World Bank Documentdocuments.worldbank.org/curated/en/427941513911675673/pdf/Afg… · Special Drawing Rights Special Disbursements Unit SIGTAS Standard Integrated Government Tax

Document of

The World Bank

FOR OFFICIAL USE ONLY Report No: PAD2479

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT

IN THE AMOUNT OF SDR 17.8 MILLION

(US$25 MILLION EQUIVALENT)

AND

A PROPOSED GRANT

FROM THE AFGHANISTAN RECONSTRUCTION TRUST FUND

IN THE AMOUNT OF US$75 MILLION TO THE

ISLAMIC REPUBLIC OF AFGHANISTAN

FOR A

FISCAL PERFORMANCE IMPROVEMENT SUPPORT PROJECT (FSP) November 28, 2017

Governance Global Practice

South Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective November 19 2017)

Currency Unit = AFN

AFN68.6335 = US$1

US$0.7119 = SDR 1

FISCAL YEAR

July 1 - June 30 (World Bank)

December 22 – December 21 (Government of Afghanistan)

Regional Vice President: Annette Dixon

Country Director: Shubham Chaudhuri

Senior Global Practice Director: Deborah L. Wetzel

Global Practice Directors: Practice Manager:

Edward Olowo-Okere, James A Brumby Fily Sissoko, Alexandre Arrobbio

Task Team Leader(s): Yousif Mubarak Elmahdi, Adenike Sherifat Oyeyiola

ABBREVIATIONS AND ACRONYMS

ACCA ACD ACBR

Association of Chartered Certified Accountants Afghanistan Customs Department Afghanistan Central Business Registry

AEITI Afghanistan Extractive Industries Transparency Initiative AFMIS Afghanistan Fiscal Management Information System AMIS ANPDF

Audit Management Information System Afghanistan National Peace and Development Framework

APFM Afghanistan Public Financial Management AOP Administrative Office of the President ARD Afghanistan Revenue Department ARTF Afghanistan Reconstruction Trust Fund ASA Advisory Services and Analytics ASYCUDA Automated Systems for Customs Data BPIS CBR CCTV

Budget and Planning IT Solution Capacity Building for Results Facility Closed Circuit Television

CGE COFOG

Computable General Equilibrium Classification of Functions of Government

CPA CPA

Citizen Participatory Audit (CPA). Certified Professional Accountants

CPV CRG CSO DA

Common Procurement Vocabulary Core Reforms Group Civil Society Organizations Designated Account

DAB Da Afghanistan Bank DAD DBI

Development Assistance Database Doing Business Indicators

DG Director General DLI Disbursement Linked Indicators DM Deputy Minister DO DSA ECF

Development Objective Debt Sustainability Analysis Extended Credit Facility

EFI e-GP EITI EU

Equitable Growth, Finance, and Institutions Electronic Government Procurement Extractive Industries Transparency Initiative European Union

FPIP Fiscal Performance Improvement Plan FSP Fiscal Performance Improvement Support Project FY Fiscal Year GoA GC

Government of Afghanistan General Conditions

GDP GIS

Gross Domestic Product Geographic Information System

GRS GRB

Grievance Redress Service Gender Responsive Budgeting

HDI HEC

Human Development Index High Economic Council

HR Human Resources IAD Internal Audit Department ICT IDA

Information and Communications Technology International Development Association

IFR Interim Financial Report IIA IMF INTOSAI

Institute of Internal Auditors International Monetary Fund International Organization of Supreme Audit Institutions

IOC Incremental Operating Costs IP Incentive Program IPF IPF IPR

Infrastructure Preparation Facility Investment Project Financing Intellectual Property Rights

IPSAS International Public Sector Accounting Standards IT LTO

Information Technology Large Taxpayer Office

MA Monitoring Agent MFPD Macro-Fiscal Policy Department MOF Ministry of Finance MSG Multi Stakeholders Working Group MTBF MTEF MTFF MTO

Medium Term Budget Framework Medium Term Expenditure Framework Medium Term Fiscal Framework Medium Tax Payers Office

NATO North Atlantic Treaty Organization NCB National Competitive Bidding NPA National Procurement Authority NPPs National Priority Programs NSW National Single Window NTA O&M

National Technical Assistant Operations and Maintenance

OBI Operational Business Intelligence OCDS OCP ODA PAC PACT PAD PDO

Open Contracting Data Standards Open Contracting Partnership Official Development Assistance Public Accounts Committee Policy Action Coordination Platform Project Appraisal Document Project Development Objective

PEFA Public Expenditure and Financial Accountability PFM Public Financial Management PFMR-II PIM

Second Public Financial Management Reform Project Public Investment Management

PMIS Procurement Management Information System

PMRS PIU

Performance Management and Reporting System Project Implementation Unit

PMT Performance Management Team PPP PPSD

Public Private Partnership Project Procurement Strategy for Development

RIMU Reform Implementation and Management Unit SAO Supreme Audit Office SAIs SBD

Supreme Audit Institutions Standard Bidding Documents

SBPS State Budgeting Planning System SDR SDU

Special Drawing Rights Special Disbursements Unit

SIGTAS Standard Integrated Government Tax Administration Systems SIP SMAF

Shared Information Platform Self-Reliance through Mutual Accountability Framework

SOEs State Owned Enterprises SOCs State Owned Corporations SOCB STEP STO

State Owned Commercial Banks Systematic Tracking of Exchanges in Procurement Small Taxpayers Office

TA TAF

Technical Assistance Technical Assistance Facility

TPDC UN UNDP US

Tax Policy Development Committee United Nations United Nations Development Programme United States

VAT WTO

Value Added Tax World Trade Organization

The World Bank Fiscal Performance Improvement Support Project (FSP): (P159655)

Page 1 of 69

BASIC INFORMATION

Is this a regionally tagged project? Country(ies) Financing Instrument

No Investment Project Financing

[✔] Situations of Urgent Need of Assistance or Capacity Constraints

[ ] Financial Intermediaries

[ ] Series of Projects

Approval Date Closing Date Environmental Assessment Category

19-Dec-2017 28-Dec-2022 C - Not Required

Bank/IFC Collaboration

No

Proposed Development Objective(s) To contribute to the improvement of domestic revenue mobilization and public expenditures management, and of reinforcing a performance oriented management culture in the Ministry of Finance. Components Component Name Cost (US$, millions)

Component 1: Budget as Tool for Development 10.00

Component 2: Revenue Mobilization 40.00

Component 3: Treasury Management, Accountability, and Transparency 30.00

Component 4: Institutional Capacity Building and Performance Management 20.00


Page 2 of 69

Organizations Borrower :

Islamic Republic of Afghanistan

Implementing Agency : Ministry of Finance National Procurement Authority Supreme Audit Office

PROJECT FINANCING DATA (US$, Millions)

[ ] Counterpart Funding

[ ] IBRD [ ] IDA Credit

[ ✔ ] IDA Grant

[ ✔ ] Trust Funds

[ ] Parallel Financing

FIN_COST_OLD

Total Project Cost: Total Financing: Financing Gap:

100.00 100.00 0.00

Of Which Bank Financing (IBRD/IDA):

25.00

Financing (in US$, millions) FIN_SUMM_OLD

Financing Source Amount

Afghanistan Reconstruction Trust Fund 75.00

IDA-D2630 25.00

Total 100.00

Expected Disbursements (in US$, millions)

Fiscal Year 2018 2019 2020 2021 2022 2023

Annual 11.93 25.00 26.14 15.09 21.84 0.00

Cumulative 11.93 36.93 63.07 78.16 100.00 100.00


Page 3 of 69

INSTITUTIONAL DATA

Practice Area (Lead)

Governance

Contributing Practice Areas

Energy & Extractives Finance & Markets Macro Economics & Fiscal Management Trade & Competitiveness Climate Change and Disaster Screening

This operation has been screened for short and long-term climate change and disaster risks

Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF Yes b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment Yes c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes

SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)

Risk Category Rating

1. Political and Governance High

2. Macroeconomic High

3. Sector Strategies and Policies Substantial

4. Technical Design of Project or Program Substantial

5. Institutional Capacity for Implementation and Sustainability High

6. Fiduciary Substantial


Page 4 of 69

7. Environment and Social Low

8. Stakeholders Substantial

9. Other High

10. Overall High

COMPLIANCE

Policy

Does the project depart from the CPF in content or in other significant respects?

[ ] Yes [✔] No

Does the project require any waivers of Bank policies?

[ ] Yes [✔] No

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 ✔

Natural Habitats OP/BP 4.04 ✔

Forests OP/BP 4.36 ✔

Pest Management OP 4.09 ✔

Physical Cultural Resources OP/BP 4.11 ✔

Indigenous Peoples OP/BP 4.10 ✔

Involuntary Resettlement OP/BP 4.12 ✔

Safety of Dams OP/BP 4.37 ✔

Projects on International Waterways OP/BP 7.50 ✔

Projects in Disputed Areas OP/BP 7.60 ✔

Legal Covenants

Conditions


Page 5 of 69

PROJECT TEAM

Bank Staff

Name Role Specialization Unit

Yousif Mubarak Elmahdi Team Leader(ADM Responsible)

Governance- Corporate Backbone HR Assessment

GGO18

Adenike Sherifat Oyeyiola Team Leader Public Financial Management GGO24

Aimal Sherzad Procurement Specialist(ADM Responsible)

Procurement GGO06

Rahimullah Wardak Procurement Specialist Procurement GGO06

Ahmed Shah Ahmadzai Financial Management Specialist

Financial Management GGO24

Ahmed Mohamed Tawfick Rostom

Team Member Finance Sector -SOEs, Debt, Sukuk

GFM06

Anand Kumar Srivastava Team Member Procurement (NPA) GGO06

Bernard James Haven Team Member Revenue (ARD) GGO18

Ehsanullah Shamsi Team Member Energy/Extractives (AEITI) GEEX1

Hasan Afzal Zaidi Team Member Customs (ACD) GTI05

Janardhanan Ramanujam Team Member Disbursement WFALA

Juan Carlos Alvarez Counsel Legal LEGES

Luiza A. Nora Team Member Citizen's Engagement GSU06

Mohammad Aman Farahi Team Member Macro and Fiscal Management GMF06

Mohammad Arif Rasuli Team Member Environmental Safeguards GEN06

Najla Sabri Team Member Gender GSU06

Obaidullah Hidayat Environmental Safeguards Specialist

Environmental Safeguards GEN06

Pragya Shrestha Team Member operations GGO24

Raul Felix Junquera-Varela Team Member Revenue (ARD) GGO28

Saurabh Shome Team Member Economic Analysis GMF06

Shankar Narayanan Social Safeguards Specialist Social Safeguards GSU06

Shughla Hellali Team Member Gender GSU06

Si-Ambhaivan Sisombat Team Member Leadership Development GGO28


Page 6 of 69

Syed Waseem Abbas Kazmi Team Member PFM GGO24

Taehyun Lee Team Member Economic Analysis GMF06

Victor Manuel Ordonez Conde

Team Member Disbursement WFALA

Extended Team

Name Title Organization Location


Page 7 of 69

AFGHANISTAN

FISCAL PERFORMANCE IMPROVEMENT SUPPORT PROJECT (FSP):

TABLE OF CONTENTS

I. STRATEGIC CONTEXT ...................................................................................................... 9

A. Country Context ................................................................................................................. 9

B. Sectoral and Institutional Context ................................................................................... 10

C. Higher Level Objectives to which the Project Contributes ............................................. 12

II. PROJECT DEVELOPMENT OBJECTIVES ............................................................................ 13

A. PDO ................................................................................................................................... 13

B. Project Beneficiaries ......................................................................................................... 13

C. PDO-Level Results Indicators ........................................................................................... 13

III. PROJECT DESCRIPTION .................................................................................................. 13

A. Project Components ......................................................................................................... 13

B. Project Cost and Financing ............................................................................................... 18

B. Project Cost and Financing ............................................................................................... 18

C. Lessons Learned and Reflected in the Project Design ..................................................... 18

IV. IMPLEMENTATION ........................................................................................................ 19

A. Institutional and Implementation Arrangements ........................................................... 19

B. Results Monitoring and Evaluation ................................................................................. 21

C. Sustainability .................................................................................................................... 22

D. Role of Partners ................................................................................................................ 23

V. KEY RISKS ..................................................................................................................... 23

A. Overall Risk Rating and Explanation of Key Risks ........................................................... 23

VI. APPRAISAL SUMMARY .................................................................................................. 27

A. Economic and Financial (if applicable) Analysis .............................................................. 27

B. Technical ........................................................................................................................... 29

C. Financial Management ..................................................................................................... 30

D. Procurement ..................................................................................................................... 31

E. Social (including Safeguards) ............................................................................................ 31

F. Environment (including Safeguards) ................................................................................ 32


Page 8 of 69

G. Other Safeguard Policies (if applicable) .......................................................................... 32

H. World Bank Grievance Redress ....................................................................................... 32

VII. RESULTS FRAMEWORK AND MONITORING .................................................................... 33

ANNEX 1: DETAILED PROJECT DESCRIPTION ......................................................... 45

ANNEX 2: INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS ............. 55

ANNEX 3: IMPLEMENTATION SUPPORT PLAN ......................................................... 59

ANNEX 4: BANK’S PROGRAMMATIC APPROACH TO SUPPORT FPIP .................. 60

ANNEX 5: INITIAL FSP WORK PLAN ........................................................................... 63


Page 9 of 69

I. STRATEGIC CONTEXT

A. Country Context

1. Afghanistan is a poor, deeply fragile and conflict affected country. It has been in

almost constant conflict for over 35 years with no durable political settlement established. This

has had a destabilizing effect on social cohesion, exacerbating ethnic divisions and weakening

government institutions and rule of law. GDP per-capita is among the lowest in the world,

poverty is deep and widespread, and social indicators are still at very low levels. About 39

percent of the population lives in poverty and roughly another one third is susceptible to

dropping below the poverty line. Widespread poverty and limited access to services lead to poor

living standards for the majority of the population; Afghanistan’s HDI ranking is 171st out of 188

countries.

2. Following a sustained period of impressive development progress after the fall of the

Taliban, Afghanistan is currently undergoing a difficult adjustment. With an influx of aid

since 2002, Afghanistan sustained rapid economic growth and improvements against important

social indicators for more than a decade. Annual growth averaged 9.4 percent between 2003 and

2012. With the withdrawal of international security forces1 starting in 2011 and with the

subsequent political transition in 2014, economic and social progress has substantially slowed.

Internal divisions within the National Unity Government slowed vital reforms and delayed the

appointment of key officials, undermining policy certainty. Afghanistan also currently faces a

humanitarian crisis arising from large numbers of return refugees (approximately 800,000 in

2016) and a large and growing internally displaced population (1.2 million). Armed conflict in

Afghanistan has claimed the lives of 26,512 civilians and injured 48,931 others between 1

January 2009 and 30 June 2017 and continues to cause severe harm to civilians across

Afghanistan.2

3. Reduced aid and security presence led to a rapid weakening of demand with follow-

on impacts across the economy. Aid flows decreased from around 75 percent of GDP in 2012

to 45 percent of GDP, in 2015 annual firm registrations have declined by more than half since

2012 while unemployment has increased (from 13.5 percent in 2008 to 22.6 percent in 2014),

both reflecting falling confidence. With slowing economic activity, fiscal revenues declined from

11.6 percent of GDP in 2011 to 8.7 percent of GDP in 2014, before recovering slightly to 10.7

percent of GDP in 2016. The security situation has also led to reversals and increasing disparities

in access to services. Recent evidence from household surveys suggests that access to services is

declining among the poor.

1 The number of NATO troops declined from about 130,000 in 2011, to around 15,000 by end-2014. 2 Afghanistan Protection of Civilians in Armed Conflict Midyear report 2017, United Nations Human Rights

https://unama.unmissions.org/protection-of-civilians-reports.

https://unama.unmissions.org/protection-of-civilians-reports


Page 10 of 69

4. With an undiversified productive base, the economy relies heavily on foreign aid

and public expenditure. The private sector is extremely narrow, with employment concentrated

in low-productivity agriculture. Investment since 2001 has focused around the aid-driven

contract economy. Private sector development is constrained by weak institutions, inadequate

infrastructure, widespread corruption3, and a difficult business environment

4. Public expenditure

constitutes 25.6 percent of GDP; however, foreign grants currently finance more than two-thirds

of budget expenditure and substantial off-budget security needs. A large trade deficit, of around

38 percent of GDP in 2016, is also financed almost entirely by aid inflows. With aid expected to

decline from around 46 percent of GDP in 2017 to 20 percent of GDP by 2030, and in the

context of a rapidly growing population, new sources of growth, employment, revenues, and

exports are desperately needed, as are savings from improved management of public

expenditure.

B. Sectoral and Institutional Context

5. Afghanistan has made significant progress in establishing a functioning and credible

Public Financial Management (PFM) system that has contributed to increasing revenues

from about US$130 million in 2002 to over US$2.1 billion in 2016. The legal framework

underpinning PFM (Public Finance and Expenditure Management Law, and Public Procurement

Law) has been established. The Afghanistan Financial Management Information System

(AFMIS) has been rolled out across provinces, and is being used for payment processing,

accounting and reporting. The Government’s PFM performance is generally portrayed as one in

which public finances are, by and large, used for their intended purposes as authorized by the

budget, which is processed with transparency and where the fiscal aggregates are well controlled.

This is demonstrated by Afghanistan’s 2013 Public Expenditure and Financial Accountability

(PEFA) scores, which were above the average for low-income states and fragile contexts, and

equaled middle-income country results for control, reporting, and external scrutiny.

6. Despite maintaining aggregate fiscal discipline, Afghanistan’s PFM systems are not

fully developed to ensure strategic allocation of resources and efficient service delivery. Almost half of the development budget remains unspent (execution rate is 54 percent), leading to

an overall budget execution rate of 76 percent. The low execution rate being the result of

inefficiencies in budget planning, poor appraisal of development projects, protracted

procurement processes, and overall low government capacity. Public expenditure is currently not

aligned with the fiscal sustainability objectives of the government. Moreover, public spending is

expected to grow over the medium-term while resources are projected to remain tight. Further,

the operations and maintenance of public assets are reportedly weak, constraining the delivery of

public services.

7. Improving revenue collection is central to Afghanistan’s self-reliance5 agenda, but

remains constrained. 2016 domestic revenues reached 10.8 percent of GDP, while expenditure

3 Afghanistan was ranked 169th of 176 countries according to the 2016 Corruption Perception Index. 4 Afghanistan was ranked 183rd of 190 countries in the 2017 Doing Business Survey 5 The Government presented its vision for building self-reliance in the context of declining international assistance to the


Page 11 of 69

was 26.9 percent of GDP, with the deficit largely financed through development partner grants.

The Government of Afghanistan (GoA) has recently taken policy and administrative measures to

increase domestic revenue collection. A 10 percent telecom services fee was introduced in 2015.

While there is a possibility that it could be suspended through legislative action in the future, this

is not likely in the immediate future and the fee continues to be collected. Value Added Tax

(VAT) is planned for implementation by 2020, and is particularly important in the context of

Afghanistan’s accession to the World Trade Organization (WTO), as the VAT must offset

revenues that will be lost to tariff reductions. However, a narrow tax base, low capacity, weak

internal controls, and a decentralized tax administration remain significant challenges. GoA also

faces a difficult trade-off balancing strict compliance measures with a conducive business

environment.

8. Despite the direct and indirect support that state-owned enterprises (SOEs) receive

from the budget in the form of subsidies, equity injections, deferred taxes, other payment

arrears and loan guarantees, their ultimate performance remains weak. Presently,

Afghanistan has 50 SOEs which account for only 2 percent of national revenues and about 4

percent of GDP. 15 of these SOEs are corporatized and commercialized (state-owned

corporations or SOCs) and three are state-owned commercial banks (SOCBs). Non-financial

SOEs operate in strategic sectors such as energy, mining, and telecom. No diagnostic study to

date appears to have properly documented the size and the market concentration of each SOE in

the sub-sectors in which they operate. The financial performance of SOEs is not monitored and

contingent liabilities are unknown, posing a fiscal risk.

9. Afghanistan currently relies on unsustainable donor-financed project consultants

(often called ‘second civil service’) to execute core government programs. This reliance has

eroded government capacity and impedes the use of country systems to build accountability,

fight corruption, mobilize domestic revenue and attract investment. There is a shortage of skilled

staff capable of developing and applying procedures and establishing institutions. Professional

training for the public sector, especially for experts and managers, and training resources in

general are insufficient.

10. The Government recognizes that it is critically important to address these

challenges, all of which impact negatively on service delivery. In this regard, the GoA’s PFM

Road Map provides significant opportunities to build on previous progress and further strengthen

Afghanistan’s PFM system. The Road Map is underpinned by a 5-year rolling Fiscal

Performance Improvement Plan (FPIP). The FPIP is an ambitious and comprehensive reforms

program that covers the whole breadth of public financial management. It is intended to both

reinvigorate progress as Afghanistan seeks to move to the next level of performance, and also

introduce a new emphasis on sustainability, capacity building, and government leadership of

reforms. It does so by providing a comprehensive approach to fiscal management reforms that

expands beyond core PFM, for example through the inclusion of revenue administration and

policy, HR reform, and macro-fiscal policy analysis. FPIP clearly reflects a desire to move

international community at the London Conference in December 2014.


Page 12 of 69

beyond business as usual. In contrast to many PFM reform plans, the FPIP includes a strong

focus on implementation. The plan does not simply state what will be done, but also examines in

detail how incentives and structures can be established to ensure implementation and periodically

measure progress. In line with this, the Ministry of Finance (MOF) has decided to use the FPIP

as the only vehicle to implement PFM reforms and clarified to donors to channel all their support

to MOF only for FPIP, rather than separate projects. Donors are also invited to participate in the

annual planning and evaluation of rolling plans.

11. In line with MOF’s directive and to support the government’s FPIP reform

initiative, the Bank has designed a new engagement model (“programmatic approach”)

that consolidates existing activities into three interrelated and complementary instruments.

The FSP, constitutes the implementation arm of the new engagement model and is intended to

provide critical inputs in the form of upfront investments drawn directly from FPIP work plans.

Government has demonstrated strong ownership of the FSP, committing up to US$100 million in

parallel financing over five years, to support related infrastructure that will not be directly

financed from FSP, and an internal incentive program to reward strong performing FPIP teams.

The FSP will be underpinned through the FPIP Advisory Facility, a programmatic package of

Advisory Services and Analytics (ASA). The FPIP Advisory Facility scales up resources for

foundational Bank-executed technical assistance to operationalize and inform FPIP

implementation. The third instrument is the Incentive Program (IP) Plus, which is the major

channel for multi-donor policy-based budget support to the GoA, providing approximately

US$300 million per year. This will provide the overall reward structure for the FPIP. Refer to

Annex 4 for further details on the FPIP and the Bank’s programmatic approach.

C. Higher Level Objectives to which the Project Contributes

12. The higher-level objective to which the FSP contributes is that of self-reliance. The

FSP is a direct derivative of the GoA’s strategic vision entitled “Realizing Self-Reliance:

Commitments to Reforms and Renewed Partnership”. This vision has been translated into two

key flagship reform programs. The first is the Afghanistan National Peace and Development

Framework (ANPDF), which provides a credible framework for improving security, political

stability, and economic and fiscal stabilization. The ANPDF includes plans to advance good

governance, including electoral reform and strengthening democratic institutions, promoting the

rule of law, and respect for human rights, particularly in relation to women and girls, fighting

corruption and the illicit economy including narcotics. These reforms are intended to pave the

way for enhanced private sector investments and sustainable social, environmental and economic

development.

13. The second complementary reform program – to which the FSP directly contributes

through implementation support to the FPIP – is the GoA’s PFM Road Map. Specifically,

this focuses on building the country’s public administration capacity to accelerate aid utilization,

provide faster and better services, and ensure transparency and accountability of public

expenditure to take the reconstruction agenda forward and win back the trust of citizens.


Page 13 of 69

14. The FSP is intended to make key contributions to both fiscal and institutional self-

reliance. The FSP includes strong focus on macro-fiscal policy analysis, as well as options for

improving revenue collection and expenditure management. While designed primarily as an all-

of- MOF Technical Assistance (TA) facility, the FSP will not “substitute” but rather supplement

the development of government systems and core institutional capacity. This includes capacity

development in core PFM areas, in customs, revenue etc. but also to help build the MOF as an

institution through constitution of its backbone and shared services including information

technology (IT), human resources (HR), and fiduciary. In line with Government’s commitment

to gradually reduce the dependence on parallel systems, the FSP will not include a Project

Implementation Unit (PIU) but would be focused on project implementation through country

systems.

II. PROJECT DEVELOPMENT OBJECTIVES

A. PDO

15. To contribute to the improvement of domestic revenue mobilization and public

expenditures management, and of reinforcing a performance oriented management culture in the

Ministry of Finance.

B. Project Beneficiaries

16. The departments of MOF and non-MOF FPIP departments [the Supreme Audit Office

(SAO) and National Procurement Authority (NPA)] are the primary project beneficiaries.

Through contributions to improved domestic revenue mobilization and public expenditures

management, the GoA at large stands to benefit from the FSP.

C. PDO-Level Results Indicators

17. The key results of the FSP are based around the strategic objectives of the

government PFM Road Map. These are as follows:

Improved development budget execution rate.

Increase in domestic revenue as a percentage of GDP.

Increased compliance with audit recommendations.

Improvement in core institutional capacity, represented by a reduction in the number of

long-term technical assistants.

III. PROJECT DESCRIPTION

A. Project Components

18. The FSP is organized around four complementary investment components

supporting Government-executed technical assistance, capacity building, and IT


Page 14 of 69

infrastructure. For purposes of clarity and coordination, and because FSP includes a multitude

of joined-up actions along thematic lines between departments, the four investment components

are categorized around the PFM cycle.

19. The FSP is designed to align with the government’s own work program (the FPIP),

and will therefore support the FPIP in its entirety. It does so sequentially, through “locking-

in” of “early wins”, especially given that the project spans the period pre- and post-election. The

project is prioritized around flagship reforms particularly in neglected thematic areas, and the

bedding down of achievements in more-advanced areas. Support within these areas is sequenced

along critical path dependencies. The FSP is also designed with greater flexibility in allocating

resources where they are needed – it embeds an FPIP ‘cycle of trial and error’, building-in

flexibility that is significantly greater than in previous PFM projects. Sub-components with

limited traction can be dropped or simplified during implementation, and funds unspent in one

department could be shifted to another (within and across components) or to address emergent

gaps. This will be done through changes in work and procurement plans, which are to be updated

regularly. The below outlines sequenced priority areas to be locked-in by the FSP along its four

components (refer to Annex 5 for an initial FSP work plan capturing these areas, and Annex 1

for a detailed project description capturing full component outlines and context).

20. Component 1: Budget as Tool for Development [$10m]. This component aims to

increase budget credibility by improving the efficiency of budget processes, realistic budget

estimation and costing, linking budget with policy and introducing medium term budgeting. It is

organized along the following inter-linked sub-components:

21. Budgeting Processes: This sub-component would support the Budget Department to

revise budget processes with a focus on realistic cost estimation, better commitment controls and

gender-sensitivity. This first requires linking the budget to Public Investment Management

(PIM) systems and to procurement planning, and development and implementation of forward

estimates for multi-year budget planning, particularly for development projects. Gender

mainstreaming will require the development of a framework for gender disaggregated statistical

analysis to feed into the budget. Implementation of new processes derived from the provincial

budgeting policy delegating financial authority to the provinces, development and roll-out of an

Operations and Maintenance (O&M) policy, and improving budget disclosures and

comparability of budget and accounts are the other key reforms to be implemented.

22. Fiscal Policy: This sub-component would continue support to the Macro Fiscal

Performance Department (MFPD). The MFPD currently produces a medium-term fiscal

framework (MTFF) that provides economic and fiscal projections. Further support will be

provided in improving the quality of the MTFF in developing a well-designed medium term

budget framework (MTBF) and a medium term expenditure framework (MTEF). Within the

overarching framework of the MTFF, the MTBF aims at allocative efficiency and the MTEF

enhances efficiency of the expenditures, all within a three to five-year horizon. The MTBF thus

aligns multi-year budgets with national priorities leading to budgetary ceilings thereby reducing

financing volatility. The MTEF critically examines expenditure performance against budgeted


Page 15 of 69

targets for identifying how expenditures can be made more effective. Institutionalizing these

practices will entail improving the fiscal strategy, including alignment of the budget with

Government priorities, , as well as strengthening PIM systems. MFPD will also target

development and implementation of a sustainable debt policy. Support to MFPD will include

enhancing the capacity of secretariat and advisory services to the High Economic council (HEC),

and Tax Policy Development Committee (TPDC).

23. Development Policy: This sub-component will continue support to the Policy

Department, also working closely with the Ministry of Economy and sector ministries, to

increase the efficiency of public spending and linking fiscal strategy to budget strategy. This

involves support to operationalizing the ANPDF implementation mechanism through finalization

and M&E of updated, consolidated and costed sector strategies (National Priority Programs or

NPPs) and work plans, and ensuring their alignment with the budget. It also involves the

development of a PIM framework to improve project identification, appraisal, review and

approval. FSP will work in close collaboration on Public Private Partnership (PPP) issues with

the upcoming Bank Infrastructure Preparation Facility (IPF). The IPF is still to be fully designed,

but it is currently foreseen that the IPF will fund the appraisal and preparation of pre-feasibility

and feasibility studies of both public (PIM) and PPP infrastructure projects. For public (PIM)

projects going forward, support from the IPF will end with the feasibility studies and other

required TA support for these projects is to be facilitated through the FSP. Support to the Policy

Department will include enhancing the capacity of secretariat and advisory services to the

Development Councils6.

24. Component 2: Revenue Mobilization [$40m]. This component is designed to

strengthen capacities of various revenue administration departments to increase tax compliance

and facilitate timely filing and payment. It further aims to enhance Government’s capacity to

effectively regulate Afghanistan’s minerals and hydrocarbon resources sector. It is organized

along the following sub-components:

25. Tax Administration: This sub-component will build on existing support to the

Afghanistan Revenue Department (ARD) through business process reengineering that will feed

into further improvements of basic IT infrastructure and systems, especially Standard Integrated

Government Tax Administration Systems (SIGTAS) and e-payments. It will continue taxpayers

support services and outreach, and further advance implementation of the ARD reform plan,

including restructuring on a functional basis, and strengthening reporting and accountability

structures between mustofiats and ARD. Ongoing reforms to tax policy and the introduction of

VAT will also be supported.

26. Customs Administration: This sub-component will build on existing support to the

Afghanistan Customs Department (ACD), including consolidation of efforts to improve

enforcement (data analysis and collection, anti-corruption policies and plans, and post clearance

6 Development Councils, equivalent to thematic committees around which the National Cabinet has been reorganized, are

intended to provide a forum for related ministries to develop strategic frameworks and prioritize programs (built around results)

to increase efficiency in budgetary allocations.


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audit and mobile verification), simplify and standardize customs clearance and processes, and

HR reforms. The development and implementation of a National Single Window (NSW) system,

deployment of a Trade Information Portal7 and the continued geographical and functional rollout

of Automated Systems for Customs Data (ASYCUDA) will underpin support under this sub-

component.

27. Afghanistan Extractive Industries Transparency Initiative (AEITI): This sub-

component will support required key actions to be undertaken with respect to the Extractive

Industries Transparency Initiative (EITI) implementation in Afghanistan, before and post-

validation. This primarily includes addressing AEITI recommendations of Validation and

Reconciliation reports.

28. Component 3: Treasury Management, Accountability, and Transparency [$30m].

This component aims to consolidate basic core PFM functions to underpin more ambitious

aspects of planned PFM and budget reforms. It is organized along the following sub-

components:

29. Treasury: This sub-component will build on existing support to the Treasury

Department through further strengthening of core systems and ensuring full implementation and

compliance. This would include consolidation of financial management systems including

AFMIS, improved commitment controls, production of complete and comprehensive financial

accounts, and introduction of new payroll controls. The Treasury will also prepare annual

financial statements pertaining to the core budget using Cash Basis International Public Sector

Accounting Standards (IPSAS). Strengthened accounting and auditing practices of the corporate

sector will be facilitated through support to development of the Certified Professional

Accountants (CPA) Law and curriculum. Treasury will also be supported to develop a

framework for Sukuk Bonds.

30. Audit and Financial Reporting: This sub-component will build on the development of

the Accountancy Law through technical assistance to support implementation – including to

assist the Internal Audit Department (IAD) to improve audit follow-up and strengthen the

internal audit function of line ministries. External audit efficiency will be supported through an

HR and capacity building strategy for the SAO, and in the interim, contracting with consultancy

firms for Grants audit, and for quality control and quality assurance. The SAO will also be

supported to automate manual audit processes through the roll-out of an Audit Management

Information System (AMIS) to automate manual audit processes.

31. Procurement: This sub-component will build on the long-standing partnership with the

NPA to advance a third generation of public procurement reforms. This involves first reviewing

and stabilizing current reforms and the supportive legal, regulatory, and policy framework. This

will be built upon through new reforms related to implementing open contracting to improve

collection and disclosure of public procurement data across the full contracting cycle; and

7 The Trade Information Portal will provide a single on line and user friendly platform where all the information relating to trade

regulations, procedures, fees, forms etc. from all the various trade related agencies is aggregated and presented on one website.


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establishing countrywide Framework Agreements for procuring large volume small value items

of repetitive purchase by various Government entities. The most significant third generation

reforms relate to assessment and piloting implementation of Electronic Government Procurement

(e-GP) that will follow comprehensive process re-engineering.

32. SOEs, Insurance, and Properties: This sub-component will be guided by a diagnostic

assessment to measure the size, composition, market share as well as economic weight of SOEs,

and financial, operational and fiscal performance of the entire SOE sector. The sub-component

will also support the development of an insurance sector policy, and of procedures and policies,

and an information management system for public properties.

33. Citizen’s Engagement: This sub-component will support the GoA in establishing and

implementing a proper mechanism for budget transparency, accountability and participation,

consistent with international best practices, in two areas: (1) Under MOF, this sub-component

will help to mobilize Civil Society Organizations (CSOs) in order to establish and implement a

framework where CSOs collaborate with MOF for further citizens’ awareness in the planning

and oversight of the budget at both the national and sub-national levels; and (2) Under the

Auditor General, this sub-component will support Citizen Participatory Audit (CPA). The SAO

will engage with CSOs in an effective manner around the audit cycle to jointly monitor the

quality of public expenditures to strengthen their impact in exercising public oversight.

34. Component 4: Institutional Capacity Building and Performance Management

[$20m]. This component aims to build capacity of MOF staff and the requisite systems for

effective functioning of the ministry, and to reinforce overall performance management and

coordination of the FPIP. It is organized along the following sub-components:

35. Backbone/shared services: This sub-component will support the functioning of the

corporate backbone and shared services of MOF, including through implementation of a strategic

planning exercise (functional review) to be supported through the Capacity Building for Results

(CBR) Facility. This will involve the development of a competency framework (to be supported

through the FPIP Advisory Facility) to assess the current capacity gaps at MOF and accordingly

guide recruitment and TA migration (working with the CBR Facility) performance management,

training and professional development. The sub-component will support MOF Administration

business process reengineering and automation, and digitalization of MOF’s archive system.

Measures to enhance aid management and projects’ coordination and monitoring, and public

outreach by MOF including of the FPIP, will also be facilitated.

36. Information Systems: This sub-component will be guided by an all-of-MOF Information

and Communications Technology (ICT) Assessment being undertaken through the FPIP

Advisory Facility. This is intended to lead to an ICT Strategy that informs the IT investments to

be carried out under FSP and enhanced systems connectivity, as well as institutional and staffing

aspects which need to be addressed.


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37. Performance Management: Based on the recommendations of a Scoping Report

completed as part of the FPIP Advisory Facility, this sub-component will provide support to

enhance collaborative leadership skills and to strengthen the cohesiveness and effectiveness of

leadership teams in the context of FPIP. This will involve the development of a Communications

Strategy including measures to institutionalize the process of behavioral change, to assist new

policy processes, and provide timely support to bridge policy and implementation gaps revealed

over the course of project implementation. Technical assistance will be provided to support the

MOF Performance Management Team (PMT) in the development of annual and mid-year

performance assessment reports of the FPIP, and the development of a publicly accessible web-

based Performance Management and Reporting System (PMRS).

B. Project Cost and Financing

B. Project Cost and Financing

Amount US$ in Millions

Project Components Project cost IDA Financing ARTF

Component 1: Budget as Tool for

Development 10.00 - 10.00

Component 2: Revenue Mobilization 40.00 15.00 25.00

Component 3: Treasury Management,

Accountability, and Transparency 30.00 5.00 25.00

Component 4: Institutional Capacity

Building and Performance Management 20.00 5.00 15.00

Total Costs 100.00 25.00 75.00

C. Lessons Learned and Reflected in the Project Design

38. The main lesson learned and that has driven both the initial conceptualization and

now design of the FSP relates to the need to de-fragment program assistance. Development

partners are providing support to MOF through multiple projects and instruments. These include

ARTF-funded government executed investment and capacity building projects (Second Public

Financial Management Reform Project [PFMR-II], Technical Assistance Facility [TAF], and

Second Customs Reform & Trade Facilitation Project), donor-executed technical assistance

projects, and policy-and-results based programs which provide discretionary budget support. The

fragmentation of donor assistance across these different instruments poses several challenges and

implementation frustrations for MOF. For example, the selective approach of each assistance

project leaves important areas within MOF under-resourced (e.g. MOF backbone and shared

service functions). The proliferation of projects also imposes high coordination cost across the

different stakeholders. The fragmentation of projects and governance structures undermines the


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efforts of MOF to consolidate reform planning and policy discussions within one single

leadership team. There is limited flexibility to mobilize assistance in new areas both on a timely

basis, and for emerging priorities while valuable resources get stuck in projects that

underperform.

39. The Bank’s programmatic approach to supporting the FPIP and most specifically

the FSP (the implementation arm of the programmatic approach), is envisioned to

overcome these challenges. It has resulted from the GoA’s request to the development

community to rethink its MOF assistance portfolio and approach, with MOF emphasizing its

desire to move to more programmatic, performance-based financing. The FSP and the other two

pillars of the Bank’s programmatic approach are a first step, allowing ARTF partners to

overcome the above challenges within the ARTF and World Bank portfolio. As a second step,

other development partners will be encouraged to pool their resources for FPIP implementation

behind the Bank program, or to align their assistance with the program’s unified governance

structure.

40. One of the lessons from the report on non-technical drivers of PFM reforms is that

there can be a tendency to move from reform to the next reform, rather than ensuring

greater bedding down of recently introduced systems – and this is particularly important in

a low capacity/ fragile and conflict affected context. The FSP does exactly this by

consolidating and building upon core PFM achievements such as in treasury function where

further roll-out and upgrade of AFMIS will continue. In other areas, there has been strong past

success but challenges remain. For instance, there are still no accounting standards in the

country. This is partly due to the previous overreliance on parallel systems that have constrained

capacity development within the SAO, which the FSP will now help to move on with an HR and

capacity building strategy. In other areas, considerable progress has been made – from a very

low base - in terms of setting the institutional foundations and establishing the legal framework.

Proposed reforms under the FSP will help to make the leap to implementation e.g. procurement

law implementation.

41. After 15 years of substantial efforts at PFM strengthening, a baseline institutional

capacity has been established but national capacity remains largely weak and spread thin.

Building from this lesson and in line with the Government’s self-reliance strategy, the FSP

prioritizes the building up of institutional capacities instead of relying on unsustainable donor-

financed project consultants. While it is designed primarily as a TA facility, the FSP will not

support “substitution” but rather the development of government systems and institutional

capacity. Consequently, a key result of the FSP relates to gradually reducing reliance on parallel

structures.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements


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42. Governance of the FSP, as of the other two pillars of the Bank’s programmatic

approach, will be firmly anchored in the leadership structure of the FPIP. Governance of

the FSP (and the programmatic approach as a whole) will be centered within the MOF

Leadership Team. The MOF Leadership Team - chaired by the Minister of Finance and

consisting of the Chief of Staff of MOF, the four MOF Deputy Ministers, all MOF Director

Generals and key Directors - meets twice per month and will meet at least three times per year on

FPIP, including heads of external FPIP partner agencies (NPA, SAO).

43. More frequent FPIP related meetings will be held through the Core Reforms

Group, which is the steering committee for the implementation of the FSP. The Core

Reforms Group (CRG) is composed of all members of the Leadership Team with the exception

of the Minister of Finance. The CRG, chaired by the Deputy Minister for Finance, will meet at

least once every two months and on an ad hoc basis as needed. It is fully authorized to provide

strategic guidance for the FSP, approve annual budgets and plans (including reallocation), and

review progress quarterly, as well as to ensure that the objectives of the FSP are aligned with the

FPIP, and the strategic vision of the GoA in fiscal reforms and other policy decisions. As

required, the MOF Leadership Team will validate decisions taken at the CRG. This arrangement

facilitates better implementation by providing more time and space for discussion and ensuring

swift decision making. Moreover, with the CRG – not the individual MOF beneficiary – guiding

the implementation of the program, it will ensure that support to MOF is no longer insulated

within individual departments, but assists all departments within MOF with FPIP

implementation. This will ensure 100% alignment with the FPIP.

44. The PMT, reporting to the Deputy Minister for Finance, will provide day-to-day

operational backstopping and coordination across beneficiary departments. The PMT

serves as the coordinating bridge, responsible for communication and follow up of decisions

between the steering committee and teams. The PMT acts as secretariat to both the Leadership

Team and Core Reform Group. In this role, the PMT provides an evidence-based decision

support system and coordinates teams’ efforts towards the achievement of the overall PDO of the

FSP. The PMT is responsible for ensuring that the FPIP work plans supported by the FSP are

synergized and add up, providing technical support to teams in reform planning, investment

planning and implementation monitoring. The PMT which comprises 6 members, has built up

considerable experience and knowhow and is planned to be buttressed with additional expertise

in M&E and change management.

45. The MOF, NPA and SAO will manage the implementation of the program through

corporate systems without the assistance of parallel PIUs. An overall Project Director – the

current MOF Director for Finance – has been appointed for the FSP. Each MOF Deputy

Ministry, the NPA and SAO will nominate a dedicated focal point (component coordinator) and

team with primary responsibility to implement FPIP plans, and who will be provided leadership

and project management training and coaching. On a quarterly basis, teams will report to the

PMT to prepare consolidated progress reports. Existing institutional arrangements will be used

for financial management which will be under the overall responsibility of the Finance

Directorate of MOF’s Deputy Ministry for Administration. The Procurement Directorates of


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MOF, NPA, and SAO respectively will be responsible for procurement. To empower and help

expedite beneficiary department’s implementation, the MOF Deputy Ministry for Administration

will second financial management and procurement staff to each MOF Deputy Ministry and to

the SAO, including key staff from existing MOF PIUs that are to be discontinued upon FSP

effectiveness. The selected PIU staff will be transitionally integrated into relevant core

departments (Tashkeel) within 18 months.

46. Beneficiary departments will be primarily responsible for implementation of their

respective FSP activities. In line with the in-built flexibility of the FSP, activity and

procurement plans would be updated regularly in close coordination with the PMT and in

consultation with the Core Reform Group. Refer to Annex 2 for detailed institutional and

implementation arrangements.

B. Results Monitoring and Evaluation

47. FSP, as a tool to support implementation of the FPIP and its performance

management framework, will draw on this established monitoring and reporting system.

The FSP Results Framework will utilize the mid-year and annual independently validated

assessments for monitoring, whereby data around FSP indicators would be collected by the PMT

through the PMRS it is developing. The PMT would report on implementation of the FSP as part

of twice yearly published and disseminated FPIP reports. Brief progress reports would also be

made available at the end of each quarter through the PMRS which will be online and open to

access of external users, to follow-up on targets and learn on bottlenecks and their resolution.

MOF is prepared to restructure its assessment reports to introduce additional measures, if

necessary, especially with respect to quality, accuracy and timeliness of data collection and

reporting, as well as measures to ensure timely corrective action.

48. The FPIP performance management framework provides a good structure but

needs improvement to make indicators specific and measurable. The performance

management cycle starts with directorates (SAO is not yet included) establishing rolling five

year plans at the start of the fiscal year. The rolling five years’ plan encompasses a number of

activities/actions that are largely inputs, as well as mostly general outputs and outcomes. These

are prioritized in terms of impact and risk, and on the basis of which, a list of flagship reforms is

prepared. The PMT is responsible to collate the information from directorates and prepare

performance reports, however, the baseline, the unit of measurement and sources of data are not

defined, and judgement is applied to monitor and evaluate indicators. The performance

management cycle includes independently validated mid-year progress and end year

performance assessments based on three weighted criteria: (i) Quality; (ii) Timeliness; and (iii)

Effectiveness.

Figure 1: FPIP Performance Management Framework


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49. The FSP Results Framework drills down to the key issues relevant to each of its

selected priority areas, drawn from the FPIP work plans. In recognition that the FSP is just

one of a three-pronged approach to support FPIP which itself is intended to be evolving

(“rolling”), this is done by specifying results at the level of intermediate outcomes, considered

priority and therefore continually relevant to FPIP. Where selected indicators are not currently

included in the FPIP rolling plans, MOF will incorporate these starting from the plans for 2018,

ensuring the FSP results framework is fully aligned with FPIP. Associated targets have also been

set to capture a sub-set of the broader program, reflecting realistic but meaningful

progress/functional improvements directly attributable to the project. capture progress within the

broader program.

C. Sustainability

50. The FPIP is derived from the GoA’s self-reliance strategy. Consequently, self-reliance

is a higher-level objective of the FSP, which is intended to make key contributions to both fiscal

and institutional self-reliance. Contributions through FSP to the goals established in the FPIP

would represent major advances in Afghanistan’s capacity to manage its public sector and

support improved domestic revenue mobilization, economic management and service delivery.

51. The FSP moves beyond business as usual. While TA projects over the past 15 years

have delivered important gains in developing a relatively strong-performing PFM system, the

FPIP signals a desire to improve on past performance. The programmatic approach (including

the FSP as its key implementation pillar) is intended to both reinvigorate progress as Afghanistan

seeks to move to the next level of performance, and also introduce a new emphasis on

sustainability, capacity building, and government leadership of reforms.

52. Through the FPIP, GoA has strongly committed to reforms to address corruption,

improve transparency and strengthen integrity. This focus on building the foundations for

stronger governance, supported tangibly by the FSP, will support government’s goal of


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mobilizing an increasing proportion of aid on-budget, as well as contributing to government’s

broad state-building agenda.

D. Role of Partners

53. The World Bank and development partners are providing support to MOF through

multiple projects and instruments. Support includes a range of investment and capacity

building projects. There are also a number of policy and results based programs with linkages to

the FPIP such as the results-based and Bank administered ARTF Incentive Program (IP), the

United States (US)-funded New Development Partnership Program, the European Union (EU)-

funded State Building Contract, and the new World Bank Development Policy Grant, all of

which provide discretionary budget support. The International Monetary Fund (IMF) also

approved a US$45 million three-year Extended Credit Facility (ECF) for Afghanistan in July

2016. The program will support a policy mix that aims to preserve macro-financial stability by

strengthening fiscal and external balances, keeping inflation low, and maintaining exchange rate

flexibility and strong buffers.

54. As part of FPIP implementation, MOF is taking the lead role in donor coordination. To avoid duplication and leverage comparative advantages, the current ARTF Working Group is

being expanded and reorganized into a budget support donor platform. This is to be co-chaired

by DMs Finance (FPIP) and Policy (ANPDF). The Policy Action (PACT) Coordination Platform

will coordinate and monitor reform commitments that are anchored in multi- or bilateral policy-

based programs and are managed by MOF. The new platform aims at: (1) improving MOF

governance of policy-based programs, and ultimately their performance; (2) enhancing

Government ownership, as well as; (3) improving Government-Donor coordination and

alignment across policy-based programs and Government strategies. Given the central role of the

FPIP in policy and results based programs, the PACT Coordination Platform is expected to also

play an important role in the coordination of international donor support around the FPIP. To

buttress this, MOF has been inviting donor partners to participate in FPIP annual planning and

assessment process. It has also communicated to donors to complete and close their TA projects

that are outside FSP.

V. KEY RISKS

A. Overall Risk Rating and Explanation of Key Risks

55. The overall risk rating for the project is “High”. This is acknowledged upfront and

reflects the comprehensiveness and ambition of the FSP vis-à-vis the difficult and fragile

operating context of Afghanistan, political economy factors, and inconsistencies in stakeholder

ownership, cooperation and capacity. Risks in four areas are most pronounced and could

potentially jeopardize the achievement of project results. These risk areas, discussed below, are:

(i) political and governance risks; (ii) macroeconomic risks; (iii) institutional capacity for

implementation and sustainability risks; and (iv) security risks.


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56. Political and Governance: There are multiple sources of political and governance risk

in Afghanistan. Power-sharing arrangements under the National Unity Government are a

continued source of tension and potential future instability. Current political arrangements and

the possibility of a new government pose risks of potential changes in the level of political

support for the FPIP. With a short window until the next election in 2019, the potential political

disruptions could delay FSP implementation. This risk is planned to be mitigated through trying

to move fast initially by “locking-in” priority flagship, underserved and more-advanced “quick

win” areas ahead of elections. There may be some slow down before another push (until project

completion) with potential adjustments once a new Government is established.

57. Macroeconomic: Afghanistan’s macroeconomic outlook is subject to substantial risks. The country remains heavily reliant on aid, and any reduction in security and civilian support

below expected levels would place pressure on fiscal sustainability and service delivery. Access

to continued external support is most likely to be sustained at expected levels if progress can be

sustained against key structural reforms. Successful implementation of the reforms planned

under FPIP (through FSP), including on revenue mobilization and expenditure management will

therefore help mitigate this risk, along with continued World Bank policy dialogue on fiscal

management and structural reforms under the IP Plus.

58. Institutional Capacity for Implementation and Sustainability: The public sector in

Afghanistan is characterized by highly uneven and thinly spread technical capacity. The context

of long-term aid dependency had left some agencies and reform processes heavily dependent on

international technical assistance, and vulnerable to associated delays, discontinuities, and

coordination problems. The Government is fully aware of these capacity deficiencies. This is

reflected in the design of the FPIP (and thereby the FSP), which places strong emphasis on

institutional transformation, across technical directorates but also within the corporate backbone

of MOF. This risk is further mitigated through the FPIP Advisory Facility which has provided an

entry point for the carry-out of Bank-executed upfront work critical to the implementation of the

FSP, especially in the absence of a PIU (refer to Annex 3 for the Bank’s implementation support

plan and Annex 4 for further details on activities supported by the FPIP Advisory Facility).

59. Security (Other): Continued insurgent activity represents another source of risk to

achievement of the PDO. Deterioration in the security situation could divert government capacity

and policy attention from supported reforms, impede the provision of technical assistance, or

undermine the expected impact of supported reforms. Previous experience has shown that the

Bank can successfully monitor and support implementation of reform programs even with a

limited in-country presence.

60. In addition, risks in several areas are rated “Substantial”, including:

a. Technical Design of Project: The breadth and technical sophistication of certain aspects

of the FPIP may prove excessively ambitious. Attempting to implement such a broad

range of reforms may also spread available capacity too thin, potentially slowing

progress. The scope of the FSP will not be narrowed - MOF has been clear that the FPIP


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should be supported in its entirety to ensure that interdependencies and

complementarities between different aspects of reforms are recognized and managed as

part of a coherent cross-ministry planning process. Moreover, the FSP includes several

new areas of support (e.g. HR, SOEs, AEITI), some of which (e.g. backbone/shared

services) are precisely where MOF is keenest for Bank support. However, FSP support

will be staggered to front-load reforms that are the most likely to be robust, feasible and

critical from a political economy perspective and with the greatest buy-in. This will

consider the implementation window until the 2019 elections, technical complexity and

inherent context-driven challenges.

b. Sector Strategies and Policies: Linked to the technical design of the project is the

political sensitivity of some of the planned reforms, for instance on linking HR systems

with a payroll generation module, the implementation of AEITI, which has not

progressed much since 2009, and issues around incentives that might prevent some areas

of reform such as customs enforcement to succeed. Another element is the inherent lack

of predictability of a fragile and aid dependent environment, which might impact, for

instance, medium term fiscal and expenditure frameworks. With this in mind, the FSP is

designed to allow the Bank together with government to periodically reassess the

appropriateness of policy actions supported by technical assistance. The programmatic

approach as well as the built-in financing flexibility of the FSP also gives the project the

agility to respond to changes as certain reforms unexpectedly gain or lose traction.

Another issue relates the performance management framework of the FPIP. Target scores

against ‘aspirational’ benchmark indicators, if achieved, would place Afghanistan among

the top tier of developing countries in terms of the comprehensiveness of its PFM

systems and adoption of best practices. While establishing aspirational goals can be

useful, there are risks that such goals are perceived as unrealistic. To mitigate these risks,

results supported by the FSP while directly linked and feeding into the overall

performance management framework, would be specified at the level of intermediate

outcomes rather than as specific technical reforms. In this way, the Bank would be

supporting achievement of the objectives of the FPIP while avoiding “cherry-picking”,

and incentivizing across plan actions.

c. Fiduciary: The FSP will be implemented by MOF, NPA, and SAO using country

systems. This is a necessary step to promote self-reliance, in terms of both fiscal

sustainability and core institutional capacity, but poses fiduciary risks in the short-term.

Financial Management and Procurement assessments have been undertaken by the Bank

as part of project preparation. These highlight specific risks arising from gaps in fiduciary

systems (including low civil service capacity) and recommend mitigation. MOF’s plan to

retain key staff from discontinued PIUs to support procurement, manage contracts

(including for SAO) and help build MOF’s corporate backbone, is one avenue through

which fiduciary risks can be significantly managed. Risks associated with failure to build

capacity by these staff due to for instance, perverse incentives, will be mitigated through

their integration into core civil servant positions within 18 months. This has already been

agreed with the selected staff and will be facilitated through MOF’s existing CBR

managed-TA transfer program which allows staff to retain higher National Technical

Assistant (NTA) salaries as (CBR-recruited) Tashkeel. NPA will conduct its own


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procurement and has adequate capacity to do so, and it will carry out large procurement

packages on behalf of SAO. The SAO’s Procurement Directorate will be responsible for

the SAO’s small procurement packages. As an additional mitigation measure, the Bank

has also recommended that an International Procurement Consultant be hired to provide

overall support to all three entities over the first 6-12 months of FSP implementation.

Moreover, much of the advance work carried out through the FPIP Advisory Facility has

focused on fiduciary aspects, carried out in tandem with preparation of the project

procurement plan. This includes preparation of a Project Procurement Strategy for

Development (PPSD). Supporting analysis (all-of-MOF ICT Assessment) informing

complex design and procurement, specifically of IT systems (and their connectivity),

both new and expanded IT systems is also underway. MOF already has considerable

experience and success with IT reforms, notably AFMIS, secured through PFMR-II.

Reform Implementation and Management Unit (RIMU) (PFMR-II PIU) staff including

those that contributed to IT reforms, are amongst the staff that have agreed to be

integrated into the core Tashkeel of MOF.

d. Stakeholders: Varying degrees of FPIP buy-in and ownership (and complexity of

reforms across the different teams) poses risks to implementation. The success of the

FPIP requires upfront commitment and coordination to be institutionalized across the

whole of MOF, starting with the MOF Leadership Team. The capacity of some teams to

achieve their goals will depend on actions by other teams. Coordination will need to be

both systematized and incentivized. This is partly addressed by the three-pronged

approach to FPIP, with: (a) the FPIP Advisory Facility helping to lay foundations; (b) the

FSP financing relevant investments; and (c) the IP Plus incentivizing results. The built-in

flexibility of the FSP to move away from underperforming areas and teams further helps

to reduce impact on overall implementation. The placement of the PMT responsible for

day-to-day coordination of the FPIP as a secretariat to the MOF Leadership Team and

CRG anchored within the Office of the Deputy Minister for Finance (chairing the CRG)

is also a sensible approach. Additionally, a Change and Performance Management

Scoping Mission undertaken through the FPIP Advisory Facility, has provided concrete

recommendations to enhance collaborative leadership skills and to strengthen the

cohesiveness and effectiveness of leadership teams in the context of FPIP. Another

stakeholder risk relates to the heavy emphasis on MOF and potential underserving of

other government entities (outside of NPA and SAO). The majority of targeted reforms

while led by MOF, require the coordination and inputs of other line ministries. MOF’s

important role in strengthening capacity of other ministries needs to be considered. The

FPIP may not completely capture some key activities where MOF staff will need to

provide capacity support to other ministries. One example where it does, is in internal

audit. Another example where it may not do, is in the implementation of medium-term

budget framework, which will likely depend on the availability of accurate bottom-up

costing information from line ministries which they may not currently have systems and

capacity to produce. Similarly, it is unclear how PFM constraints are affecting the

delivery of services in health and education. To address this issue, CBR will be utilized to

strengthen links to other ministries. A new phase of CBR is currently under preparation


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and foresees support to the functional streamlining and reform of priority ministries. This

will help to build a larger coalition around the project beyond MOF.

61. Environmental and Social risk is rated as “Low” given that no physical works are

anticipated to be directly funded under the project.

VI. APPRAISAL SUMMARY

A. Economic and Financial (if applicable) Analysis

62. There are three main channels through which there will be a first order impact of

the FSP on growth and development. Broadly, most of the activities are likely to lead to three

outcomes – enhanced revenue mobilization which in turn will result in increased expenditures,

increase in the budget execution rate and an improvement in the efficiency of public

expenditures.

63. The proposed VAT in Afghanistan is expected to widen the tax base and promote

efficiency. The FSP aims to build capacity in the Government to raise taxes in the most optimal

manner where the deadweight loss to the economy is minimized. Moreover, the FSP’s approach

to revenue mobilization is primarily focused on improving tax and customs administration to

maximize revenues in the existing tax policy regime. The resulting improvements are likely to

lead to faster pace of revenue accretion i.e. improved revenue buoyancy without major changes

in the tax policy regime.

64. Improved budget execution will lead to an increase in spending. The degree to which

expenditure policy supports growth depends on the level or quantum of expenditures. If every

condition in the environment in which spending occurs were to be held unchanged, more public

expenditure would necessarily result in greater realization of current development outcomes,

simply because there would be more resources available to commit to the development problem.

The current budget execution rate is at 76 percent of the budgeted amount. An increase in the

budget execution rate will improve the level or quantum of spending and lead to greater

outcomes.

65. An increase in the efficiency of expenditures will improve development outcomes for

each incurred unit of expenditure. The other channel through which expenditures support

development outcomes is through improving the efficiency with which these resources are spent

or improvement in the fiscal multiplier. Recent cross country research by the World Bank has

identified that in low income countries ‘Absorptive Capacity’ of the government plays an

important role in the effect of government spending on the real GDP growth. Absorptive

Capacity is the ability of the Government to identify, attract and efficiently use financial

resources (domestic and external) (Asea, 2016). In effect, it’s the ability of the Government to

marshal and use all its resources - economic and human - in support of its stated economic

policies. The research quantifies that a one standard deviation change in absorptive capacity


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leads to an increase of 18 percent in the multiplier effect, compared to the average. As stated

earlier, this increase in the absorptive capacity works through improving the quantum of the

fiscal multiplier.

66. The FSP will help the government spend more and spend better. The economic

analysis will try and quantify the effects on the overall level and growth of the economy. While

these are first order effects, second order effects will work through many channels because more

and better managed public expenditures will affect all sectors of the economy. Identifying all

these channels is beyond the scope of the analysis and quantifying them is even more

problematic. Therefore, the economic analysis focuses on the direct or first order impact of the

project.

67. Through increasing budget execution rates, the FSP could increase GDP growth by

0.5 percentage points annually. The execution rate of the total budget is at 76 percent in 2016 –

90 percent for the operating budget and 54 percent for the development budget. The relative

proportion of the operating and development budget is about 62: 38. Assuming that their relative

proportions remain unchanged, the FSP target of improving the execution rate of the

development budget from 54 to the targeted 75 percent would mean an improvement in the

overall budget execution rate from the current 76 percent to 84 percent in 2021. It is assumed

that this improvement occurs in a linear manner. As estimated by the World Bank, the current

fiscal multiplier for Afghanistan is at 0.78, i.e. an increase in public spending by 1 percentage

point of GDP leads to a 0.78 percent increase in nominal output (GDP) (The World Bank, 2017).

Given these conditions, the increase in the development budget execution rate from 54% to 75%

by 2021, could expand the GDP by about USD 1.8 billion between 2017 and 2021.

68. Bank analysis indicates that improvement in the efficiency of expenditures could

also generate important gains. The FSP directly addresses parameters that will enhance this

absorptive capacity, particularly through better public investment management. Cross-country

empirical studies indicate that an improvement by one standard deviation in the absorptive

capacity of a country, compared to the average absorptive capacity of the sample of countries,

can lead to an increase of 18 percent in the multiplier effect. Assuming the absorptive capacity of

the government will improve by one fifth of the standard deviation, over the next five years

(until 2021) in a linear manner each year, then by 2021, the fiscal multiplier for Afghanistan

could improve from 0.78 to 0.81. In nominal terms this will amount to USD 50 million gain in

the GDP over five years. While the initial gains may sound benign, efficiency gains will persist

and grow exponentially over time even after the program concludes.

69. The estimated first order impact of the FSP on economic growth via both the

channels – increase in execution rate and more efficient resources allocation – will be an

increase in the growth rate by an average of 0.5 percentage points each year from 2017 to

2021. As a result, the size of the economy will expand by more than 2 percent over the baseline

scenario with no FSP. Hence the first order impact of FSP investment of USD 100 million has

the potential to expand the economy by a cumulative of USD 1.85 billion between 2017 and

2021.


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Table 1: First order impact of FSP on GDP (USD million current prices)

Year Nominal GDP

(US$ millions)

Nominal GDP:

increased

expenditure

Nominal GDP:

improved

efficiency

Total % of GDP

2017 21309 87 1 87 0.41

2018 22777 193 3 196 0.86

2019 24281 330 7 338 1.39

2020 25852 491 14 506 1.96

2021 27266 699 25 724 2.65

70. Second-order impacts of the FSP are potentially large. The FSP will make a

substantial contribution towards reducing corruption, improving the business environment, and

fostering a more rule-based approach. The impact of these changes is potentially very large. For

example, recent research using a panel of 106 countries estimated that 10% reduction in the level

of corruption increases the growth of real per capita growth by 7.86% (d'Gostino, Dunne, &

Pieroni, 2016). Similarly, work by Djankov and others has quantified the economic gains from

improving a country’s performance against the Doing Business Indicators (DBIs) and the impact

on economic growth. Specifically, Djankov et al (2006)8 find that a country that can improve its

ranking by one place gains an additional 0.04 percentage point increase in the rate of economic

growth. In addition, the introduction of VAT from 2020, is expected to improve revenues by 1.5

percentage points from 2020 onwards.

B. Technical

71. FSP is strategically relevant to and reflects government priorities. World Bank

support to implementation of the FPIP, and specifically the FSP, was requested by the President

and the Minister of Finance. It is required to support Government’s efforts to improve domestic

revenue mobilization and public expenditures management, and reinforce a performance oriented

management culture in the Ministry of Finance and related entities. It is not only based on the

existing government program but also directly aligns with the government’s vision of self-

reliance. Specifically, the FSP is focused towards supporting activities of the Five-Year Plan

across MOF and non-MOF FPIP entities (SAO and NPA).

72. The Project is technically sound for the following reasons: (i) it builds on previous

PFM reform efforts and investments through consolidating disparate pieces of the PFM

institutional and systems regime, and working towards integration, sustainability and deepening

reforms; and (ii) the Project is focused on building institutional capacity and reducing reliance on

consultants which is an important element of the government’s self-reliance vision. Moreover,

8 See for example Djankov, McLiesh and Ramalho (2006), Djankov, Freund, and Pham (2010) and Corcoran, and Gillanders

(2015) examine the links between the ease of doing business and economic growth.


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while the Project is ambitious in its scope (reflecting the government’s full FPIP program), its

design takes into account the political economy risks and the short window to elections. During

appraisal, the Bank team worked with government on applying readiness criteria which could

help to prioritize and sequence (“front-load”) activities, and for which the preparation of annual

project work plans could be leveraged. On this basis, the FSP “locks-in” flagship, underserved or

more-advanced (“quick win”) reform areas included under the FPIP in the first 18 months of

implementation (up to elections). Consistent with international lessons regarding basics first and

“problem driven” approaches, it was agreed that the program would initially focus on: (a) core

PFM functions that underpin and must precede the more ambitious aspects of the FPIP; and (b)

areas where current weaknesses are presenting serious threats to economic management and

service delivery. The project design also includes flexibility to reallocate resources from low

performing to high performing (sub) components. Refer to Annex 2 for more detailed description

of readiness criteria.

73. Anchorage of the FSP in MOF has been assessed as feasible and consistent with the

Government’s request. This direct recipient execution model which positions the GoA in the

lead is grounded in lessons from TA facilities in several countries as well as similar projects in

Afghanistan where government ownership has often been weak, especially during design and in

early implementation. This arrangement also responds to Government’s commitment to enhance

the capacity of core Government functions and gradually transition away from parallel

implementation structures.

74. Outputs produced under the FSP will remain in ownership of the Government.

These will not be attributed as Bank’s own work; however, the Bank’s strong involvement will

be there to support MOF’s capacity for ensuring fiduciary compliance. The task team will also

bring in the Bank’s global knowledge and expertise – across and beyond the Equitable Growth,

Finance, and Institutions (EFI) Vice Presidency - through the technical oversight, quality

assurance and monitoring of outputs, as well as in the deployment and synergy of

complementary instruments (FPIP Advisory Facility, ARTF Incentive Program, CBR etc.) for

the benefit of the FSP, and FPIP at large.

C. Financial Management

75. The MOF will carry out the financial management functions for the project through

its Finance Directorate. MOF guidelines for budget preparation will be followed. Project

accounts will be maintained in MOF Treasury Department in AFMIS, which records all project

expenditures and receipts in the government’s accounting system. The Finance Directorate will

maintain subsidiary books of records using MS Excel. IAD of the MoF will carry out the

Project’s semi-annual internal audit. Disbursements will be report based. A Designated Account

(DA) will be opened at Da Afghanistan Bank (DAB, Central Bank). The Finance Directorate will

process all payment requests through the Special Disbursements Unit (SDU) of MOF. Semi-

annual interim financial reports (IFRs) will be prepared by the Finance Directorate and submitted

to the Bank within 45 days from the end of the period. The Project follows the centralized

payment mechanism applied in Afghanistan and controlled by MOF. Internal controls are


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adequate both at the central and implementing agency levels. An annual project audit will be

carried out by the Supreme Audit Office (SAO) with technical assistance from an audit agent

funded under the project and based on the project financial statements prepared by MOF. The

audited financial statements will be submitted not later than 6 months after end of each fiscal

year in which the Project is implemented. There are no overdue audit reports, IFRs or unsettled

ineligible expenditure in respect of MOF. The FM risk rating is Substantial. Refer to Annex 2 for

detailed financial management arrangement.

D. Procurement

76. Procurement will be carried out in accordance with the Bank’s Procurement

Regulations for Borrowers for Goods, Works, Non-Consulting and Consulting Services and

applicable to Investment Project Financing (IPF) hereinafter referred to as “Regulations”. The

Project will be subject to the Bank’s Anticorruption Guidelines, dated October 15, 2006, and

revised in January 2011 and July 1, 2016. The World Bank’s Procurement Manual, Standard

Procurement Documents (SPDs), Requests for Proposals and Forms of Consultant Contract will

be used. The government has prepared and shared a PPSD which details the procurement

methods and approaches. Procurement staff are also attending the necessary procurement

training under another Bank funded project (PFMR-II). The Project will implement the

Systematic Tracking of Exchanges in Procurement (STEP): a World Bank planning and tracking

system, which would provide data on procurement activities, and establish benchmarks.

77. Based on the initial procurement capacity assessment, the threshold of High Risk

Implementing Agency will apply for the prior review of the contracts under the Project. A

PPSD outlining the oversight arrangements for procurement processes as well as contract

execution has been prepared. In terms of capacity, while MOF initially planned to recruit a

procurement and contract management agent to support the transition away from the use of PIUs,

it now plans to retain key staff (including for SAO) from discontinued PIUs (to be integrated into

Tashkeel within 12 months). Several of these have experience with IT procurement, notably

AFMIS through PFMR-II. An all-of-MOF ICT Assessment to guide new and upgraded systems

and infrastructure is also under way through the FPIP Advisory Facility. The NPA will conduct

its own procurement and has adequate capacity to do so, and it will carry out large procurement

packages on behalf of SAO while NPA helps build up the capacity of SAO’s Procurement

Directorate. The SAO will be responsible for its small procurement packages through its

Procurement Directorate. As an additional mitigation measure, the Bank has also recommended

that an International Procurement Consultant be hired to provide overall procurement support

over the first 6-12 months of implementation. Refer to Annex 2 for detailed procurement

arrangement and Annex 6 for the FSP Procurement Plan.

E. Social (including Safeguards)

78. The Citizen Participatory Audit would be a new exercise for the Supreme Audit

Office. While the SAO has developed the framework for citizen participatory audits based on

knowledge exchange with other Supreme Audit Institutions (SAIs), this has not been


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implemented for Afghanistan. The citizens are not much aware about PFM systems in the

country and the mechanism of participatory audits. Initially, the SAO will focus on information

dissemination using a combination of workshops, seminars, round table discussions, forums and

trainings to educate and sensitize citizens about the role of external audit and areas of

cooperation. Moreover, the external audit reports will also be made publicly available. Few

CSOs will be identified and training sessions will be organized on how to operationalize citizen

participation in public oversight.

F. Environment (including Safeguards)

79. No environmental safeguards are triggered. The Project does not include any physical

works and will therefore not have any environmental impacts.

G. Other Safeguard Policies (if applicable)

80. None of the World Bank’s safeguard policies are triggered. Considering that there are

no potential negative social and environmental impacts expected, the Project has a safeguards

risk rating of “Category C”.

H. World Bank Grievance Redress

81. Communities and individuals who believe that they are adversely affected by a World

Bank (WB) supported project may submit complaints to existing project-level grievance

redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that

complaints received are promptly reviewed in order to address project-related concerns.

Project affected communities and individuals may submit their complaint to the WB’s

independent Inspection Panel which determines whether harm occurred, or could occur, as a

result of WB non-compliance with its policies and procedures. Complaints may be submitted

at any time after concerns have been brought directly to the World Bank's attention, and Bank

Management has been given an opportunity to respond. For information on how to submit

complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit

http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service.

For information on how to submit complaints to the World Bank Inspection Panel, please visit

www.inspectionpanel.org. .

http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service

http://www.inspectionpanel.org/


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VII. RESULTS FRAMEWORK AND MONITORING

Results Framework COUNTRY : Afghanistan

Fiscal Performance Improvement Support Project (FSP): Project Development Objectives

To contribute to the improvement of domestic revenue mobilization and public expenditures management, and of reinforcing a performance oriented management culture in the Ministry of Finance. Project Development Objective Indicators

Indicator Name Core Unit of Measure

Baseline End Target Frequency Data Source/Methodology Responsibility for Data Collection

Name: Increased development budget execution rate

Percentage 54.00 75.00 Annual

Annual audited financial statement and Qatia accounts of GoA and quarterly budget execution reports for development budget prepared by MOF.

Budget and Treasury directorates of MOF to prepare financial statements, Qatia accounts and budget execution reports. SAO to conduct audit.

Description: This indicator measures the proportion of actual development expenditure during the fiscal year against development budget approved by the legislature at the start of the fiscal year.


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Name: Increased domestic revenue as a percentage of GDP


Macro-Fiscal Policy Department, Afghanistan Revenue Department, and Afghanistan Customs Department reports.

Government of Afghanistan

Description: This indicator measures revenue collected and reported by the government as a percentage of the country's GDP.

Name: Effective implementation by budgetary units on the external audit recommendations


Report from Audit Management Information System (AMIS) established and implemented at SAO, verified by third party.

Supreme Audit Office

Description: This indicator measures for each audit year, the number of audit recommendations implemented by the 10 largest spending ministries against total number of audit recommendations agreed between the SAO and respective ministry during annual audit.

Name: Improvement in core institutional capacity, represented by a reduction in the number of long-term technical assistants

Number 499.00 250.00 Annual

Monitoring report of the MOF, verified by the Bank.

MOF Administration Deputy Ministry (Human Resources Department)


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Description: This indicator measures the performance by MOF civil servants of functions previously performed by consultants, by tracking the reduction in long-term consultant numbers.

Intermediate Results Indicators



Name: Increased budget execution rate of the provinces by implementing new provincial budgeting policy.


MOF budget execution reports by each province.

Budget Directorate

Description: This indicator measures the proportion of total expenditure at each of the 34 provinces during a fiscal year against the budget approved by the legislature at the start of the fiscal year.

Name: Improved gender disaggregated statistical analysis and documentation

Text Gender disaggregated budget and expenditure data not available

Gender disaggregated budget and expenditure data, and statistical analysis available for 6 pilot ministries

Annual

Budget and Expenditure reports with gender disaggregated statistical analysis.

Budget Directorate and Gender Responsive Budget (GRB) unit of MOF


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Description: This indicator measures improved gender disaggregated statistical analysis and documentation in the public financial management system within six GRB pilot ministries.

Name: Large projects are properly appraised with the support of a new PIM Unit to be established


BC-1 forms of projects costing more than US$10 million appraised during a financial year, verified by the Bank.

MOF Policy Deputy Ministry (PIM Unit)

Description: This indicator measures the proportion of projects of more than US$100 million that are properly appraised, evidenced through Budget Circular (BC) 1 forms including economic analysis and detailed costing.

Name: Effective M&E of development projects through development of a proper M&E system


MOF Policy Deputy Ministry M&E reports.

MOF Policy Deputy Ministry (M&E Department)

Description: This indicator measures the proportion of all development projects monitored and evaluated through the new M&E framework and system to be developed by the MOF Policy Deputy Ministry.

Name: Implement ARD Re-Organization and Modernization Plan

Text Plan approved by cabinet

All regional revenue offices report to ARD

Annual

Periodic progress reports on plan implementation by ARD, verified by the Bank.

Afghanistan Revenue Department


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Description: This indicator measures implementation progress against ARD Re-organization and Modernization Plan that has been approved by the Cabinet.

Name: Increased number of active tax filers

Text LTO: 195; MTO: 5325; STO: 3137

LTO: 380; MTO: 10400; STO: 6713

Annual

Number of tax returns by tax payer as reported by SIGTAS.

ARD

Description: This indicator measures the number of income tax returns filed by large tax payers, medium tax payers, small tax payers, and corporate entities.

Name: Staff and business processes are in place for VAT implementation in 2020

Text No staff or processes in place

VAT business processes developed and staff trained

Annual

ARD approved plan and progress reports.

ARD

Description: This indicator measures the progress of ARD against the agreed work plan to build its human resources and systems for VAT implementation in 2020.

Name: Percentage increase in custom duties through enhancement of ASYCUDA customs automation


ASYCUDA implementation report and ACD Annual Report

ACD

Description: This indicator measures progress on the introduction of new ASYCUDA modules (including automation of customer service center, and single window extension), to support increased annual customs duty collected by ACD and deposited in Treasury.


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Name: Web based AFMIS extended to embassies and selected districts, municipalities, and SOEs

Text No embassy, district, municipality, and SOE connected to AFMIS

All embassies, 300 districts, 20 municipalities, and at least 5 SOEs connected to AFMIS

Annual

AFMIS extension progress reports against approved rollout plan.

Treasury Department

Description: This indicator measures progress on extension of AFMIS to embassies and selected districts, municipalities, and SOEs, through provision of access rights and training to users at targeted spending units.

Name: Afghanistan Institute of Certified Public Accountants (CPA) established and two batches trained

Text Institute not established

Institute established, CPA law enacted, and curriculum developed

Annual

Treasury Department CPA establishment progress reports

Treasury Department

Description: This indicator measures progress towards establishing the accountancy profession in Afghanistan.

Name: Number of IADs in Line Ministries that are strengthened and functioning based on


MOF Internal Audit Department progress reports

MOF Internal Audit Department


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standards set out by IIA

Description: This indicator measures the number of line ministry internal audit departments strengthened (by MOF IAD) in line with standards set by the Institute of Internal Auditors. Currently, with the exception of MOF IAD, no IAD is functioning per standard.

Name: Rolling out e-GP in the pilot phase in 3 or more departments


National Procurement Authority progress reports based on data from e-GP system.

National Procurement Authority

Description: This indicator measures progress towards procurement, commissioning and roll-out of e-GP system in 3 identified pilot departments.

Name: Simplification and standardization of MOF Administration business processes

Text MOF Administration business processes not simplified and standardized

MOF Administration business processes simplified and standardized

Annual

MOF Administration business process simplification and standardization progress report.

MOF Deputy Ministry of Administration

Description: This indicator measures progress towards simplification and standardization of MOF Administration business processes.

Name: Improvement in Number 90.00 140.00 Annual FPIP assessment reports Performance


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performance management coverage, represented by an increase in the number of teams adopting FPIP

Management Team

Description: This indicator measures the number of teams that use the FPIP to regularly report and evaluate progress.

Name: Transparency and citizen engagement in reform planning, represented by timely publication of annual and mid-year FPIP assessment reports

Yes/No N Y Bi-annual

MOF website, Performance Management and Reporting System, media etc.

MOF

Description: This indicator measures transparency and citizen engagement in the FPIP reform process, through timely public disclosure of annual and mid-year FPIP assessment reports.


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Target Values Project Development Objective Indicators FY

Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End Target

Increased development budget execution rate

54.00 57.00 62.00 66.00 70.00 75.00 75.00

Increased domestic revenue as a percentage of GDP

10.70 10.90 11.20 11.60 12.00 12.20 12.20

Effective implementation by budgetary units on the external audit recommendations

15.00 20.00 30.00 40.00 50.00 60.00 60.00

Improvement in core institutional capacity, represented by a reduction in the number of long-term technical assistants

499.00 450.00 400.00 350.00 300.00 250.00 250.00

Intermediate Results Indicators FY


Increased budget execution rate of the provinces by implementing new provincial budgeting policy.

57.00 60.00 65.00 69.00 72.00 75.00 75.00

Improved gender disaggregated statistical analysis and documentation

Gender disaggregated

Framework for gender disaggregated

For 1 pilot ministry, gender

For 2 pilot ministries, gender



Gender disaggregated


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budget and expenditure data not available

statistical analysis developed and rolled-out.

disaggregated budget and expenditure data, and statistical analysis compiled in a report




budget and expenditure data, and statistical analysis available for 6 pilot ministries

Large projects are properly appraised with the support of a new PIM Unit to be established

10.00 15.00 20.00 30.00 40.00 50.00 50.00

Effective M&E of development projects through development of a proper M&E system

0.00 20.00 40.00 60.00 80.00 100.00 100.00

Implement ARD Re-Organization and Modernization Plan

Plan approved by cabinet

Readiness Phase Completed: All preparatory steps to implement ARD Re-organization and Modernization plan carried out

Phase 1 Completed: Leadership Cadre and Corporate Support Services established

Phase 2 Completed: Kabul and two other regional revenue offices report to ARD

Phase 3 Completed: Kabul and four other regional revenue offices report to ARD

Phase 4 Completed: All regional revenue offices report to ARD

All regional revenue offices report to ARD

Increased number of active tax filers LTO: 195; MTO: 5325; STO: 3137

LTO: 232; MTO: 6340; STO: 3850

LTO: 269; MTO: 7355; STO: 4450

LTO: 306; MTO: 8400; STO: 5150

LTO: 343; MTO: 9400; STO: 5850

LTO: 380; MTO: 10400; STO: 6713

LTO: 380; MTO: 10400; STO: 6713


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Staff and business processes are in place for VAT implementation in 2020

No staff or processes in place

VAT Work Plan established, including staffing plan

VAT staff recruited and trained

Preparatory work to develop business processes and implementation finalized

Business processes developed and implementation plan ready



Percentage increase in custom duties through enhancement of ASYCUDA customs automation

5.00 10.00 30.00 60.00 80.00 100.00 100.00

Web based AFMIS extended to embassies and selected districts, municipalities, and SOEs

No embassy, district, municipality, and SOE connected to AFMIS

10 districts and 10 municipalities connected to AFMIS

10 embassies, 50 districts, and 20 municipalities connected to AFMIS





Afghanistan Institute of Certified Public Accountants (CPA) established and two batches trained

Institute not established

CPA law drafted and curriculum outline developed

CPA law enacted and curriculum developed

Training completed for first batch (including at least 5 females), and reciprocal membership agreement signed with two international/r

Training initiated for second batch (including at least 10 females)




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egional accountancy bodies

Number of IADs in Line Ministries that are strengthened and functioning based on standards set out by IIA

0.00 5.00 10.00 15.00 20.00 26.00 26.00

Rolling out e-GP in the pilot phase in 3 or more departments

0.00 0.00 1.00 2.00 2.00 3.00 3.00

Simplification and standardization of MOF Administration business processes

MOF Administration business processes not simplified and standardized

Mapping of 50% of relevant MOF administration processes completed

Mapping of 100% of relevant MOF Administration processes completed

Standardization of 30% of relevant MOF Administrative processes completed



MOF Administration business processes simplified and standardized

Improvement in performance management coverage, represented by an increase in the number of teams adopting FPIP

90.00 100.00 110.00 120.00 130.00 140.00 140.00

Transparency and citizen engagement in reform planning, represented by timely publication of annual and mid-year FPIP assessment reports

N Y Y Y Y Y Y


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Annex 1: Detailed Project Description

1. Component 1: Budget as Tool for Development [$10m]. This component aims to

increase budget credibility by improving the efficiency of budget processes, realistic budget

estimation and costing, linking budget with policy and introducing medium term budgeting. It is

organized along the following inter-linked sub-components:

2. Budgeting Processes: Weaknesses in the existing budgeting processes and systems

contribute to low budget execution: (a) budget processes are focused on allotments rather than

realistic costing; (b) provinces have no financial autonomy to prepare budgets; (c) large

development projects are included in the budget without appraisal; (d) information systems used

for budgeting and accounting are not integrated; and (e) ministries prepare procurement plans but

these are not integrated with budgeting; procurement plans are often prepared after budget

approval.

3. As part of the FSP, budget processes will be revised with a focus on realistic cost

estimation, better commitment controls and gender-sensitivity. Budget disclosures and

comparability of budget and accounts will also be improved. This first requires linking the

budget to PIM systems. Under the FPIP Advisory Facility, the Bank is conducting a PIM

Assessment, the recommendations of which will be implemented under the FSP. Incorporating

procurement planning into the preparation of budgets, particularly for development projects, and

development and implementation of forward estimates for multi-year budget planning are the

other measures planned to help formulate realistic budgets. Implementation of new processes

derived from the provincial budgeting policy delegating financial authority to the provinces;

development and roll-out of an Operations and Maintenance (O&M) policy; and improving

budget disclosures and comparability of budget and accounts are the other key reforms to be

implemented.

4. Gender Responsive Budgeting (GRB) was introduced as part of the budget procedures in

Afghanistan by the MOF with technical support from the United Nations Development

Programme (UNDP) and United Nations (UN) Women. MOF has been piloting GRB in six

ministries and although the program has had some achievements, including the drafting of a

GRB Strategic Action Plan and the development of a GRB manual, it continues to be limited in

scope due to technical capacity issues, scarcity of human resources and finances, and lack of

gender-disaggregated data. The Gender Budget Cell within MOF was to be comprised of a group

of senior and mid-level officers from various departments, but only has one senior GRB

Specialist on hand. The FSP will support gender mainstreaming in the budget process by

complementing the capacity building activities of UN Women with a focus of making the GRB

Cell at MOF a functional cross-cutting unit. This will include proper staffing of the GRB Cell,

institutionalizing the GRB Cell as a unit of the Budget Department, supporting its capacity to

develop a framework for gender disaggregated statistical analysis, and aligning GRB

implementation with ongoing and planned budget reforms


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5. In terms of information systems, the FPIP Advisory Facility is supporting the preparation

of a medium-term ICT Strategy for MOF. This will be critical to aligning information needs

with future investments in technology. At present, MOF operates different information systems

for budgeting, treasury, revenue, customs, and debt/grants management that are not integrated.

MOF has hired some IT staff but support services are largely being provided by the software

vendors. Based on the recommendations of a study currently being undertaken to evaluate

available options and MOF’s ICT Strategy, the FSP may support the implementation of an

interfaced Budgeting and Planning IT Solution (BPIS), including rollout to line ministries.

6. Fiscal Policy: The development of well-designed medium term frameworks, taking into

consideration the resource ceilings and fiscal sustainability constraints, is critical. The FSP will

thus support MFPD in improving the fiscal strategy, including alignment the government budget

with Government priorities, enhancing the quality of the MTFF, as well as strengthening PIM

systems. Support to MFPD will include enhancing the capacity of secretariat and advisory

services to the HEC, TPDC, and development and implementation of a sustainable debt policy.

Professional development opportunities for MFPD, including trainings and formal qualification

programs will also be provided.

7. Development Policy: To increase the efficiency of public spending and linking fiscal

strategy to budget strategy, FSP will support the preparation and M&E of updated, consolidated

and costed sector strategies and work plans, and ensuring their alignment with the budget. It will

also involve the development of a PIM framework to improve project identification, appraisal,

review and approval. The Policy Department will lead this activity working closely with the

Ministry of Economy and sector ministries. FSP will work in close collaboration on PPP issues

with the upcoming Bank financed Infrastructure Preparation Facility (IPF), including on PIM-

PPP coordination (already ongoing). The FSP will further support the Policy Department in its

secretarial and advisory function to the Development Councils. This will involve ensuring that

Development Council work plans are implemented; regular high level and technical meetings are

organized; and their decisions are recorded, distributed, and archived. For these purposes, the

Policy Department will develop a handbook outlining rules, procedures, and operation and

coordination mechanisms for the Development Councils. A task force will be established to

oversee the Development Councils’ gate keeping function of all financial and legislative matters.

The Policy Department will also ensure that remaining National Priority Programs (NPPs) are

drafted (in alignment with the ANPDF) including implementation and financial plans, are

consulted with stakeholders, and are integrated in the national budget.

8. Component 2: Revenue Mobilization [$40m]. This component is designed to

strengthen capacities of various revenue administration departments to increase tax compliance

and facilitate timely filing and payment. It further aims to enhance Government’s capacity to

effectively regulate Afghanistan’s minerals and hydrocarbon resources sector. It is organized

along the following sub-components:

9. Tax Administration: The ARD has strengthened its administration of core taxes over the

past several years, but important challenges remain, including human resources capacity,


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complex business processes, and limited IT systems. To address these challenges, the FSP will

support the ARD in completing a series of administrative reforms. These complementary reforms

will pilot new processes in the Large Taxpayer Office (LTO) before rolling them out to the

Medium and Small Taxpayer Offices and the provinces. In the near term, this support is expected

to significantly improve the taxpayer experience. In the medium term, the ARD will raise

significant new revenues through the introduction of VAT. The main interventions are as

follows:

i. Business process reengineering in the LTO to support revision of the taxpayer registries,

introduce hybrid electronic filing compliant with the existing legal framework and establish

processes for VAT rollout in 2020. To support automation and ICT including SIGTAS and

e-payments, a Master Plan and Change Management Plan will be created and a data

warehouse is envisaged.

ii. Audit training and mentoring program, enhancing the quality of the risk-based audit

system. The implementation of the Disputes Resolution Board will be supported in the

medium-term. To strengthen internal controls, an Anti-Corruption Strategy will be created,

with an internal audit function to respond to taxpayer complaints.

iii. Implementation of the ARD’s Re-Organization and Modernization Proposal that was

approved by the Cabinet in early 2017. The FSP support will include a training needs

assessment, development of curriculum for the tax academy, and (merit-based and gender-

balanced) job descriptions and match to training program.

iv. To support communication with taxpayers, a communications strategy will be developed

and taxpayer guides will be updated with new legislation and filing procedures. Service

standards will be established, and annual taxpayer surveys will measure performance. In

terms of female tax payer, specific arrangements will be done to address the needs of

female tax payers ensuring proper facilitation for collecting their tax and providing

technical assistance to them as they are relatively new in the formal economy.

v. The FSP will also support the Revenue Planning Department to build analytical capacity to

support the revenue analysis and forecasting functions, with analytical training.

10. Customs Administration: ACD has made significant progress in recent years, including

automation of declaration processing9 and the progressive adoption of practices and procedures

consistent with international standards and good practice norms. However, it remains an

unfinished agenda as evidenced by the country’s low position on global rankings10

. Further

investments are required to build on and deepen the ACD’s reform and modernization program.

11. The FSP will support a range of technical assistance activities that build on previous

engagements by the Bank and other development partners and respond to changing operational

requirements, including: (i) the establishment of a fully operational Customs Enforcement

capability, including integration of the former Customs Police into the ACD; (ii) supporting the

adoption of sound human resource management policies to ensure they promote merit-based, and

to the extent possible, gender-balanced recruitment, mobility, advancement, performance

9 Over 95% of all formal trade is now processed via the ASYCUDA World customs declaration processing system.

10 Afghanistan was ranked at 138 out of 160 countries on the Customs and border management component of the 2016 Logistics

Performance Index and at 175 on the Doing Business (Trading Across Borders) indicator.


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appraisal, remuneration practices, and policies to support the flexible deployment of human

resources; (iii) the development of an enhanced human resource development and training

curriculum and its incorporation into staff planning and deployment policies; and (iv) the

development of enhanced performance monitoring and evaluation capabilities covering all key

organizational objectives, including establishment of an Internal Compliance Unit11

. Extensive

support will also be provided to bring Afghanistan into compliance with the provisions of the

recently concluded WTO’s Trade Facilitation Agreement. Work will also be undertaken in the

areas of corruption prevention/detection, and Customs to Customs cooperation with neighboring

countries, including real time data exchange to limit opportunities for fraud.

12. The FSP will also support major investments in ICT, including the development and

implementation of a NSW system, deployment of a Trade Information Portal and the continued

geographical and functional rollout of ASYCUDA. Attention will also be paid to developing

mechanisms ensuring the long-term sustainability of ASYCUDA and related ICT investments

and infrastructure. It will also support technology integration in the automation process,

including weigh-in-motion system, automatic gates, biometrics, Closed Circuit Television

(CCTV) and cameras and vehicle number plate readers, to enhance operational efficiency and

improve controls.

13. In addition, to support and underpin the above described activities, the Bank will

undertake as part of FPIP Advisory Facility a comprehensive functional review of ACD to

strengthen management control and oversight of national activities, and ensure the organization

adequately supports strategically important functions, including monitoring of internal controls,

consistency in application of Customs procedures throughout the country, and Customs specific

HRM capacity.

14. AEITI: EITI was launched in Afghanistan in March 2009, and started its formal

implementation in February 2010 when Afghanistan was declared an EITI candidate country.

The National Multi Stakeholders Group (MSG) with a wide participation of government, private

sector and civil society groups was set up to oversee EITI implementation processes in

Afghanistan. However, Afghanistan is yet to meet EITI requirements and become an EITI

compliant country. The FSP will support required key actions to be undertaken with respect to

EITI implementation in Afghanistan, before and post-validation. These include: (i) training and

capacity enhancement activities for MSG; (ii) support to addressing AEITI recommendations of

Validation and Reconciliation reports; and (iii) operational support to efficient AEITI

implementation. These actions will enable Afghanistan to become and maintain EITI Compliant

Country status in line with the new EITI Standards, and will further help to establish a sound

EITI implementation mechanism. This will help to enhance Government’s capacity to effectively

regulate Afghanistan’s minerals and hydrocarbon resources sector in a transparent manner,

fostering private investment in the sector and ensuring that extractive industries benefit those

who are most impacted.

11

As mandated by Cabinet approved ACD HR Policy (Cabinet resolution No. 20 dated September 2, 2015).


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15. Component 3: Treasury Management, Accountability, and Transparency [$30m].

This component aims to consolidate basic core PFM functions to underpin more ambitious

aspects of planned PFM and budget reforms. It is organized along the following sub-

components:

16. Treasury: One of the most significant achievements of MOF is the AFMIS, established

in Treasury in 2002 and extending to each of the 34 Provinces in Afghanistan. The system is

extensively used within MOF for payment processing and periodic budget execution reporting.

AFMIS provides the platform to move to the next generation of reforms to improve system

coverage, payment processing and financial reporting. The FSP will support AFMIS extension,

including providing access rights and training to 300 additional users at designated spending

units so they can enter expenditure data at the transaction level and generate budget execution

reports. AFMIS is to be rolled out to all Afghan embassies, selected districts and municipalities,

and at least 5 SOEs.

17. Maintaining standards of timely transaction processing, accounting and reporting will

continue to be an important objective during the next 5 years. Interface with Da Afghanistan

Bank (DAB) will be developed for Electronic Fund Transfer that will eliminate manual cheques

and will expedite payment processing. In terms of financial reporting, from 2017 (FY 1396), the

Treasury will also prepare annual financial statements pertaining to the core budget using Cash

Basis IPSAS. Activities for enhancing the credibility and efficiency in payroll generation and

distribution will continue. Transitioning salary payments away from bonded trustees to system-

based alternatives will be a primary goal. The Treasury plans to move forward on linking HR

systems with a payroll generation module. In terms of training and professional development, the

Treasury will establish a trainee program, and CPA Afghanistan will be established. The body

will serve as the node for certification of accountants and development of accounting standards

for Afghanistan.

18. Treasury will also be supported to develop a framework for Sukuk Bonds.

19. Audit and Financial Reporting: FSP will continue institutional reform and capacity

building to improve management oversight by the IAD. Though, IAD developed the audit

methodology and guidelines, and an Accountancy Law has now been developed, capacity

building and institutionalization of internal audit in line ministries remains limited due to

absence of an enforcing authority. FSP will support IAD in setting up and operationalizing audit

committees in line ministries, improving the process of audit recommendations follow up;

providing professional certifications to internal auditors and implementation of Institute of

Internal Auditors (IIA) standards. Since 2002, the Bank has contracted a third-party Monitoring

Agent (MA) to monitor, support, and report on the efficient and effective implementation of the

Recurrent Cost Window of the ARTF. Capacity building efforts will support the IAD to work

along with the MA for transfer of skills and knowledge to enable that function to be transferred

from the MA to the IAD.

20. PFMR-II established the foundations for external audit where SAO adopted International

Organization of Supreme Audit Institutions (INTOSAI) Standards up to level 3 and submitted


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audit reports to the legislature within 6 months of the close of the fiscal year. Some preliminary

work was also done to introduce performance audits and citizen engagement. A significant

investment was also made to build the capacity of SAO, but there remains considerable reliance

on external consultants. FSP will support SAO to build on these PFMR-II reforms with a focus

on building its human resource capacity and utilizing technology for efficient audits. SAO is in

the process of developing a detailed HR strategy with an aim to develop a workforce equipped

with modern tools; FSP will support implementation of the HR strategy. Use of Computer

Assisted Audit Techniques and implementation of AMIS are the two important interventions

planned to increase efficiency. SAO also plans to adopt level 4 of the INTOSAI standards which

will require some changes to the existing audit guidelines and staff training. For citizen

engagement in audit and better communication with stakeholders, a communication strategy will

be developed and implemented. As the government, will start preparing IPSAS based annual

financial statements, FSP will also provide consultant support to conduct financial audits.

21. Procurement: Government procurements account for 19 percent of GDP and almost 50

percent of the national budget; however, a number of stern challenges have been associated with

the public procurement system. These challenges include ineffective planning; ineffectual

implementation and enforcement of laws, regulations, processes and procedures; lack of access

and openness to procurement data/information; and lack of a mechanisms to monitor contracts’

implementation. To address these challenges, GoA is fostering institutional reforms in public

procurement to provide value for money and better services through an effective, efficient,

transparent and sustainable procurement system.

22. The NPA is the custodian of procurement rules and regulations, and provides facilitation

and capacity building service to procuring agencies, and serves as the secretariat of the high level

National Procurement Commission. The Bank has a long-standing partnership with NPA and has

been supporting procurement reforms through PFMR-II and CBR. NPA has made significant

strides in implementing first and second generation public procurement reforms. These included

the establishment of NPA (its structures, systems, processes and procedures), the adoption and

later review and amendment of the Procurement Law upon Presidential decree, the development

of an eProcurement readiness assessment, and implementation strategy and rollout of early

activities, as well as foundational governance and anti-corruption activities.

23. The FSP is required to advance this progress through a third generation of reforms. This

work first involves improving compliance of enacted regulations through further strengthening

the current legal, regulatory and policy framework, including by comprehensively revising the

Rules of Procedures and Standard Documents. This will be complemented through application of

Open Contracting Data Standards (OCDS)/Open Contracting Partnership (OCP) and complaints

handling mechanisms that will help to institutionalize procurement ethics within government and

expand the “Coalition for Reform” through strengthened collaboration between Government,

Private Sector, Civil Society and international development partners. These measures will

support the NPA to strengthen its institutional framework and management capacity to ensure

institutional sustainability. This involves revisiting the NPA’s reform strategy “Blue Print”

linked to strengthening of its Tashkeel through CBR. The Blue Print process would be


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consultative via conduct of consultation workshops within government, with the private sector,

civil society, academia and the media, to be supported by FSP. Similar focus will be given to

improve “enabling factors” of ministries’ and procurement entities’ such as strengthening of their

organization of procurement and human resource capacity. The standardization of Procurement

Department Tashkeel and Mass Recruitment has already been accomplished by NPA in

cooperation with CBR and will be built upon to ensure more ministries receive capacity

certification and become enabled to conduct their procurement proceedings on stand-alone basis.

Complementary to this, NPA will continue the professionalization of the procurement cadre

through CBR.

24. The other key and by far the most important focus area of third generation procurement

reform to be supported by FSP is introduction of e-GP including its change management, cultural

integration, increased awareness and socialization within the government and users. It initially

entails upgrade of the Procurement Management Information System (PMIS) through process

mapping and reengineering and the integration of the PMIS with other relevant apparatus such as

tax offices, AFMIS and the Afghanistan Central Business Registry (ACBR). The risk mitigation

here is that the e-GP implementation and institutionalization will be gradual and incremental

both in terms of modules and piloted ministries. Other efficiency reforms to be supported by FSP

include the creation of a Central Procurement Agency for commonly Used Items via Framework

Agreements. This will start initially with creation of a specific team to be gradually expanded

into an agency. The NPA will carry out an assessment of market practices that will follow the

FSP PPSD, and support development of Common Procurement Vocabulary (CPV), price index

and cost estimate mechanisms, public access to contract information and civil society/public

engagement, and procurement process competency assessment and facilitation. Provincial

Procurement Reform modality and implementation is another area where the NPA has developed

a draft mechanism in line with the MOF’s Provincial Budgeting Policy. This is awaiting cabinet

approval before implementation can commence.

25. SOEs, Insurance, and Properties: Ownership and oversight function over SOEs is

inadequate to assess SOEs’ financial, operational and fiscal performance, and to bring the most

needed reforms. The FSP would conduct a thorough diagnostic of the performance—financial,

operational and fiscal—of the entire sector. The diagnostic study would measure the size,

composition, market share as well as economic weight of SOEs (both individually and by sub-

sector), and financial, operational and fiscal performance (the latter quantifying fiscal costs and

fiscal risks) of the entire SOE sector (again both individually and by sector). This will help to

guide the most needed SOE reforms grounded in international best practices that can later be

supported through FSP. The FSP will also support strengthening of the legislative framework for

insurance through development of insurance sector policy and capacity building in Takaful law

and registration, as well as the development of procedures and policies, and an information

management system for public properties.

26. Citizen’s Engagement: GoA recognizes that voice, accountability and participation are

critical elements of good governance. Key factors are the political will of the leadership of MOF,

as well as the government’s desire to improve its international ratings. The government drew up


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an action plan to improve its Open Budget Index (OBI) scores12

and begun producing Citizen

Budget and making Pre-budget statement and executive’s budget proposal public. As part of this

roadmap, CSOs and researchers have started engaging with the government, primarily through

MOF, on budget-related issues, publishing budget analyses and organizing public awareness

campaigns through the media. Furthermore, under the Self-Reliance through Mutual

Accountability Framework (SMAF) 2015, the government recognizes as one of the principles:

“Transparent, citizen-based, monitoring of development and governance benchmarks provides

accountability to the Afghan people, and reinforces the reciprocal commitments of donors and

the government to improved development performance.” The framework also calls for a

Memorandum of Understanding between the Government and Civil Society.

27. While efforts have been made by the GoA to support transparency, participation has still

been very weak13

. Therefore, the FSP will support GoA in establishing and implementing a

proper mechanism for budget transparency, accountability and participation consistent with

international best practices in two areas: (1) Under MOF, the project will mobilize CSOs in order

to establish and implement a proper framework where CSOs collaborate with the MOF for

further citizens’ awareness in the planning, budgeting and oversight from budget execution at

national and sub-national levels. The Office of the Minister of Finance will lead the public

disclosure of key fiscal information and progress on FPIP implementation through disclosure on

the MOF’s website, as well as print and electronic media. For increased transparency and citizen

engagement in procurement, the NPA will implement OCDS; (2) Under the Auditor General, the

FSP will also support CPA. The SAO will engage with CSOs in an effective manner around the

audit cycle to jointly monitor the quality of public expenditures to strengthen their impact in

exercising public oversight. Specific measures will consist of: (i) assessing existing challenges

(participatory diagnostic) and opportunities for the SAO to leverage CSOs to increase the

effectiveness of external audit; (ii) in-depth capacity building programs and technical support on

how-to implement citizen engagement practices and tools around the audit cycle; and (iii)

supporting the development of a “Framework for Engagement” and actionable plans for

implementation development of guidelines how CSOs can be engaged by the SAO in the conduct

of performance audits

28. Component 4: Institutional Capacity Building and Performance Management

[$20m]. This component aims to build capacity of MOF staff and the requisite systems for

effective functioning of the ministry, and to reinforce overall performance management and

coordination of the FPIP. It is organized along the following sub-components:

29. Backbone/shared services: Recently, the GoA began the shift to a “Tashkeel first”

agenda, using CBR. While performance has improved in many areas, even with less external

support, there are still teams with significant capacity gaps. The corporate backbone of MOF –

12

Overall Afghanistan scored 42 out of 100 in Open Budget Survey 2015 which is an international survey about budget

transparency conducted in 102 countries 13 It also scored low at 27 on public participation for lack of provisions of opportunities for the public to engage in the budget

process which is weak. Also, according to the Worldwide Governance Indicators, Afghanistan scores low in comparison to the

rest of South Asia in all six areas. Access to information law for Afghanistan was enacted in 2014 but underlying systems are not

fully established for its implementation.


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Administration, Human Resources, Finance and Accounting, Procurement and IT – remains

gravely weak and not fully able to support the operations of MOF technical departments and, by

extension, implementation of the FPIP. Professional development (at the individual level) is also

almost non-existent across the MOF. The FSP will therefore support the functioning of the MOF

(including its corporate backbone and shared services) through implementation of the

recommendations of a strategic planning exercise (functional review) to be supported through

CBR. This will involve the development of a competency framework (to be supported through

the FPIP Advisory Facility) to assess the current capacity gaps at MOF and accordingly guide

recruitment and TA migration (working with the CBR Facility) performance management,

training and professional development. The sub-component will support MOF Administration

business process re-engineering and automation, and digitalization of MOF’s archive system.

Measures to enhance aid management and projects’ coordination and monitoring, and public

outreach by MOF including of the FPIP, will also be facilitated.

30. In terms of staffing and capacity building, women constitute around 11 percent of

employees in MOF, including one Deputy Minister and three heads of departments. Almost all of

women employed in the MOF are based in Kabul; only 134 (out of 891 total female employees)

are based in the provinces. Although through the PFMR-II there have been some efforts to

increase the number of female professionals in the sector by offering scholarships for the

Association of Chartered Certified Accountants (ACCA) programs, the FSP will further assist

MOF to increase women’s participation in the sector and within the ministry. This will entail the

provision of internship programs for female graduates, reviewing HR policies and procedures, as

well as making the work environment more conducive for women; as well as implementing anti-

harassment guidelines of the government in close coordination and collaboration with the Gender

Unit of the ministry.

31. Information Systems: IT is one of MOF’s corporate areas in need of upgrade. The

development and improvement of IT systems (to meet current and future needs for efficiency,

flexibility, coverage and process integrity) is also highlighted as an ‘enabling factor’ for

implementation of the FPIP. While a large investment in additional and upgraded management

information systems approved by the Minister of Finance is an important next step, basic IT

functionality continues to be deficient across MOF. The MOF only recently acquired its own

email server and is in need of advancing towards setup of a full intranet system to support

information and workflow within and across its departments. The MOF is also interested in

improving its workforce planning and more comprehensive personnel recording-keeping through

the setup of HR systems. These upgrades would provide opportunity for improved

communication between systems, which would allow for greater efficiency where PFM

processes cross systems and for improved information analysis and transparency. This work will

be guided by an all-of-MOF ICT Assessment and ICT Strategy currently being prepared through

the FPIP Advisory Facility. Investments in upgrading IT systems will be complemented by

capacitation of IT staff - another key bottleneck - as part of support to backbone/shared services.

32. Performance Management: FPIP is a complex program involving multiple stakeholders

and the success of the program depends on how well it addresses the complex nature of reforms


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that involve political leadership and multiple stakeholders with varying degrees of disposition

towards embracing change. This requires multilayered behavioral change approach that can help

optimize and leverage the PFM systems and processes to improve service delivery. To drive

behavioral change through the entire PFM cycle, the attitudinal barriers to change towards

achieving the reform program objectives will be addressed by applying the overarching

principles of: (i) leadership and political commitment towards change; (ii) policy space for

implementing suggested reforms; and (iii) adaptive, iterative and inclusive processes. Based on

the recommendations of a Scoping Report completed as part of the FPIP Advisory Facility, FSP

will provide support to enhance collaborative leadership skills and strengthen the cohesiveness

and effectiveness of leadership teams in the context of FPIP. This will help provide an

authorizing environment for implementation teams, as well as system-level reforms that require

ownership and support by multiple implementing directorates. A Communications Strategy will

be designed to guide measures to institutionalize the process of behavioral change to support new

policy processes, and provide timely support to bridge policy and implementation gaps revealed

during project implementation. Technical assistance will be provided to support the MOF PMT

in the development of annual and mid-year performance assessment reports of the FPIP, and the

development of a publicly accessible web-based PMRS.


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Annex 2: Institutional and Implementation Arrangements

1. Governance of the FSP (and the programmatic approach as a whole) will be

centered within the MOF Leadership Team, supported by an FSP Steering Committee (Core Reforms Group). The PMT, reporting to the Deputy Minister for Finance, will act as

secretariat to both the MOF Leadership Team and Core Reform Group and provide day-to-day

operational backstopping and coordination across beneficiary departments. MOF, NPA, and

SAO will manage the implementation of the program through corporate systems without the

assistance of parallel PIUs. Beneficiary departments will be primarily responsible for

implementation of their respective FSP activities.

Figure 1: FPIP/FSP Governance & Implementation Structure

2. In line with the in-built flexibility of the FSP, activity and procurement plans would

be updated regularly in close coordination with the PMT and in consultation with the

CRG. During Appraisal, the Bank team worked with government on applying readiness criteria

which could help to prioritize and sequence (“front-load”) initial activity and procurement plans.

In assessing the feasibility of individual activities, consistent with international lessons regarding

basics first and “problem driven” approaches, the following aspects were considered:

a. Flagship nature: whether activities contributed to flagship reforms and had the full

commitment and ownership of all relevant stakeholders.

b. Underserved areas: whether activities support areas where current weaknesses are

presenting serious threats to economic management and service delivery.

c. Critical path dependencies: whether activities required sequencing, and the extent to

which without these foundational activities underpin and must precede the more

ambitious aspects of the FPIP. This helped to support a focus on what are the early wins

Leadership Team (LT)

SAO MOF Directorates NPA

Core Reforms Group (CRG) Performance Mgmt

Team (PMT)

Finance & Procurement Directorates

LT: Headed by Finance Minister, LT is responsible for overall

FPIP oversight, including validating CRG decisions.

PMT: Reporting to DM Finance, PMT provides secretariat

support to LT and CRG, implementation support to teams, and

overall FPIP M&E.

MOF’s Finance Directorate: Manages overall FSP Finance

function. MOF, NPA, and SAO Procurement Directorates: Manage

Procurement functions respectively.

MOF Directorates, NPA, SAO: Implement their annual plans

approved by LT/CRG.

CRG: Headed by DM Finance, CRG provides strategic guidance,

approves annual budgets and plans, and reviews FPIP progress

quarterly.


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that need to be locked in, and which activities needed to be postponed until foundational

activities are completed, including through the FPIP Advisory Facility.

d. Current progress: whether activities required award of a contract or change of laws or

operating procedures. This helped to assess the extent to which operational pre-requisites

had sufficiently advanced to allow activities to immediately move ahead, or to be

deferred. Critical and naturally more-advanced activities to be rolled-over from closing

projects (PFMR-II, Customs, TAF) were considered in this regard.

3. On this basis, the FSP “locks-in” flagship, underserved, or more-advanced (“quick

win”) reform areas included under the FPIP in the first 18 months of implementation (up

to elections). In general terms, such areas include:

i. Core PFM functions. Consolidation of basic core PFM functions as included in the FPIP

will underpin more ambitious aspects of planned PFM and budget reforms. Subsequently,

the FSP prioritizes technical assistance activities designed to strengthen core systems and

ensure full implementation and compliance. This includes consolidation of AFMIS

functionality, and introduction of new payroll controls. The Bank has been closely

involved with development of the Accountancy Law and through the FSP, would provide

ongoing technical assistance to support implementation, including measures to improve

audit follow-up, with follow-up of audit findings supported as a results indicator. The

FSP would also move forward the recommendations of a readiness assessment on gradual

implementation of e-GP to facilitate more transparent, effective and efficient

procurement service delivery across government.

ii. Corporate backbone. MOF and the Bank recognize that the corporate backbone

(Administration, Human Resources, Finance and Accounting, Procurement, IT) of MOF

has long been neglected and is weak. The FSP will place stronger upfront emphasis on re-

engineering backbone systems and business processes for greater efficiency and

effectiveness. The strengthening of the corporate backbone is essential if the

implementation of the FPIP is to be successful.

iii. Tax administration. Given continued problems with revenue compliance and poor

overall revenue performance, strengthening basic tax systems is a foundation for

strengthening the public sector. FSP support would usefully focus initial support on

improvements of IT infrastructure and systems, especially SIGTAS and e-payments. FSP

would provide support to implementation of the ARD reform plan as well as ongoing

reforms to tax policy.

iv. Customs administration. Customs revenue performance remains weak, reflecting

ongoing problems with compliance. As with tax administration, the FSP would support

the strong program of reforms included under the FPIP. This includes consolidation of

efforts to improve enforcement, and HR reforms building on current World Bank support

to customs.

v. Provincial budgeting policy rollout. Implementation of provincial budgeting policy

may provide the foundation for improved local-level voice in resource allocation

decisions over time. The implementation of provincial budgeting policy, however, will

require substantial capacity building at the mustofiat level as mustofiats progressively

take increased responsibilities for budget execution. The FSP would draw on


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international experience with decentralization to support all aspects of provincial

budgeting policy implementation.

4. MOF will carry out the financial management functions for the Project through its

Finance Directorate. The Finance Directorate has experience in implementing Bank/ARTF

financed projects through the TAF which is directly implemented by MOF. The Finance

Directorate’s capacity will be augmented by transferring (into Tashkeel) the FM staff of RIMU –

the PIU managing the PFMR-II project.

5. Country systems will be used for budgeting, accounting, internal audit and external

audit. MOF guidelines for budget preparation will be followed. The Project budget will be based

on the procurement plan and work plan. At the central level, project accounts will be maintained

in MOF Treasury Department in AFMIS, which records all project expenditures and receipts in

the government’s accounting system. The Finance Directorate will maintain subsidiary books of

records using MS Excel. The IAD of the MOF will carry out the Project’s semi-annual internal

audit.

6. Funds flow arrangements will follow standard procedures applicable to all World

Bank funded/ administered projects. A DA will be opened at Da Afghanistan Bank (DAB,

Central Bank). The Finance Directorate will process all payment requests through the SDU of

MOF, and will also manage the DA. Disbursements will be report based. Withdrawal

applications for new advances will be submitted along with the IFRs for the semester indicating

the forecast expenditure for six months. The DA will be replenished based on the advance

request from MOF as per the IFRs. The Bank will provide Client Connection access to focal

finance staff for the management of the project.

7. Semi-annual IFRs will be prepared by the Finance Directorate and submitted to the

Bank within 45 days from the end of the period. The formats for these IFRs will be shared

with the Finance Directorate, and the Bank will provide training on the preparation of the IFR.

8. The Project follows the centralized payment mechanism applied in Afghanistan and

controlled by MOF. Internal controls are adequate both at the central and implementing agency

levels. There is adequate segregation of duties. Reconciliations will be done monthly. All these

controls will be periodically reviewed by the Bank. The FM Manual of the PMFR-II will be

updated to be used for the FSP.

9. An annual project audit will be carried out by the Supreme Audit Office (SAO) with

technical assistance from an audit agent funded under the Project and based on the Project

financial statements prepared by MOF. The audited financial statements will be submitted not

later than 6 months after end of each fiscal year in which the Project is implemented. There are

no overdue audit reports, IFRs or unsettled ineligible expenditure in respect of MOF

10. The FM risk rating is Substantial.


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11. Procurement will be carried out in accordance with the Bank’s Procurement

Regulations for Borrowers for Goods, Works, Non-Consulting and Consulting Services and

applicable to IPF hereinafter referred to as “Regulations”. The Project will be subject to the

Bank’s Anticorruption Guidelines, dated October 15, 2006, and revised in January 2011 and July

1, 2016.

12. Standard Procurement Documents (SPDs): Pursuant to IDA’s new General Conditions

(GCs) for Credits and Grants (July 2016) and corresponding Legal Agreements, the World

Bank’s Procurement Manual, Standard Procurement Documents (SPDs), Requests for Proposals

and Forms of Consultant Contract will be used. Goods, work, and non-consultancy services

following Open National competition shall be procured using the agreed bidding documents for

Afghanistan. This is further confirmed in Article 4(2) of the Procurement Law of the Islamic

Republic of Afghanistan dated 27/06/1395 (September 17, 2016) published in the Official

Gazette No.1223, which states that in case of conflict/contradiction between the World Bank’s

procurement procedures and any national rules and regulations, the World Bank’s procurement

procedures will take precedence.

13. Project Procurement Strategy for Development (PPSD): Based on the regulations of

the Bank’s New Procurement Framework, the government has prepared and shared a PPSD

which details the procurement methods and approaches. Procurement staff are also attending the

necessary procurement training under another Bank funded project (PFMR-II).

14. Systematic Tracking of Exchanges in Procurement (STEP): The Project will

implement STEP, a World Bank planning and tracking system, which would provide data on

procurement activities, and establish benchmarks. The details of the procurement activities,

presently prepared in the procurement plan would be transferred in the STEP system. Initial

training on the operation of the STEP system will be provided to the procurement officers of

Procurement Directorates of MOF, NPA, and SAO.

15. Procurement risk assessment: Based on the initial procurement capacity assessment the

threshold of High Risk Implementing Agency will apply for the prior review of the contracts

under the Project.


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Annex 3: Implementation Support Plan

1. The strategy for supporting the implementation of the Project is tailored to the

government’s proactive desire to use country systems and orient the Project around FPIP

implementation. Risks and challenges mentioned in the risk assessment have been considered.

2. Given the country capacity challenges, intensive support is required, particularly at

project startup. The Bank team will support implementation through the following activities:

(i) The TTLs based in Dubai will oversee the work program of, and work closely with

Bank technical experts and the various government departments involved in the

Project.

(ii) Involvement of World Bank and particularly EFI colleagues both in the country office

and other Bank offices, and from the Controllers unit, to leverage both comparative

skills to provide regular support to the Project on technical matters.

(iii) Supervision missions on a monthly basis, and formal implementation support

missions twice in a year throughout the project implementation period.

(iv) The implementation support team will be comprised of the Task Team Leaders; and

Task Team Members comprising: legal, disbursement, operational project

management, monitoring and evaluation, safeguards, macro-fiscal, revenue and

customs, extractives, finance and markets, citizens’ engagement, financial

management, procurement, payroll/HRM and public sector.

(v) GoA staff implementing the Project will be strengthened through various forms and

types of training on World Bank operational processes and procedures, financial

management, disbursement, and procurement Guidelines, monitoring and evaluation,

strategic communications, leadership, social accountability and project management.

3. To accelerate project implementation, an Implementation Action Plan has been

agreed with the GoA as follows: Table 1: Implementation Action Plan

Time Activities Skill Needed Resource Estimate

Annually

(Years 0-5)

Work-planning, prepare

operations manual, training

materials and project roll out.

Review and clearance of

documents

Task Team Leaders

Operations Support

70 staff weeks

10 staff weeks

Review FM, procurement and

disbursements

FM Specialist

Procurement Specialist

Disbursement Specialists

10 Staff weeks

8 staff weeks

2 staff weeks

Review project specific

implementation aspects Sectoral staff 20 staff weeks

M&E support M&E Specialists 4 Staff weeks

Mid Term

in 2019 Mid-Term Review

Task team, external team

and experts 20 staff weeks

Completion

in 2022

Implementation Completion

and Results Report

External team with support

from task team 30 staff weeks


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Annex 4: Bank’s Programmatic Approach to Support FPIP

1. FPIP is an ambitious and comprehensive reforms program that covers the whole breadth of

public financial management.

Box 1. The Fiscal Performance Improvement Plan (FPIP)

In March 2015, H.E the President of Afghanistan commissioned an assessment of PFM in Afghanistan. One of the

key recommendations was for the reform process to be implemented through a team-based performance

management and public expenditure reform approach. Within the MOF, a PMT was established to facilitate the

development and implementation of the FPIP.

The inaugural 5-year rolling plan was approved in February 2016. The MOF led the development of the plan with

the support of consultants and the process involved lengthy deliberations with stakeholders and donors. The plan

established broad targets, specific reform actions and utilizes a team-based performance management approach.

Work plans were articulated at the level of 66 individual teams, against which progress was monitored and self-

assessed. The first mid-year assessment was completed in September 2016 and the annual assessment was published

in April 2017. The assessment noted that 28 out of 66 teams scored 60% or above in terms of timely, quality and

effective delivery of the work plans. The directorates supported by the ongoing Bank projects scored the highest.

The services of high performing teams were recognized by a presidential award. Based on the results of the 2016

annual review, FPIP teams updated their rolling plans for 2017 and beyond. Implementation of these plans is

underway and the mid-year assessment was carried out in September 2017.

2. The Bank has adopted a programmatic approach to support the FPIP

implementation, comprising three interrelated and complimentary instruments. The FSP,

constitutes the implementation arm of the new engagement model and is intended to provide

critical inputs in the form of upfront investments drawn directly from FPIP work plans.

Government will provide parallel financing of up to US$100 million to support implementation

of the FSP, including of related infrastructure activities not directly covered by FSP financing.

The FSP will be underpinned through the FPIP Advisory Facility, a programmatic package of

ASA. The FPIP Advisory Facility scales up resources for foundational Bank-executed technical

assistance to operationalize and inform FPIP implementation. The third instrument is the IP Plus,

which is the major channel for multi-donor policy-based budget support to the GoA, providing

approximately US$300 million per year. This will provide the reward structure for the FPIP.

3. The FPIP Advisory Facility is a four-year Bank executed program that provides a

flexible structure for all World Bank ASA for FPIP implementation. This involves:

Directly supporting the MOF in all aspects of FPIP implementation (including

preparation of the FSP), with technical assistance provided flexibly to MOF teams to

support progress in achieving actions;

Supporting the management of the FPIP process, including peer reviewing FPIP

assessment reports, assisting in the development of work-plans, and supporting the

establishment of appropriate targets and actions within the plan;

Providing immediate support to short-term FPIP priorities, including achieving

improved alignment between the budget and ANPDF priorities through expenditure

analysis and reprioritization exercises and support to project assessment.


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Figure 1: Bank’s Engagement Model to Support FPIP

4. The FPIP implementation support under the facility consists of eight themes and a

number of activities are planned under each theme to be completed by FY20. For each

theme, a budget has been allocated and a team leader identified. Listed below are the ASAs and

TA to be carried out under the advisory facility, that are relevant to the FSP components.

Table 2: FPIP Advisory Facility – ASA and TA Relevant to FSP FSP Components FPIP Advisory Facility – Relevant ASA and TA

Component 1: Budget as Tool

for Development

PIM Assessment and training. Capacity needs assessment of MFPD.

Recommendation of the PIM and capacity assessment to be implemented under

FSP.

Component 2: Revenue

Mobilization

To improve customs enforcement, support will be provided to develop an action

plan including organizational structure, resource requirement and training needs.

The plan implementation will be financed by FSP.

ARD will be supported in developing ICT strategy, enhancing tax audit capacity by

developing methodology, and functional assessment of tax offices to identify

capacity gaps. FSP will finance capacity building, strengthening the audit function

and development of information systems.

Component 3: Treasury

Management, Accountability,

and

Transparency

The ongoing PEFA assessment is funded under the FPIP Advisory Facility and FSP

recognizes that resources would be required to address the gaps identified. Support

will also be provided to conduct Open Contracting Assessment and to develop the

Public Procurement Strategy (starting with an already prepared PPSD for FSP)

whereas FSP will provide financing for implementation. SOEs monitoring

framework will be developed to be implemented under FSP.

Component 4: Institutional

Capacity Building and

Performance Management

HR and ICT Assessment of MOF to develop recommendations to strengthen

MOF’s corporate backbone. Performance Management and Leadership Scoping

Report. FSP to support implementation of the recommendations.

FPIP Advisory Facility

•Bank executed TA to support FPIP implementation by providing analytical and advisory services, including assessments and preparation of implementation plans.

FSP

•Flexible government executed IPF to continue strengthening core PFM, fiscal management, and institutional capacity.

•Fous on outputs and process improvements that will contribute to acheieve FPIP strategic objectives.

IP Plus

•Budget support based on benchmarks to achieve strategic objectives of FPIP.

•Investments made through FSP to achieve benchmarks.


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5. The IP Plus will provide an estimated US$300 million budgetary support to the

government during FY18-20. The overall objective of the IP Plus is to support Afghanistan

with a reform program that aims at achieving greater fiscal self-reliance and sustainability

though increasing domestic revenue mobilization and strengthening expenditure management.

The program has two pillars namely: (i) ANDPF; and, (ii) FPIP. The IP Plus FPIP pillar includes

a Revenue Matching Grant Scheme intended to incentivize improved revenue performance and

therefore assist Afghanistan in its progress towards fiscal sustainability. It is meant to be

anchored in the annual revenue targeting negotiations between the MOF and the IMF. The FPIP

pillar also includes reform-oriented actions (triggers) which support the overall objective of the

FPIP. The IP Plus is under preparation and the FPIP pillar will be anchored within the results

framework of FSP. The table below provides examples on how IP Plus triggers will either

support FSP implementation or reward outcomes achieved under FSP.

Table 3: IP Plus – Triggers Complementing FSP

FSP Components Complementing IP Plus Triggers

Component 1: Budget as Tool for

Development The Cabinet approves the Provincial Budgeting Policy, allowing budget

allocation of discretionary resources to provinces.

MOF prepares and publishes an ex-ante and ex-post gender assessment of

the national budget (repeats annually), which have been presented in

budget hearings.

Component 2: Revenue

Mobilization The Cabinet approves a comprehensive HR reform policy for ACD.

The Cabinet approves amendments to the Customs Law. The amendments

will include provisions that regularize ACD's new enforcement wing, in

particular regarding the power for Customs to exercise their powers on the

Afghan customs territory.

The Cabinet approves a plan for the re-organization and re-structuring of

ARD, including the proposal, policy procedures and a new organization

structure.

Component 3: Treasury

Management, Accountability, and

Transparency

Cabinet approves amendments to all relevant laws governing PFM and

subnational bodies to ensure that the policy can be implemented.

DAB and MOF migrate 60% of all government salary payments by value

through the Automated Transfer System.

SAO law revised ensuring compliance with INTOSAI standards.

CBR process and salary scales implemented at SAO.

Increasing in number of performance audits conducted.

Component 4: Institutional

Capacity Building and

Performance Management

Improvement in core institutional capacity, represented by a reduction in

the number of long-term technical assistants (via ANPDF IP Plus Pillar).

Performance management streamlined over time, measured by regular

reporting on performance through publication/sharing of FPIP

assessments (repeats annually).


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Annex 5: Initial FSP Work Plan

Component 1: Budget as a Tool for Development Milestones

Priority Expected Outcome 2018 2019

Revision of budget processes A credible policy-linked budget founded on multi-year

perspectives and incorporating procurement planning.

Roll-overs, new policy calls and budget

disclosures developed.

New Budget Call circulars and budget

preparation systems developed.

Improved budget disclosures and

delivering comparability of budget and

accounts

Transparency in public financial operations. Plan to improve budget comparability

developed.

Move to Government Finance Statistics

(GFS) classification.

Classification of Functions of Government

(COFOG) functional classification included

into the budget statement.

Provincial budgeting policy and strategy Strengthened fiscal relations with provinces through de-

concentration, and improved transparency and

equitability of provincial budgets and operations.

Institutionalization of Unconditional Fund

Allocations.

Provincial budgeting policy M&E

framework developed.

O&M policy and roll-out Public assets are properly maintained and their life-cycle

is prolonged.

Public building maintenance manual

developed.

O&M reform rolled out to 11 additional

budgetary units.

O&M reform rolled out to 11 budgetary

units.

GRB implementation aligned with

ongoing and planned budget reforms

Budget is gender responsive. GRB Cell institutionalized as a unit of the

Budget Department.

Gender disaggregated budget and

expenditure data, and statistical analysis

compiled in a report for 2 pilot

ministries.

Framework for gender disaggregated

statistical analysis developed with data

collected, analyzed, defined and rolled out.

Medium term expenditure, fiscal and

budget frameworks

A credible budget that is more responsive to Government

priorities along with more efficient and effective spending

[more reliable resource envelopes (pre-budget and

budget) and fiscal space estimates].

Fiscal Strategy, Rolling Forward Estimates,

and other regular policy papers developed.

MTEF, MTFF, MTBF deployed in the

budget cycle.

MTEF, MTFF, MTBF developed.

Sustainable debt policy Sustainable debt levels. Debt strategy reviewed and updated. Debt Sustainability Analysis (DSA)

completed.

Delivering high quality advice to TPDC

on tax policy along with consistently

accurate revenue forecasts

Credible revenue estimates support informed decision

making.

Reports, policy papers, Computable General

Equilibrium (CGE) model and data

management systems developed.

Continue to implement plan for

improving tax policy advice and revenue

forecasting.

Delivering macroeconomic forecasts

and providing high-value

macroeconomic policy advice to HEC

Better macroeconomic policy delivering better fiscal

outcomes.

More reliable and relevant macroeconomic

data and briefs produced.

Macro-risk report updated and refined to

improve macroeconomic forecasts on

quarterly basis.

Operationalization of ANPDF

implementation mechanism

Improved national policies that support government

objectives and priorities.

Extractives NPP finalized.

Any remaining implementation plans and

budgets for other NPPs finalized.

Development Strategy drives national budget.

Report on the progress of Development

Councils produced on quarterly basis.

Report on implementation and budget

alignment of ANPDF/NPPs produced.


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PIM Framework and System Improved quality and efficiency of public investments. 15% of new large development projects are

properly appraised, costed, and included in

the budget.

20% of new large development projects

are properly appraised, costed, and

included in the budget.

M&E Framework and System Improved monitoring and evaluation of development

projects.

M&E framework developed, and M&E

system developed and deployed. 20% of

development projects monitored.

40% of development projects monitored.

Component 2: Revenue Mobilization Milestones


Revenue Administration Automation

(including for VAT rollout)

Effective business processes reducing opportunities for

corruption and increasing taxpayer confidence in the tax

system.

Business process reengineering carried out

in the LTO to support revision of the

taxpayer registries, introduce hybrid

electronic filing compliant with the existing

legal framework and establish processes for

VAT rollout in 2020.

Roll out to the Medium and Small

Taxpayer Offices and provinces

Revenue Administration ICT (SIGTAS,

e-payments etc.)

ARD reporting tools and decision making enhanced. ICT Master Plan and Change Management

Plan prepared.

Data warehouse developed.

Taxpayer compliance and anti-

corruption

Increase in taxpayer confidence in the fairness of the tax

system supporting higher voluntary compliance.

Audit training and mentoring program

developed and implemented, to enhance the

quality of the risk-based audit system.

Implementation of the Disputes

Resolution Board.

Anti-Corruption Strategy to strengthen

internal controls created, with an internal

audit function to respond to taxpayer

complaints.

Taxpayer awareness More informed taxpayers supporting increased voluntary

compliance.

Communications Strategy developed, to

support communication with taxpayers.

Service standards established, and annual

taxpayer surveys carried out to measure

performance.

Taxpayer guides updated with new

legislation and filing procedures.

ARD Re-organization and

Modernization

Re-organization and modernization of ARD.

Readiness Phase Completed: Leadership

Cadre and Corporate Support Services

established.

Phase 1 Completed: Two regions and

Kabul report to ARD.

Training needs assessment carried out. Curriculum for the Tax Academy

developed.

Job descriptions and match to training

program developed.

Analytical training carried out to support

revenue analysis and forecasting capacity

of the Revenue Planning Department.

Optimization of Customs Academy and

implementation of ACD HR Reforms

Strengthened management control and oversight of

national activities, and ensuring the organization

adequately supports strategically important functions,

including monitoring of internal controls, consistency in

application of Customs procedures throughout the

Human resource management policy

developed and adopted, to promote merit-

based and gender-balanced recruitment,

mobility, advancement, performance

appraisal, remuneration practices, and

Human resource development and

training curriculum developed and

incorporated into staff planning and

deployment policies.


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country, and Customs specific HRM capacity.

policies to support the flexible deployment

of human resources.

Performance monitoring and evaluation

capabilities developed, covering all key

organizational objectives, including

establishment of Internal Compliance

Unit.

Customs Administration ICT

(ASYCUDA, NSW etc.)

Simplification and improvement of customs processes

and enhanced transparency, operational efficiency and

controls.

Geographical and functional rollout of

ASYCUDA, including module of

exemption, valuation, and Intellectual

Property Rights (IPR) database (and

capacity building).

NSW system development and

implementation, deployment of Trade

Information Portal, and technology

integration in the automation process,

including weigh-in-motion system,

automatic gates, biometrics, CCTV and

cameras and vehicle number plate

readers.

Post Clearance Audit (PCA) capacity,

mobile verification, and Anti-

Corruption

Improved efficiency in Customs clearance process. Risk base audit of import, export and transit

declarations carried out.

Audit of regional Customs (starting from

Kabul) expanded to 800 major

companies/entities.

Combating corruption and enhancing compliance.

Audit of regional Customs (starting from

Kabul) expanded to 250 major

companies/entities.

Areas of corruption prevention/detection,

and Customs to Customs cooperation with

neighboring countries developed, including

real time data exchange to limit

opportunities for fraud.

Implementation of AEITI

recommendations

AEITI compliance. Quality improvement plans and enhanced

data collection and reconciliation

procedures developed, and AEITI

recommendations incorporated into relevant

government work plans.

Quality reports in support of retaining

EITI compliance developed, and

recommendations implemented.

Component 3: Treasury Management, Accountability, and Transparency Milestones


Treasury: AFMIS enhancement and

expansion

Standards of timely transaction processing (including

payments), credibility and efficiency in payroll

generation, and financial reporting improved through

expansion and enhancement of system coverage.

Annual financial statements on the core

budget prepared using Cash Basis IPSAS.

Roll out to more embassies,

selected districts and municipalities, and

at least 5 SOEs.

Access rights and training provided to 300

additional users at designated spending

units.

Additional functionalities added, to

strengthen payroll and HR systems.

Procedures manual developed for Ministry

of Foreign Affairs and roll out to between 2

and 10 embassies.


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Treasury: Accounting and Auditing

Practices

Strengthened accounting and auditing practices of the

corporate sector (implementation of Accountancy Law).

Trainee program established by Treasury. First batch of training and professional

accreditation carried out, including 5

females.

CPA Law and curriculum developed. Regulations, Policies, and Procedures

supporting and assisting CPA

Afghanistan set up.

CPA Afghanistan established, to serve as

the node for certification of accountants and

development of accounting standards for

Afghanistan.

Reciprocal membership agreement signed

with two international/regional

accountancy bodies.

Treasury: Sukuk Implementation Establishment of Sukuk operations in Afghanistan. Framework (Law) for Sukuk Bonds

developed.

Sukuk Bonds implementation facilitated

through approval of Framework (Law),

formation of supervisory body, and

issuance of rules and procedures.

Internal Audit

Increased implementation rate of audit recommendations

and improved internal controls, risk management and

governance process.

Requisite procurement initiated, MoUs

signed, and IAD MOF teams designated

and start work to perform quality assurance

and strengthen (per IIA standards) IA

function of 5 pilot line ministries to operate

individually and competently.

Designated IAD MOF teams continue

work in line ministries (2 years in each

line ministry), expanding to 10 pilot line

ministries.

AMIS installed and implemented in IAD

MOF (and staff trained on system), to

automate the manual audit process.

AMIS installed and implemented in line

ministries (and staff trained on system).

External Audit Increased efficiency through implementation of HR

Strategic Plan, transparency (citizen engagement)

measures, follow up of external audits and increase in

number of performance audits conducted (supported

through improved data management).

Consultancy firms for Grants audit and

quality control and quality assurance

contracted.

Consultancy firms’ performance (and

continued need evaluated.)

Development of AMIS contracted. AMIS is in place, and report on follow-

up is generated.

Professionalization/Capacity Building of

SAO advanced through first year

implementation of HR Strategic Plan,

collaboration with other SAIs, recruitment

of national and international advisors and

staff for SAO and Public Accounts

Committee (PAC), and equipping of SAO

and its regional offices.

Professionalization/Capacity Building of

SAO further advanced through second

year implementation of HR Strategic

Plan, collaboration with other SAIs, and

equipping of SAO and its regional

offices.

Citizen engagement enhanced and

awareness of CSOs, Media, Parliament and

auditees increased, including through

development of Communications Strategy.

Citizen engagement enhanced and

awareness of CSOs, Media, Parliament

and auditees increased, including through

implementation of Communications

Strategy.


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Procurement (development and rollout

of first phase E-Government

Procurement and system)

Transparent, effective and efficient procurement service

delivery across government organizations.

PMIS upgraded through: (a) mapping and

simplification of all (upstream and

downstream) procurement processes; (b)

development (as sub-systems of PMIS)

Decision Support System, Management

Reporting System, Transaction Support

System; and (c) linkage to relevant modules

of AFMIS (including tax office database),

ACBR and Banks.

E-Purchasing, E-Tendering and E-

Contract management modules pilot

expanded, including: (a) Vendors'

Classification System for services

vendors; (b) E-bidding system for

consultancy projects; (c) e-purchasing

module; and (d) e-specifications module.

Standard e-Operation Office equipped in

Procurement Entities and Provinces.

e-GP system procured. E-Purchasing, E-Tendering and E-Contract

management modules launched in pilot

phase, including: (a) Vendors' Classification

System for goods vendors; (b) E-bidding

System for goods projects; (c)

Debarment System; (d)

Administrative Review System and E-

Catalogue; and (e) upgrading of

procurement related dashboards.

SOEs Enhanced efficiency, competitive capacity, and

profitability of SOEs.

Diagnostic assessment of SOEs carried out,

to measure size, composition, market share

and economic weight of SOEs (both

individually and by sub-sector), and

financial, operational and fiscal

performance (the latter quantifying fiscal

costs and fiscal risks) of the sector.

SOEs reforms initiated based on

diagnostic recommendations.

Supervisory Board established to support

oversight and monitoring of SOEs and

SOCs and the development of policies to

enhance profitability of the sector.

Supervisory Board activated and

providing oversight and policy

development for the sector.

Insurance Strengthened strategic framework for insurance

development.

Insurance strategic vision, sector policy, and

law and regulations developed/reviewed.

Capacity building in Takaful law and

registration carried out.

Properties Increase revenue from public properties. Procedures and manuals for the clarification

of government Property Law developed.

Implementation of procedures and

manuals initiated.

AFN 580 million revenue from government

property (leases and rent) including in

provinces collected.

AFN 580 million revenue from

government property (leases and rent)

including in provinces collected.

Development of Property Information

Management System.

Deployment and data population of

Property Information Management


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System.

Number of newly registered government

properties on Property Accounts increased

by 350 through improved data collection on

property type, location, size, and owner

breakdown.

Number of newly registered government

properties on Property Accounts

increased by 350 through improved data

collection on property type, location,

size, and owner breakdown.

30% of public properties maintained. 70% of public properties maintained.

50% of Properties’ staff trained. 100% of Properties’ staff trained.

Component 4: Institutional Capacity Building and Performance Management Milestones


MOF Re-organization

Improved functioning and structure of MOF (including its

corporate backbone).

Comprehensive organizational restructuring

and professional development plan

developed on basis of FPIP Advisory

Facility supported competency framework

(HR Assessment).

Organizational restructuring and

professional development program

initiated, including (gender-sensitive)

recruitment and TA migration (working

with CBR Facility) performance

management, training and professional

development.

MOF Administration Business Process

Re-engineering

More effective and timely transaction processing, to

better support the operations of MOF technical

departments and, by extension, implementation of FPIP.

Mapping carried out for 50% of relevant

MOF Administration processes.

Mapping carried out for 50% of relevant

MOF Administration processes

MOF Procurement Improved procurement efficiency. Procurement and contract management

database developed.

Database deployed.

MOF ICT

To meet current and future needs for efficiency,

flexibility, coverage and process integrity of IT systems.

Requisite investments in upgrading ICT

systems and connectivity, guided by all-of-

MOF ICT Assessment and ICT Strategy

currently being prepared through the FPIP

Advisory Facility.

Capacitation of MOF IT staff.

Performance Management Driving behavioral change through the entire PFM cycle,

by applying the overarching principles of: (i) leadership

and political commitment towards change; (ii) policy

space for implementing suggested reforms; and (iii)

adaptive, iterative and inclusive processes.

Implementation of recommendations of

Scoping Report completed as part of FPIP

Advisory Facility, on provision of

authorizing environment for

implementation teams, and system-level

reforms to enhance skills, strengthen

cohesiveness and effectiveness of

leadership teams in the context of FPIP.

Technical assistance provided to support

PMT in the development of annual and

mid-year FPIP performance assessment

reports.

Communications Strategy designed to guide

measures to institutionalize process of

behavioral change to support new policy

processes, and provide timely support to

bridge policy and implementation gaps


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revealed in course of FSP implementation.

Web-based PMRS developed for PMT.

TA provided to support PMT in the

development of annual and mid-year FPIP

performance assessment reports.

Development of overall Strategic Framework for the

Ministry of Finance.

Situational Analysis and Five Year

Strategic Vision for MOF developed.

Implementation of Five Year Strategy

initiated. Update and improvement of GoA PFM Reform Strategy

(PFM Road Map II).

PFM Reform Strategy improved and

updated on basis of supporting assessments

(including FPIP assessments).

Implementation of updated PFM Strategy

initiated.

Development of an Information Systems Development

and Improvement Strategy.

Situational Analysis carried out, and whole-

of-government Information Systems

Development and Improvement Strategy

developed.

Implementation of Information Systems

Development and Improvement Strategy

initiated.

Chief of Staff: Data Archiving Improved archiving and transfer of data and records to

relevant departments.

Current documents in MOF archive

categorized, and documents disposed in

accordance with MOF Archive and the

National Archive legal framework.

Design initiated for comprehensive MOF

archives’ database linked to database for

property documents in President’s Office

and the Afghanistan Land Authority.

Annual assessment of historical data

conducted, and annual workshop on

Archiving policy at MOF conducted.

Annual assessment of historical data

conducted, and annual workshop on

Archiving policy at MOF conducted.

Aid Management Improved evidence-based monitoring and reporting on

the mutual commitment expressed by the donors and

government under area six (6) of SMAF.

Official Development Assistance (ODA)

data collected from Afghanistan

development partners and entered into the

Development Assistance Database (DAD),

in accordance with the ODA Data Cycle.

ODA data analysis conducted and results

communicated to development partners;

Aid Management Policy and New Deal

Engagement advocacy activities at the

national level conducted; dissemination

of donor-specific ODA Data Score-Cards

on quarterly basis; and forward estimates

process reviewed and refined as required

DAD rolled out to at least 3 ministries,

supported through sector specific DAD

trainings and preparation of user guide.

DAD and AFMIS compatibility is

resolved.

MOF Projects’ Coordination and

Monitoring

Improved MOF projects’ planning, management and

coordination, and evaluation and reporting.

MOF projects’ coordination and monitoring

linked-up to Geographic Information

System (GIS), and M&E system

development.

MOF projects’ coordination and

monitoring improved through utilization

of GIS, and M&E system.

Public Relations Improved Ministry of Finance communication and

outreach on FPIP reform aspects and progress.

Development and distribution of relevant

media materials.

Development and distribution of relevant

media materials.