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July 19, 2010

Implementing a Financial Management Information System in a Fragile State Context – Afghanistan’s Successful Experience

Posted by Janis Platais, Pierre Messali and Sailendra Pattanayak

In Afghanistan, the task of rebuilding and consolidating fiscal institutions is particularly challenging because of the ongoing security situation. When the Interim Administration took office in January 2002, there were no computers in the Ministry of Finance (MoF) and few understood the proper role of a finance ministry. A further consequence of the conflict was that communication and other links with the provincial administrations were weak. Against this background, the authorities have made substantial progress in implementing the Afghanistan Financial Management Information System (AFMIS) to make public financial management (PFM) more effective and efficient.

The development of the AFMIS, a Free Balance-based application with an initial basic configuration, started in 2002. As often the case in countries with weak capacity, the launch of the system was a critical donor requirement for budget support. The first check (for payment disbursement) from the system was issued in October 2002, two months after the start of the project. The system was progressively expanded to line ministries and provinces, and in May 2010, the authorities reached an important milestone by providing AFMIS connectivity to Nuristan, the last of the 34 provinces to be connected.

Extending the coverage of AFMIS to line ministries and provincial mustofiats (provincial finance offices) was quite challenging. The initial configuration of the system was mostly focused on: transaction processing in the central Treasury using automated controls; adopting a central general ledger, including records for approved and modified budgets; adjusting business processes in line with AFMIS supported controls; regular reporting and reconciliation of transactions with line ministries; and developing staff capacity to manage and service the AFMIS.

The deployment of AFMIS in line agencies and provincial mustofiats started in 2004. However, the lack of reliable and affordable communication infrastructure postponed actual AFMIS rollout until 2007. Appropriate delegation of AFMIS functions to line ministries and provincial mustofiats was another key issue to be addressed. The functions assigned in AFMIS to line ministries mostly focused on: preparation of payment vouchers; access to reports related to the ministry, and reconciliation of the transactions with the central Treasury. Line ministries now prepare transaction documents in AFMIS and submit them to the Treasury for processing. This eliminated the need for transaction related data entry at the central Treasury, which could then concentrate on its control functions. Treasury also provided training and user support to line ministries to improve their capacity in using the AFMIS.

Delegating tasks to provincial mustofiats involved more challenges. The AFMIS functionality for processing of payment transactions at provincial level had to be different from that of line ministries. Unlike payments of line ministries which are made by the central Treasury from its main account at the Da Afghanistan Bank (DAB - Central Bank), mustofiats operate individual bank accounts and make their own payments. Mustofiats also had to shift from single to double entry based accounting system when using the AFMIS. The AFMIS needed to capture additional information required by provincial authorities to monitor accounts by district and handle specific financial management tasks at the provincial level. Adequate training and support from the central Treasury was necessary during the roll out of the AFMIS to mustofiats: experts were assigned to each province, and there was close monitoring of the provincial operations and payments through the AFMIS.

The AFMIS remains a key component of the authorities’ PFM reform agenda, and its successful implementation has also benefited from complementary reforms in core financial management functions. For example, the interaction between the central Treasury and provincial mustofiats has ensured timely and accurate monthly reporting of revenues and expenditures through the AFMIS. Line ministries rely on Treasury records held in the AFMIS for their budget execution monitoring and accounting. The MoF is now working to extend the system facilities to other key stakeholders.

Reforms in two key areas particularly facilitated the development of the AFMIS. First, measures were taken to consolidate the government banking arrangements by setting up a Treasury Single Account (TSA) at the DAB. This helped centralization of payments and recording of all transactions through the Treasury. Second, the adoption of a GFSM 2001- and COFOG-compatible chart of accounts allowed streamlining of the accounting framework and improved the cash-basis financial reporting.

To conclude, the following key factors, among others, seem to have contributed to a successful implementation of AFMIS in Afghanistan: (i) ensuring strong MoF support and leadership throughout the period of gradual expansion and upgrade of the AFMIS; (ii) making the development of AFMIS an integral part of the overall PFM reform program, and not considering the AFMIS as an end in itself; (iii) anchoring the AFMIS development on complimentary PFM reforms; and (iv) starting with a modest system configuration and gradually enhancing the system functionality as PFM reforms take hold.  The two phase approach—implementing the key system tasks in the center first and embarking on the system implementation in line ministries and provinces later—seems to have served well in the Afghanistan context taking account of the country’s specific challenges.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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Comments

Quite impressive. Congradulations to Afghanistan MOF officials and contributing partners. Having a treasury set up is among the basic government functions.For a government even in a fragile context, succesfully managing, recording and monitoring its fiscal transactions is crucial. Sound fiscal policy consistent with other macro economic management requires such a set up at the initial phase. Thanks for the authors sharing with us this success story. I believe this story can be used as an example for other similar countries.

The IMF blog has already highlighted the accomplishment of capacity building in Afghaninstan in 2009 (http://blog-pfm.imf.org/pfmblog/2009/08/sustainability-in-pfm-capacitybuilding-in-postconflict-countries-afghanistans-experience.html). Scaling the system from a modest configuration to a more enhanced system should both follow PFM reforms and increasing capacity. This sequencing approach tends to strengthen MoF support over time through small wins.

Of course, many criticize this notion of "small wins" as consultant speak. Yet, the evidence in fragile states is that modest configurations implemented rapidly that generate demonstrable benefits tend to achieve sustainable results. It is important to reflect on this because there is an enthusiasm to modernize rapidly in the face of globalization.

Most experts agree that the implementation of software for public financial management should be part of the PFM reform agenda. This is more evidence to support this view. There are serious difficulties in developed countries when financial management technology is seen as just another IT project.

One point of clarification - the proper trademark name of the company is "FreeBalance".

There may be an irony in that the challenges presented by post-conflict countries such as Afghanistan, challenges such as the lack of existing systems and the urgent need for getting 'something' in place, actually provides the fertile ground needed for the massive task of implementing a government IFMIS.

As we know, implementing an IFMIS is an enormous technical and logistical challenge. Like any large-scale technical project it needs both an appropriate technical solution and the leadership provided by a capable single-minded project management team. Yet even those precursors are not enough, intertwined in this you need a strong sense of tangible commitment from the host country. In a post-conflict situation there is often no existing (or operating) alternative accounting system, and this lack together with the sense of urgent need allows those charged with the IFMIS task to get on with it. The mandate to 'get on with it' may be the single most critical ingredient.

Notwithstanding that this area has layers of challenge and complexity, I wonder if the development default condition of 'continual consultation' can actually become an unintended impediment to getting the IFMIS project successfully completed. After all, the host country has engaged technical assistance for the very purpose of providing clear guidance, direction and expertise in an endeavour that happens very infrequently and where any government (not just post-conflict or developing countries) lack prior knowledge and experience. Somehow we need to create a 'get on with it' mandate.

It is encouraging however to read these stories of IFMIS implementation successes and to consider what lessons can be learned.

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