Program Budgeting
Background:
In recent years the policy of the government of the Islamic Republic of Afghanistan (IRoA) has been to introduce a number of budget process reforms aimed at strengthening public expenditure management and planning, and improving financial control. One of most important reform in this area has been the Implementation of Program budgeting. These reforms have two key objectives:-
- to develop expenditure priorities and budget plans over the medium term and
- to base budget allocation decisions on the economic and social priorities of the country.
These developments have taken place in parallel with the creation of a strategy for the future development of the nation – the Afghanistan National Development Strategy (ANDS). This plan, agreed in August 2008 between IRoA and the international donors supporting Afghanistan’s development, sets out the medium-term development framework covering the social, economic, governance and security agendas for Afghanistan over the next five years. The strategies set out in the ANDS document also work towards the attainment of the United Nations Millennium Development Goals (MDGs).
On 12th July 2010 the council of Ministers of IRoA endorsed the full roll out of program budgeting and its substitution with traditional budgeting. This reform replaces traditional budgeting by focusing expenditure estimation, monitoring and control on the achievement of an organization’s key outputs rather than simply on its consumption of resources. Because it is new to Afghanistan, program budgeting has been implemented across line ministries and budgetary units of on a phased basis, it was first introduced in 1385 to three Ministries and during 1389 Ministry of Finance is helping all ministries/budgetary units to embrace program budgeting for the preparation of 1390 budget.
What is Program Budgeting?
Program budgeting is a tool for planning, preparing and presenting the government’s budget in a manner that provides clear linkages between budget resources and the policy outcomes that government wants to follow. It is a business process that locates the customary financial aspects of the budget within a framework of strategic and operational objectives as expressed by the ministry/budget agency itself and which are specified in the ANDS results framework.
The Government of Afghanistan is trying to establish:
- What is actually being delivered with the funds provided;
- Whether the government spending is aligned with the strategic goals established by the ANDS results framework.
One way to do this, in theory, would be simply to supplement line-item budgets with descriptions of the outputs and outcomes they are intended to achieve. However, such an approach would be likely to produce many inconsistencies between ministries/budgetary units, and would still not fully solve the problems of integrating operating and development budgeting and aligning spending to the ANDS/Cluster requirements.
Thus if these questions are to be answered effectively, line ministries and budgetary units will need to approach the budgeting process in a different way. Ministries must provide information in a form which links spending plans to policy goals in an objective, structured and consistent way, so that policy and decision makers will be able to focus on what the government has and will accomplish with the funds being expended. Program budgeting provides a tried and tested approach to meeting this need and the government has determined to re-engineer the traditional budget process to build in for the future the advantages that the program budgeting approach will bring.
Program budgeting is a business process by which government activities are organized into programs (activities or services with similar or related goals). It follows a distinct structure and is different from traditional budgeting in four fundamental ways:-
- the budget is formulated around the individual operational programs of the budget entity (primary education, prevention of disease, road maintenance) rather than around its aggregate spending requirements;
- the budgeting process integrates the estimation of service costs with narratives that explain and justify the expenditure being proposed;
- the budget figures are accompanied by narrative descriptions of the aims, objectives and expected achievements of the program during the budget period (and beyond if relevant);
- the budget embeds criteria against which performance in delivering outputs and outcomes can be assessed – this process is often referred to as performance measurement.
The overall aim of program budgeting is for ministries and budgetary units to show that their budget spending is aligning with the aims and objectives of their own ministry/ budgetary unit, and through that with the ANDS results framework and Clusters requirements. Furthermore, by budgeting on a program basis, ministries and budgetary units will be in a position to identify alternative strategies for achieving each goal by determining the costs and benefits of possible alternative approaches to achieving them.
Program Budget Rollout Strategy:
In 1385 the Government of Afghanistan introduced Program Budgeting in order to better link its strategic objectives and policy priorities with the annual budget, and to integrate operating and development budgets of the ministries. Initially, Program Budgeting was introduced to 3 pilot ministries (Ministry of Education, Ministry of Public Health, and Ministry of Rehabilitation and Rural Development) for the preparation of the 1386 budget.
For 1387, program budget preparation has been extended to additional 4 pilot ministries; (Ministry of Agriculture, Ministry of Energy and Water, Ministry of Public Works, and Ministry of Finance). Following positive feedback, the Program Budget pilot was rolled out to additional 8 line ministries and budgetary units (Ministry of Commerce, Ministry of Information and Communication Technology, Ministry of Defense Ministry of Higher Education, Ministry of Labour and Social Affairs, Ministry of Transport, Ministry of Urban Development, and Independent Directorate of Local Governance) for 1388 budget preparation process, and additional 4 line ministries/budgetary units (Ministry of Economy, Ministry of Women Affairs, Office of the President, and Civil Service Commission) for 1389 budget preparation process.
The MoF also implemented a new Chart of Accounts (CoA) that revises the coding structure to provide for expenditure tracking on a program basis. New, integrated budget and accounting forms have been prepared. All Program Budget ministries have been required to prepare their quarterly allotments by programs.
The new Program Budget implementation plan prepared by Ministry of Finance assumes the roll-out of Program Budgeting to all line ministries and budgetary units will be initiated by May 2010 - in time for start of 1390 budget preparation.
The roll-out of Program Budget to all line ministries and budgetary units for the 1390 budget preparation year will enable submission of a single budget request by the line ministries and budgetary units for 1390 in the program format, and facilitate policy based approach to decision making by the Budget Committee. This will enable a strong service delivery performance for the 1390 budget.
The plan recognizes that the full implementation of Program Budgeting will require significant changes throughout the budget cycle (planning, policy and financial management systems, and monitoring and evaluation processes and procedures).