EXECUTIVE SUMMARY
INTRODUCTION
1. Security, an essential public good, is a central issue for Afghanistan's reconstruction, development, and public finances. It impacts on the full gamut of development issues faced by Afghanistan, ranging from state building and capacity development to revenue collection, service delivery, and encouraging private sector-led growth. For the purpose of its National Development Strategy (ANDs, currently under preparation), the Government of Afghanistan innovatively has added an MDG on enhancing security to the internationally agreed list of MDGs. Afghanistan's external partners (including the World Bank) have consistently highlighted the importance of security as a key enabling factor for Afghanistan's reconstruction and development. And most important, the Afghan people themselves emphasize the importance of security in their daily lives and for building their livelihoods and communities. In addition to its importance from a development perspective, the security sector accounts for a very high proportion of the country's total budgetary expenditures (around 40%) as well as external assistance, and raises major public finance management issues. In view of these considerations, the Government of Afghanistan requested that the security sector be included in the World Bank's Public Finance Management (PFM) Review, and this volume is the result.
ii. The main objectives of this review of security sector expenditures, in the overall context of the PFM Review and from a PFM and development perspective, are as follows: To gain as complete an understanding as possible of the current level and structure of security expenditures, recent trends, and likely future expenditure requirements based on current plans. To assess the extent to which coherent strategies, for the security sector and the major parts of the security sector, guide public expenditure allocations. To review processes for determining funding levels, expenditure allocations, budget execution, and post-execution functions, and assess the extent to which they follow sound PFM principles. To describe the institutional framework for the security sector and ascertain the extent to which it embeds or is conducive to sound public financial management. To assess the strategic coherence and consistency and the fiscal sustainability of security sector expenditures.
CONCEPTUAL FRAMEWORK
iii. Definition of the security sector. This volume uses a broad definition of the security sector but focuses on those components which are of major importance from a PFM perspective. The budget categories and programs reviewed include: defense, police and other internal security services, intelligence, counter-narcotics, the judiciary and penal system, mine clearance, and the DDR program. The main security institutions in Afghanistan include: (i)security management and oversight bodies: National Security Council and National Security Advisor, Ministry of Defense, Ministry of Interior, Ministry of Counter Narcotics, Ministry of Border and Tribal Affairs, Ministry of Justice, Ministry of Finance, and the Auditor General's Office; (ii)security services: Afghan National Army (ANA), Afghan National Police (ANP), National Border Guards, Counter-Narcotics forces, National Directorate of Security (NDS -responsible for intelligence), Customs General Directorate under MoF, remnants of earlier military and police forces (the former subjected to DDR); and (iii)justice and legal institutions: Supreme Court, Judiciary, Attorney General's Office and prosecutorial offices (saranwal). Excluded from detailed analysis in this volume are the foreign and international armed forces operating in Afghanistan, and also non-statutory security bodies including remaining unofficial militias and armed factional groups, private body-guards, and security companies.
iv. Security and development. As discussed in Chapter 1, the close linkages between security and development have become increasingly recognized in recent years. It is unfortunately where security is absent -most notably in countries in conflict -that the role of security as a crucial enabling condition for development becomes glaringly obvious. The breakdown of security and law and order that occurs during protracted conflict cames enormous human, social, physical, financial, and resource costs. Also of particular importance are the damaging consequences for the state and the adverse and distortionary effects on private sector development. Another important aspect is the development costs of criminality, which is fostered by conflict but can be a major problem even in the absence of conflict, and in post- conflict situations where social norms and law enforcement have eroded. More specifically, crime can weaken social and human capital, worsen the business climate and discourage investment, and undermine the state and its ability to promote development.
v. Application of PFMprinciples to the security sector. It has become widely accepted, including by international organizations like the OECD, that sound principles of public finance management should be applied to the security sector. This is in the interest of the security sector itself, and also very important for the PFM system as a whole in terms of achieving desirable PFM outcomes with respect to (i)budgetary aggregates and overall fiscal discipline; (ii)strategic allocation of resources across sectors and programs; and (iii)efficiently managing the use of budgetary resources. These in turn contribute to positive development outcomes. Appropriate modifications in PFM practices can be made to take into account confidentiality considerations where necessary, but not in a blanket manner throughout the security sector or in a way that undermines the fundamental principles of accountability to elected civil authorities. Key implications of application of PFM principles to the security sector (outlined in Chapter 1 and discussed further in Chapter 3) include the following:
- First, the security budget and the budgets of its main components (defense, interior, justice, etc.) should be prepared against clear strategies at overall national security and sectoral levels. Specifically in the case of defense, the strategy needs to be based on a transparent "threat assessment" fully owned by the government.
- Second, security sector policies and expenditures must be affordable, both in the short run (annual budget) and in terms of implications for spending in future years. This requires full incorporation of the security sector in the annual budget formulation process, subject to aggregate fiscal constraints and sector ceilings like any other sector, and it also means that the security sector must be fully incorporated in medium-term fiscal projections and planning.
- Third, once an overall resource envelope is agreed, resources should be allocated in line with strategic priorities, both within the security sector and across all sectors (including security). This means that, in addition to the need for sound strategies as emphasized above, key PFM principles like comprehensiveness and transparency should be applied to the security sector.
- Fourth, resources appropriated for the security sector need to be used efficiently and effectively, which implies full application of PFM instruments and processes in the budget execution sphere (discussed in detail in Volume I,Chapter 7 and in Volume 11). Of particular importance are the control framework, good information flows, procurement, and monitoring and evaluation.
vi. Service deliveryperspective. Since security is an essential public service, using a service delivery framework (see Volume I,Chapter 8) makes good sense and provides guidance for improving PFM in the security sector. The distinctive features of security as a public service -e.g. the inherent threaduse of force, difficulties in measuring and monitoring performance, etc. -need to be taken into account. Some key implications of a service delivery approach to the security sector (focused on institutions, incentives, and accountability relationships) include the following:
- Effective oversight by legitimate civil authorities is essential; for national security forces this is the primary mode of accountability, and for both national and local security forces such accountability is essential to prevent abuse of power by security forces.
- Where local public security is involved, there is scope to enhance the accountability of service providers (i.e. police) directly to the local population that they serve.
- In this context it makes sense to consider some form of de-concentration of government oversight even in an overall unitary state structure, as long as the state is finctional at the local level and not "captured" by regional and local powerbrokers, who would misuse access to security forces and associated power.
- Donors need to reinforce and not inadvertently distort or undermine the domestic accountability relationships in the security sector.
AFGHANISTAN'S SECURITY SECTOR AND RECENTPROGRESS
vii. Nearly a quarter-century of protracted conflict in Afghanistan, starting in the late 1970s, led to pervasive insecurity throughout the country and destroyed or profoundly damaged the institutions that had been responsible for providing security in the pre-war period -both formal governmental institutions and traditional mechanisms (Chapter 2). Government security forces were misused in ways that reduced rather than enhanced security, e.g. during the Soviet occupation of the 1980s, and they became increasingly "captured" by factions in Afghanistan's civil war during the 1990s. The emergence of numerous well-armed militia groups, in shifting loose alliances, meant that the ability to use large-scale violence in pursuit of objectives was no longer the monopoly of the government but rather was widely contested, greatly undermining security. The judicial system was similarly undermined, and traditional mechanisms for providing justice often captured and used for their own ends by commanders and warlords. Women suffered greatly from the conflict as a result of violence against them, and also due to limited mobility and lack of access to education and health services, culminating in the Taliban's severe social restrictions. Neighboring countries and other powers repeatedly and competitively intervened militarily - either directly or indirectly by providing arms and other support to different factions - contributing in a major way to insecurity in Afghanistan. In sum, the long period of conflict and associated insecurity had profoundly damaging economic, social, and political consequences for the country and its people.
viii. The critical importance of enhancing security and reforming the security sector in Afghanistan has been widely recognized. While this was signaled in general terms in the Bonn Agreement, which provided for the establishment of an International Security Assistance Force (ISM), two subsequent donor meetings on security set targets and assigned donor responsibilities. Considerable progress has been achieved in strengthening and in some respects reforming the security sector, particularly in the last two years. Major successes include the avoidance of large-scale fighting since late 200 1, the steady shift away from a pattern of endemic conflict toward a situation where the people and society become progressively more accustomed to peace, and the gradual extension of the writ of the national government beyond Kabul. However, great gaps remain both in terms of areas that the Bonn Agreement did not cover and in achieving agreed security-related targets. Moreover, although very substantial, international security forces' presence in Afghanistan has been limited as compared to other post-conflict situations.
ix. Salient features of Afghanistan's security sector at present include the following:
The historical legacy of conflict was fragmentation into regional and local militias, capture of policing and military functions by non-legitimate actors, and erosion of both formal and traditional justice systems, also with capture by non-legitimate authorities. Building the state since late 2001 hence has entailed reconstituting and reforming the security forces under legitimate oversight by the civil authorities.
Immediate security threats faced by Afghanistan are variegated and disputed by different stakeholders. Some observers see the continuing insurgency in the south and east and conflict with TalibadAl Qaeda forces as the most important security problem. Others are most concerned about criminality and lack of rule of law at the local level. Still others are concerned about the limited management capacity of civil authorities and inadequate oversight'accountability of security forces. The drug industry is widely seen as a major cause and consequence of insecurity. The development of an agreed national security strategy, currently under preparation, will facilitate reaching consensus on the different security threats and their relative priority.
The overall size of the security sector, even with recent andplanned expansion, does not seem unreasonably large by international standards. These include a planned size of the ANA of 70,000 (not all of them combat troops) and a planned size of the Afghan National Police (ANP) of 62,000. However, the appropriateness of the size and balance between different security forces can be questioned in the context of Afghanistan's particular situation and security needs.
Afghanistan's security sector nevertheless is costly and may be unaffordable. Over the medium term, it is extremely doubtful whether the sustaining costs of Afghanistan's security sector at planned force levels can be absorbed by Afghanistan's national budget. This implies that difficult trade-offs will need to be made in prioritizing expenditures, means of achieving efficiencies in security-related expenditure will have to be identified, and the possibility of multi-year donor financing commitments for the security sector will need to be explored.
Progress in developing differentparts of the security sector has been uneven. After a slow start initially, the formation and expansion of the ANA have moved forwqrd rapidly. Progress in forming the new ANP has been much slower, and reform and capacity building in the justice sector have lagged far behind, with adverse implications for legal reforms and a pro-private sector business climate.
Security andfiscal issues are closely interlinked. For example, low domestic revenue is both a consequence and a cause of insecurity. Reconstruction costs tend to be higher due to insecurity, while on the other hand the security sector is a source of considerable fiscal pressure. Pay and grading decisions with respect to the security services, made outside national budget processes, can have important fiscal implications.
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