Afghanistan - How does the fiscal governance work under Taliban?

(MENAFN- Pajhwok Afghan News)

Ibrahim Khan Jabarkhail

An analysis of first Afghan national budget 2022 formulated after the fall of republic

Afghanistan is plunged into the shallow levels of unemployment and poverty as the country is grappling with the mass starvation. To combat such problems, the public usually have their eyes to the national budget because they expect the sitting government to come up with the plans and solution to problems. After the fall of republic, the Taliban formulated national budget for the first quarter of 2022 and it was approved by the cabinet on in mid-January . This article presents a critical review of the national budget document, highlights the primary issues and provides possible solutions to struggling Afghan economy.

Source: Getty Images

Sectoral allocation of the national budget

The total volume of the national budget is AFN 54 billion ($600 million). Operating budget is AFN 49 billion ($544 million) constituting almost 91% of the total budget. The development budget is allocated a meager share of 9% i.e. AFN 5 billion ($56 million) only. Financial resources that are available to meet expenses are estimated as AFN 47 billion ($522 million). Budget deficit is estimated is AFN 7 billion ($77 million). However, there is no explanation as how will the funds be raised to meet the budget deficit. The contingency codes are allocated AFN 2 billion ($22 million) which is lesser than 3% of the total national budget as it should be according to the international best practices.

Quarterly comparison demonstrates that the budget prepared is 51% lesser than the budgets that were formulated by the previous government. The reasons for this fall are clear such as lack of foreign aid and lack of enough domestic revenues. Security sector continues to secure the top place among other sectors concerning volume of budget allocation. A total of AFN 21 billion ($233 million) i.e. 38% of the national budget is allocated to security sector. Education is the second largest sector with an allocation of 17% i.e. AFN 9.5 billion ($105 million). Ministry of Martyrs and disabled people is also allocated AFN 3 billion. Ministry of Public Health is allocated AFN 1 billion ($11 million).

Ministry of Public Works, Ministry of Agriculture, Ministry of Energy and Water are not allocated sufficient amount of the budget. These are the agencies responsible for most of the developmental projects and therefore are the ones that help in creation of employment opportunities. Most of the projects in these agencies were funded by the World Bank, Asian Development Bank and other donors. Kabul Municipality has also been not provided any development budget as it used to get from Ministry of Finance in past.

Unreported revenues and Freezing Afghanistan's Foreign Exchange Reserves

Reporting on the collection of revenues is negligible. Since the fall of republic, no report on the collection of the domestic revenues (both tax-revenue and non-tax revenues) is published on the website of Afghanistan's revenue department . During the previous government's term, the officials claimed that more than half of the revenues are wasted due to corruption . If that is the case, the collection of government revenues if collected without corruption can be enough to meet needs of national budget

Lesser revenues coupled with United States' decision to split Afghanistan foreign reserves (USD 7 billion) will further exacerbate the floundering Afghan economy. These reserves helped the national budget by providing a portion of revenues the central bank of Afghanistan earned over the foreign exchange reserves annually. This would not only further devalue the Afghan currency but will also worsen the purchasing power of citizens who don't have enough cash in hands due to currency crises. Besides, its contribution to domestic revenues, the Afghanistan foreign exchange reserves help in maintaining balance of payments and acts as backup funds if the national currency devalues rapidly.

Lack of accountability and public engagement budgetary process

Some of the positive points about the national budget are: publishing the national budget on the website of the directorate of budget , presenting the expenditures in alignment with the of classifications of functions of government (COFOG) standard, and allocating budget to Human Rights Commission and the Access to Information Commission (AIC). AIC commission is key in terms of sharing the information with the public. While these can help in transparency of the budgeting process, two more critical factors in the public financial management system i.e. budget oversight and public participation have been weak since Taliban's takeover.

Budget oversight is the duty of the Supreme Audit Office (SAO) and the parliament. Both these entities should be independent in carrying out their functions. The public engagement (including women, and disabled persons) in formulation of national budget is important to allocate resources according to the needs of citizens. Both oversight and public engagement should be considered in all the phases of the budget cycle i.e. formulation, approval, implementation and evaluation.

Although the budget is in implementation stage, not much has changed in the service delivery to public. The overwhelming majority of 98% of the population lacks enough food to eat . Most of the schools and hospitals across the country are ill-equipped lacking the basic facilities. Besides the national budget, the humanitarian funds have also been poured into the country spent through UN and other humanitarian organizations. More than USD 1 billion were pledged by the donors in Geneva Conference later in 2021. However, similar to Taliban's national budget, funds pledged by donors have lesser transparency and accountability as there is scarce public reporting on the execution of funds.

Way forward for Improving the Afghan Economy

The current economic situation of Afghanistan is similar to hitting the rock-bottom. According to the International Monetary Fund (IMF), the Afghan economy contracted by 30%. The way forward for fixing the Afghan economy can be delving into the alternative ways to create wealth.

• The country is blessed with huge amount of natural resources that are yet to be exploited. It is important that these minerals are exploited with utmost care and in accordance with the international best practices like the Extractives Industries Transparency Initiative (EITI).
• Ensure transparency, accountability, and public participation in the budget decision making process.
• Trade should be strengthened and Afghanistan must harness its potential to act as regional hub for connecting central Asia and south Asia. This would significantly contribute to development and prosperity in Asia as well.
• The Afghan authorities need to explore options of moving towards the green economy. Initiatives should be taken to shift focus to affordable, reliable, and decarbonized energy production. Kandahar, Zabul, Helmand, Uruzgan, Nimroz and Herat are the provinces that have the huge potential to help the country in production of electricity through solar power plants and wind turbines.

Author's Bio

Ibrahim Khan Jabarkhail worked as Public Financial Management Transparency Officer with a local watchdog organization in Afghanistan. He is the lead researcher in Afghanistan for the open budget survey 2021 that is conducted around 117 countries. He has an experience of analyzing the Afghanistan national budget for five years.

Linkedin Profile: handle: @TheKabulWala

The views expressed in this article do not necessarily reflect Pajhwok's editorial policy.

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