July 25, 2011Doug Hadden
World Bank President Robert Zoelick summed it up in the Washington Post: “Afghanistan is a poor country that can ill afford an economic reversal.” He further pointed out: “aid should go through the Afghan government.” As we have pointed out in the past, the Afghan Reconstruction Trust Fund (ARTF) combined with the Afghanistan Financial Management Information System (AFMIS) has improved financial transparency and reduced the opportunity for corruption thanks to auditable government financial transactions. But, as Mr. Zoelick points out, only 15% of aid is funneled through this system that leverages the FreeBalance Accountability Suite.
Meanwhile, billions of dollars of aid funds, much of from the hard-to-track and hard-to-audit 85% of the aid that does not go through AFMIS leaves the country.
Mr. Zoelick points out that “development does not work without local ownership.” It also doesn’t work when there are no disincentives for corruption.
Automated Financial Management
Government Resource Planning (GRP) systems do not eliminate corruption. GRP makes corruption more difficult. It can eliminate cash so that all transactions are tracked, and can be audited. It enforces rules such as the segregation of duties and spending approval mechanisms. It can highlight transactions that could be fraudulent as early as the commitment stage.
Yet many question “government systems”. Especially in a media environment where there is a strong Afghanistan corruption narrative. As Richard Allen pointed out, direct budgetary support is considered “courageous.” The fact that providing such support reduces corruption contradicts the media narrative. In fact, one report some time ago about corruption at Kabulbank suggested that ARTF would be next to go. Good story, wrong facts. Fact: multiple donors disbursing cash across multiple recipients, many of whom have sub-contractors is a practice that enables corruption.
But, as Marshall McLuhan pointed out, bad news is there to sell good news: advertising.
Facts and Good News
- The Government of Afghanistan produces timely financial statements that meet international standards
- AFMIS manages over 99% of the government funds. Over 90% of revenue collected is cleared within 24 hours.
- All line ministries and all mustafiots (regions) are operating AFMIS. This includes those regions that remain in the news as combat zones.
- The roll out of AFMIS to the mustafiots was accomplished by Ministry of Finance personnel after building internal capacity.
- The 2008 Public Expenditure and Financial Accountability (PEFA) assessment found Afghanistan to have a more effective government financial system than peer countries.
- A 2011 study found that Afghanistan has made significant progress compared to other post conflict countries. (As we pointed out at the time, only Kosovo and Sierra Leone also had made significant progress – also FreeBalance GRP customers.)
Aid Transparency Required
As we’ve pointed out, the key to improving governance and aid effectiveness in developing countries is through aid transparency. Transparency across the aid chain will enable the improvement of controls and improve auditing.