6): 17.0 %Not achieved (1/6): 16.0 Not achieved (1/6): 16.0 %Achieved (4/6) Percentage: 67.0

1. DELIVERABLES
DELIVERABLES
– Deliver average growth of 5 percent per year until 2020
 PROGRESS: – Not achieved. Actual economic growth has marginally increased each year, but not reached 5%.
Values in 5 Percent Actual Growth Projected Growth2020 (1399)2019 (1398)2018 (1397)2017 (1396)2016 (1395)2015 (1394)00.511.522.533.544.55

– Increase development budget expenditures by 10-15 percent each year as we expand delivery of education and health services in the medium-term

PROGRESS: – Achieved. For the first time in the last decade, development expenditures have risen each year steadily close to projected rates, with an increase in 23% percentage points from 2014 to 2017. In 2018, the development expenditures were at 86%, a significant increase from previous years.
Values in 100 Percent Development budget expenditure (percentage spent) 2018 (1397)2017 (1396)2016 (1395)2015 (1394)2014 (1393)01020304050607080901002017 (1396)● Development budget expenditure (percentage spent): 64%

– Grow domestic revenue by up to 12 percent annually, with the overarching goal of having domestic revenues account for 14 percent of the GDP

PROGRESS: – Achieved. Revenue collection increased steadily each year, exceeding projected annual growth rates of 12 % (Source: National Budget Fiscal Year 1397) All targets set by the International Monetary Fund have been met, and in December 2018, the IMF agreed to extend the extended credit facility program until December 2019. Read the IMF reviews below:
  • First review under the IMF extended credit facility arrangement, May 2017
  • Second review under the IMF extended credit facility arrangement, December 2017
  • Third review under the IMF extended credit facility arrangement, March 2018
  • Fourth review under the IMF extended credit facility arrangement, December 2018
Further fiscal targets achieved in 2017:
  • Net International Reserve was targeted to remain at $6,548.7 billion in 2017, which was achieved
  • Inflation was targeted to remain as a single digit for 2017, and it remained below 5 percent
  • Maintaining a minimum cash balance of 10 billion Afghanis in the Treasury Single Account was a goal, which was achieved and exceeded in 2018 by 24.5 billion Afghanis. This serves as a buffer against fiscal shortfalls.
  • The current public debt is at only 6 percent of the GDP, which is significantly lower than the debt level of other similar countries.
Actual revenue collection (AFG) each year Values in 100 percent Actual percentage increase Percentage of GDP in 2018 (1397) : 181 billion in 2017 (1396) : 169 billion in 2016 (1395) : 147 billion in 2015 (1394) : 122 billion0102030405060708090100in 2017 (1396) : 169 billion● Actual percentage increase: 20 %● Percentage of GDP: 11.9 %

– We will work towards a consolidated national budget by 2019
“The goal of major budget reforms for 2018 has been “to disclose issues, create a debate on constraining expenditure, and do some fixing” says Deputy Minister of Finance Khaled Payenda.

PROGRESS: – Achieved. The National Unity Government prepared a consolidated national budget for 2018 (1397) that was passed by the Parliament in March 2018, completing this target one year ahead of schedule. Below are some of the key reforms, which increased accountability and transparency and cut corruption:
  • The 2018/1397 budget is more detailed and now meets international standards. A Government Finance Statistics (GFS)based budget provides policy-makers and analysts with valuable information for better decision-making, details on financial operations and financial position of the Government, better comparability of budget, and better accountability and transparency.
  • The operating and development budgets are now presented by economic classification, function and geographical split.
  • Detailed budget statements for each ministry are presented, organized by province, program and project.
  • A statement on Fiscal Risks, Contingent Liabilities and Assets has been included for the first time, disclosing risks that are not incorporated into forward estimates.
  • This statement includes a number of disclosures on risks to the budget that are not incorporated into the forward estimates. To increase reliability and credibility, the budget was prepared based on the “use it or lose it” principle, which allows allocations to be made based on the executing capacity demonstrated by a government body. It also allows funds to be shifted from poor to well performing projects.
  • Both operating and development budgets are presented in Afghanis, making it easier to adjust fiscal variation against the US dollar over the year.
  • Detailed historic budgetary information is now disclosed for sound comparison and better decision making.
  • Detailed disclosures by administrative.

heads and provinces.– We will supplement the current medium-term fiscal framework with a simplified medium-term budget and expenditure framework that sets out the estimated cost of government policy over four years

 PROGRESS: – Achieved. A medium-term fiscal framework was introduced in the 2017 (1396) budget, and the 2018 (1397) budget includes a detailed forward estimate for the next 4 years as well. These forward estimates provide the first ever comprehensive picture of the current cost of existing government policy within existing budget constraints. They form the base funding for ministries and spending units, not only for 2018 (1397), but also for the next 3 years. This means that if there is no change in policy by the government, a ministry or government agency need not seek approval each year for these activities. To read the Fiscal Strategy Paper for Medium Term Fiscal Framework for 2017, visit this link.

“After initial reforms to the national budget, the Open Budget Index gave Afghanistan’s 2017 national budget a score of 49 out of 100, higher than the global average score of 42. Afghanistan was also ranked as having the second most transparent budget in the region, following Nepal. That ranking is expected to vastly increase when the newly reformed 2018 budget is assessed.”
 PROGRESS: – Partially achieved and on-going. The goal has been to use public funds in a more efficient and focused way that directly aligns with national priorities as outlined in the ANPDF and National Priority Programs. For the 2018 budget, the Ministry of Finance took initial steps to align policy objectives with budgeting by including the Ministry of Finance’s Policy Department and the Macro-Fiscal Performance Directorate (MFPD) in the budget hearing sessions. The Policy Department, the Budget Directorate, the Aid Management Directorate (AMD) and MFPD are working together to develop a more effective approach for prioritization, savings and expenditures for the 2018 mid-year review. Currently, the main increases in spending in 2018 budget are in security, infrastructure and education. The full first phase of the Citizen’s Charter is reflected in the budget and forward estimates.

2. Moving forward
  • Maintaining the budget balance is a continuous effort, which has been carefully followed throughout the year. The current level of 2018 budget deficit is maintained close to zero, which is low compared to budget deficits of other similar countries. The budget deficit at the moment is about 1.1 percent of the GDP, but it needs to be brought further down to a sustainable level. It was agreed with the IMF during the March 2018 mission to reduce the deficit to around 0.4 percent of the GDP, as part of the mid-year review of 2018 Budget.
  • The second phase of the budget reform process will commence in the first half of 1397 (2018). It will be implemented over the next year. After the initial budget reforms phase brought increased transparency, accountability and credibility to the budget, the second phase of reforms will 1) find efficiency savings in the operating budget and 2) allocate more resources to high performing development programs.
  • By the beginning of 2019, the government expects further reforms to the budget process to clearly establish the cost of current policy, including cost estimates for operations and maintenance. Over the course of the next few budget cycles, this reformed process will help to align all expenditure financed by domestic revenue and development assistance to national priorities, including by reallocating funds in the annual budget. Ongoing enhancements to the budget cycle will improve the effectiveness of the budget and the ability of the government to deliver tangible results across the country.