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New ARTF Grant Aims to Drive More Donor Funding To National Budget Through Improved Public Financial Management System

August 9, 2011

Kabul, August 09, 2011 – The Afghanistan Ministry of Finance and the World Bank, on behalf of the Afghanistan Reconstruction Trust Fund (ARTF), today signed a $60 million grant for the Second Public Financial Management Reform Project. The grant aims to further strengthen the country’s public financial management systems in line with sound financial management standards, enabling donors to confidently channel more official development assistance through Afghanistan’s national budget. The grant will support the implementation of the government’s Public Finance Management Roadmap and national priority program.

Since the start of the reconstruction effort in 2002, the Ministry of Finance has made significant progress in establishing a well-functioning public financial management (PFM) system effective across the Afghan government. This progress, including the establishment of the legal framework in the Public Finance and Expenditure Management Law and Public Procurement Law, has secured the implementation of an annual government budget, funded by domestic revenues and international assistance.

The new ARTF project builds on a series of World Bank’s International Development Association (IDA) operations and bilateral donor technical assistance projects that have supported the progress in PFM to date. Since 2007, the World Bank has committed $60.4 million towards this effort, and in particular towards direct operational support to the Treasury of the Ministry of Finance, the Afghanistan Reconstruction and Development Services (ARDS) for public sector procurement management, and the Control and Audit office (CAO) for carrying out external audits for all IDA and ARTF funded operations in Afghanistan.

“Building trust and confidence in the government’s public financial management systems has been a critical priority for our approach to state-building in Afghanistan,” said HE Omar Zakhilwal, Minister of Finance, Islamic Republic of Afghanistan. “While we have made significant progress over the past years, we are aware that challenges remain. The government remains committed to its reform agenda and to further increase the effectiveness and transparency of public spending in Afghanistan.”

A new area of emphasis of the Second Public Financial Management Reform Project is to develop systems and build skills in the civil service of the line ministries in procurement and financial management both in head quarters and in the provincial directorates. The project aims to help government to:

  • Encourage donors to shift 20 percent of their off-budget official development assistance to Afghanistan through the government’s budget
  • Extend internal audit coverage, done to professional standards, to 75 percent of the budget operations
  • Effect external audit coverage of an acceptable standard to 75 percent of the budget operations
  • Increase the numbers of regular ministry staff performing functions previously carried out by contractual staff

“The Government of Afghanistan deserves recognition and appreciation for the encouraging achievements it has made in public financial management systems over the past several years,” said Nicholas Krafft, World Bank Country Director for Afghanistan. “As part of the transition over the coming years, more international aid needs to be channeled through the core government budget, strengthening the government’s ability to use the budget as the primary tool for implementing national policy.”

Currently, 58.3 percent of the SY1390 (2011/2012) national budget is externally financed. From 2010 to 2011, military spending was estimated at more than $100 billion, while spending on aid could be as high as $15.4 billion. Nearly two-thirds of international aid still bypasses the core budget, moving through what is known as the “external budget”. This dual budgetary system means that most economic activity in Afghanistan takes place outside the government’s fiscal control, which weakens the government’s ability to build its legitimacy and relevance to the Afghan people.

The project will continue to be implemented through the Ministry of Finance, the Ministry of Economy’s ARDS and the Central Audit Office over a period of three years.

Background information on the Afghanistan Reconstruction Trust Fund (ARTF):

The World Bank administers the ARTF on behalf of donors.  The ARTF is a partnership between the international community and the Afghan government to improve the effectiveness of the reconstruction effort. Since early 2002, 32 donors have contributed over $4.3 billion to the fund, making ARTF the largest contributor to the Afghan budget – for both operating costs and development programs. ARTF’s support for national priority programs, for operating costs of government operations, and for the policy reform agenda is contributing to the achievement of the Afghanistan National Development Strategy’s goals.

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