Islamic Republic of Afghanistan - Enhanced Integrated Framework ...

Core budget expenditures will remain constantat about 25 percent of GDP although the allocationof various expenditures changes over timeto align with the Government’s developmentpriorities. Throughout the projection period,while the share of operating expenditures decreases,that of development expenditures increases.A considerable portion of expendituregoes to security, counter-narcotics, roads andsocial expenditures (i.e. education and health).Figure 4.8. Domestic revenues versus operating expendituresFiscal sustainability is essential to ensure macroeconomicstability. The operating budgetbalance (excluding grants) is projected to improvefrom a deficit of 4.4 percent of GDP in1386 to a balanced budget 1391 (Figure 4.7).This requires that the donor grants to the operatingbudget (e.g. Afghanistan ReconstructionTrust Fund) will free up domestic revenues forkey development expenditures after 1391.Two key fiscal policy challenges are on the horizon:the integration of the external budgetinto the core budget, and improvement of theabsorption capacity of line ministries. Currently,more than two thirds of foreign assistancedoes not go through the Government’streasury account, and thus information regardingthese expenditures is often partial and difficultto obtain. This impedes the Governmentin its attempts to allocate scarce financial resourcesin line with its priorities and developmentobjectives. Donors can greatly help byproviding more information and/or shiftingfrom the external budget to the core budget; theGovernment can also improve the situation byarticulating clearer priorities – which should beachieved through the ANDS itself. In the pastfew years, the government has spent less thanavailable financial resources, resulting in delayedinvestments needed for development.Improving the absorption capacity of the Government,therefore, will continue to be important.Prudent debt management will continue to beessential as Afghanistan moves towards fiscalsustainability. As a supplement to donor fundsthe country expects to continue to use limitedamounts of debt to finance specific projects andvarious program requirements. It is expectedthat any debt received will carry terms that arebelow market in nature as this is a requirementunder Afghanistan’s current agreements withvarious international financial institutions andthe Paris Club group of creditors. Debt sustainabilityin future periods is an importantgoal for the Government to achieve and willcontinue to be a guiding principle governingthe country’s use of debt in the coming years.MONETARY POLICYConsistent with DAB’s medium to long-termstrategic objectives in conducting monetary48Afghanistan National Development Strategy (ANDS)