74218 The World Bank Group in afGhanisTan Supporting Transition towards Growth and Stability support to the islamic republic of afghanistan / 2012 - 2014 Supporting Transition towards Growth and Stability World Bank Group www.worldbank.org.af Afghanistan Country Office House 19, Street 15, Wazir Akbar Khan, support to the islamic republic of afghanistan / 2012 - 2014 Kabul, afghanistan photos © Graham Crouch / World Bank telephone + 93 700 280 800 © World Bank, 2012 1/ 3/ 7/ a country in the world bank development transition in afghanistan and progress contents 13/ 17/ challenges moving forward Supporting Transition towards Growth and Stability /1 There is a path to the top of even the highest mountain. - Afghan proverb a country and conflict, a constant opium trade, economic and political corruption, and inequity. in transition A transition process was initiated by the Government of Afghanistan (GoA) and donors in 2010 to transfer leadership in the areas of security and development to the Government afghanistan has made significant politi- by the end of 2014. The economic picture over cal, economic and social achievements in spite the next three years contains significant un- of the ongoing conflict and insecurity. State certainties as Afghanistan will need both high and civil society institutions remain extremely levels of international assistance and to create fragile however. There have been, nonethe- new domestic sources of revenue and growth. less, visible gains where the people of Afghani- How well the Government performs dur- stan have benefited. Basic national programs ing this transition will determine the confi- in health and education, and village level dence that the Afghan people will have in their governance and service delivery now exist leaders and the country’s ability to stand on as well as a functioning and credible public its own. At the same time, the size and shape financial management system that has in- of international military and development as- creased revenues from some $130 million in sistance during this period, and commitments 2002 to $1.5 billion currently. Per capita GDP beyond, will strongly influence the political and has doubled and there are significant improve- economic outcomes over the next 10-15 years. ments in human development indicators. These achievements, coming from an extraordinarily low base, are often overlooked in the face of more negative aspects – insurgency Supporting Transition towards Growth and Stability /3 the world bank Three interlocking themes The Bank’s approach is to support the in afghanistan Government in implementing elements of the most important National Priority Programs (NPPs) in a way that will build legitimacy and capacity of the institutions. One of GoA’s Left since the World Bank’s involvement in greatest priorities will be to build domestic A paved road winds through Afghanistan in 2002, the Bank has committed sources of growth and jobs to replace donor/ a valley in central Afghanistan over $2.48 billion to the country. This support military assistance and to sequence NPPs to as a result of the Government’s National Emergency Rural comprises over $1.9 billion in grants and $436 concentrate on foundational investments for Access Project, supported by million in no-interest loans. Currently, the Bank growth. the World Bank and ARTF, to has 22 active projects in Afghanistan with net The Bank’s program is built around three in- provide rural communities year-round access to basic commitments of more than $1.06 billion. The terlocking themes: services and facilities. majority of the Bank’s support is in the rural • Building the legitimacy and capacity of areas where 70-80 percent of the population institutions Above right A truck driver waits for live. • Equitable service delivery clearance from Afghan The transition period will be shaped by a • Inclusive growth and jobs customs, which has undergone significantly different reality from previously. In building legitimacy and capacity of in- extensive changes. Customs revenue has increased 2,000 The next two years will be particularly uncer- stitutions, the Bank will focus on three areas: percent in the last eight years, tain as the political economy changes radically: (i) strengthening institutions and processes thanks to customs reform foreign troops leave, the amount of donor aid associated with transparent and competent projects supported by the World Bank, and contributes to comes down, negotiations potentially begin to financial and economic management; (ii) im- about half of the government’s end the insurgency and presidential elections proving the sustainability and performance of operating expenses. are held. line ministries in providing essential services 4/ Supporting Transition towards Growth and Stability Keeping it wide but manageable Key approaches in keeping the Bank’s engagement wide but manageable: • Start small with pilot country-wide; and (iii) continuing to build the construction, enterprise development) in a way The International Financial Corporation (IFC), projects social capital and inclusive governance struc- that provides growth and jobs beyond the bor- Above the World Bank Group’s private sector devel- tures formed at the village level through rural ders of the mines. Rural communities, especially opment arm, has provided support through women, have been encouraged • Support good policy and development interventions such as the Nation- to set up small businesses un- investments totaling some $90 million, as well regulatory frame works al Solidarity Program (NSP) which will be an es- Funding and support der the Afghanistan Rural En- as advisory assistance. Insecurity and the low sential element of rural stability. The International Development Association terprise Development Project, level of investment and private sector activity • Broad service delivery supported by the World Bank The Bank will continue with and expand natio- (IDA) expects to grant some $430 million for and ARTF. Traditional crafts within Afghanistan overall has limited the abil- nal priority programs in education, health, irri- this period, which will be used strategically such as carpet and silk weaving ity of IFC to expand its engagements. • Build coalitions through gation, and the NSP to improve service delivery particularly in piloting programs and new ap- are being revived as a result. The World Bank Group’s Multilateral Invest- work on transition and to the Afghan population. Within Afghanistan, proaches. A portion of the funds will support ment Guarantee Agency has offered a limited development an enduring driver of conflict is a sense of in- further improvements in governance and an number of guarantees but there is interest equity between and amongst regions, ethnic improved environment for effective investment by Government and the private sector to see • Help build institutions and groups, within cities, villages, and even families. while the rest of IDA support will be project additional guarantees going forward, particu- open economy to provide The Bank therefore will strengthen its focus on grants and continue to be used in close coor- larly to support infrastructure investment. alternative sources of institutions, systems and programs that can dination with much larger Afghanistan Recon- The Bank will continue to play a leading role income to rural population sustainably ensure equitable delivery of basic struction Trust Fund (ARTF) funding. in policy advice to the Government through services across the country. The Bank-managed ARTF expects to provide targeted, often cross-sectoral, analytic work. The Bank also will continue to focus on pro- some $800 million a year over 2012-2014. The Bank’s work on the economics of transition grams that support jobs including through The ARTF, the single largest contributor of years and transformation decade, agriculture agriculture and building the private sector. on-budget donor assistance, is a partnership and Resource Corridors, together with its pov- The Bank’s engagement will focus around the between the international community and the erty analysis, will be instrumental in informing concept of ‘Resource Corridors’ which link up GoA for improved effectiveness of the recon- decisions of GoA and the donor community mineral resources, infrastructure, communities struction effort. Since 2002, over $5.17 billion during this crucial transition period. and employment-creating sectors (agriculture, have been contributed by 33 donors. Supporting Transition towards Growth and Stability /7 development development aid and military assistance to Afghanistan has been on the rise since 2002 and progress and has grown from $404 million in 2002-2003 to more than $15.7 billion in 2010. Typically aid translates into a higher demand for ser- vices and construction in the domestic market over the past decade, the country has expe- through the local procurement of goods and rienced exceptionally high economic growth. services by donor and military agencies. Real gross domestic product (GDP) has been Services, therefore, have been a strong driver growing at an average rate of 9.1 percent be- of the economy in the last decade. In 2010- tween 2003-2004 and 2010-2011, mainly driv- 2011 services constituted 51 percent of GDP, en by capital investments for reconstruction and contributed 9 percentage points of the 8.4 activities, large aid flows and occasional spikes percent real growth. Agriculture, the second in agriculture production. However economic largest sector, shrunk in 2010-2011 due to bad growth in 2010-2011 and 2011-2012 has been weather and reduced overall growth by 1.5 per- more modest at rates of 8.4 and 5.7 percent cent. The industrial sector currently accounts respectively, mainly as a result of a contrac- for 26 percent of GDP. The construction sector tion in agriculture output. Weather conditions is still growing strongly and feeding growth in permitting, economic growth could pick up manufacturing through demand for building 2012-2013 but declining aid levels will pres- material. Current contributions from the min- sure economic growth in the years to come. ing sector are almost negligible but this is ex- Afghanistan is highly aid dependent with pected to change over the next decade. foreign aid disbursements equivalent to near- The last decade has seen substantial progress ly 100 percent of GDP in 2010-2011. Official in development and improvement in the quality Supporting Transition towards Growth and Stability /9 100 % increase in girls’ school enrolment in the last five years with 2.7 million girls now in school. Today’s generation of Afghan girls has greater prospects to escape the appalling illiteracy of their mothers. Above Above A computer class conducted at This village clinic is one of many a high school, which benefits funded by the Strengthening from the Education Quality Im- Health Activities for Rural Poor provement Program. The pro- gram’s objective is to increase equitable access to quality basic education, especially for girls, through grants, teacher of life in Afghanistan. Basic public health ser- vices such as health and education exist where there were none before. There are indications improved significantly, particularly on child and maternal mortality, life expectancy, immuniza- tion rates and communicable diseases, in spite About 85 % of the population live in Project, which aims to improve the health and nutrition status of the rural poor, especially women and children. The project is funded by the World Bank, ARTF, training and strengthened that social indicators such as life expectancy, of difficulties in collecting and verifying data. JSDF, and a multi donor trust. capacity. maternal mortality and under five mortality are The number of functioning health facilities districts which now have improving significantly. has increased from 496 in 2002 to more than 2,000 in 2011. The proportion of facilities with health service providers. Examples of significant progress include: skilled female health workers has increased The NSP’s third phase Education from 25 percent to 72 percent. The health fully monitors and evaluates their performance. School enrolment has seen a large jump in the management information system indicates a While the development of the health sector is pays particular attention last decade from 1 million children in 2001 to five-fold increase in the number of outpatients’ encouraging, many challenges including on the to equity, emphasizing 8 million children in 2012, although a large visits from 2004 to 2011. nutrition front remain. gender gap still exists. Nonetheless, the Gov- There are significantly fewer children dying, substantive engagement ernment has been successful in increasing net with an infant mortality rate of 77 per 1,000 Private sector of women in having enrolment in primary schools for girls and boys live births and an under-five mortality rate of Growth in the private sector was seriously over- by at least 60 percent and 75 percent respec- 97 per 1,000 live births compared to 2003 esti- shadowed by the security situation which made elected seats and in tively; implementing a new curriculum in all mates of 257 and 169 respectively. The mater- it difficult to attract investment and then by the decisions on how the secondary schools; increasing the number of nal mortality rate of 327 per 100,000 live births Kabul Bank crisis which impacted the financial female teachers by 50 percent; and ensuring is also much lower than previous estimates. sector in 2011. These externalities contributed community grants are that 70 percent of Afghanistan’s teachers will Much of the progress can be attributed to to the mixed success of projects. Nevertheless, used. have passed a competency test. sound policies by the Ministry of Public Health there were some successes particularly in areas including delivery of a basic package of health where strong ministerial capacity existed along Health sector services by nongovernmental organizations with a commitment to a good policy framework. There is evidence that health indicators have (NGOs) contracted by the ministry, which care- Very solid progress was made in the commu- 10/ Supporting Transition towards Growth and Stability GDP has been growing at empowering an average rate of 9.1 per- cent between 2003-2004 women and 2010-2011, mainly in building a driven by capital invest- ments for reconstruction sustainable society activities, large aid flows Women face particular cultural and social difficulties and occasional spikes in in accessing services and participating in the work agriculture production. force in Afghanistan. Gender equity is embedded in Afghanistan’s Constitution (2004) and subsequent national strategies and plans. Women are guaran- teed 25 percent of seats in Parliament – currently the Wolesi Jirga has 69 women – making Afghanistan nications sector and in supporting the sustaina- about 30 percent. About 80 percent of the com- one of the top countries in terms of female represen- ble development of Afghanistan’s sizeable min- munity subprojects involve infrastructure such tation. Nevertheless, development gains for women eral resources. The availability and use of cell as irrigation, roads, electrification, and drinking have come gradually at best. phones and internet connectivity has increased water supply, all critical for the recovery of the dramatically. IFC’s investment in MTN, one of the leading telecom operators, has contributed rural economy, stability, and governance. Overall, the Bank’s program did well in pro- Above Village residents meet in the Over Key gender achievements in Bank projects 19 million community hall that was built to this growth. viding and channeling core budget resources under the National Solidarity Under the Skills Development Project, the number to provide essential services across the coun- Program, the Government’s of female students enrolled in training institutes Rural development try. In this context, the ARTF has proven to be national flagship program to support small scale reconstruc- people in rural communities increased by one-third from 2008 to 2010. One of the greatest success stories since 2001 an excellent mechanism for donor coordina- tion activities. The village’s has been the National Solidarity Program, the tion and a highly effective means to support Community Development have been reached by the NSP. The Under the Rural Enterprise Project, 45 percent of the flagship of the Bank’s program in rural areas, and strengthen government-donor coherence Council also focused funding on projects on solar power third phase will strengthen transparent, savings and enterprise groups are women’s groups. where majority of the population live. NSP, around reform priorities and national pro- panels and carpet weaving. which has become a household word amongst grams. Progress has been slower in improving effective village governance and Under the Health Services Project, the proportion of Afghans, is a nationwide program that creates basic state capacity, particularly in civil service provide a mechanism for health facilities with women staff increased from 25 Community Development Councils (CDCs) capacity building, as well as supporting the pri- percent in 2003 to 72 percent in 2010. which implement small scale subprojects sup- vate sector. sustaining investments ported by the community. even as funding declines. Under NSP, about 30,000 women were members of NSP has supported over 31,000 communities mixed Community Development Councils. and will reach an additional 16,000 in its third phase in 2012-2014. Since its inception, NSP has Under the Education Quality Project, 37 percent of disbursed over $1 billion in block grants directly school enrolment were girls. to CDCs to finance over 50,000 sub-projects, with an average economic rate of return of Supporting Transition towards Growth and Stability /13 Only The level of girls’ 36 % enrolment is only about half that of boys’ illustrating that a literacy significant gender gap remains despite as quality of education significant progress. is a major issue. challenges village level, institutions remain extremely frac- tured and weak at province and district level. Afghanistan’s legal and judicial framework is there is no doubt that Afghanistan faces se- poor, and enforcement often lacking. Govern- rious challenges during this transition period ance is further undermined by poor oversight with the need to create new sustainable sour- and by interference by power-brokers at both ces of growth and reduce poverty, against a national and local levels. backdrop of insecurity, conflict and corruption. Corruption remains a major problem. GoA itself acknowledges deep problems with cor- Security ruption but is also hampered by the need to Security has deteriorated over the past few keep a balance amongst the country’s diverse years particularly in terms of attacks on civili- population and power centers. However, it is an targets. The sense of civilian insecurity has committed to increasing transparency and ac- grown even in areas that were relatively peace- countability as part of its public financial man- ful only a year or two ago. Attacks on civilians agement roadmap. also impact the mobility of women and the willingness of families to send girls to school. Aid dependency Job creation in the private sector has been Leadership and governance heavily dominated by aid flows with work in Political stability, the rule of law, the control construction and other service sectors lead- of corruption and government effectiveness ing the way. Overall, however, the private sec- remain daunting challenges. Although sig- tor has been constrained even during this nificant progress has been made in building period of aid-fueled economic growth by vio- the institutions of government at federal and lence (including criminality), corruption and 14/ Supporting Transition towards Growth and Stability poverty Only 27% The need of the population have access to safe drinking for inclusive water and growth only 5% Afghanistan is one of the poorest nations in the world. About one- to improved sanitation third to one-half of the population live in poverty. Poverty rises significantly during spring and summer, before the main harvest. insufficient infrastructure (particularly power). Poverty is most significant in Afghanistan’s aid dependency is unsustainable rural areas and among nomadic given the inevitable declines that will accom- pany transition. Finding the means of support- groups. The poverty level in the ing inclusive growth in a period of declining aid rural population is close to the under-nutrition and fiscal constraint is a major challenge. average (36 percent) while urban poverty is somewhat lower A challenge to development Large illicit economy (29 percent) and nomadic (Kuchi) Under-nutrition in Afghanistan is a critical issue with stunt- Afghanistan produces more than 90 percent of poverty is higher (54 percent). ing levels among the highest in the world. One child under the world’s illicit opium supply on a very small portion of its agricultural land. Opium remains Poverty also varies greatly by five in two is stunted (chronically malnourished) while one in Afghanistan’s most important agricultural crop region and tends to be higher in five is wasted (acute malnutrition). Maternal under-nutrition in terms of value and jobs for significant seg- mountainous and plateau areas. is also a significant problem with one in five non-pregnant ments of the rural population in the short run. Aid has disproportionally flowed women of reproductive age having chronic energy deficiency. At the same time, it distorts the incentives for GoA, with assistance from the Bank, is at advanced stages of to provinces that are conflict-ridden developing a sustainable, formal agricultural developing a plan of action that includes priority actions in but less poor. Donor assistance has sector in the long run. Large criminal profits key sectors to combat under-nutrition. associated with the drug industry seriously had little connection with poverty undermine governance and fuel corruption, targeting, but rather has been dysfunctional politics, and ultimately conflict. directed towards areas where Moving away from reliance on opium will re- insurgency has been the greatest. main, therefore, an important development objective. Supporting Transition towards Growth and Stability /17 moving forward to provide supervision and oversight including a program with an international NGO with dozens of Afghan engineers across Afghanistan who are visiting some 1,500 sub-projects a year afghanistan faces a number of challenging in even some of the most inaccessible parts of issues in 2014 and beyond. An economy that the country. has been growing strongly at 9 percent per an- There will be high risks associated with the num on the back of huge military and donor World Bank Group’s engagement. Significant spending may slow by half to some 5-6 percent threats to security will continue as insurgents even under relatively optimistic scenarios. A seek to position themselves for 2014 and sizeable financing gap, which can only be filled beyond. The Bank’s program assumes no fur- by donor assistance, will need to be addressed ther deterioration in the security situation and throughout the next decade, despite projec- that the ARTF remains well funded by donors. tions of healthy growth in domestic revenue Political risks during this period are likewise collection. At the same time, the prospects high as both the people of Afghanistan and the from the extractive sector hold the potential to international community look to see how the begin to provide a fiscal cushion and the basis Government will respond to the governance, for sustainable growth in the medium term fiscal, security and economic challenges ahead. and beyond. Given the long term nature of development Heavy emphasis on financial management, in a fragile environment, the Bank will be real- supervision of projects, and supporting the istic as to what can be achieved, and yet hope- build-up of Afghan capacity will continue to ful that it will contribute to the substantial influence decisions on the Bank’s program. In benefits that a peaceful, stable and prosperous addition, the Bank will look for innovative ways Afghanistan can deliver to its people. The World Bank Group in afGhanisTan World Bank Group Afghanistan Country Office For an electronic version of the full Head Office House 19, Street 15, Wazir Akbar Khan, Interim Strategy Note, 2012-2014 1818 H. Street, N.W., Washington DC, Kabul, afghanistan 20443, usa telephone +93 700 280 800 www.worldbank.org.af telephone +1 202 477 1234 facsimile +1 202 477 6391