KABUL, JANUARY 28, 2018— HE Eklil Hakimi, Minister of Finance and Shubham Chaudhuri, World Bank Country Director for Afghanistan in presence of HE Mohammad Ashraf Ghani, President of Afghanistan and High Economic Council members today signed an agreement under which a $100 million grant will be provided for the Fiscal Performance Improvement Support Project (FSP) in ARG. The FSP is designed to improve management of Afghanistan’s public finances by strengthening the capacity of the core government agencies involved, including Ministry of Finance, National Procurement Authority and Supreme Audit Office.
The financing includes a $25 million grant from the International Development Association (IDA), the World Bank Group’s fund for the poorest countries, and a $75 million grant from the Afghanistan Reconstruction Trust Fund (ARTF), managed by the World Bank on behalf of 34 donors. It will result in improving development budget execution, increasing revenue collection, and strengthening government capacity to perform more efficiently and effectively.
“Afghanistan has made significant progress in establishing a functional Public Financial Management (PFM) system that has contributed to increasing revenues from about $130 million in 2002 to more than $2.1 billion in 2016,” said HE Eklil Hakimi, Finance Minister of the Islamic Republic of Afghanistan. “This system is supported under the Public Finance and Expenditure Management Law and Public Procurement Law which have helped the implementation of new reforms in public financial management system as a whole. These reforms have increased transparency, accountability, budget credibility, improved tax and customs administration and better cash management.”
However, despite maintaining aggregate fiscal discipline, Afghanistan’s PFM systems are not fully developed to ensure strategic allocation of resources and efficient service delivery. Challenges still remain in several areas, including budget execution, improving revenue collection, and government capacity to build accountability, fight corruption, and attract private sector investment.
“Today’s signing reaffirms the World Bank Group’s commitment to support the Government of Afghanistan’s development and reform agenda,” said Shubham Chaudhuri, World Bank Country Director for Afghanistan. “We commend the government’s determination to build upon progress to date in several areas, including public financial management, institutional reforms, and revenue generation.”
The Fiscal Performance Improvement Support Project constitutes the implementation arm of the Government of Afghanistan’s Fiscal Performance Improvement Plan (FPIP), an ambitious and comprehensive reform program that covers the whole breadth of public financial management. The FPIP spans the Ministry of Finance, National Procurement Authority, and Supreme Audit Office, and the FSP will provide critical inputs in the form of upfront investments drawn directly from FPIP work plans.
The project is organized around four complementary investment components:
- Budget as a tool for development, which aims to increase budget credibility by improving the efficiency of budget processes, realistic budget estimation and costing, linking budget with policy and introducing medium-term budgeting.
- Revenue mobilization, which aims to strengthen capacities of various revenue administration departments to increase tax compliance and facilitate timely filing and payment. It further aims to enhance the government’s capacity to effectively regulate the minerals and hydrocarbon resources sector.
- Treasury management, accountability, and transparency, which aims to consolidate basic core PFM functions to underpin more ambitious aspects of planned PFM and budget reforms.
- Institutional capacity building and performance management, which aims to build the capacity of Ministry of Finance staff and the requisite systems for effective functioning of the ministry, and to reinforce overall performance management and coordination of the Fiscal Performance Improvement Plan.