ICRR 12278 Report Number : ICRR12278 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 11/21/2005 PROJ ID :P078618 Appraisal Actual Project Name :Programmatic Support For Project Costs 80 80 Institution Building US$M ) (US$M) Country :Afghanistan Loan /Credit (US$M) Loan/ US$M ) 80 80 Sector (s):Central ): government US$M ) Cofinancing (US$M) administration L/C Number :C3963 FY ) Board Approval (FY) 05 Partners involved : Closing Date 03/20/2005 03/20/2005 Evaluator : Panel Reviewer : Group Manager : Group : Pierre M. De Raet Chad Leechor Laurie Effron OEDCR 2. Project Objectives and Components a. Objectives The project was the first of a programmatic series of policy development operations aimed at providing support to the Government's objective to deepen, broaden and sustain ongoing reforms in the areas of public administration and fiscal management. The specific objectives were to support ongoing reforms : 1) for strengthening the budget process, increasing the administrative capacity of line ministries and sub - national administration, developing revenue policy and administration, and improving civil service effectiveness; 2) for a more efficient allocation of fiscal resources to human development; and 3) for private sector development (PSD) (investment climate; financial sector, and state -owned enterprises - SOE). b. Components (or Key Conditions in the case of Adjustment Loans ): Project's approval was subject to the following key prior actions : 1) adoption by the Cabinet of an ordinary and development budget for its FY 2004 including adequate financing and fiscal framework, increased allocations to provinces, and increased allocations for health, education, and solidarity; 2) submission to the Ministry of Justice of a draft Public Finance and Expenditure Management Law; 3) approval by the Independent Administrative Reform and Civil Service Commission to place 3,000 government positions and the staff of the Central Bank under an elevated pay -scale; 4) adoption by the Cabinet of a tax reform package, including wage withholding, a fixed tax on some services, a reduction in the corporate tax rate (20%), and a withholding tax on rental income (20%); 5) adoption by the Cabinet of several amendments to the Income Tax Law; and 6) completion of a draft procurement law and regulations . The main triggers for approval of a second operation were the following : 1) maintenance of a satisfactory macro -economic framework; 2) preparation of a Medium-Term Fiscal Framework; 3) improvement in civil service efficiency, measured by various actions /quantitative indicators; 4) preparation of a draft Pension Law and proposed financing plan; 5) progress in raising fiduciary standards, measured by various actions /indicators; 6) proper monitoring and evaluation of spending for health and education; 7) review of legislation, regulations, and procedures related to private investment; 8) continued progress in the reform of the financial sector (regulatory framework; Central Bank modernization; and resolution of state-owned commercial banks); and 9) progress in SOE reform. c. Comments on Project Cost, Financing, Borrower Contribution, and Dates The Credit for US$80 million was disbursed upon effectiveness in August 2004. 3. Relevance of Objectives & Design : The objectives were fully relevant and consistent with the Government and Bank strategies . The areas targeted for support were well identified. Based on this first operation, the triggers for a second operation were limited, well defined and clearly circumscribed to the reform areas targeted . The adoption of a programmatic series of operations is fully justified in the circumstances of Afghanistan . 4. Achievement of Objectives (Efficacy) : OED notes that the ICR is an interim review since the operation is part of a programmatic series and takes this into account in assessing performance under the operation . 1) Macro-economic Framework. Achievement is rated Substantial . Stability was maintained under an IMF Staff-Monitored program. Particularly noteworthy is the improvement in revenue mobilization in 2004/05, although not to the level expected at appraisal, reflecting increased implementation of the tax reform package adopted as prior condition. 2) Public Administration and Fiscal Management . Achievement is rated Substantial . Good progress was registered in civil service reform and in strengthening fiduciary standards, with some important triggers for a second operation met, notably the enactment of the Public Finance and Expenditure Management Law . Some triggers were delayed, such as the enactment of a new Procurement Law, while others (preparation of a Medium-Term Fiscal Framework and of a draft Pension Law) were not met by the time the ICR was written but were met shortly thereafter, allowing to proceed with the negotiations of the second operation . The sub-national administration was not strengthened as expected given the continued poor security situation outside of Kabul . 3) Human Development. Achievement is rated Substantial . Good progress was made towards the benchmarks, especially in establishing baseline assessments, extending delivery of health services, and introducing a certificating program for teachers. Implementation of the solidarity programs was extended to rural areas . 4) Private Sector Development. Achievement is rated Substantial . Progress was modest and uneven in reviewing the legislation pertaining to private investment . In the financial sector, good progress was achieved with the enactment of a new Central Bank Law and a new Banking Law, providing for satisfactory prudential regulations, while many functions/activities of the Central Bank were strengthened and modernized . Some commercial banks were re-licensed, while others will be restructured . Good progress was also achieved in streamlining the SOE sector . 5. Efficiency : Not applicable 6. M&E Design, Implementation, & Utilization: The program document contained an M&E annex covering the Public Administration and Fiscal Management component specifying indicators, responsible agency, and expected medium -term outcome. The ICR provides values/results as of August 2005 for this area, but recognizes that the monitoring framework will have to be strengthened in the subsequent operations to reflect better qualitative assessments and extended to the other reform areas. 7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): Good progress was made on fiduciary standards . 8. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory The rating takes account of the progress made in the medium-term perspective of a programmatic approach. Institutional Dev .: Substantial Substantial Afghanistan receives considerable TA at the moment. Monitoring of capacity building remains essential. Sustainability : Likely Non-evaluable It is not possible at the present to assess whether the benefits of this operation and of the program as a whole will be sustainable. Sustainability is uncertain as long as security does not improve in all parts of the country. Risks remain very high. Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness . 9. Lessons: 1) In post-conflict countries, flexibility is essential . In this case, the choice of a programmatic series and the design of the operation, based on triggers for follow -on operations, were very appropriate . 2) As the ICR notes, in countries with weak capacity, preparation of and /or amendment to legislation is particularly demanding given the complexity of the tasks involved and the highly qualified skills required . The reform program must be well measured and realistic in this respect . 3) In countries where the public administration has been almost completely destroyed, a key priority for Bank strategy is to reconstruct the statistical basis of the country . 10. Assessment Recommended? Yes No Why? After the programmatic series will be completed to assess the extent to which the series will have contributed to raising GOA's capacity in public administration and economic management . 11. Comments on Quality of ICR: The ICR is concise and well written. However the following may be noted : 1) It does not address the sustainability of the program as a whole as required by BP 8.60, in particular the risks and the mitigating measures planned under subsequent operations; 2) It could have discussed the status of preparation of the second operation . 3) It mentions that the operation meshes well with other Bank operations, notably the Public Administration Capacity Building Project approved in January 2005. It would have been useful to discuss how they complement each other .