Provincial budgeting policy

Provincial Budget Symposium 18 May 2011

Contents

Background Provincial budgeting policy Satisfying the sub-national planning and finance policy Next steps

Background: extending PFM reform to provinces

The Government has introduced reforms to improve public financial management (PFM), specifically:
Afghanistan Financial Management Information System (AFMIS) (deployment completed in 1389) Program budgeting (1389) Provincial budgetary resource allocation

AFMIS

AFMIS has been implemented in all central ministries, improving MoFs financial management reporting capabilities, especially in terms of accuracy and timeliness of financial reporting. Provincial mustafyats access AFMIS for data entry and reporting Provincial directorates can obtain reports on allotment releases and provincial expenditures from the mustafyat

Program Budgeting aligns resources with priorities

Once implemented, program budgeting will:
Enable effective prioritization and budget allocation Help line ministries better justify their budgets to the Budget Committee Improve accountability to Parliament, Cabinet, the public, and donors about performance in meeting ANDS objectives Reduce, if not eliminate, duplicate projects

Status:
In 1390 (i.e. March 2011), replaced traditional budgeting across all ministries

Next step:
Roll-out program budget to four pilot ministries provincial directorates

Our approach is program budgeting, which is international best practice

Strategy/NPPs

Budget formulation process

Money allocated to strategy

The budget process allocates resources to strategic priorities Operating and development costs are integrated within programs, for a comprehensive fiscal picture Resource allocation has a medium-term horizon Resource allocation is based on outputs, not inputs Costs and outputs are monitored within the same approach

Contents

Background Provincial budgeting: new policy Satisfying the sub-national planning and finance policy Next steps

Provincial budgeting: past, present and future

Increase pilot numbers Build capacity Allocate resources

Increase resources

This pilot is an important stage on the way towards greater discretion over resources by provinces. Future development will be informed by lessons learned

1391 provincial budgeting approach - Objective

The objective of provincial budget policy is to improve service delivery at the provincial level by Improving involvment of the provincial directorates in the budget preparation process Ensuring hte provincial needs are captured and addressed in the national budget

1391 provincial budgeting approach - Highlights

Opportunity for provincial directorates of ministries of Health, Education, MRRD & MAIL to tell central line ministries their needs Using proven national programs (NSP, EQUIP, ...) as the mechanism for delivering provincial needs in line with ANDS $500,000 additional money per ministry per province This approach will allow us to involve provinces in 1391 budget preparation without establishing cumbersome new processes.

Linking national programmes to local priorities

Proposed Implementation
In formulating the 1391 budget, MoF and IDLG will:
Revise budget calendar to give time for communication between the line ministry and provincial directorates Revise BC1 and BC2 instructions and forms to include provincial inputs

Pilot line ministries will include provincial priorities in their BC1 submissions. These will form basis for securing donor funding
Upon securing commitment from donors, MoF will issue budget ceilings, with funds for new priorities at the provincial level. Upon issuing ceilings with BC2, the pilot ministries will work with provincial departments to develop detailed project documents. Integrated BC2 submissions will form basis for project approval

Provincial departments submit their needs to pilot line ministries and MOF seeks donor funding

Provincial departments submit needs based upon clear budget ceilings

Line ministries:
Will receive a fixed total amount budget that is to be spent on activities as defined by provinces, for each of the key national programs In the future, line ministries will decide the criteria by which budget will be allocated across provinces. This formula must be Need made public MRRD logo

Provincial departments:
Request activities that are within the key national programs and budget structure of their line ministry Must request activities that are within the provided budget ceiling

Provincial departments submit needs based upon clear budget ceilings

Ministry of Finance: Identifies resources and allocates overall budget ceilings for each line ministry to dedicate to provincially-defined needs Helps provincial departments understand policy Helps provinces understand what resources are available and allocated to them Encourages donor support to provincial departments Encourages civil society engagement at province level In future, ensures criteria for provincial ceilings is made public

Donor financing for provincial allocation

The majority of development spending is non-discretionary donor financing, limiting money available for allocation to activities defined by provinces. The Government will be working with donors to ensure that:
Donors increase the proportion of discretionary funding Where funding must remain non-discretionary, donors work with pilot line ministries to ensure allocation to the key national programs and with adequate provincial breakdown External budget funding aligned with central ministries policies and specific provincial needs, as defined in the MoF Guidelines for offbudget funding

Contents

Background Provincial budgeting policy Satisfying the sub-national planning and finance policy Next steps

Subnational planning and finance policy: objectives

Policy objectives 1 To strategize provincial planning through provincial strategic plans put provincial planning into a single strategic perspective in relation to the ANDS To enable implementation of a bottom-up provincial planning process ensure that resources made available to subnational levels match the fiscal needs for expenditure functions delegated to subnational level Satisfied? Yes. Provincial submissions must be in line with national program priorities Yes Not yet. Dependent upon securing new donor funding

2 3

IDLG (2010), Sub-national Governance Policy, page 327

Subnational planning and finance policy: objectives

Policy objectives 4 5 To increase the role of subnational actors in subnational planning and finance To increase equity and efficiency in allocation of budget to the provinces To improve the efficiency of service delivery at the subnational level Satisfied? Yes Not yet. Over time a fair funding formula will be developed Yes, over time through increased transparency and accountability Yes

To support other subnational policy reforms

IDLG (2010), Sub-national Governance Policy, page 327

Contents

Background Provincial budgeting policy Satisfying the sub-national planning and finance policy Next steps

Already implemented steps

MoF: Revised Budget Calendar to provide more time for budget submissions

MoF: Developed guidelines and forms for provincial inputs

MoF: Explained process in detailes to pilot line ministries

Line ministries: Issued guidelines and forms for provincial inputs to their provincial departments

Next Steps
Line ministries: Organize provincial training and support preparation of the provincial inputs (see next slide)

MoF: Mobilize donors TA to provincial departments

Line ministries: Collect inputs from provinces to central ministries - by May 30 Line ministires: Integrate inputs into a single submission for MoF - by June 7

MoF: Coordinate with donors by July 17

MoF: Calculate budget ceilings and prepare Pre-Budget Document (MTBF) by August 14

Support to provincial departments (jointly MoF and pilot ministries)

To understand and monitor implementation of the 1390 national budget:
Strategies and program structures of their respective line ministries Budget allocations across provinces

To understand 1391 provincial budgeting process:

Pilot process Budget ceilings by province and ministry

Technical assistance to support:

Response to budget circulars Preparation of good budget submissions

Provincial budgeting: past, present and future

Increase pilot numbers Build capacity Allocate resources

Increase resources

This pilot is an important stage on the way towards greater discretion over resources by provinces. Future development will be informed by lessons learned

Provincial budget approach in the long term

For a mechanism (formula) to set ceilings to be designed, it is necessary to:
Conduct assessment of services delivered at the provincial level; Set the min. standard level of services delivered by the provinces; Collect relevant statistical information; Calculate average cost of service; Develop criteria, norms and formula for budget allocation.

Formula based funding of provinces can only be achieved over the next 3-5 years

Questions?