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Why Afghanistan Is Caught in a Budget Crisis – Again

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The Pulse | Politics | South Asia

Why Afghanistan Is Caught in a Budget Crisis – Again

Every year, parliament rejects the government budget. That’s because there are serious flaws in the planning and budgeting process.

Why Afghanistan Is Caught in a Budget Crisis – Again

Afghan MPs raise cards to vote on the national budget, Jan. 2021.

Credit: Wolesi Jirga

On top of growing insecurity, pandemic challenges, increasing poverty, and the unclear prospects of peace and stability, the Afghan government yet again failed to pass its national budget. As a direct result, government employees (including teachers and frontline soldiers) have not been paid since December and the operation of ongoing development projects has stopped. The Wolesi Jirga, the lower house of the Afghan National Assembly, on January 16 rejected the Afghan government’s proposed national nudget for the second time. This rejection was based on what the Wolesi Jirga sees as massive misappropriation of the budget, the excessive, unchecked allocation and spending authority of the president, and the unrepresentative and unbalanced nature of the national budget. The government, however, rejects the Wolesi Jirga’s claims, calling them spurious and without merit.

Since 2001, the Wolesi Jirga has annually rejected the national budgets at least once, if not twice. While the current impasse may thus seem like politics as usual for some, it signals serious gaps and flaws in Afghanistan’s planning and budgeting system. In this system, the president has excessive fiscal authorities while local actors – especially the local population – play no meaningful role. As such, the budget rarely represents local needs and preferences. While this year’s budget, like in the years before, will pass sooner or later, Afghanistan and the international donors, who fund more than 50 percent of the country’s budget, must immediately address the existing gaps and flaws in the system. Without a bottom-up and inclusive approach to planning and budgeting, budget controversies will happen again and again, national budgets would not reflect local needs and preferences, and the budget would continue to be a tool for the government to reward its friends and punish its foes.

Afghanistan’s Centralized Fiscal System

Afghanistan has one of the most centralized public finance management systems in the world. This system provides the executive branch – led by the president – with excessive fiscal authorities, which include taxation, planning, budget (formulation, allocation, and execution), monitoring, and evaluation. As far as planning and budgeting are concerned, the role of local administrations is limited: They have a minor planning role and no authority in the formulation, allocation, or implementation of the budget whatsoever. In terms of planning, the local administrations, through district and village councils, collect local needs and preferences and compile them into a Provincial Development Plan (PDP). They then send their PDPs to the central government for consideration. In terms of budgeting, the local administrations only prioritize their needs and preferences through the Budget Circular and again send them to the Ministry of Finance. The role of local administrations and local population ends here. The final local actors are members of parliament (MPs) who are entrusted to approve or reject the draft national budget.

It is the central government – the president and his cabinet – who decide on the allocation and expenditure of public funds. But the MPs have been vocal. Regarding this year’s budget, they have criticized President Ashraf Ghani for removing 13,000 jobs; excluding 1,131 development projects which were advocated for by MPs; creation of new government units without the parliament’s approval; and giving exclusive access to Code 91 (Policy Contingency Funds) and Code 92 (Contingency Funds for Emergency) without accountability. For instance, this year’s budget has allocated almost $39 million for Code 91 and 92, to which only the president has access. Despite the large sum, the president’s office provides no breakdown of this money. Given the consistent criticism, the central government has recently formed a committee to decide on the expenditure of Code 92 funds. However, the committee is appointed by the president and includes the head of the Administrative Office of the President, the deputy minister of finance and a member of the relevant organs that request the funds. Without parliamentary oversight, it is unlikely this committee will remain politically neutral in its decision-making.

The Gaps and Flaws of Afghanistan’s Planning and Budgeting System

Afghanistan’s centralized fiscal system has created huge gaps and flaws in the planning and budgeting processes. The first and foremost is the failure of the central government to incorporate locally prioritized and proposed PDPs. In recent years, the central government has barely funded PDPs: 33.5 percent in 2016-17, 11 percent in 2017-18, 14.2 percent in 2018-2019, and less than 10 percent in 2019-2020. The central government justifies its decision by pointing to the scarcity of the resources and arguing that the PDPs have not been aligned with national development plans. But the central government has also kept the planning and budgeting processes vague through its failure to provide a budget ceiling. Without such a ceiling, the local administrations cannot know how much budget they can expect to receive.

Additionally, we cannot ignore the influence of politics on budget allocation decisions, where the central government tactically approves some development project and ignores others. In this regard, the MPs argue that the central government allocates the national budget in order to gain political support. That is part of the reason MPs and the Afghan people claim that the national budget does not represent their will.

The second, and more important, gap relates to the role of the MPs in the planning and budgeting processes. The MPs enter into the planning and budgeting process in the final stage: the approval of the national budget. They do not have any engagement and connection in the provincial planning process whatsoever. The MPs, who should represent and advocate for local needs and preferences, end up advocating their own development projects, which often conflict with both the PDPS and national development plans. This huge flaw in the system leads the MPs to challenge the national budget each and every year without exception. It is their one and only chance to engage in the process and have an influence.

In this regard, the central government’s claim that MPs pursue their own interests is right, but at the same time, it highlights a systemic issue that the central government has declined to address for a long time. To some extent, it is in the advantage of the government to have a divided parliament, where each member pursues individual interests rather than collective ones. As a common practice, the central government, after each rejection, starts informal negotiations with MPs individually or collectively to convince them to approve the budget. While it could be a good opportunity to advocate local needs and preference, in practice the MPs have their own pet projects in mind. Each year, the government attaches a long list of projects at the end of the national budget documents. The lists represent the MPs’ development projects, which often are not the ones proposed by local administrations.

As far as this year’s budget is concerned, the central government has claimed it will not approve the MPs’ projects in the national budget. If the central government pursues this approach while incorporating PDPs in the national budget, it would encourage allocative efficiency and address local needs and preferences. However, the central government seems to be ignoring requests from both MPs and local administrations as this year’s budget has barely incorporated any project from the PDPs.

Moving Forward: Possible Options

Afghanistan needs immediate actions to reform its planning and budgeting policies. As far as excessive centralization is concerned, the Afghan government must commit to move toward decentralized planning and budgeting authorities. In 2015, Afghanistan pledged to create a “Fiscal Deconcentration Working Group” as part of a “Provincial Budgeting Policy,” but the group gradually stopped its work. The central government must immediately activate that working group and give it the required resources to explore ways to deconcentrate or decentralize the planning and budgeting processes. International donors should not only provide technical support for this working group, but also seriously push toward more bottom-up and inclusive planning and budgeting in Afghanistan. This will prevent wasted international funding and help improve local service delivery to a great extent.

Further, the central government must base its decision-making on the PDPs so as to encourage local participation and efficiency. As elaborated, the central government must provide local administrations with specific budget ceilings and guidelines on national development plans. While the central government plans would improve the lives of Afghan citizens in one way or another, it is better for local people to decide what they want and need. Without this linkage, the central government would not be able to gain the trust and legitimacy it needs. While the central government’s town hall meetings could be helpful, it is better to trust the local administrations to run these meetings. The central government should incorporate these town hall meetings in the current local planning and budgeting processes, which in turn would improve the sense of ownership for the local population.

Finally, preventing an annual budget controversy requires the inclusion and engagement of the MPs in the planning process. The MPs, as the representatives of the Afghan people, must be part of the local planning process. They can play an important role in linking local planning and budgeting to central planning and budgeting. It is not a difficult task: The provincial development committees should include the MPs and approve the provincial development plans with their participation and votes. This has three main advantages: (1) the local population and the MPs would advocate for the same list of local development projects; (2) the planning would effectively link to budgeting, which in turn results in better local participation and allocative efficiency; and (3) the influence of politics would shrink in the budget allocation process.

Mohammad Qadam Shah is assistant professor of global development at the School of Business, Government, and Economics at Seattle Pacific University. His research focuses on political economy of state building, anti-corruption, public administration, and public finance in conflict-affected states. He earned his Ph.D. in law from the University of Washington in 2019. He has also served as faculty member at the Department of Law and Political Science at Balkh University in Mazar-e-Sharif.