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The Afghan Government and the International Community reaffirm their partnership in the economic growth and development

of Afghanistan
through a process of mutual accountability in achieving mutually decided goals as laid out in this document, hereafter the Tokyo Framework.
The International Communitys ability to sustain support for Afghanistan depends upon the Afghan Government delivering on its commitments
described in the Tokyo Framework. This document establishes an approach based on mutual commitments of the Afghan Government and the
International Community to help Afghanistan achieve its development and governance goals based on the International Communitys
commitments in the Tokyo Framework. The Tokyo Framework establishes a mechanism to monitor and review commitments on a regular basis.
Good governance is essential for strong and sustainable economic development and improved livelihoods of the Afghan people. Recognizing
this fact, this accountability framework concretizes the mutual commitments decided in the Kabul Process and reaffirmed at the Bonn
Conference by stipulating shared development and governance goals and a mechanism as described in this document to hold parties
accountable for achieving them. The goals are consistent with the Afghan Governments economic and development strategy presented in
Towards Self-Reliance. At the December 2011 Bonn Conference, the International Community affirmed the special status of Afghanistan to
receive donor assistance from Transition through Transformation in greater measure than similarly situated nations. The Afghan Government and
the International Community are bound by their citizens expectations for the effective and transparent stewardship of resources. The Afghan
Government reaffirms its solemn commitment to strengthen governance, grounded in human rights, the rule of law, and adherence to the
Afghan Constitution, and holds it as integral to sustained economic growth and development. Working in partnership with the International
Community, the Afghan Government seeks sustained development, economic growth and fiscal sustainability with declining reliance on donor
financing as articulated in Towards Self-Reliance. To fulfill this vision, the Afghan Government has put together the National Priority Programs
(NPPs), and, in consultation with International Community, is developing an Aid Management Policy to be endorsed by the Joint Coordination
and Monitoring Board (JCMB) by December 2012 to ensure optimal execution and effectiveness of international assistance aligned with national
priorities. As Afghanistan enters the Transformation Decade, progress from the past decade in areas that underpin sustained economic growth
and development,
especially
for women and girls, such as education, health and other basic services, as well as strengthened respect for human
AID MANAGEMENT
DIRECTORATE
rights, must continue. Challenges such as vulnerability to natural disasters and humanitarian needs must also be addressed jointly in an effective
and appropriate manner in Transition and the Transformation Decade. Successful transition will lead to a decade of Transformation where
Afghanistan will build on the benefits of Transition to become an effectively governed and economically, socially progressing country driven by
its own national priorities. This requires a paradigm shift in the nature of partnership between the Afghan Government and the International
Community, from that of being recipient and donors to owner and partners. The realization of this shift necessitates re-defining the principle,
reciprocal commitments and modalities of partnership, which is the purpose of the Tokyo Framework. The Tokyo Conference is the turning point
to begin this re-definition in our partnership. Principles The Tokyo Framework is based on broadly accepted principles of inclusive and sustainable
economic growth and development: Governance has a direct bearing on development performance; International assistance aligned with
national priority programs enhances efficiency and sustainability of development assistance; International assistance through national budgets
can IMPLEMENTATION
improve national institutional
capacities,
performance, and accountability to its citizens; Monitoring of development and
GUIDANCE
NOTEdevelopment
#4
governance benchmarks in a transparent manner is a powerful means to enable accountability to the Afghan people, and reinforce reciprocal
commitments of donors; Private investment both domestic and foreign is key to sustainable economic growth; and Regional cooperation
facilitates the integration of regional economies, thus contributing to the sustainability of development efforts in Afghanistan. Mutual
Commitments The Participants emphasize the importance of the delivery of assistance through adhering to the principles of aid effectiveness,
that they cannot continue business as usual, and must move from promise to practice. The Tokyo Framework sets out a new reinvigorated
development partnership between the Afghan Government and the International Community. The Afghan Government and the International
Community affirm that a functional democracy based on credible and inclusive elections, a professional and efficient civil service, access to justice
and the rule of law are essential to a secure, just, stable and prosperous Afghanistan. Strengthened governance and institutions with a particular
focus on the rights of women are prerequisites for strong and sustainable economic growth, employment generation and prosperity for the
Afghan people. Afghanistan Governance and Development Commitments The Afghan Government and the International Community are to
monitor performance for five major areas of development and governance according to the modalities described below. A timeline for these
indicators is to be developed by the Afghan Government for the next JCMB meeting. The desired goals and initial indicators for each area are
stated below. Representational Democracy and Equitable Elections Goal: Conduct credible, inclusive and transparent Presidential and
Parliamentary elections in 2014 and 2015 according to the Afghan Constitution, in which eligible Afghan citizens, men and women, have the
opportunity to participate freely without internal or external interference in accordance with the law. Develop, by early 2013, a comprehensive
election timeline through 2015 for electoral preparations and polling dates; and Ensure that a robust electoral architecture is developed in a
secure, participatory and transparent manner to enable successful and timely elections. Governance, Rule of Law and Human Rights Goal:
Improve access to justice for all, in particular women, by ensuring that the Constitution and other fundamental laws are enforced expeditiously,
fairly and transparently; ensure that women can fully enjoy their economic, social, civil, political and cultural rights; fight against corruption,
including strengthening counter-narcotics efforts; and improve the capacity of state institutions. Indicators: Ensure respect for human rights for
all citizens, in particular for women and children, and allow the Afghanistan Independent Human Rights Commission and civil society
organizations to perform their appropriate functions; Demonstrated implementation, with civil society engagement, of both the Elimination of
Violence Against Women Law (EVAW), including through services to victims as well as law enforcement, and the implementation of the National
Action Plan for Women (NAPWA) on an annual basis; and Enact and enforce the legal framework for fighting corruption including, for example,
annual asset declarations of senior public officials including the executive, legislative and judiciary. Integrity of Public Finance and Commercial
Banking Goal: Improved integrity of public financial management and the commercial banking sector. Implement the government program
supported by the International Monetary Fund on schedule; continue to enforce asset recovery and accountability for those responsible for the
Kabul Bank crisis; and strengthen banking supervision and reforms through Da Afghanistan Bank; Implement Public Financial Management
Action Plan and improve the management of public funds as measured by Public Expenditure and Financial Accountability (PEFA) assessment by
20 percent and raise the transparency of public funds measured by the Open Budget Initiative (OBI) to more than 40 percent; and
Implement the recommendations from the Financial Action Task Force Asia Pacific Group regarding anti-money laundering and combating
terrorist financing. Government Revenues, Budget Execution and Sub-National Governance Goal: Improve the Afghan Governments revenue
collection and capacity of line Ministries to develop and execute budgets accountable to, and incorporating, local needs and preferences.
Indicators: Through more efficient, transparent and accountable customs and tax systems, raise the ratio of revenue collection to GDP from 11
percent to 15 percent by 2016, and to 19 percent by 2025; Improve budget execution to 75 percent by 2017; Enact a legal framework to clarify
roles, and responsibilities
of government agencies at national, provincial and district levels, in line with the 2010 Sub-National Governance Policy;
MINISTRY OF FINANCE
GOVERNMENT budgeting
OF THE ISLAMICprocess
REPUBLIC OF
AFGHANISTAN
and Develop a provincial
that
includes provincial input into the relevant Ministries formulation of budget requests, linked to
a provincial planning process in which Provincial Councils have their consultative roles. Inclusive and Sustained Growth and Development
Goal: Achieve inclusive and sustained growth through a focus on human development, food security, private investment, and decent work and

AID MANAGEMENT POLICY

FINANCING AGREEMENTS

2014

Aid Management Policy

Preamble
This Guidance Note No. 4 is the fourth in a series of guidance notes prepared for both internal use
within the Government of the Islamic Republic of Afghanistan (GIRoA) and for our Development
Partners (DP). Further guidance notes will be issued in due course to cover other topics to help with
implementation of the GIRoA Aid Management Policy (AMP).
Guidance as set out in this note, allows for exceptions in its implementation and does leave some
scope for innovation and flexibility, otherwise it would not be called guidance. Thus the guidance
is not binding on the Government or DPs, in the sense of being mandatory in every detail. However,
the Guidance does have to be followed in the sense of its contents being drawn on for reference
and being regarded as setting out the ideal course to pursue to implement the Governments Aid
management Policy.
This guidance is specifically designed to provide clarification on the purpose and contents of Financing Agreements (FAs) signed between the Ministry of Finance (MOF) and Development Partners (DPs).
List of Guidance Notes in this Series

Guidance Note #1 - On-budget (OB)


Guidance Note #2 - Aid Alignment (AA)
Guidance Note #3 - Development Framework Agreement (DFA)
Guidance Note #4 - Financing Agreements (FA)
Guidance Note #5 - Joint Analysis, Research & Assessments (JARA)
Guidance Note #6 - Aid Reporting in the Development Assistance Database

Guidance Note 4: Financing Agreements

1.

Introduction
The purpose of this guidance note is to explain the administrative procedures and requirements for
the conclusion of a Financing Agreement between the MOF and a DP.
The Financing Agreement is a requirement of the AMP and is intended to support the GIRoA and
development partners in the management and monitoring of all development projects in Afghanistan1. These agreements should be signed between the MoF on behalf of the GIRoA and the funding agency for each project. It is not required to sign Financing Agreements between the GIRoA
and implementing agencies (i.e. NGOs, subcontractors, etc.) unless the implementing agencies are
part of a Tripartite Financing Agreement.
Some legal requirements of the Financing Agreement are outlined in Afghanistans Public Finance
Management and Expenditure Law (e.g. signing of Financing Agreement with Ministry of Finance2
, opening bank accounts3, auditing4, reporting,5 and Procurement6).
The conclusion of a Financing Agreement is a multi-stage process requiring input from many different offices both inside and outside the MOF. Compliance with the procedural guidelines below
will greatly facilitate speedy processing of the necessary documentation, and conclusion and implementation of agreements.

2.

Letter of Intent
When a donor is ready to initiate the process of negotiating a Financing Agreement for a project,
it will do so by submitting a Letter of Intent addressed to the Aid Management Directorate (AMD)
of the Ministry of Finance. The letter signifies no binding obligation on the part of the donorit
simply provides the MoF with advance notice for planning purposes. The letter should contain the
following information:
Name of Project (also note if it is a new project, an amendment to an existing project,
a follow-on etc.);
Brief description of project/activity (not more than one short paragraph);
Reference to earlier agreements and/or reference to the Development Finance Agreement (DFA), if applicable;
Relevant GIRoA line ministries involved & contact information for the project focal

1 Within the limits of the legislation that governs their aid programs, DPs shall agree to sign Financing Agreements with the MoF for all projects to enable
GIRoA to guide, facilitate and monitor all development investments. Aid Management Policy No: 11 page 19.
2 Article 10 of Public Finance Management and Expenditure Law says No person employed by the State or other persons on behalf of the state shall receive
public money or assets unless authorized by Law and by written Instructions of the Ministry of Finance.
3 Article 13 of PFML states The Ministry of Finance shall open one or more official bank accounts for deposits of public money.
4 Article 59, 61 of PFML states The Ministry of Finance shall establish an internal audit administration and appoint auditors to audit the financial and accounting affairs of all State administrations. The independent auditors shall have the right to acquire all information and explanations deemed necessary for
auditing.
5 Article 59, 61 of PFML states The authorities for state administrations which public money is spent under their supervision and control shall have the
following duties and authorities:
To report to the government and National Assembly of Islamic Republic of Afghanistan through the Ministry of Finance and,
Article (31) on Non-Government Organizations Law An organization shall submit its semi-annual activity report to the Ministry of Economy, using the standard forms of the Ministry of Economy, which will be updated as necessary.
6 Procurement Law Article 4(2) where the procurement rules of an international institution conflict with this Law, the government may, taking into consideration the agreement in accordance with the mentioned rules, agree to procure the goods works or services funded in accordance with the provisions of the
agreement

Aid Management Policy

points in each;
Expected date for delivery of draft agreement;
Proposed dates for negotiation (if negotiation is requested);
Anticipated funding amount;
On budget or off-budget (with proposed mechanism i.e. bilateral, trust fund etc);
Grant or loan;
Expected project start date;
Planned project duration; and
Summary note of consultations that have taken place to date with the relevant line
ministries and other stakeholders

The AMD will acknowledge receipt of each Letter of Intent and will be available to provide further
information and support in the drafting of the agreement.

3.

Negotiation of Draft Agreement


Following the submission of the letter of intent, donor agencies should devise and submit a proposed draft of the Financing Agreement to AMD. If preferred, donors may submit a proposed draft
of the Agreement along with their letter of intent, or may opt to provide this draft at a later stage.
When the draft agreement is submitted to AMD, a letter should be sent to the MOFs office (copied
to AMD), indicating that the proposal has been delivered to AMD, indicating a preferred time-line
for any further negotiations, and noting a requested completion or signature date.
The submission should include all relevant appendices and project documents. Any formal negotiations with Ministry of Finance regarding the contents of the Financing Agreement can only take
place when the Ministry has a rough draft that can be reviewed.
Donors may refer to Annex A of this guidance note for an example of draft template of required
contents of a Financing Agreement, which they can modify accordingly for each of their projects.
In general, donors should ensure that Financing Agreements and/or supporting documentation
provided includes the following information:
Short summary on the status of agreements reached with the relevant partner ministry
and/or other stakeholders regarding the project;
Specific statement on degree of alignment with the relevant NPPs;
Review of policy implications, including financial impact (on Operations &Management in particular, noting whether the relevant departments in government have been
consulted); and
Assess the project proposal in relation to government objectives, key issues and relevant data.
Some key questions that should be addressed are:
Is the suggested project compatible with the Laws of Afghanistan?
Is the project likely to have a positive (or adverse) impact on the private sector? If so,
how?
Will this proposal affect either directly or indirectly specifically disadvantaged or marginalized groups (i.e., women, disabled people, youth, the elderly, specific ethnic
groups, previously neglected regions etc.)?
Are there any foreseeable risks of negative impact on a particular group or groups? If
so, can these risks be mitigated?
What are the provisions for monitoring & evaluation?

Guidance Note 4: Financing Agreements

Please also supply to the AMD any background documentation relevant to the project,, including but not limited to: Concept notes/Proposals, Implementation Schedules, Scoping Studies and
Reports, Joint Assessments, Business Case documentation, Co-financing Agreements with other
donors, etc
The MOF will review the submission and provide follow-up comments or requests for clarification
if necessary. Donors may request formal negotiations with the MOF regarding the contents of the
FA, but these are not required in order to conclude the agreement and are usually only necessary
if the MOF requests significant changes to the draft which require further discussions.
In all cases, MoF will strive to respond in a timely manner to drafts and to provide feedback by the
date requested by the donor agency.

4.

Form of Final Agreement


Following the submission of the draft Agreement and finalization of any necessary changes, the
final Agreement should be submitted to AMD in the form of three paper copies as well as a soft
copy. All annexes and appendices should be included. A formal public signing ceremony can be
arranged upon request, but is recommended for larger/high profile projects only.

5.

Signing of the Agreement


A week prior to any planned signing, please provide the following information to AMD:

6.

Your understanding of the date, time and place of the signing;


Whether a formal signing ceremony is requested;
Who will attend the signing on behalf of the donor; and
Whether a press release or any other public events are planned from the donors side.

Post-Agreement Action
In some cases after the agreement is signed, follow-up steps are still required to ensure smooth
implementation. They can include the following:
Effectiveness Letter from donor outlining date of commencement; and
Legal Opinion from the Ministry of Justice (if required).
The MOF will inform development partners in advance if these additional steps are necessary to
implement the Financing Agreement.

Annexes

Annexes

Annexes

Annex A: Draft Contents of Financing Agreement

Annexes

1.

Technical Requirements for Submission of a Finance Agreement


The general contents of the Finance Agreement should be in line with both the regulations and
policies of individual Development Partners and GIRoA. Below is a sample format that can be
modified accordingly. Respective Development Partners may make certain alterations according
to their own country policies but the core requirements of Financing Agreement should be covered
as per below.

GENERAL CONDITIONS
The General Conditions (as defined in the Appendix to this Agreement) constitute an integral part
of this Agreement.
PARTIES TO THE FINANCING AGREEMENT

AGREEMENT dated day, month 201#, entered into between the Government of ### as represented
by ### (Donor) and the Government of the Islamic Republic of Afghanistan (GIRoA) as represented by Ministry of Finance (MOF) (Recipient) (in case of tripartite Agreements, include the name
of third party).
STEERING COMMITTEE

The Recipient shall establish, and thereafter maintain throughout the project implementation period, a Steering Committee chaired by the {INSERT}, and comprised of representatives from the
MOF, relevant Line Ministries and other government departments as required, as well as other
representatives (civil society, private sector, etc.) The Steering Committee shall meet XX times per
year for the duration of the project and be responsible for {INSERT}
OBLIGATIONS AND RESPONSIBILITIES OF THE PARTIES

This section of the Financing Agreement will highlight the required obligations/responsibilities of the
parties to the Agreement.
For example:
a) Governments obligations:
The Recipient will be responsible for the financial management of the grant, will open and manage
a special account in the central bank to manage funds, provide regular and complete financial information regarding grant, designate a person to manage the project, prepare audit reports, keep
all relevant documents of the project, and provide additional support to facilitate the financial implementation of the project as required.
b) Donors obligations:
The Donor will adhere to Aid Management Policy guidelines as closely as possible and will provide
timely updates on project progress and achievements to the GIRoA upon request. The donor will
remain committed to terms and conditions outlined in the Financing Agreement.
c) In case of a third party, list their obligations:

Annexes

TRANSFER PROCEDURES FOR THE GRANT

The purpose of the Article is to explain the disbursement procedure. This will include the planned
dates and installments of project payments, currency of payments, and how payments will be managed. If Donors have some conditions for disbursement it will be mentioned in this Article.
PROCUREMENT & AUDITING PROCEDURES

This Article will specify who will carry out procurement for the project. The procurement shall be
regulated by the GIRoA Procurement system or by the DPs laws and regulations. In appropriate
circumstances, Parties may agree on a separate mechanism like the World Bank or Asian Development Bank procurement system. According to the Procurement Law of Afghanistan, any standard
procurement system is acceptable for Ministry of Finance.
Additionally, the method of auditing will be mentioned in this Article, including information on who
will conduct the audit (i.e. Independent Audit Company, Supreme Audit Office, Joint Audits etc.) and
how the audit will be financed.
REPORTING

This Article will determine reporting lines, proposals for ongoing monitoring and evaluation, deadlines for submission of progress reports (usually quarterly at a minimum), and proposals for final
reporting and independent evaluation of the project.
PERIOD OF EXECUTION

This Article will specify the whole period of project, from commencement (entry into force by signing) to closing date.
If needed and for the purposes of clarity, the Agreement may distinguish between different phases
of project, such as the design phase operational implementation phase and closure phase, for
example.
ADHERENCE TO APPROVED AID MANAGEMENT POLICIES

The parties to the Agreement will agree to adhere to all approved government policies on aid management and effectiveness, including information provided in all AMP Guidance Notes.
PREVENTION OF IRREGULARITIES AND CORRUPTION

Parties to the Agreement agree on mechanisms to tackle corruption. They will strive to take all
appropriate measures to avoid corruption, fraud and irregularities. In case of suspected corruption,
parties will inform each other immediately of irregularities.
The Finance Agreement will specify procedures for when the Development Partner uncovers corrupt practices.

Annexes

EQUAL OPPORTUNITIES POLICY

The donor will commit to treat equally all employees of the government, all job applicants, employees, external advisers and clients/donors equally regardless of sex, sexual orientation, marital
status, creed, race, color, nationality, ethnic or national origins, disability, gender, age, religious or
other similar philosophical beliefs.
APPLICATION OF GOVERNMENT POLICY ON NATIONAL TECHNICAL ADVISERS

The Donor commits to abide by all policies approved by Government on the remuneration levels
set for Externally Funded Staff.
AMENDMENTS TO THE AGREEMENT

The Parties may anticipate need for amending the Financing Agreement and Annex(s) after the
initial agreement has been signed.
If necessary, the Parties agree to amend the Financing Agreement through mutual consultation.
The time and procedures will be agreed between the parties.
SUSPENSION OF ACTIVITIES

The Parties may agree on terms and conditions in which Financing Agreement may be suspended. This may include breech of obligations under the Financing Agreement, suspension in case of
force majeure or any other situation.
DISPUTES RESOLUTION

The parties to the Agreement shall execute the Agreement in good faith but, in case of any doubt,
unpleasant event or concerns about the interpretation of the agreement, the parties will try to settle
the problem through consultation. If the parties cannot solve the dispute through consultation, they
will agree to resolve the dispute through Arbitration (describe who will bear the fees of arbitration)
TERMINATION OF THE AGREEMENT

Issues which lead to the termination of the Agreement will be mentioned under this Article. This will
include notice of termination, time of effectiveness, consequences of the termination on ongoing
project etc.
OTHER ISSUES

The MOF will not sign Agreements retrospectively.


The MOF will not sign Agreements committing to Projects where development finance is not already secured. In other words, MOF will not sign project agreements where development partners
then use the Agreement to raise further funds.

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Annexes

REPRESENTATIVES AND COMMUNICATION

All communication relating to the project will be addressed to the Government and to the Development Partner. In cases where in Implementing Agency is involved, a copy of correspondence will
be provided to the Implementing Agency as well.
a) Recipients Address:
Ministry of Finance of the Islamic Republic of Afghanistan, Pashtunistan Watt.
Facsimile:
E-mail Address:
b) Donors Address:
{address}
Facsimile:
E-mail Address:
c) Implementing Agencys Address:
{address}
Facsimile:
E-mail Address:

Signed on Behalf of the GIRoA/MOF

Signed on Behalf of [DP]

Date

Date

ANNEXES

Definitions
Project Description and Objectives
Project Outline
Institutional Arrangements
Relationship to Government Plans and NPP Deliverables
Implementation Work Plan
Budget breakdown
Procurement Plan and Particular Methods of Procurement of Goods and Works
Disbursement Procedure
Anti-Corruption Provisions
Financial Management, Financial Reports and Audits
Safeguards Environment, use of public assets, protection of cultural property, gender issues, counter narcotics, etc
Project Monitoring, Reporting and Evaluation
Modifications to General Conditions

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