June 23, 2010 – With a budget that is 90% externally funded, Afghanistan and its donor community face a dilemma that is critical to the country’s sustained development: how to channel more foreign assistance through the government’s budget effectively in the face of a huge gap to ensure effective administration.

Summary

Overall aid in 2008/09 amounted to $5.5 billion or 47% of GDP. The critical issue are the weaknesses in its mode of delivery and impact. Three quarters of the aid bypasses the government’s own budget system, moving through what is known as the “external budget.”

Four major challenges must be addressed to enable more “external” budget expenditures to be shifted to the core budget:

1. Improve Fiscal Sustainability
2. Increase Execution Rates of Budget Expenditures
3. Streamline and Better Align the Budget
4. Improve Governance of Public Expenditures

The Bank has released 5 working papers on the subject:

-Executive Summary & Overview

-Role of Public Expenditures

-Expenditure Trends and Fiscal Sustainability

-Framework and Financial Management

-Expenditures in Security

-Expenditures in Education