Managing Public Finances for Development - World Bank

[Pages:94]Public Disclosure Authorized

Public Disclosure Authorized

Public Disclosure Authorized

Report No. 34582-AF

Afghanistan Managing Public Finances for Development

(In Five Volumes) Volume V: Improving Public Financial Management in the Security Sector

December 22, 2005 Poverty Reduction and Economic Management Sector Unit South Asia Region

Document of the World Bank

Public Disclosure Authorized

Table o f Contents

AEXCEKCNUOTWIVLEEDSGUEMMMEANRTYS..............................................................................................................................................................................................................................................

IV V

Introduction .......................................................................................................................................... v

Conceptual Framework......................................................................................................................... v

Afghanistan's Security Sector and Recent Progress.......................................................................... K e y Challenges.................................................................................................................................

vv.i.ii.ii

Toward a Fiscally Sustainable Security Sector ................................................................................... ix

Strategic Prioritization and Sequencing................................................................................................ x

. ........................................ Budget Execution for Effective and Efficient Utilizationo f Funds ....................................................

Summary o f Recommendations........................................................................................................

xxi.i..ii

CHAPTER 1 SECURITY,DEVELOPMENT,AND PFM PERSPECTIVE

1

A.INTR..O .........D .........U .........C ........T ........I...O .........N ............................................................................ 1

Background and Rationale.................................................................................................................... 1

Objectives and Chapter Content ........................................................................................................... 2

Definition o f the Security Sector .......................................................................................................... 3

B. SECURITY AND DEVELOPME..N...T....................................................................................................... 4

c.KEYPFMPRINCIPLESAND APPLICATION TO THE SECURITY SECTOR................................................. 7

Aggregate Budgetary Outcomes........................................................................................................... 8

Strategic Allocation o f Resources Across Sectors and Programs......................................................... 9

Effective and Efficient Utilization o f Budgetary Resources .............................................................. 10

. ... D. SERVICE DELIVERYPERSPECTIVE...................................................................................................... 11

CHAPTER 2 AFGHANISTAN'S SECURITY SECTOR AND KEY DEVELOPMENT I S S U E S 15

A.HISTORICABLACKGROUANNDD RECENTPROGRESS........................................................................ 15

Historical Background........................................................................................................................ 15

Progress in Security Sector Strengthening and Ref0rm...................................................................... 17

B.OVERVIEWOF AFGHANISTAN'S SECURITY SECTOR........................................................................... 19

Legal Foundation................................................................................................................................ 19

M a i n Components and Size ................................................................................................................ 19

Salient Features................................................................................................................................... 21

c.INSTITUTIONAL STRUCTUREAND COORDINATION ............................................................................ 23

Institutional and Administrative Reforms .......................................................................................... 23

Coordination in the Security Sector.................................................................................................... 26

CSEHDCA.TPKOTEREYRS...E.3.C....U.P.R..U.I.T.B.Y..L.I..I.S C....F..I..S N.F..AR...NO.U ..MC...AE...D.E M...EA...V.NS ..E.A..L.G.O...E.P..M.M..E..E.N.P.N.E.T.TR..A.S..NP..E.D..C..TA..I.VF..E.G.....H.......A......N......I...S......T....A.......N.......'..S......S......E......C........U......R......I..T......Y............

29 33

A.IMPLICATIONS FOR PFMPRINCIPLESFOR AFGHANISTAN ................................................................. 33

B.THESECURITY SECTOR AND THE BUDGEPTROCESS ......................................................................... 36

Budget Formulation............................................................................................................................ 36

. ............... Budget FundingArrangements ........................................................................................................... 39

CHAPTER 4 TOWARD A FISCALLY SUSTAINABLE SECURITY SECTOR

42

A.RECENTTRENDSINSECURITY SECTOR EXPENDITURES.................................................................... 42

B.FUTUREEXPENDITUREDRIVERSAND PROGRAMMED EXPANSIO.N................................................... 43

c. PROJECTEDCOSTS. FISCALBURDENA.ND LACKOF SUSTAINABILITY .............................................. 46

CHDA.PPRTOEGRR5E.SSSINTGRTAOTWEAGRIDCAPSRUISOTRAIINTAIZBLAETSIEOCNURAINTYDBSUEDQGUEE.T.N....C...I.N...G..........................................................................................

47 50

A.THESTRUCTUREOF SECURITY SECTOR EXPENDITURES................................................................... 50

B.IMBALANCES AND ANOMALIES.SEQUENCINGISS ANDU CONTE RIBUS TING.FACTOR...S.................. 51

Apparent Imbalances and Anomalies ................................................................................................. 52

i

Sequencing Issues............................................................................................................................... 53

Contributing Factors ........................................................................................................................... 5 4

. .... c.USING THE BUDGET AS A PRIORITIZATION TOOL............................................................................... 55

CHAPTER 6 BUDGET EXECUTION FOR EFFECTIVE AND EFFICIENT USE OF FUNDS 60

A.KEYPFMPRINCIPLES FOR BUDGETEXECUTIO.N.............................................................................. 60

B.STRENGTHENING BUDGEETXECUTION.............................................................................................. 61

. ................................. c.TOWARD PERFORMANCEMEASUREMEINNTTHE SECURITY SECTOR ............................................... 64

CHAPTER 7 CHALLENGES, PRIORITIES, AND RECOMMENDATIONS

67

A.SUMMARY OF KEYCHALLENGES....................................................................................................... 67

B.MAINRECOMMENDATIONS ................................................................................................................ 67

REcF.ERROELNEOCFEDSO..N..O...R...S...............................................................................................................................................................................................................................................................

69 70

BOXES

Chapter 1

Box 1. 1:Definition o f the Security Sector ................................................................................................... 3

Box 1. 2: Pnnciples of Sound Budgeting and Financial Management.......................................................... 8

Chapter 2

Box 2. 1:MDGGoal 9 Enhancing Security................................................................................................ 18

Box 2. 2: Legal Foundation of Afghanistan's Security Sector.................................................................... 19

Box 2. 3: Provincial Reconstruction Teams (PRTs) ................................................................................... 21 Box 2.4: Security Policy Coordination at Different Levels ....................................................................... 28

Chapter 3

B o x 3. 1: Overview of the L a w and Order Trust Fund for Afghanistan (LOTFA)..................................... 40

Box 3. 2: Findings o f a LOTFA Monitoring Mission................................................................................. 40

Box 3. 3: Fundingfor Counter Narcotics L a w Enforcement ...................................................................... 41

Chapter 5

B o x 5. 1: The Role of the Budget inDetermining Priorities inDifferent Sectors ...................................... 5 6

Box 5. 2: H o w to Prioritize?........................................................................................................................ 57 Box 5. 3: Socio-Economic Cost-Benefit Analysis o f Landmine Clearance................................................ 58

B o x 5. 4: Equippingthe Police Force.......................................................................................................... 59

Chapter 6

Box 6. 1:Contracting for Landmine Clearance........................................................................................... 63

FIGURES

Chapter 1

Figure 1. 1: Security. Rule of Law. and the Informal Equilibrium............................................................... 6 Figure 1.2: Process of Conducting Defense Reviews/Developing Defense Policy Frameworks................9

Figure 1.3: Service Delivery Framework ................................................................................................... 12

Chapter 2

Figure 2. 1: Security Sector Policy Coordination........................................................................................ 27 Figure 2. 2: Afghanistan's Perceived Performance in Six Dimensions o f Governance .............................. 32

Chapter 3

Figure 3. 1: Pay Scales ($/month) in Security and other Sectors ................................................................ 35

Chapter 4

Figure 4. 1: Security Spending as a Share o f GDP...................................................................................... 43 Figure 4.2: Forecast Ordinary and Development Budget Spending Against Forecast Revenues ..............47

Chapter 5

Figure 5. 1: Composition of Security Expenditures. 2003/04-2004/05 ....................................................... 50

..

11

Figure 5 . 2: Economic Classification o f Security Sector Spending. 2004/05 ............................................. 52 TABLES

Chapter 2

Table 2. 1: Security Sector Parameters ....................................................................................................... 17 Table 2. 2: Approved Staffing Establishment in the Security Sector .......................................................... 22

Table 2. 3: M a i n National Entities Involved in Security, their Roles, Gaps and Duplications ...................24

Table 2. 4: Current Status o f Security Sector PRR Applications ................................................................ 25

Chapter 3

Table 3. 1: Security Sector FundingArrangements ................................................................................... 39

Chapter 4

Table 4. 1: Summary o f Total Security Sector Expenditures 2003/04 - 2005/06 (US$million)................42 Table 4.2: Security Sector Expenditures by Program (US $ million) ........................................................ 43 Table 4. 3: L i k e l y Dnvers o f Security Sector Expenditures ....................................................................... 46

Chapter 5

Table 5. 1: Functional Breakdown o f Expenditures for the Security Sector (2002/03 to 2004/05) ...........51

Chapter 6

Table 6. 1:Deviation Analysis o f Security Sector Budget.......................................................................... 66

...

111

ACKNOWLEDGEMENTS

As part o f the overall Public Finance Management Review (see Acknowledgements for Volume I)t,his volume was prepared by Peter Middlebrook (SASPR), Nicole Ball (Consultant, DFID), William Byrd (SASPR), and Christopher Ward (Consultant). Contributions to this work were also made by Sttphane Guimbert (SASPR) and, o n restructuring and reform o f civilian management agencies, by Satendra Prasad (SASPR) and Jalpa Pate1 (SASPR). Comments fkom Daud Yaqub and M a r k Sedra are gratefully acknowledged. This volume was processedby Juliet Teodosio (SASPR). The participation and support o f DFID made an invaluable contribution to this w o r k and i s gratehlly acknowledged. The process o f carrying out the PFM Review involved extensive interactions with the Ministry o f Finance and other Government agencies, whose valuable cooperation and support was indispensable for completing the review and also greatly benefited this report.

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