Integrity Watch: Despite reforms, the national budget is vulnerable to misuse

Tuesday, 05 December 2017-Kabul: Integrity Watch released a research report analyzing the National Budget Proposal 2018. The report indicates that publishing additional data, allocating one million dollars to provincial budgeting, and allocating budget to agencies on the basis of their performance are some of the reforms the government has brought to improve the national budget.

Government revenues have also increased considerably. Although the government claims the increase has been due to reforms and the fight against corruption, the report shows that the increase in revenues has been mainly due to the introduction of 10% fee on mobile credit cards, increased customs tariffs on certain items, and increased taxes on petroleum imports.

At the same time, the development budget has decreased by 42%, compared to the previous year. The report claims that instead of increasing the capacity to implement development projects and increase budget expenditures, the government has reduced its development budget from AFN161 billion (US$2.3b) in 2017 to AFN93 billion (US$1.3b) in 2018. It is also possible that the figures of previous years have been fictitious. This study has found that the government has not been able to spend even half of its development budget over the past ten years.

Sayed Ikram Afzali, Executive Director of Integrity Watch who spoke at the news conference said that “the government’s efforts to reform the national budget is promising but it still has not addressed the lack of implementation of the development budget.” According to the report, the main reasons for of non-spending of the budget have been: (1) lack of public participation and consultation in selection of development projects, (2) development projects vulnerable to political influence, (3) centralization of budgeting and procurement authorities, (4) low capacity of the civil servants, and (5) leadership deficit in government agencies.

The report also adds that the Parliament has misused its oversight role. Contrary to their oversight and regulatory frameworks, the MPs have used it more for their own personal interests. Also, the development projects in the national budget are selected by the executive officials without any specific mechanism, which allows MPs to intervene and force the government officials to add their desired development projects in the national budget. The study claims that the reason for MPs’ continual visits to Ministers’ offices during the year is to bargain on the selection of the location and the amount of the projects, which often result to the MPs personal interests.

Mohammad Naser Timory, Integrity Watch’s Head of Advocacy and Communication said that “the reason for rejection of budget proposals by Wolesi Jirga has not been to push for reforms and make systematic changes to reflect the people’s needs, but to take into account their personal interests.” This report claims that after the rejection of budget document, the MPs have entered into deals individually and collectively with the government. Mr. Timory added that, “after the rejection of 1396 budget proposal, the government and Wolesi Jirga, contrary to the Afghan Constitution and under the pretext of the upcoming parliamentary elections agreed that every MP should be allowed to include two of their desired projects into the national budget.” As a result, more than 370 projects, for a total of $ 70 million, were entered into the national budget without any surveys and feasibility studies.

Moreover, the study claims that out of 768 development projects and programs in 1396 and 850 development projects in 1397, even one project has not been selected by the people. This is one of the reasons the government of Afghanistan has consistently received the lowest score in the people’s role in the national budget process in the “Open Budget Survey” since 2008. Mr. Afzali said that “despite the creation of a provincial budgeting policy, the role of the people in the preparation of the national budget is very weak. Lack of people’s role in the budget process has distanced people from the government, which has a direct effect on the level of people’s trust in the government.”

Addressing community needs through development projects

  • Participatory budgeting: The MoF should ensure inclusive public consultation on selection of development projects. All line ministries should use various mechanisms such as public hearings, town-hall meetings, surveys and opinion polls, and internet-based platforms to reach out to and engage citizens for the selection of their projects. The budget planning timeline should be adjusted to allow for public consultation in regard to any new projects.
  • Development projects register: The government should keep a register of all projects across the country such as roads, schools, clinics, small dams, irrigation projects and others that are proposed by the public. It can also create a portal through which people can upload their project suggestions. This can be used to engage people in the process and to facilitate planning for several years in advance.
  • Provincial budgeting: Both the National Assembly and Ministry of Finance should make provincial budgeting an immediate and high priority. The current provincial budgeting procedures are based on the old top-down budgeting approach. The only major difference with previous budge procedures is that instead of line ministries requesting their provincial directorates to develop annual plans, provincial governors and the MOF carry out this function. Therefore, provincial budgeting procedures should be redefined not only to become a more bottom-up oriented process that would include government officials at the local level but also to increase public participation. It should begin with a very simple step such as by allocating more resources for each province to conduct planning and procurement as well as monitoring of projects at the local level engaging local communities.
  • Transparency: National assembly members should abstain from visiting ministries and government agencies after the enactment of the national budget with a view to seeking to allocate projects to their province. Government officials should immediately announce the names and any demands placed upon them by any such members of the national assembly through the media. The government should require ministers to make minutes of such meetings public.
  • Social Audit: The Supreme Audit Office (SAO) should establish a citizen’s feedback system to receive and respond to complaints and reports received from the public about misuses. The SAO should carry out audits which engage civil society and citizen’s groups as part of such audits, based on credible public complaints, and provide feedback to the public on the status of cases reported by the public. The SAO and internal audit sections of each ministry should publish their audit reports and provide channels for the citizens to report misuse.

 

Addressing the fiscal deficit

  • Anti-corruption driven revenue collection: Estimates show that the government can double its USD 2.2 billion revenues if it transforms its tax collection regime with rigorous oversight from public representatives, the disclosure of information and engaging people at the local and national level, and a real-time transparent computerized system of mobile top-up card fees.
  • Economic-growth driven revenue generation: The current Gross Domestic Product (GDP) growth rate has been predicted at 2 to 4 percent in the next four years. This growth is mainly sustained through the agriculture sector, and the government lacks a clear policy to support the urban-based industry and the services sector. Rather than adding pressure to the existing economic activities to generate domestic revenue, the government should focus on economic growth as a source of national income.
  • Broadening the tax net: While it is important to introduce new taxes primarily aimed at urban centers, like the Value Added Tax (VAT), it should be realized that taxing the cities has its limits. The Afghan government has failed to substantially increase its tax receipts, especially in rural Afghanistan. In addition to a lack of strategic vision as to how to enlarge tax receipts, the lack of government legitimacy due to corruption and maladministration in rural Afghanistan has significantly undermined the credibility of the government when it seeks to increase tax receipts from rural Afghans. But Afghanistan won’t be able to move towards self-reliance if it chooses to rely on the cities alone for the revenues.
  • The potential of the extractive sector: For the first time, there are explicit references to the extractive sector as a potential source of national income in the national budget. The extractive sector has especial potential to generate more revenue with better governance. However, the government should be warned about the weakness within the sector especially the Ministry of Mines and Petroleum. Even with the current leadership, the government will not be able to increase its revenues from the sector unless it implements effective governance reforms, starting with ensuring transparency of contracts, publishing of production and payment data, and ensuring necessary regulatory capacity to manage medium and large contracts. There are realistic measures, and the government has committed to a number of the most important ones – but they have lagged on implementation.
  • Turning the illicit economy into a source of revenue: A good portion of the Afghan agriculture sector and the economy, in general, is based on illegal opium cultivation and the narcotics trade. The Afghan government and its international partners have spent USD 8.5 billion to eradicate opium cultivation and its trade, with no success. While President Ashraf Ghani spoke about the possibility to legalize the narcotics economy in Afghanistan three years ago, there does not seem to be any serious discussions since then about legalizing and regulating this huge illicit economy. The experience in several countries including India, Burma, and Columbia could be replicated in Afghanistan.

For full report click here.

 

 

For more information, contact us via:

Wahidullah Azizi

0705666962 or 0780942942

wahidullah.azizi@iwaweb.org