In Afghanistan, where corruption and ineffective government have hampered efforts to build a functioning state, the Ministry of Finance has been a standout performer. Competently run since as early as 2002, the ministry collects substantial revenue, manages aid inflows, pays public employees, funds key public services and has won the confidence of donors. Now, all that is threatened. The Afghan government is eviscerating the ministry—carving out key constituent parts, putting them directly under the presidential palace, and gravely weakening one of the country’s most effective institutions. It’s a move that’s bad for Afghanistan’s governance and financial viability. It will harm the country’s development and jeopardizes the sustainability of peace if an agreement is reached with the Taliban.
The ministry’s dismemberment began on February 19 when—amid the ongoing dispute over the results of the presidential election—President Ashraf Ghani issued a decree instituting major changes in its administrative structure and reporting arrangements.
Under this order, three core functional areas of the Ministry of Finance (MoF)—revenue, customs, and treasury and budget—are to be carved out as independent units, reporting directly to the President’s Office (via the Administrative Affairs Office of the President), completely bypassing the minister of finance and deputy minister. In these critical functions, MoF will be relegated to providing administrative and logistical support, with no supervisory authority and presumably no accountability. Instead, an unclearly defined “advisory board,” probably located in the palace and led by a senior presidential advisor, will be in charge, likely with direct oversight by the president.
The rationale given in the decree is that these changes will promote “effective management and transparency in finance and budgeting.” But it is entirely unclear how this centralization and fragmentation—and involving the president and his office so directly—would achieve these objectives. On the contrary, it risks politicizing key fiscal functions and weakens accountability. The fragmentation of core fiscal functions risks undermining budget coherence and smooth, effective fiscal management. Moreover, putting key revenue collection functions directly under presidential authority risks centralizing—not curbing—corruption, with associated revenue losses.
Aside from these negative effects, now is a terrible time to implement such a drastic restructuring.
Afghanistan is in the midst of multiple crises: the presidential election whose outcome continues to be disputed; the U.S.-Taliban agreement with concerns about whether it will be implemented and how the peace process will move forward; continuing violent conflict and incidents perpetrated by the protagonists and/or other spoilers; and not least the coronavirus pandemic which could ravage Afghanistan, a country particularly ill-equipped to cope with it.
Moreover, given the timing and the lack of prior consultation with anyone, this move inevitably gives rise to suspicions about its motivation. For example, is it intended sidestep ministerial accountability to parliament, which has been critical of the acting finance minister for not showing up at mandated parliamentary hearings and for not answering questions, among other issues?
Jeopardizing a Premier Government Institution
MoF plays a linchpin role in Afghanistan’s public sector. It raises well over $2 billion in government revenues annually; mobilizes and manages close to $3 billion of on-budget international aid per year; pays the salaries of some 400,000 Afghan civil servants (including more than 200,000 teachers) and over 300,000 soldiers and police; and is responsible for budgeting, spending, and accounting for the annual national budget of more than $5 billion. It is a critical hub of the government, interacting with other ministries, parliament, aid donors, international institutions, audit agencies, and the private sector as well as the Afghan people. MoF pays for and financially oversees delivery of key services—directly in the case of education, and indirectly in the case of basic public health.
Going back to 2002, when President Ghani became finance minister during the formative first two and a half years of the post-Taliban government, MoF established itself as one of a handful of effective and credible Afghan government institutions. It progressively built its own capacity, reducing, and over time virtually eliminating, dependence on foreign advisers. It put in place the building blocks of sound public financial management, and developed a cadre of qualified technical and managerial persons to staff the ministry—providing a depth of talent and a reservoir of effective managers to take on leadership roles.
Necessity was the mother of invention, since a functioning, effective, and credible MoF was sine qua non for donors to channel large amounts of their aid through the Afghan budget (contrary to traditional bilateral aid practices). MoF has been remarkably successful in attracting international support for the Afghan government budget, cumulating to tens of billions of dollars since 2002. Its success was based on its credible commitment that funds are spent for authorized purposes, losses and leakages contained, and revenues increased to cover a rising proportion of public expenditures. While there were certainly ups and downs, MoF by and large sustained its capacity, effectiveness, and credibility until recently.
Starting with the replacement of the finance minister in 2018 and accelerating in 2019, frequent and wholesale changes were made to MoF’s management team, exacerbating the uncertainty and short-termism already manifest during the presidential election period and as U.S.-Taliban negotiations proceeded in fits and starts. The adverse effects have become increasingly evident, most notably in the stagnation of Afghan revenue collection in 2019. The rift over post-peace aid and development strategy that opened up during 2019 is another symptom of worsening problems. These worrisome developments, however significant, pale in comparison with the February 19 decree and the damage it is likely to cause.
Aside from it making no sense from a sound public management perspective to fragment and overcentralize these key fiscal functions, the changes risk politicizing them and undermining accountability, for example of MoF to the Afghan parliament. Like other ministers, the finance minister is supposed to be nominated by the president and confirmed by parliament. But parliament also reviews and approves the national budget and monitors its implementation, including through hearings where the minister and top MoF management are supposed to be held accountable by the legislative body. These channels of normal accountability will become irrelevant under the February 19 changes, with the finance minister and deputy playing only an administrative role and the presidential adviser in charge of the three key MoF functions not being answerable to parliament.
The February 19 decree raises concerns about Afghanistan’s future.
- First, it gravely weakens a critically important and hitherto effective institution essential for keeping the Afghan administrative state afloat.
- Second, it severely undermines MoF’s bureaucratic and political clout as a ministry that defends fiscal priorities and good public financial management.
- Third, revenue collection, which already stagnated in 2019, is likely to become even more challenging, eroding MoF’s credibility and its case that Afghanistan is making progress toward covering more of its public expenditures from its own revenues. Though it could be a reasonable policy option to give revenue collection units more autonomy and separate their staff from the regular civil service—providing appropriate mechanisms to incentivize good behavior and reduce corruption risks—putting these functions directly under the president’s office vitiates any benefits and creates more risks.
- Fourth, such a sudden and manifestly problematic change in MoF will shake the confidence of donors and undermine the case for the continuing the large inflows of international aid that will be needed for some time to come, not least during a possible extended peace process. It will be an uphill battle for Afghanistan to renew current aid pledges that were made at the Brussels international conference in 2016 and reaffirmed at Geneva in 2018 and which expire at the end of this year.
- And finally, a weakened and fragmented MoF would comprise a liability down the road if the peace process moves forward. A broken up MoF as provided for in the decree, with key fiscal functions put directly under presidential authority, could not play a very productive role during an extended peace process or after an agreement. The government at that point (even in a power-sharing arrangement) will need to continue to function and absorb aid. A strong and effective finance ministry would have been a clear benefit in this regard.
All told, these changes threaten the sustainability of peace.
What to Do
Afghanistan simply cannot afford to tinker with and put in danger this core government institution, particularly at this critical time.
The only responsible and effective remedy is to reverse these changes (if they have already been implemented) or stop them (if they have not) by nullifying the February 19 presidential decree.
Afghanistan’s international partners and civil society urgently need to emphasize the gravity of this situation and prevail upon the Afghan government to step back from the brink. If necessary, they should make the decree’s withdrawal a condition on aid both for this year and possibly for future pledges that will be solicited at the next international donor conference for Afghanistan, envisaged for later this year.
Once MoF’s previous organizational structure and authority have been restored, the top priority for MoF will be to put in place and keep a competent, effective, non-corrupt and empowered management team, and stop the frequent counterproductive management changes and other disruptions that have unfortunately characterized MoF for more than a year.