First Part of Program to Reform Afghanistan's Public and Fiscal Administration

MANILA, PHILIPPINES - ADB has approved the first part of a projected US$105 million program to reform Afghanistan's fiscal management and public administration with an assistance package totaling $55 million.

A concessional loan of $48 million and grant of $7 million comprise the first of two three-year subprograms to develop new systems and procedures to improve budget programming, strengthen resource mobilization, improve the civil service, and enhance monitoring of public finance.

Afghanistan has made significant progress in achieving macroeconomic stability over the last three years, particularly with public financial management. The program aims to assist the Government in its reform drive in order to complete the transition from addressing its most immediate of post-conflict needs, to developing a medium term sustainable development framework.

"The program will promote good governance through measures such as participatory and transparent budget formulation and the introduction of merit based promotions in the civil service," says Bruno Carrasco, an ADB Principal Financial Economist.

"The first subprogram will develop the institutional capacity - including systems and procedures - necessary to carry out the reform program, in coordination with other donor assistance in these areas. The second will focus on building on these to improve actual provision and delivery of public services."

The grant will support related activities including the restructuring of priority moustufiats - the provincial offices of the Ministry of Finance in charge of provincial revenue collection and treasury operations - in order to improve revenue and expenditure management operations at the provincial level, implementation of human resource management policies under the new Civil Service Act, development of a medium-term budget framework, and better cash management.

"Enhancing budget formulation and strengthening fiduciary controls should encourage more donors to channel resources directly through the national budget, increasing Government ownership of policy priorities, including achievement of the Millennium Development Goals," Mr. Carrasco adds.

Strengthening fiscal reforms - including revenue collection, budgeting, and public expenditure management - is essential to strengthen the budget so it can become an instrument of policy making. Establishing a legislative and administrative framework - including reforming and restructuring key agencies, developing human resource management, and determining new pay and grade systems - will enhance the effectiveness of the civil service.

Edward Haugh, Senior Advisor for Afghanistan Operations, said that this program will assist Afghanistan's efforts to become an effective, accountable state capable of delivering a range of services to its people, including security, and basic social services.

ADB's loan for the first subprogram comes from its Asian Development Fund and carries a 40-year term, including a grace period of 10 years. Interest is charged at 1% per annum, with the total interest charged during the grace period to be capitalized and charged to the loan account.

The second subprogram, to be presented separately for ADB Board consideration, depending on progress with subprogram 1, is expected to require a concessional loan of $50 million. Subprogram 1 is estimated to be completed by 2008 and subprogram 2 by end of 2011. The Ministry of Finance is the executing agency.

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