Afghan Budget Execution and Capacity Development - Another

UNCLAS SECTION 01 OF 02 KABUL 000294 SIPDIS STATE FOR SCA/A, SCA/FO (A/S BOUCHER, GASTRIGHT, DEUTSCH) NSC FOR AHARRIMAN USAID/ADA/AID FOR JKUNDER USAID/AA/ANE FOR MWARD TREASURY FOR ABAUKOL OSD FOR KIMMITT MANILA PASS ADB/ED SIPDIS E.O.12958: N/A TAGS: EINV ECON ETRD EAID PGOV AF SUBJECT: Afghan Budget Execution and Capacity Development - Another JCMB success story. KABUL 00000294 001.2 OF 002 SUMMARY: ¶1. Prodded by JCMB III Semi-annual Report and an Embassy-led donor White Paper, the GoA has taken the first step towards the preparation of an Afghan National Capacity Development Strategy, targeted for release at the spring Afghan Development Forum (ADF). A draft Framework Paper identifies four Capacity Development pillars and a notional focal point for policy and execution leadership for each. The Strategy will identify GoA leadership/oversight roles, contain a "gap" analysis that establishes current versus required capacities, identify short and medium term priority actions, outline ways to monitor progress and impact, and identify a GoA governance/oversight structure. This Strategy has much potential for harmonizing both GoA and donor efforts to build capacity, and for leading to more efficient investment of capacity building resources. More important, it appears to be a welcome signal of a more aggressive GoA ownership of the capacity building agenda. END SUMMARY BACKGROUND: ¶2. Since 2005 a clear consensus has emerged regarding the need to shift the Afghan development framework from emergency reconstruction to long-term sustainable development, with an emphasis on host government capacity building. In response major donors - World Bank, Asian Development Bank, European Commission, DFID, UNDP and USAID - began designing a wide range of capacity development programs. Often these programs targeted the same problems, and often the same institutions, leading to confusion and difficulties in planning and executing. By late summer 2006, the capacity shortcomings of the GoA were on display as attention was drawn to the challenges of budget execution. The GoA appeared to struggle to program and effectively spend the development resources that were available. ¶3. The JCMB Semi-Annual Report issued in concert with the November 2006 meeting, highlighted the need to remove bottlenecks in project implementation and to focus capacity building efforts on procurement, policy/strategy development and finance as top priorities. Somewhat in parallel with the JCMB process, the Embassy launched a Budget Execution/Capacity Building White Paper that identified the need to clarify the roles and responsibilities of GoA entities at both the national and sub-national levels, and the policy and execution levels, in order to begin to address capacity shortfalls. It further emphasized the need to better coordinate the myriad donor activities seeking to strengthen GoA capacity. ¶4. In response to the White Paper and JCMB report, key GoA stakeholders (e.g. Dr. Ishak Nadiri, Economic Advisor to the President, Deputy Minister of Finance Sharani, Minister of Economy Shyams, Civil Service Commission Chair Mushahed and ANDS Executive Director Farhadi, among others) quickly proposed a capacity building policy framework and challenged the GoA parties and donors to move rapidly ahead on the development of this framework and strategy. PROPOSED STRUCTURE OF THE CAPACITY DEVELOPMENT STRATEGY: ¶5. The Framework Paper identifies four "pillars" of the Afghanistan Capacity Development "house," and a notional focal point for policy and execution leadership for each. The four pillars are: Justice Sector - Ministry of Justice; Public Service - Independent Administrative reform and Civil Service Commission (IARCSC); Private Sector/NGOs - Ministry of Economy; and, Afghan society at large - Ministry of Education. While it is clear that the IARCSC will play a lead role in the Public Service pillar, the policy and execution leadership of the other three pillars remains open to discussion. GOA VISION: ¶6. During initial discussions, the GoA made it clear that policies will be forward looking, and seek private sector provision of capacity building wherever possible. Each pillar will have a Strategy and Work Plan, addressing the following elements: Gap Analysis, addressing current capacities versus the desired levels of performance; Quick Impact and Intermediate-term Activities to address the performance gap; Resources required and potential sources; and, Progress indicators, including baselines and targets. KABUL 00000294 002.2 OF 002 Each pillar will establish a governance and oversight structure, using existing mechanisms (eg- using the Public Administration Reform Cabinet Sub-committee and Steering Committee for the Public Service pillar) and the ANDS, wherever possible. Given the short timeframe until the ADF, the Public Service Pillar will likely receive more detailed treatment than the other three. It is also clear that the leadership entities of all four pillars will need substantial capacity building if they are to develop and implement the strategy that emerges. DONOR COORDINATION ON BUDGET EXECUTION: ¶7. The most telling expression of GoA capacity is found in the budget execution data, a useful approximation of GoA ability to effectively plan, contract, oversee and evaluate the development budget. The trends are positive, with the GoA expenditures rising from $440 million (44%) of the $1 billion budget in 1384 to $650-800 million of the $1.4 billion development budget in 1385. ¶8. However, much work remains, and the Donors have responded to the White Paper process by identifying the World Bank and the Ministry of Finance as the lead "partners" for this effort. The World Bank is submitting a "Note" on this topic at the JCMB in Berlin. (An Issues Paper on Budget Execution and Capacity Development has been prepared for the US Delegation to Berlin.) COMMMENT: ¶7. Donors have been seeking a unified GoA counterpart for capacity building efforts for the past year, but were frustrated that the logical choices such as the IARCSC seemed incapable of stepping up. The speed with which the GoA seized the leadership of this process since the JCMB III is an important signal of ownership, and a chance for lagging institutions to start afresh at the ADF. More important, it also demonstrates that the JCMB process can be effective in breaking bureaucratic logjams, on both the GoA and donor sides. END COMMENT Norland