With a budget that is 90% externally funded, Afghanistan and its donor community face a dilemma that is critical to the country’s sustained development: how to channel more foreign assistance through the government’s budget effectively in the face of a huge gap to ensure effective administration.
Overall aid in 2008/09 amounted to $5.5 billion or 47% of GDP. The critical issue is the weaknesses in its mode of delivery and impact. Three quarters of the aid bypasses the government’s own budget system, moving through what is known as the “external budget.”
Four major challenges must be addressed to enable more “external” budget expenditures to be shifted to the core budget:
1. Improve Fiscal Sustainability
2. Increase Execution Rates of Budget Expenditures
3. Streamline and Better Align the Budget
4. Improve Governance of Public Expenditures
The Bank has released five working papers on the subject: