(MENAFN - Afghanistan Times) Development budget is a source for the government to address 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 effective execution.
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. The fact that the country has been receiving huge sums of international aid, the development budget can help the country cure its economic and social wounds through appropriate allocation and effective execution of development budget. However, the country has only been able to execute only half of its total development budget, on average, since 1386(2005), each year. Despite such poor performance, the issue was never raised seriously. It was in 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 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, there is need to have a critical look at the figures. As per figures released by MoF, the planned development budget for the fiscal year 1394 was 152 billion of which AFN 83 billion was spent, and that for 1395 was AFN 175 billion of which AFN 95 billion spent, giving a percentage of 54 percent each. When we do the same calculation for 1396 for which planned budget was AFN 161 billion of which AFN 102 billion was spent; the execution rate turns out to be 63 percent. As such, claiming 67 percent expenditure is beyond understanding. The truth is that there is only an increase of AFN 7 billion compared to AFN 95 billion last year; an increase of around 7 percent only.
The budget planning and approval process has a political aspect too. After the National Budget was rejected by 136 MPs out 140, the parliament started bargaining with MoF and consequently each parliament member added a project of his own choice resulting in 350 projects of $ 70 million. 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, 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. If we make the adjustment for the forced projects in development budget and consider the 11 months time period to execute annual budget, we can say the MoF has performed much better than it is reflected by the figures.
On the other hand, 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, the 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 donor funded projects every year.
If we keep the total amount 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.
We are in the second week of January and the fiscal year 1397 has already started more than two weeks back, but the budget is waiting to be passed by the parliament. The National Budget was presented to Meshrano Jerga (Upper House) on November 8, 2016 which passed it on November 28. Then it was presented to Wolesi Jirga (Lower House), which rejected it on December 12. The parliamentary elections are around the corner, and there is a high probability that the MP's propose projects in a bid to earn public support as part of election campaign. In wake of these circumstances, it seems that it might take two or three weeks more to be approved. This delay has already held back the payments of salaries to civil servants, security forces, as well as national and international contractors who would be claiming their amount after completion of deliverables. There is already a social media campaign underway requesting the parliament to ensure timely approval of budget. The delay would not only create problems to salary awaiting households but also leave fewer weeks to execute the annual budget.
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
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