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The World Bank in Afghanistan

The World Bank in Afghanistan. Josephine Bassinette, World Bank Office Afghanistan Brussels, February, 2011. Agenda. Afghanistan Country Context The World Bank in Afghanistan Program Highlights and Results Implications for Transition. Part I: Socio-economic Context.

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The World Bank in Afghanistan

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  1. The World Bank in Afghanistan Josephine Bassinette, World Bank Office Afghanistan Brussels, February, 2011

  2. Agenda • Afghanistan Country Context • The World Bank in Afghanistan • Program Highlights and Results • Implications for Transition

  3. Part I: Socio-economic Context

  4. The development challenge • Afghanistan is lagging the region and the world • Ranked 155/169 in HDI • Immense challenges of capacity, conflict, terrain and governance • But GoA has made progress, and in particular has put in place the platform for sound development partnerships • Progress in GNI/per capita, access to education and health • Commitment to basic macro-fiscal stability Source: Human Development Report

  5. Poverty in Afghanistan • Poverty affects 36% of the population: 9m Afghans not able to meet basic needs • More than half the population is vulnerable to falling into poverty • Estimated 80% of Afghans live in rural areas, where poverty is much higher than in urban areas (29%)

  6. Security conditions • Insecurity increased sharply from 2005 • Conflict constrains development : • Accessibility for Government and development professionals/partners • Increases costs • Reduces market for suppliers • Threatens M&E • Community-based programming and monitoring becomes increasingly critical

  7. Sustainability Economic Growth • Security, Growth, Jobs all inter-linked • Growth being fueled by private consumption financed primarily by security economy and off-budget donor inflows that drive aggregate demand Contribution to GDP, (Percentage points)

  8. Sources of Growth Highly Vulnerable • Without external inflows, the economy very vulnerable to shocks (i.e: bad harvest years, food/fuel price rises). Real GDP Growth Contribution to GDP (Percentage points)

  9. Good News: Domestic Revenues continue to grow. • Tax revenues: • increased by 34% (YTD Q2) compared to same quarter last year • - Sales tax collection: • 24% increase due to mandatory 2% BRT tax at border crossings and 10% BRT on services • -Income tax collection: • 45% higher, mainly personal and company taxes. • - • Customs duties: • 29% increase Domestic Revenues 2010/11 (Actual vs. target)

  10. But public spending dependent on external financing • Domestic revenues only cover 1/5 of public spending • Government estimates external budget at $6 billion 2010/11, donors report $9 billion Total Budget 2010/11 Note: 2010/11 external budget est. US$ 6 billion, core budget US$ 4.6 billion with an estimated 40% execution rate by year end.

  11. Part II:The World Bank in Afghanistan

  12. Snapshot: The World Bank in Afghanistan • Opened office in March 2002 following Post Conflict Needs Assessment in Winter 2001 • Grown to 100+ with almost 25 internationals + growing cadre of professional national staff. • Heavy emphasis on in-house capability for PFM, Procurement • Security costs, “footprint”, duty of care hugely complicates normal operations • Two main financing platforms + economic and sector work:

  13. Strategic Approach • Mindful of the operating environment: • Fragile institutions and weak human capacity • Particular absence of institutions/capacity at sub-national level • Corruption, opium, insecurity • Geographic and ethnic divides require equity and resonance w/people. • WB approach: • Afghan ownership: 100% on budget, with government • In for the long-haul: • Sustain and enhance core programs delivered nationally, equitably, through local structures • Build legitimacy and capability of state and other institutions • Invest for growth and creation of jobs – infrastructure, connectivity, markets • Support donor- GoA coherence through use of ARTF and Bank “voice” • Encourage reform and policy dialogue with financial instruments and analytics. • Supervise and Evaluate

  14. World Bank Financing to date IDA Annual Commitments Aggregate Commitments ARTF

  15. Afghanistan Reconstruction Trust Fund • Established in 2002 to provide pooled financing to the operating budget • Constant evolution to meet changing needs: • Platform for GoA-Donor shared vision: ARTF Strategy Group + 3-Year Financing Strategy • Policy dialogue & reform – ARTF Incentive Program • Main financier for National Programs • Public Financial Management at its Core • As a result, ARTF now largest source of on-budget financing for GoA – one quarter of total budget

  16. Part III: Program Highlights and Results

  17. NSP is IDA’s flagship rural program, co-financed by ARTF/JSDF. Communities vote by secret ballot… …to elect 22,500 CDCs across all 34 provinces… ….CDCs prepare development plans… …. receive a block grant.. …for local infrastructure contracted by communities: • NSP has disbursed $700m through block grants to 21,300 communities • 48,300 sub-projects financed, 34,800 completed • 25% transport, 24% WatSAN, 18% irrigation, 13% energy, 12% education • Sub-projects have an average ERR of 19% • The program has an ongoing MIT/Harvard Impact Evaluation • Around 17 million Afghans have been touched by the program • Looking ahead….. • CDCs are now acknowledged as the gateway to development in Afghanistan’s communities. • With JSDF support, CDCs are now clustering at district level. • CDCs are set to play a stronger governance role as Village Councils.

  18. IDA has invested in other rural infrastructure. Irrigation rehabilitation: Rural access: Since 2002 the Bank has supported the government develop its rural access program. The need for irrigation is vast: total irrigated land pre 1979 was 3.2m hectares. In 2007, this was only 1.8m. NRAP uses community-based contracting for tertiary roads… …and contractors for secondary roads. Under NRAP, over 10,000kms of roads have been rehabilitated ….providing 14m labor days of work, including training for 2,800 ex-combatants.. EIRP has rehabilitated around 750 schemes… …resulting in 130,000ha of new irrigated land… …and a 70% reduction in water-related disputes. 600,000 households have benefited. Increased irrigated land has boosted yields of staple crops such as wheat, maize, and rice, as well as of onions, melons, and watermelons. Rural access is critical to reduce time to market for agricultural goods. IDA is now preparing a significant scale up of the program. The need remains great. IDA is now preparing a significant scale up of the program. The need remains great.

  19. IDA/ARTF is increasing access to national service delivery Education Health IDA has developed the basic package of health services model, which is now co-financed by US and EC. After the fall of the Taliban, only 43 percent of the country’s boys and a dismal 3 percent of girls were enrolled in schools. Over 10,000 School Shuras have been established to administer block grants for school construction. Communities contribute up to 20% in cash or kind. School enrollment now the highest in Afghan history. Enrollment in grades 1-12 increased from 3.9 million in 2004 to 6.3 million in 2008. Girls now make up over one third of all school children. IDA finances NGO contracts in 8 provinces, and GoA delivered services in 3. The project has also supported the Community Midwifery Education program. In the 11 project provinces, the number of health facilities has nearly tripled from 148 to 421. Coverage rates rose from 9 percent of the general population in 2003 to 85 percent in 2008. 20,000 community health workers trained and deployed. IDA/ARTF is also supporting higher education and TVET though long way to go : Block grants help upgrade university facilities and partnerships build faculty capacity. In Kabul, the National Institute for Management & Administration now has 1,700 students. IDA is also financing Johns Hopkins to monitor the sector. Johns Hopkins study reveals a 26% drop in under-5 mortality rate. 3rd party evaluation shows remarkable improvement in health center staffing, equipment, and supply stocks. Absenteeism is virtually unheard of, contrasting markedly with absentee rates of up to 40 percent among public sector doctors elsewhere in South Asia.

  20. IDA is investing in good business environment

  21. IDA is supporting fiscally and economically sustainable development in Afghanistan Customs Public Financial Management IDA is supporting GoA capacity to raise revenue and manage its finances. ASYCUDA installed at 4 key customs posts, plus Kabul Airport. IDA now financing national roll-out. Trade volumes have increased from $2bn (03) to $8bn, and an 8-fold increase in customs revenues. Reliance on outside support is declining… Afghanistan now has a robust PFM system that is better than the average of Low Income Countries.

  22. Part IV: Implications of Transition

  23. Transition – what might it mean? Transition goes beyond security – has profound socio-economic and political economy impacts • Decline in donor financing for military spending and aid over time • GoA will need to widen focus outside of Kabul, move from emergency to sustainability, etc. • Shape of the State – center, provinces, districts? • May be difficult to adjust to just being a ‘poor country’

  24. What are the Fiscal Implications of Transition? Achieving fiscal sustainability will require: • Substituting Donor grants to the operating & development budget. • Assuming external budget obligations on the operating budget • Investment in O&M- to maintain acquired assets • Paying for a share of TA , advisors/ consultants performing civil service functions and building capacity of Afghans to assume those functions. Continuing with the Kabul process will require selectivity: • Assuming large share of the NPPs Sustainable Security Spending will require ring-fenced donor aid or massive reallocation: • Plans to increase forces to 378,000 by 2012 is a 42 % increase. • Donors currently pay for 72% of the security wage bill • 100% of the military equipment, training, procurement.

  25. Transition – what might it mean? • Potential Negatives: • less money for public sector spending: new investment, O&M for existing assets? • may lead to flight of human capital and associated capacity • size of Government and service delivery will need to reflect less money ( this has particular impact on security sector) • Potential Positives: • Better prioritization could improve outcomes • may improve efficiency of delivery by removing high cost overheads • may start to remove market distortions eg in wage rates paid for TA, allowing more opportunity to move to more ‘normal’ wage market and removing the parallel civil service • may reduce sources of corruption eg trucking contracts, fuel and security contracts • Opportunity in ownership and capacity building, but responsibility for results

  26. Transition – how is the Bank positioned? • IDA/ARTF already on budget, through Government • ARTF provides important platform • for Donor-Government dialogue • For continued policy reform • For accountable, transparent donor flows • National programs should remain at core of service delivery if financing maintained, gains locked in, and enhancements continually sought. • Analytic work: Sustainability Study; Sources of Growth • Public Administration Reform Program and PFM could be at core of Government capacity building • Long-term partner

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