Improving Afghanistan’s Public Finances in 2017–2019: Raising Revenue and Reforming the Budget
The Afghan government has recently embarked on important reforms to the national budget, embodied in the 2018 budget approved by Parliament early this year. This budget sets in motion an envisaged two-year reform process to achieve greater overall transparency, better development programming, and reduced corruption. The third in a series on Afghanistan’s public finances, this report updates revenue performance in 2017 and assesses the new budgetary reforms, how the draft budget fared in Parliament, the outcome, and next steps and prospects for the reforms.
Summary
- Following strong recovery and rapid growth in 2015 and 2016, Afghanistan's government revenue continued to increase robustly in 2017--by nearly 14 percent on a comparable basis.
- Although this rapid growth has more than offset the hemorrhage of revenue that occurred in 2013 and 2014 around the last presidential election and its problematic aftermath, receipts still fall short of Afghanistan's enormous expenditures, especially for the country's large and expensive security forces. Afghanistan will thus remain highly aid dependent for the foreseeable future.
- Since late 2017, the Ministry of Finance's focus has shifted to expenditures; the recently approved national budget for the Afghan fiscal year 1397 (2018) embodies significant and promising reforms.
- The bargaining and delays in finalizing and gaining parliamentary approval for the 2018 budget resulted in only limited watering-down of its realism, about $200 million (Afs 13.6 billion) in projects being added to ministries' budgets and to satisfy demands from parliamentarians. The degree of realism remains far greater than in earlier years, and the reforms in budget processes introduced have been retained.
- However, the budget represents just the beginning of a two-year reform process. In particular, the 2018 midyear budget review is envisaged as a major milestone where prioritization and accountability for spending (and for inability to spend) will be enforced. The 2019 budget would fully implement the budgetary reforms initiated in 2018. This timetable will be especially challenging given that reforms are to be implemented in the shadow of upcoming elections, including parliamentary elections (whether held in 2018, as currently scheduled, or in 2019) and especially the next presidential election.
About the Report
The third in a series of publications on Afghanistan’s public finances, reflecting continuing collaboration between staff of Afghanistan’s Ministry of Finance and the US Institute of Peace (USIP), this report, in addition to updating on revenue performance in 2017, assesses the new budgetary reforms, how the draft budget fared in Parliament, the outcome, and next steps and prospects for the reforms.
About the Authors
William A. Byrd is a senior expert at USIP and Shah Zaman Farahi is an economist in the Ministry of Finance, Government of Afghanistan. The authors have been closely engaged in work on budgetary and public finance management issues for a number of years. Comments from M. Khalid Payenda, Zahid Hamdard, Asmar Amir, Sayed Ahmad Naseer, Shahmahmood Miakhel, and Belquis Ahmadi are gratefully acknowledged. The views expressed in this report are the authors’ and should not be attributed to the Ministry of Finance, Government of Afghanistan, or to USIP.
