Pacific Money | Politics | South Asia

Afghanistan Breaks Down Its Ministry of Finance

The attempt at reform is another step in the wrong direction.

By Ibrahim Khan Jabarkhail for
Afghanistan Breaks Down Its Ministry of Finance
Credit: RFE/RL

Afghanistan’s Ministry of Finance, one of the most important ministries in the country, will now be fragmented into three independent agencies. There are concerns over the proposed division of the Ministry of Finance, particularly to what extent the new agencies will act “independently.”

The decision to break up the Ministry of Finance (MoF) was made official when President Ashraf Ghani issued a decree on February 19, 2020. The core departments of the Ministry of Finance – revenues, customs, and treasury and budget – will be established as three independent agencies, which will report directly to the president’s office. This decision would make these agencies vulnerable to political influence from the president since they will be controlled by the office of the president, weakening their accountability to Afghanistan’s parliament.

Civil society and other key stakeholders were not consulted prior to the decision. Plus, amid a political standoff between Ghani and former chief executive officer, Abdullah Abdullah, who proclaimed himself as the winner of the 2019 presidential election, the United States has threatened to withdraw $1 billion in aid money. That will add further pressure to the situation.

The Ministry of Finance (MoF) is a vital government institution because it is responsible for the collection of revenues, managing annual fiscal expenditure, and paying salaries to public workers, including teachers and security forces. International donors, such as the World Bank, have been spending their aid money using the channels placed in the Ministry of Finance As a result, the ministry has gained the trust of donors.

The MoF has had problems with the management of annual budgets as well as interference by the parliament in the budgetary process. The public has also read reports of the ministry’s inefficiency in managing funds during the fiscal year. However, these discrepancies could have been addressed without taking the core functions of this ministry and removing them to the office of the president. Bringing the core functions of the MoF under the president’s office without parliamentary oversight is a grave concern for Afghanistan’s checks and balances. Moreover, taking the core functions from the Ministry of Finance can also harm the donor coordination efforts.

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The current structure of the Ministry of Finance consists of deputy ministries for finance, administration, policy, and revenues. The proposed new structure will constitute three independent agencies — revenues, customs, treasury and budget — and the Ministry of Finance will only act as a regulator and provider of administrative support.

It may seem positive that revenue and customs will now be operated independently, but that does not mean that revenue will be more transparently collected. The proposed revenue agency that would work under the president’s office will be vulnerable to manipulation, leakages, and improper utilization and allocation of revenues. There are media reports that the collection of revenue has been previously influenced, as seen by interventions into the functions of the central bank and telecom sector.

According to the Open Budget Survey 2017, conducted by the International Budget Partnership, Afghanistan’s score in terms of budget oversight from the parliament was weak. This would further deteriorate the already weak accountability of the Ministry of Finance to the parliament and people. Afghanistan’s score when it comes to providing the public with opportunities to be involved in the budgeting process is as low as 15/100 in the Open Budget Survey. The failure to consult the public and key stakeholders in civil society legitimizes the country’s low score in the 2017 survey.

Furthermore, the decision of breaking down the Ministry of Finance seems to have been made hastily and without a long-term perspective, raising questions as to what factors are behind the dismembering of the ministry.

The economic outlook of Afghanistan looks bleak amid the coronavirus outbreak, which the country is ill-equipped to respond to. The threatened cut of $1 billion in U.S. aid also contributes to the worsening economic outlook. In these times of crisis, restructuring the Ministry of Finance is not a timely decision. The utilization of funds in the fight against the coronavirus will inevitably be affected. The government has shown the intention to save money in the defense sector, but with no clear plans or mechanisms.  During all this economic and financial crisis, it is too hasty to bring such drastic changes to the structure of the Ministry of Finance.

Keeping in view the aforesaid facts, the government should reconsider its decision of dismantling the MoF. Such a decision should be made in the public interest. The government should hold consultations with the key stakeholders in the financial sector, including civil society, before making such wide-ranging changes.

Ibrahim Khan Jabarkhail works as a Public Financial Management Advocacy Officer with Integrity Watch Afghanistan. He advocates for transparency, accountability, and citizen engagement in the public finance sector of Afghanistan.