The Afghan Government and the International Community reaffirm their partnership in the economic growth and development

of Afghanistan
through a process of mutual accountability in achieving mutually decided goals as laid out in this document, hereafter the Tokyo Framework.
The International Communitys ability to sustain support for Afghanistan depends upon the Afghan Government delivering on its commitments
described in the Tokyo Framework. This document establishes an approach based on mutual commitments of the Afghan Government and the
International Community to help Afghanistan achieve its development and governance goals based on the International Communitys
commitments in the Tokyo Framework. The Tokyo Framework establishes a mechanism to monitor and review commitments on a regular basis.
Good governance is essential for strong and sustainable economic development and improved livelihoods of the Afghan people. Recognizing
this fact, this accountability framework concretizes the mutual commitments decided in the Kabul Process and reaffirmed at the Bonn
Conference by stipulating shared development and governance goals and a mechanism as described in this document to hold parties
accountable for achieving them. The goals are consistent with the Afghan Governments economic and development strategy presented in
Towards Self-Reliance. At the December 2011 Bonn Conference, the International Community affirmed the special status of Afghanistan to
receive donor assistance from Transition through Transformation in greater measure than similarly situated nations. The Afghan Government and
the International Community are bound by their citizens expectations for the effective and transparent stewardship of resources. The Afghan
Government reaffirms its solemn commitment to strengthen governance, grounded in human rights, the rule of law, and adherence to the
Afghan Constitution, and holds it as integral to sustained economic growth and development. Working in partnership with the International
Community, the Afghan Government seeks sustained development, economic growth and fiscal sustainability with declining reliance on donor
financing as articulated in Towards Self-Reliance. To fulfill this vision, the Afghan Government has put together the National Priority Programs
(NPPs), and, in consultation with International Community, is developing an Aid Management Policy to be endorsed by the Joint Coordination
and Monitoring Board (JCMB) by December 2012 to ensure optimal execution and effectiveness of international assistance aligned with national
priorities. As Afghanistan enters the Transformation Decade, progress from the past decade in areas that underpin sustained economic growth
and development,
especially
for women and girls, such as education, health and other basic services, as well as strengthened respect for human
AID MANAGEMENT
DIRECTORATE
rights, must continue. Challenges such as vulnerability to natural disasters and humanitarian needs must also be addressed jointly in an effective
and appropriate manner in Transition and the Transformation Decade. Successful transition will lead to a decade of Transformation where
Afghanistan will build on the benefits of Transition to become an effectively governed and economically, socially progressing country driven by
its own national priorities. This requires a paradigm shift in the nature of partnership between the Afghan Government and the International
Community, from that of being recipient and donors to owner and partners. The realization of this shift necessitates re-defining the principle,
reciprocal commitments and modalities of partnership, which is the purpose of the Tokyo Framework. The Tokyo Conference is the turning point
to begin this re-definition in our partnership. Principles The Tokyo Framework is based on broadly accepted principles of inclusive and sustainable
economic growth and development: Governance has a direct bearing on development performance; International assistance aligned with
national priority programs enhances efficiency and sustainability of development assistance; International assistance through national budgets
can IMPLEMENTATION
improve national institutional
capacities,
performance, and accountability to its citizens; Monitoring of development and
GUIDANCE
NOTEdevelopment
#1
governance benchmarks in a transparent manner is a powerful means to enable accountability to the Afghan people, and reinforce reciprocal
commitments of donors; Private investment both domestic and foreign is key to sustainable economic growth; and Regional cooperation
facilitates the integration of regional economies, thus contributing to the sustainability of development efforts in Afghanistan. Mutual
Commitments The Participants emphasize the importance of the delivery of assistance through adhering to the principles of aid effectiveness,
that they cannot continue business as usual, and must move from promise to practice. The Tokyo Framework sets out a new reinvigorated
development partnership between the Afghan Government and the International Community. The Afghan Government and the International
Community affirm that a functional democracy based on credible and inclusive elections, a professional and efficient civil service, access to justice
and the rule of law are essential to a secure, just, stable and prosperous Afghanistan. Strengthened governance and institutions with a particular
focus on the rights of women are prerequisites for strong and sustainable economic growth, employment generation and prosperity for the
Afghan people. Afghanistan Governance and Development Commitments The Afghan Government and the International Community are to
monitor performance for five major areas of development and governance according to the modalities described below. A timeline for these
indicators is to be developed by the Afghan Government for the next JCMB meeting. The desired goals and initial indicators for each area are
stated below. Representational Democracy and Equitable Elections Goal: Conduct credible, inclusive and transparent Presidential and
Parliamentary elections in 2014 and 2015 according to the Afghan Constitution, in which eligible Afghan citizens, men and women, have the
opportunity to participate freely without internal or external interference in accordance with the law. Develop, by early 2013, a comprehensive
election timeline through 2015 for electoral preparations and polling dates; and Ensure that a robust electoral architecture is developed in a
secure, participatory and transparent manner to enable successful and timely elections. Governance, Rule of Law and Human Rights Goal:
Improve access to justice for all, in particular women, by ensuring that the Constitution and other fundamental laws are enforced expeditiously,
fairly and transparently; ensure that women can fully enjoy their economic, social, civil, political and cultural rights; fight against corruption,
including strengthening counter-narcotics efforts; and improve the capacity of state institutions. Indicators: Ensure respect for human rights for
all citizens, in particular for women and children, and allow the Afghanistan Independent Human Rights Commission and civil society
organizations to perform their appropriate functions; Demonstrated implementation, with civil society engagement, of both the Elimination of
Violence Against Women Law (EVAW), including through services to victims as well as law enforcement, and the implementation of the National
Action Plan for Women (NAPWA) on an annual basis; and Enact and enforce the legal framework for fighting corruption including, for example,
annual asset declarations of senior public officials including the executive, legislative and judiciary. Integrity of Public Finance and Commercial
Banking Goal: Improved integrity of public financial management and the commercial banking sector. Implement the government program
supported by the International Monetary Fund on schedule; continue to enforce asset recovery and accountability for those responsible for the
Kabul Bank crisis; and strengthen banking supervision and reforms through Da Afghanistan Bank; Implement Public Financial Management
Action Plan and improve the management of public funds as measured by Public Expenditure and Financial Accountability (PEFA) assessment by
20 percent and raise the transparency of public funds measured by the Open Budget Initiative (OBI) to more than 40 percent; and
Implement the recommendations from the Financial Action Task Force Asia Pacific Group regarding anti-money laundering and combating
terrorist financing. Government Revenues, Budget Execution and Sub-National Governance Goal: Improve the Afghan Governments revenue
collection and capacity of line Ministries to develop and execute budgets accountable to, and incorporating, local needs and preferences.
Indicators: Through more efficient, transparent and accountable customs and tax systems, raise the ratio of revenue collection to GDP from 11
percent to 15 percent by 2016, and to 19 percent by 2025; Improve budget execution to 75 percent by 2017; Enact a legal framework to clarify
roles, and responsibilities
of government agencies at national, provincial and district levels, in line with the 2010 Sub-National Governance Policy;
MINISTRY OF FINANCE
GOVERNMENT budgeting
OF THE ISLAMICprocess
REPUBLIC OF
AFGHANISTAN
and Develop a provincial
that
includes provincial input into the relevant Ministries formulation of budget requests, linked to
a provincial planning process in which Provincial Councils have their consultative roles. Inclusive and Sustained Growth and Development
Goal: Achieve inclusive and sustained growth through a focus on human development, food security, private investment, and decent work and

AID MANAGEMENT POLICY

ON-BUDGET FINANCING

2014

Aid Management Policy

Preamble
This Guidance Note No.1 is the first in a series of guidance notes prepared for both internal use
within the Government of the Islamic Republic of Afghanistan (GIRoA) and for our Development
Partners (DP). Further Guidance Notes will be issued in due course to cover other topics to help
with implementation of the GIRoA Aid Management Policy (AMP).
Guidance as set out in this note, allows for exceptions in its implementation and does leave some
scope for innovation and flexibility, otherwise it would not be called guidance. Thus the guidance
is not binding on the Government or the Development Partners, in the sense of being mandatory
in every detail.
However, the Guidance does have to be followed in the sense of its contents being drawn on for
reference and being regarded as setting out the ideal course to pursue. This Guidance is designed
to enable the Ministry of Finance to monitor and review progress towards the Governments and
development partners mutual commitment to:

Aligning 80 percent of aid with the NPPs and channeling at least 50 percent of
its development assistance through the national budget of the Afghan Government
in accordance with the London and Kabul Communiques.
(Tokyo Declaration, TMAF, para. 12)
List of Guidance Notes in this Series

Guidance Note #1 - On-budget (OB)

Guidance Note #2 - Aid Alignment (AA)
Guidance Note #3 - The Development Framework Agreement (DFA)
Guidance Note #4 - The Finance Agreement (FA)
Guidance Note #5 - Joint Analysis, Research and Assessments (JARA)
Guidance Note #6 - Aid Reporting in the Development Assistance Database

Guidance Note 1: On-budget Financing

1.

Introduction
1.1

Purpose

This guidance note explain on-budget financing (or core-budget financing or direct budget support), the national budget and the way Development Partners (DP) can provide funding through the
national systems of the Government of Islamic Republic of Afghanistan (GIRoA). These guidance
notes are a useful reference for both government ministries and DPs who are already providing
on-budget assistance, those looking to increase contributions through this modality, and those
who may be considering doing so for the first time.

1.2

What is On Budget Financing?

Assistance is qualified as on budget when the funds are delivered using the government Public
Financial Management (PFM) system (i.e. budget, treasury, audit and procurement). This includes
both general budget support (which is discretionary for use by GIRoA) and also non-discretionary
(or earmarked) assistance.
On budget financing is through the following frameworks and conditions:
a) Bilateral:
A legal agreement is signed between Ministry of Finance (MOF) and the DP
The assistance is implemented and executed by a GIRoA entity
The assistance has been reflected in the national budget and approved by the parliament
b) Multi Donor Trust Funds (MDTF)1:
A legal agreement between the DP and administrator of the MDTF exists
The funds are transferred from the DP to the MDTF, and then from MDTF to GIRoA
All criteria mentioned above under a)

1.3
1.3.1

What is the National Budget?

Overview

The national budget is the tool for implementation of a governments policies and priorities. It shows
the predicted money available to GIRoA (revenues, grants and loans) and planned expenditure for
the following fiscal year. The primary aim of the national budget is to be fiscally sustainable. The
national budget is not just a financial document but a development plan for the whole country.
It reflects GIRoA policy: Expenditure is planned in line with the main priorities/objectives of the
government. Therefore the national budget, and the budget of each ministry, is linked to the Afghanistan National Development Strategy (ANDS).
It is program-based: The activities of ministries and agencies (or budget units) are grouped into
sub-programs, which are then grouped into programs, which show the link to GIRoA policy. This
enables GIRoA to communicate clearly to Parliament and the public what services are being delivered with the funds provided.
It is results-based: Each activity to which money is allocated produces an output, which is usually
a public good (e.g. road) or a service (e.g. healthcare, pensions). These goods and services lead
to outcomes, which benefit Afghanistan. There are different types of outcome, such as economic
development, social development or security.
It plans for the medium-term: The Medium Term Budget Framework (MTBF) has a three-year
time-frame enabling more rational and predictable use of resources.
1

For example, ARTF, LOTFA, AITF, APRP. This applies to the window that channels funds through Budget.

Aid Management Policy

1.3.2

Budget Process and Budget Calendar

The Budget Process is the method of formulating the budget over time. It requires a step-by-step
methodical approach, with specific actions by specific actors. The general process is shown below:
The precise timing of the budget formulation process is defined within the budget calendar, which
is decided by MOF each year and has specified actions with clear deadlines.

1. Development
strategy established.

2. Budgetary units
define spending
priorities (BC-1:
Feb-Mar).

3. MOF develops
MTBF & budget
ceilings set (Apr-May).

4. BUs prepare detailed

budgets (BC2: Jun-Jul).

5. BUs present to
Budget Committee
(Aug-Sep).

6. Cabinet approves
budget (Oct).

7. Parliament
appropriates budget
(Nov).

8. President signs the

budget into law (Dec).

Figure 1: The precise timing of the budget formulation process is defined within the budget calendar,
which is decided by MOF each year and has specified actions with clear deadlines.

2.

Why Fund On-budget?

There are strong reasons to fund on budget, especially given recent progress in the PFM capacity
of GIRoA:
a) The universally endorsed Aid Effectiveness principles in the Paris Declaration, Accra Agenda
for Action and Busan Partnership for Effective Development Cooperation emphasize ownership by
recipient countries of aid delivery. It is essential to enable recipient countries to align aid to its own
priorities. There is no better way to do this than by funding through the countrys national budget,
which is the tool to address a governments priority-based policies.
b) Fragile and conflict affected states like Afghanistan pose particular challenges for development. The Principles for Good International Engagement in Fragile States and the New Deal
emphasize the need for the fragile state to lead its recovery. For this, state building especially
strengthening institutions is a prerequisite, as is alignment to local needs. Supporting the Budget
and channeling aid on budget is a huge step to building lasting Afghan institutions.
c) On-budget assistance is comparatively more efficient than off-budget. The reason is that
mechanisms to handle the funding are already in place within the government system. There is
no need to establish more agencies or hire new people to deliver the funds. Recent studies (e.g.
by World Bank) have concluded that funding through national systems also has more local impact
and sees more aid used in country.

Guidance Note 1: On-budget Financing

d) In the context of transition and Afghanization, Afghanistan must take increased responsibility
for its security, development and governance. For this, legitimacy of the Afghan state is crucial,
which requires government taking financial responsibility for all these sectors. A sound national
budget process that can operate after DPs have left is the single most important tool to ensure
Afghan-led sustainable development into the future.
e) Afghanistans national budget is divided into the Operating and Development Budgets. The
Operating Budget is over 50% dependent on foreign aid. The Development Budget is 100% reliant.
Put simply, GIRoA cannot currently deliver core services without donors on-budget financing.
f) Around 70-80% of aid spent in Afghanistan does not pass through national systems. This is
called the external budget or off budget financing. If money is off budget, GIRoA cannot prioritize
it so easily. By funding on budget, DPs help to create a budget that clearly directs all available resources to the priorities of GIRoA. Currently, the needs are so numerous but the resources available to GIRoA are limited.
g) Development spending creates future financial commitments. For example, when a school is
built (investment or development spending) then money must be found for teachers, schoolbooks
and repairs (known as operating and maintenance costs). The national budget can ensure sustainability of development projects already started by DPs, as it plans over a 3 year time-frame.
h) Progress in PFM Reforms is evident. The PFM Roadmap is in place. Financial Planning in the
Budget Execution Directorate ensures that line ministries have monthly budget expenditure plans
and procurement schedules. Performance Reports submitted monthly and quarterly by line ministries assess budget execution and results against program targets.
i) DPs pledged to increase their financing to 50% on budget within two years of the Kabul Conference in July 2010. It is important for pledges at international conferences to be realized.

3.

What Does Good Financing Look Like?

When DPs fund on budget, they directly input into the Budget Process. But just moving funding
on budget is not the only aim. It is also necessary to optimally integrate the DPs funding into the
budget process by planning ahead, in coordination with GIRoA.
In an ideal scenario, DPs financing would have the following characteristics:
It is discretionary (GIRoA can choose how to use it). This enables GIRoA to fund its
own priorities.
If it is non-discretionary (earmarked by donor), the DPs project should align with
national priorities reflected in the relevant line ministrys National Priority Program
(NPP). The line ministry and DP should coordinate early on to develop the project for
BC2 submission to MOF. Currently, this happens too late.
The project is in line with a program that has been previously agreed as a priority by
GIRoA and DPs, within previous years Development Cooperation Dialogs (DCD),
which address priorities. This promotes predictability of aid.
The project has been consulted with, and agreed by, the Deputy Ministers and Director Generals of the relevant technical department of the line ministry and MOF.
The funding figures for the project are finalized and confirmed inside the Core Donor
Consultations (CDC), not afterwards. This assists with the timely creation of the Budget Statement by GIRoA.

Aid Management Policy

4.

What is the Process to Fund On-budget?

4.1

Project Initiation

There are two ways to create an on-budget project: 1. DP initiates and 2. GIRoA initiates.

4.2

Technical Dialogue

Once the project is initiated, the DP and relevant line ministry enter into technical discussions on
details of the project, such as structure, objectives, funding and implementation plans.

4.3

Financing Agreements

The DP and MOF jointly create and sign the Financing Agreement for the project. Article 10 of the
Public Financial Management Expenditure Law (PFEML) requires that any money received
by a GIRoA entity requires a financing agreement. They are the fundamental instrument through
which a DP finances on budget.

4.4

Proposal from Line Ministry to MOF

Once the line ministry and DP have finalized project plans and funding is secured, the line ministry
proposes the project in BC1 and requests MOF in BC2 to include the project in the national budget
for the next year. This is confirmed in the Core Donor Consultations (CDC), held just before the
Budget Statement, with donors and line ministries.

4.5

Inclusion in the Budget Statement

MOF incorporates the project into the Budget Statement for next fiscal year.

4.6

Approval of Budget

The Budget Statement is approved by MOF, Cabinet, and Parliament. The Budget Decree is issued. This appropriates the Budget.

4.7

Financial Planning

MOF plans how to allocate the annual budget based on appropriations, releasing annual allotments
to pilot ministries and quarterly to non-pilot ones. The line ministry submits financial plan to MOF
indicating how it spends its allocated annual budget, based on monthly payment schedules.

4.8

Registration in DAD and AFMIS

MOF registers the project information into Development Assistance Database (DAD) and into the
AFMIS financial management system and assigns a fund code.

4.9

Creation of Bank Account

MOF opens a special bank account in Da Afghanistan Bank (DAB) designated for the project.

4.10 Transfer of Funds

Based on the financial arrangement in the Financing Agreement and on the request of the Government Treasury the fund will be released either in one or in different tranches to the project designated account in the DAB.

4.11 Procurement
Once the funds are secured, the line ministry starts to implement the project with its partners by
procuring goods and services required.

Guidance Note 1: On-budget Financing

4.12 Budget Execution

Based on the contracts for goods and services, MOF issues quarterly allotments to line ministries,
specifying the limits they can spend. Line ministries can then request MOF Treasury for payments
to, within the limit of approved allotment. The payment is made based on the terms and conditions
of the contract between the line ministry and the service provider. MOF closely monitors the payments and spending of line ministries.

4.13 Audit
Audits are conducted of GIRoA (MOF, line ministry) accounts to evaluate funding procedures.

5.

Key Stakeholders & Their Roles

5.1

Aid Management Directorate, MOF

The Aid Management Directorate (AMD), within the Ministry of Finance, is the department responsible for coordinating with DPs, collecting and reporting information on aid, and ensuring that aid is
used effectively. All communications with DPs go through AMD. It plays a crucial role in coordinating with DPs after BC1 on budget requests of line ministries. AMD also conducts meetings (particularly Core Donor Consultations) with DPs to finalize projects, secure funding and report predictions
of on-budget financing for the next fiscal year to other departments in the Directorate-General of
Budget.

5.2

Budget Policy & Reform Directorate, Directorate-General Budget, MOF

BPRD is responsible for creating policies and guidelines related to national budget formulation and monitoring. It creates the key documents in the budget process (MTBF/Pre-Budget Document, National Budget Statement, Citizens Budget, Performance Reports), as well as instructions
and guidelines for their development (e.g. BC1, BC2, Performance reporting instructions, Budget
Manuals, etc.). BPRD sets the budget calendar timing for each year. It is also responsible for introduction of any reform in the public finance area, such as program budgeting, provincial budgeting,
gender budgeting etc.

5.3

Budget Execution Directorate, Directorate-General Budget, MOF

BED is the focal point for communications of budget issues with line ministries. BEDs work includes
both budget preparation (through collecting, evaluating and processing submissions from line ministries) and budget execution (through processing line ministries requests for allotments, monitoring allotments and completing procedures with the Treasury). BED also monitors budget execution
through the financial planning and performance reporting processes.

5.4

Budget Committee

The Budget Committee is composed of Deputy Ministers from Ministries of Finance, Economy,
Foreign Affairs and Office of Administrative Affairs (Tashkeel office), as well as Director-General
of Budget. Its role is to provide guidance to MOF, oversee the budget process and make budget
allocation recommendations to the Cabinet. Budget Committee conducts the budget hearings with
line ministries, assesses their budget requests and makes recommendations on budget allocations
for ministries programs for the next fiscal year.

5.5

Development Partners

DPs provide the majority of funding for the budget (including the entire development budget).
They negotiate with MOF and line ministries to formulate projects, participate in consultations to
discuss their implementation and share information with AMD, in a timely manner, on their funding
amounts.

Aid Management Policy

5.6

Line Ministries

Line ministries are the implementers of programs and projects for a particular sector. They assess
their priorities according to ANDS strategy, translate those priorities into National Priority Programs
(NPPs) and projects, calculate the cost of delivering programs and coordinate with MOF to prepare
and execute their budget for each fiscal year. Line Ministries also manage external (off) budget
projects that are not financed by the national budget. All off budget projects must also be in line with
the approved NPP. Further guidance on what constitutes alignment is provided by the MOF AMD.

5.7

Civil Society Organizations (CSOs)

CSOs (such as NGOs, business associations, or religious groups) may advise the Government or
Parliament on what is required. These groups should provide a way for citizens to have input into
the National Budget between elections by holding the Government accountable to the commitments made therein.

6.

Contact
This is the 2nd Edition of Guidance Note 1, On-budget Financing. Any comments or feedback are
most welcome. For any feedback, further information or inquiries, please contact your Ministry
Donor Focal Point, or for DPs your focal point in the Aid Management Directorate, MOF.

Guidance Note 1: On-budget Financing

Annexes

Annexes

Annex A: On-budget Financing Options

1.

On-Budget Funding Options

Within the boundaries of the Afghanistan PFM laws and regulations, which reflect best international practices, on-budget financing offers a number of
options for our Development Partners (DP) to choose from. In particular, the Government recommends the following on-budget practices adopted by
bilateral and multilateral financial institutions and donors:
a) Reimbursement: As part of a project financing agreement, the MOF and a DP may agree on a reimbursement mechanism, where the DP may reimburse the MOF for eligible expenditures that it has pre-nanced from its own funds. Both eligible expenditures and the required supporting documents
for this mechanism need to be clearly defined in the financing agreement.
b) Advance Payment: A DP and the MOF may agree on an advance payment mechanism, where the DP may advance a specific amount to a special
account from a related project funds to fund eligible expenditures. The DP may replenish the special account once the MOF provides financial reports
and supporting documents for the eligible expenditures at an agreed upon date. The reporting mechanism for his approach, including the eligible
expenditures and the required supporting documents, need to be clearly defined in the agreement.
c) Direct Payment: The MOF and a DP may agree on a mechanism of direct payment to a third party (e.g., a suppler, contractor, or consultant) for
eligible expenditures. For instance, following completion of works, or delivery of goods or services within the terms of contracts, the MOF may request
a DP to make a direct payment from the project funds to a third party. This mechanism needs to be properly defined and included in the financial
agreements signed with DPs.
d) Special Commitment: The MOF and a DP may agree on a mechanism where the DP issues a special commitment against a letter of credit opened
the Government. In this case, the DP makes an irrevocable written commitment to reimburse a commercial bank on behalf of the Government for
payments made or to be made to a supplierwhen the terms of the letter of credit are met.
e) Benchmarks Performance Based Disbursements: A DP and the Government may choose a funding mechanism where the DP agrees to advance
allocated funds to a special account when benchmarks linked to specific programs are achieved within the specified time-frame. The DP may employ
a monitoring agent, or rely on the relevant government agency, to verify invoices and supporting documents based on which the M16 payment forms
are prepared and paid from the special account to contractors. Conditions for meeting the benchmarks and the disbursement mechanism need to be
specified in financing agreements signed between the Government and DPs. The Government will facilitate opening of the special accounts at Treasury for this purpose.

10

Guidance Note 1: On-budget Financing

2.

Trust Fund On-Budget Options

Trust funds such as the ARTF, LOTFA, AITF and APRP are considered on-budget funding mechanisms that have been used by many donors to support both operating and development needs of Afghanistan. Donors may contribute to these funds to meet their 50% on-budget requirements. The
ARTF has investment and recurrent costs windows, where the recurrent costs window utilizes the reimbursement process outlined above. The investment window may utilize all or some of the above mentioned payment mechanisms. Funding procedures for these trust funds are well documented
and available on their respective websites.
The MOF would be happy to provide further details on these funding mechanisms, bilateral and multilateral, based on requests from the development
partners.

3.

Calculating the 50% On-Budget

3.1

Is calculation ex-ante or ex-post?

Calculations should be undertaken for both ex-ante and ex-post assessments. To illustrate, for June 2013, an assessment can be presented on the
plan (ex-ante) for 1392; as well as achievement (ex-post) in 1391. For the 1393 (2014) budget document prepared in October, the calculation should be
possible ex-ante on the forecasts for 1393, and ex-post for 1391. Thus the On-Budget assessment should normally comprise two figures; a forecast
and an actual.

3.2

Denominator

Calculation of the denominator should start with research of the Donors own budget documents, to identify the quantum of development and humanitarian assistance (excluding security costs in line with ODA definitions) claimed to have been expended or forecast to be transferred in a particular
fiscal year. (Care is needed to align Donor FY with the Afghanistan FY).
The Donor budget statement amounts can be contrasted with the total for on-budget (core) and off-budget (external) assistance totals held in the
DAD (actual and forecast), to which need to be added any additional forecast amounts identified by the Donor that are yet to be entered to DAD.

3.3

Numerator

All identifiable development assistance that is planned or has been channeled through the approved On-Budget modalities referenced in the MOF
Guidelines for On-Budget Assistance Annex should be included in the numerator:
For ex-ante assessments Donor intentions can be taken from DAD and checked against data held by the GMU of MOF Treasury. Differences will occur with forecasts of grant agreements and payments to special accounts advised by Donors but not yet reflected in DAD.
For ex-post assessments, data should be sourced from DAD and checked against audited reports of the GMU, MOF.

11

Annexes

3.4

Confirming the 50% Calculation

Agreement to the appropriate numerator and denominator quantum at a particular time (say at the time of finalizing the annual budget for Parliament)
would be established by discussion between DGB MOF and the Donor.

3.5

Control and Monitoring

Afghanistan has implemented a number of fiscal reforms that have strengthened the Governments ability to control and monitor its budget at the
aggregate level. As an example, the Directorate-General Budget (DGB) reviews all allotment requests to ensure compliance with the terms and conditions of contracts and record them into the State Budgeting and Planning System (SBPS) against the appropriated budget. Additionally, the Treasury
records all approved allotments into the AFMIS to ensure compliance with procurement threshold and contract payment terms.
The Treasury functions at the center are well established. The Afghanistan Financial Management Information System (AFMIS), the national accounting and reporting system, has also been deployed to the mustufiats in all 34 provinces. The Treasury Department has also begun a comprehensive
capacity development initiative for provincial finance officers. For instance, the Treasury has established five regional centers throughout the country
to improve access to training on key financial and treasury skills.
Additionally, line ministries have the capacity and ability to monitor projects to assure that they meet relevant construction standards, comply with
procurement procedures, and report on the progress to Parliament, the Ministry of Finance, and the donor community. In the provinces, Provincial
Councils and civil society organizations (CSO) are also active partners in monitoring implementation of projects.
Furthermore, some donors have placed monitoring agents in certain ministries to review and verify contractors works as well as invoices and supporting documents to ascertain terms and conditions of contracts are met. This approach provides an extra layer of checks and balances to the existing
control and monitoring mechanism.

3.6

Reporting and Accountability

Reporting is a key element of transparency and accountability. At the center, all expenditures (M16 payment forms) are recorded into the AFMIS on
daily basis, and real time expenditures reports can be generated from the AFMIS. At the provincial level, and as required by MOF regulations, all
budget expenditures are recorded in commitment registers, while disbursements are made both at the central and provincial level. AFMIS can also
generate provincial expenditures report on regular basis.
Additionally, the MOF shares national budget execution figures with the Cabinet and Parliament on monthly basis. The MOF also shares performance
reports for key ministries with Cabinet and Parliament on bi-annual basisin addition to execution rates, the reports assess the ministries progress
toward implementation of their programs and achievement of their preset performance targets.

12

Guidance Note 1: On-budget Financing

3.7

MOF Allotment, Disbursement, and Reporting Processes

Flowcharts below lay out the MOF allotment, disbursement and reporting processes for the development budget at the central and provincial level.
Chart I lays out the allotment, payment and reporting process at the center.
Chart II explains the allotment and transfer of funds mechanism to provincial mustufiats.
Chart III details the payment process at provincial level.

13

Annexes

Chart 1: Development budget payment process at the centre.

Contractor

LM Planning Unit/
Monitoring Agent

LM Finance Department

Minister/Deputy Minister

MOF Controller
Embedded in LM

Budget Department, MOF

Treasury Department, MOF

Review B27 & supporting

documents

Record B27 (allotments) in AFMIS

and send a copy to the LM

Allotments

Start

Submit invoice and supporting

document upon completion of work, or
delivery of goods or services

Revise & resubmit

yes

Approve?

no

3d

Prepare B27 allotment release

form and attach required
supporting documents

3d

1d

3d

no

Revise & resubmit

Prepare M16 payment request

form based on approved B27 &
attach required support
documents

Payments & Reporting

Approve & sign B27

Approve & sign M16

1d

yes

Approve

no

1d

Approve

yes

2d

Approve

no

yes

3d

Revise & resubmit

Process M16 (record M16 in

AFMIS) and make payment

3d

Generate real time expenditure

reports from AFMIS

End

Total Average Number of Business Days: 20

14

Guidance Note 1: On-budget Financing

Chart 2: Development budget allotments and transfer of funds to provincial mustufiats.

LM Finance/Planning Unit

LM Minister/Deputy
Minister

Controllers in the LM, MOF

Budget Department, MOF

Treasury Department, MOF

Review B27 & supporting

documents.

Record B27 (allotments) and

commitments in FMIS and send a
copy to the LM.

Provincial Mustuats, MOF

Allotments

Start

Following appropriate of National

Budget, prepare B27 allotment
release form, along with a list of
provincial distributions & submit them
to Budget Department for processing.

Approve & sign B27

3d

3d
no

Revise &
resubmit.

Prepare M16 payment request form

based on approved B27 (requesting
transfer of funds to Mustuats as
advance payments).

Approve & sign M16

(Advance Payment)

Approve

no

yes

1d

Approve

yes

2d

Approve

no

yes

1d

Transfer of Funds

3d

Revise &
resubmit.

Process M16, transfer funds as

advance payments, and provide
transfer advice with coding details
to Mustuats.

Communicate receipt of
allotments to the relevant
provincial departments.

3d

2d

End

Total Average Number of Business Days: 19

15

Annexes

Chart 3: Development budget payment process at the provincial level.

Contractor

Provincial Line
Department, Planning
Unit

Provincial Line
Department, Finance
Unit

Governor

Provincial Mustuats, MOF

Prepare M16 payment request

form.

Approve & sign M16

(Advance Payment)

Approve

Provincial Branch, DAB

Treasury Department, MOF

Transfer funds to contractors

account, or cash check.

Generate expenditure reports from

AFMIS.

Allotments

Start

Submit invoice and supporting

documents upon completion of work,
or delivery of goods and services.

Transfer of Funds

Revise &
resubmit.

yes

Approve

no

3d

3d

2d

yes

no

Revise &
resubmit.

Process M16 (record M16 in

AFMIS) and make payment.

3d

1d

End

Total Average Number of Business Days: 12

16