Policy Briefs on Public Financial Management
Afghanistan has made substantial progress in building a Public Financial Management system since 2002. Fiscal capacity has improved over the last two decades raising domestic revenue from an estimated USD 405 million in 2006 to USD 2.8 billion in 2019. Over the past few years, the government has also implemented ambitious reforms improving account- ability and budget execution. Through its reforms, the government is working towards strengthening the PFM institutions and their capacities to allocate resources and provide services efficiently at the center. Resource allocation and expenditure management at the subnational level will require further budget planning, performance monitoring, and accounting systems to respond to Afghanistan’s development needs.
Afghanistan’s current fiscal system is highly centralized. A strong centralized system reflected in the Afghan constitution of 2004 is meant to consolidate its monopoly over natural resources and enforce the stronger law rule (Murtazashvili, 2011 ). The current constitution provides a way for administrative de-concentration through subnational governance, calls for municipal and council elections (district level). Subnational gover- nance policies have been crafted previously but not a law that prescribes authorities of subnational governments. The executive political and fiscal authorities rest with the central government. Since no municipality, municipal council or council (district level) elec- tions have taken place, all subnational and local government officials are accountable to the central government. The mayors are currently directly appointed by the central government and are managed through the Independent Directorate of Local Government (IDLG) except for the Kabul municipality which has more autonomy. Besides the central ministries, the municipalities can raise revenue by levying fees in urban centers and can expend revenue raised on basic urban services.
This paper looks at the current public financial management system and examines whether it permits the transition to political decentralization. Fiscal capacity is of immense impor- tance, currently non-existent at the subnational level and limited in the central ministries. Provincial budgeting is weak, and there is little incentive in place for local authorities to be accountable and transparent. A lack of political will to improve subnational gover- nance, insufficient discretionary resources, a weak civil service structure, and limited fiscal capacity are key challenges. These challenges will be magnified in a decentralized form as well. If not tackled through structural reforms and a coherent long-term public financial management strategy, poverty and inequality levels may worsen.
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