Document of The World Bank Report No: ICR00004863 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-56470) ON A GRANT IN THE AMOUNT OF US$100 MILLION TO THE ISLAMIC REPUBLIC OF AFGHANISTAN FOR THE INCLUSIVE GROWTH DEVELOPMENT POLICY OPERATION 16 June, 2019 Macroeconomics, Trade and Investment Global Practice Afghanistan Country Management Unit South Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective June 11, 2019) Currency Unit = Afghani (AF) AF 79.68 = US$1 US$1.38 = SDR 1 FISCAL YEAR December 22 – December 21 ABBREVIATIONS AND ACRONYMS ACBR Afghanistan Central Business Registry ACCA Association of Chartered Certified Accountants AF Afghanis (Currency) AFMIS Afghanistan Financial Management Information System Aftel Afghanistan Telecom AISA Afghanistan Investment Support Agency ALCS Afghanistan Living Conditions Survey ANPDF Afghanistan National Peace and Development Policy Framework ARAZI Afghanistan Land Authority ARTF Afghanistan Reconstruction Trust Fund ARTF IP Afghanistan Reconstruction Trust Fund Incentive Program ASA Advisory Services and Analytics ASIL Adam Smith International Limited ATRA Afghanistan Telecom Regulatory Agency BRT Business Receipts Tax CPF Country Partnership Framework CSO Civil Society Organization DAB Da Afghanistan Bank DABS National Electricity Utility of Afghanistan DiREC Displacement and Returnee Executive Committee DPO Development Policy Operation EMI Electronic Money Institution FPIP Fiscal Performance Improvement Plan GDP Gross Domestic Product GoIRA Government of Islamic Republic of Afghanistan HIPC Heavily Indebted Poor Countries IAS International Accounting Standards ICT Information and Communication Technologies IDA International Development Association IDP Internally Displaced People IFC International Finance Corporation IFRS International Financial Reporting Standards ISA Investment Support Agency MAIL Ministry of Agriculture, Irrigation and Livestock MCIT Ministry of Communication and Information Technology MOCI Ministry of Commerce and Industry MOE Ministry of Education MOF Ministry of Finance MUDL Ministry of Urban Development and Land NATO North Atlantic Treaty Organization NPP National Priority Program PEFA Public Expenditure and Financial Accountability PFM Public Financial Management PFMR Public Financial Management Reform PFMRII Second Public Financial Management Reform Project II PMP Pest Management Plan PPP Public Private Partnership SDR Special Drawing Rights SESA Strategic Environmental and Social Assessment Vice President: Hartwig Schafer Global Practice Director: Lalita M. Moorty Country Director: Shubham Chaudhuri Practice Manager: Manuela Francisco Project Team Leader: Tobias Haque, Claudia Nassif ICR Team Leader: Tobias Haque The World Bank (P131558) Afghanistan Inclusive Growth Development Policy Operation TABLE OF CONTENTS DATA SHEET A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring 1. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN .............................................................................................1 2. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES ...........................................................................................3 3. ASSESSMENT OF OUTCOMES ..................................................................................................................................................8 4. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME ......................................................................................................... 16 5. ASSESSMENT OF BANK AND BORROWER PERFORMANCE ................................................................................................. 17 6. LESSONS LEARNED................................................................................................................................................................ 19 7. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS ................................................ 20 ANNEX 1: BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES ........................................................ 22 ANNEX 2: BORROWER'S ICR ......................................................................................................................................................... 24 Inclusive Growth Development Policy Grant............................................................................................................................... 24 MAP The World Bank (P131558) A. BASIC INFORMATION Inclusive Growth Country: Afghanistan Program Name: Development Policy Grant Program ID: P160544 L/C/TF Number(s): IDA-D2060 ICR Date: 05/22/2019 ICR Type: Core ICR GOVERNMENT OF Financing Instrument: DPL Borrower: AFGHANISTAN Original Total Commitment: USD 100.00M Disbursed Amount: USD 102.81M Revised Amount: USD 100.00M Implementing Agencies: Ministry of Finance Cofinanciers and Other External Partners: B. KEY DATES Process Date Process Original Date Revised / Actual Date(s) 06/22/2018 Concept Review: 09/29/2016 Effectiveness: 07/25/2017 Appraisal: 05/02/2017 Restructuring(s): Approval: 06/13/2017 Mid-term Review: 06/22/2018 Closing: 06/22/2018 C. RATINGS SUMMARY C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: High Bank Performance: Moderately Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Not Applicable Implementing Quality of Supervision: Satisfactory Not Applicable Agency/Agencies: Overall Borrower Overall Bank Performance: Moderately Satisfactory Satisfactory Performance: The World Bank (P131558) C.3 Quality at Entry and Implementation Performance Indicators Implementation Indicators QAG Assessments (if any) Rating Performance Potential Problem Program No Quality at Entry (QEA): None at any time (Yes/No): Problem Program at any Quality of Supervision No None time (Yes/No): (QSA): DO rating before Closing/Inactive status: D. SECTOR AND THEME CODES Original Actual Sector Code (as % of total Bank financing) Public Administration Central Government (Central Agencies) 12 12 Information and Communications Technologies ICT Infrastructure 12 12 Financial Sector Banking Institutions 13 13 Social Protection Social Protection 38 38 Industry, Trade and Services Other Industry, Trade and Services 25 25 Theme Code (as % of total Bank financing) Finance 13 13 Financial Infrastructure and Access 13 13 Financial inclusion 13 13 Human Development and Gender 13 13 Gender 13 13 Private Sector Development 13 13 Business Enabling Environment 13 13 Investment and Business Climate 13 13 ICT 13 13 ICT Policies 13 13 The World Bank (P131558) Public Private Partnerships 13 13 Public Sector Management 13 13 Public Administration 13 13 Transparency, Accountability and Good 13 13 Governance Social Development and Protection 13 13 Fragility, Conflict and Violence 13 13 Forced Displacement 13 13 Urban and Rural Development 25 25 Rural Development 25 25 Land Administration and Management 13 13 Land Policy and Tenure 13 13 E. BANK STAFF Positions At ICR At Approval Annette Dixon Vice President: Hartwig Schafer Shubham Chaudhuri Country Director: Shubham Chaudhuri Maria Manuela Do Rosario Practice Manager/Manager: Maria Manuela Do Rosario Francisco Francisco Tobias Akhtar Haque, Claudia Program Team Leader: Tobias Akhtar Haque Nassif ICR Team Leader: Tobias Akhtar Haque ICR Primary Author: Tobias Akhtar Haque F. RESULTS FRAMEWORK ANALYSIS Program Development Objectives (from Project Appraisal Document) Pillar 1: Enhance the policy framework to expand economic opportunities to the vulnerable Pillar 2: Strengthen the policy and regulatory framework for private sector development Revised Program Development Objectives (if any, as approved by original approving authority) The World Bank (P131558) (a) PDO Indicator(s) Original Target Values (from Formally Revised Actual Value Achieved at Indicator Baseline Value approval Target Values Completion or Target Years documents) The World Bank (P131558) Indicator 1 : Borders issuing returnee certification. Value quantitative or 1 4 4 Qualitative) Date achieved 05/15/2017 12/31/2018 12/31/2018 Comments Fully achieved. (incl. % achievement) Indicator 2 : • Landholders currently without formal land ownership records granted formal ownership under the new land management law. Value quantitative or 0 500 2,143 Qualitative) Date achieved 05/15/2017 12/31/2018 12/31/2018 Comments Fully achieved. (incl. % achievement) Indicator 3 : Gender disaggregated land records available under the ARAZI digital registration system. Value quantitative or No Yes Yes Qualitative) Date achieved 05/15/2018 12/31/2018 12/31/2018 Comments Fully achieved. (incl. % achievement) Indicator 4 : Share of land acquisitions for which there is media notice at least 6 months in advance of acquisition and social impact assessment is carried out. Value quantitative or 0% 100% 70% (est.) Qualitative) Date achieved 05/15/2017 12/31/2018 12/31/2018 Comments Partially achieved and unverified due to lack of a centralized information system for (incl. % recording of government land acquisitions. achievement) Indicator 5 : Number of registered non-bank electronic money institutions. Value quantitative or 0 3 3 Qualitative) Date achieved 05/15/2017 12/31/2018 12/31/2018 Comments Partially achieved. Baseline and target data was specified in terms of the number of (incl. % electronic money institutions operating under the new regulations, while the results achievement) framework refers to total number of electronic money institutions. The World Bank (P131558) Indicator 6 : Share of PPP transactions with invitations for expressions of interest published on PPP website. Value quantitative or 0% 100% 50% Qualitative) Date achieved Comments Partially achieved. Results indicator target did not allow for the role of unsolicited (incl. % and negotiated transactions under the new legal and policy framework. achievement) Indicator 7 : Percentage of fiber-optic network (by value of investment) under Aftel management Value quantitative or 100% 80% 100% of operational Qualitative) network, approx. 80% of network under construction. Date achieved 05/15/2017 12/31/2018 12/31/2018 Comments Partially achieved. All operational network still operated by Aftel, but substantial (incl. % network investment underway by private operators. At this stage Aftel remains the achievement) only provider of operational fiber-optic networks. Indicator 8 : Days taken to renew a business license. Value quantitative or 120 25 <1 Qualitative) Date achieved 05/15/2018 12/31/2018 12/31/2018 Comments Partially achieved. Time taken to renew a business license has been reduced. But the (incl. % baseline cited in the results framework conflated time taken to obtain both a tax achievement) clearance certificate and business license. Correct baseline was three days. Indicator 9 : Afghan national and resident accountants accredited under the Accountancy Law Value quantitative or 20 100 73 Qualitative) Date achieved 05/15/2017 12/31/2018 12/31/2018 Comments Partially achieved. (incl. % achievement) G. RATINGS OF PROJECT PERFORMANCE IN ISRs Date ISR Actual Disbursements No. GEO IP Archived (USD millions) H. RESTRUCTURING (IF ANY) Not Applicable The World Bank (P160544) 1. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN 1.1 Context at Appraisal In mid-2017, Afghanistan was facing a range of overlapping economic, political, security, and humanitarian challenges. With an influx of aid beginning in 2002, Afghanistan sustained rapid economic growth and improvements against important social indicators for more than a decade. Annual growth averaged 9.4 percent between 2003 and 2012. With the drawdown of international security forces in 2012, however, economic and social progress substantially slowed. Aid flows decreased from around 75 percent of GDP in 2012 to 45 percent of GDP in 2015 (with the number of NATO troops declining from more than 130,000 in 2011, to around 15,000 by end-2014). Reduced aid and security presence led to rapid weakening of demand, especially in construction and other service sectors, with follow-on impacts across the economy. Impacts were magnified by a disruptive and prolonged political transition following the disputed outcome of the 2014 election. Internal divisions within the National Unity Government slowed vital reforms and delayed the appointment of key officials, undermining policy certainty. Security also deteriorated. There were around 3,500 conflict related civilian deaths and nearly 8,000 injuries in 2016, a new peak. Reflecting falling confidence, annual firm registrations declined by more than half between 2012 and 2016 while unemployment increased (from 13.5 percent in 2008 to 22.6 percent in 2014). With slowing economic activity and deteriorating governance over the election period, fiscal revenues declined from 11.6 percent of GDP in 2011 to 8.7 percent of GDP in 2014, before recovering slightly to 10.7 percent of GDP in 2016. The deteriorating security situation also led to reversals and increasing disparities in access to services. Displacement, demographic pressures, and disparities in access to economic opportunities were leading to deterioration in social indicators and contributing to fragility pressures. Approximately 800,000 return migrants crossed the border into Afghanistan in 2016. Conflict driven internal- displacement was also at record levels (1.2 million). Displaced populations required both immediate humanitarian assistance and support for longer-term reintegration, including access to services and economic opportunities. Unmanaged and rapid urbanization, partly driven by displacement, was driving rapid growth of informal settlements, and placing pressure on urban services. Poverty remained stubbornly high, with the poverty rate increasing from 36 percent in 2012 to 39 percent in 2014, despite strong growth. Increases in poverty were concentrated in geographically and economically isolated regions – especially the Southwest. Inequality was increasing, with real per capita consumption declining by 2 percent for the poorest 20 percent of the population, little change for the bottom 40 percent, and the richest 20 percent experiencing a 9 percent increase. Disparities were also growing between rural and urban areas, with poverty rates about 16 percentage points higher in rural areas. The economy was ill-equipped to generate required employment opportunities or support improving living standards. The private sector remained extremely narrow, with employment concentrated in low- productivity agriculture. Private sector development was constrained by weak institutions, inadequate infrastructure, widespread corruption, and a difficult business environment reflected in Afghanistan’s low ranking in Doing Business Survey (183rd of 190 countries). Page 1 of 26 The World Bank (P160544) Against this backdrop, government had recently completed the draft of a new national development strategy – the Afghanistan National Peace and Development Framework (ANPDF). The main priorities identified in the ANPDF were: i) improving governance and state effectiveness through public sector reform, rooting out corruption, and strengthening subnational governance; ii) building social capital and nation building through reforming the justice sector; iii) economic growth and job creation through a comprehensive agriculture development program, private sector–led development, mineral and resource development, and energy and infrastructure development; and iv) poverty reduction and social inclusion through improving the quality of health and education programs, implementing the Citizens Charter program, and implementing the women’s economic empowerment national program. The ANPDF also emphasized the need to support returnees and the internally displaced through approaches that recognized their potential human capital contribution and respected their civil, economic, social, and political rights. The Inclusive Growth Development Policy Grant was prepared to support implementation of key ANPDF priorities and mobilize additional fiscal resources during a challenging time. Reforms supported by the operation were intended to both support social inclusion and enhance opportunities for private sector development. The operation built on lessons learned from previous DPOs in Afghanistan and was implemented in parallel with the World Bank managed ARTF Incentive Program, which was providing ongoing multi-donor recurrent cost support against key policy reforms. 1.2 Original Project Development Objectives (PDOs) and Key Indicators Pillar 1: Enhance the policy framework to expand economic opportunities to the vulnerable • Border(s) issuing returnee certification. • Landholders currently without formal land ownership records granted formal ownership under the new land management law. • Gender disaggregated land records available under the ARAZI digital registration system. • Share of land acquisitions for which there is media notice at least 6 months in advance of acquisition and social impact assessment is carried out. • Registered non-bank electronic money institutions. Pillar 2: Strengthen the policy and regulatory framework for private sector development • Share of PPP transactions with invitations for expressions of interest published on PPP website. • Percentage of fiber-optic network (by value of investment) under Aftel management • Days taken to renew a business license. • Afghan national and resident accountants accredited under the Accountancy Law Page 2 of 26 The World Bank (P160544) 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/justification The PDO and Key Indicators were not revised. 1.4 Original Policy Areas Supported by the Program Pillar I: Enhance the policy framework to expand access to economic opportunities for the vulnerable. Reforms under the first pillar were intended to broaden access to economic opportunities to excluded populations in Afghanistan, including returnees, the internally displaced, the rural poor, and newly urbanizing populations. Reforms included: i) adoption of a policy guiding response to the current Internally Displaced Person (IDP) and returnee crisis; ii) reforms to the legal governance framework for land management and public land acquisition; and iii) establishment of a regulatory framework to support financial inclusion through e-money. Pillar II: Strengthen the policy and regulatory framework for private sector development. Reforms under the second pillar were intended to improve policy conditions for private sector investment, supporting job-creation, growth, and increased revenues over time. Reforms included: i) the adoption of a policy governing public-private partnerships; ii) reforms to allow private investment in new telecommunication technologies; iii) reforms to the business licensing process; and iv) the establishment of a legal framework for accounting practice and the accountancy profession. 1.5 Revised Policy Areas (if applicable) The policy areas were not revised. 1.6 Other significant changes No other significant changes. 2. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES 2.1 Program Performance This was a standalone operation. It was approved following successful completion of all prior actions. Page 3 of 26 The World Bank (P160544) Pillar 1: Enhance the policy framework to expand access to economic opportunities for the vulnerable 1 The Recipient’s Cabinet has approved a cross-government policy framework guiding a coherent policy response to the current displacement and returnee crisis. 2 The Recipient’s Cabinet has approved and submitted to the National Assembly a Land Management Law intended to improve security of tenure for the various categories of land users and provide more accessible procedures for formal titles to be issued, including to communities and investors 3 The Recipient’s Cabinet has approved and submitted to the National Assembly a Land Acquisition Law intended to ensure fairness and efficiency in the acquisition of land for public purposes. 4 The Recipient’s Central Bank has issued and published new regulations governing Electronic Money Institutions supporting development of e-money systems and expanded access to financial services. Pillar 2: Strengthen the policy and regulatory framework for private sector development 5 The Recipient’s Cabinet has approved a PPP policy and approved and submitted to the National Assembly a PPP law, establishing a policy and legal framework for PPPs. 6 The Recipient’s High Economic Council has approved and published an open access and competitive provisioning policy, allowing mobile network operators to invest in national and metropolitan fiber-optic networks, and the policy has been published on an official government website. 7 The Recipient’s Ministry of Commerce has unified processes for investment licensing and business registration within the new Afghanistan Central Business Registry. 8 The Recipient’s Cabinet has approved and submitted to the National Assembly a new Accountancy Law to establish the legislative basis for a regulated accounting profession in Afghanistan. 2.2 Major Factors Affecting Implementation Alignment with World Bank investment project engagements. The operation was able to support sometimes complex reforms across a broad range of sectors due to the complementarity of the operation with investment project engagements. In the context of limited and overstretched technical capacity within government, nearly all reforms under the operation were supported by World Bank technical assistance and advisory support, including land reforms, electronic money reforms, telecommunication reforms, and business environment reforms. Investment project and development policy engagements were complementary, with the operation supporting reforms to address legal and regulatory constraints to progress with investment project engagements. Insecurity. The operation was designed and implemented over a period of increasing insecurity and increasing numbers of attacks on international and government installations. The main channel through which insecurity impacted program implementation was through operational security measures, including: i) restrictions on and occasional cancellation of missions during design and implementation phases; ii) limits on the number of country-based internationally-recruited staff; and iii) restrictions on staff travel to and time spent at ministries for discussions related to the program. These measures led to some inevitable disruption to Bank staff activities throughout preparation and implementation. Sound analytical basis for supported reforms. Reforms were supported by a solid foundation of analytical work, which helped establish strategic direction and reform priorities. World Bank analyses helped inform supported reforms in displacement response, land reform, telecommunications, and the business environment. Page 4 of 26 The World Bank (P160544) Period of relative political and macroeconomic stability. The operation was implemented during a period of relative political stability within government, following the disruptive process of government- formation following the 2014 elections. Over the period of operation design and effectiveness the legitimacy of the National Unity Government was acknowledged by most parties, excluding the Taliban and other extremist insurgent groups. The political instability and infighting that had accompanied the disputed outcomes of the 2014 presidential elections had largely subsided. A stable power-sharing agreement had been reached between the two leading 2014 presidential candidates, allowing continuity in policy direction and reasonable stability in staffing of government agencies overseeing most policy areas under the operation. While economic growth remained slow over the period of the operation, macroeconomic management remained adequate and international grant support remained at elevated, stable levels. Prices and the exchange rate remained stable and fiscal deficits were limited. The absence of short-term fiscal and macroeconomic management disruption helped avoid the diversion of available capacity and political attention from the reform agenda. Turnover in World Bank sector teams. Implementation was sometimes impacted by changes in World Bank staffing. For example, government focus on implementation of the accountancy law varied through implementation, with less progress achieved than initially expected. This fluidity was driven both by changes in government policy priorities away from implementation of the accountancy law and by changes in World Bank staff based in Kabul. New staff did not necessarily share the same focus as outgoing staff on implementation of the new accountancy law and had not been involved in the design of the operation. They were not necessarily aware of targeted results or the need for continued Bank engagement to see them achieved. Embedding of the operation in broader recurrent cost support engagements. The operation was implemented alongside a parallel policy-based recurrent cost support instrument – the ARTF Incentive Program. Policy areas supported by the operation and under the Incentive Program overlapped. In areas of overlap, the Incentive Program proved useful in providing an additional mechanism to incentivize implementation of reforms supported by the operation, beyond the operation’s initial disbursement against Prior Actions. Ongoing Incentive Program support also provided a vehicle for continued policy dialogue and coordination with ARTF partners. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design: M&E arrangements for the DPG were based on the results framework. The result indicators largely comprised quantitative indicators at the outcome level. Output indicators were used when outcome level results would require longer timeframes than accommodated by the review timelines. This approach was generally appropriate, and results indicators mostly reflected outcomes and outputs that would contribute to program development objectives. M&E design had several shortcomings, however. Firstly, the results indicator associated with establishing a policy and legal framework for PPPs was not well-chosen (proportion of PPP transactions for which invitations for expressions of interest are Page 5 of 26 The World Bank (P160544) published on PPP unit website increases from zero percent to 100 percent). This indicator did not allow for the legitimate role of unsolicited proposals and direct negotiations under the PPP policy and law. PPP transactions that resulted from unsolicited transactions or direct negotiations did not involve a competitive EOI process but were still fully consistent with the policy and legal framework supported by the operation and aligned with international good practice. Secondly, the results indicator for business licensing reform was mis-specified and used inaccurate baseline data. The baseline time requirement for acquiring a business license, taken from a consultant report, included the time taken to acquire a tax clearance certificate. The target was therefore much too ambitious. Supported reforms did not address the need to acquire a tax clearance certificate and could therefore not realistically have been expected to reduce the associated delays. The baseline should have been specified in terms of only the time required to obtain a business license. Thirdly, the description of the results indicator for electronic money reforms was inconsistent with the cited data. Data used to specify the baseline and target reflected the current and expected number of non-bank economic money institutions operating under the new regulations. The text of the results framework and program document, however, did not specify coverage under the new regulation, referring simply to ‘registered non-bank electronic money institutions’. The target of three registered non-bank money institutions was therefore already achieved at the time of preparation. Fourthly, inadequate progress with establishing data systems meant that the results indicator for the public land acquisition prior action could not be fully verified. Finally, some results indicators reflected excessive ambition regarding implementation of supported reforms. Capacity constraints and political disruptions to political processes, which could have been expected in the Afghanistan context, were not adequately allowed for, leading to some results indicators being only partly achieved. M&E Implementation and Utilization: The Ministry of Finance and the World Bank were responsible for overall data collection and monitoring of results indicators. In most policy areas, the World Bank continuously monitored progress against overall policy goals through its investment project engagements in relevant sectors. Data for assessing progress against results indicators was collected during the drafting of the ICR, and teams were able to provide most required data. One exception was results indicator data for the land acquisition policy action, where slow progress with establishing a centralized information system to record public land acquisition led to the unavailability of required data. In some areas, notably the establishment of an accountancy profession, Bank engagement weakened due to staffing changes over the period of the operation, with some slippage in ongoing monitoring against results indicators. 2.4 Expected Next Phase/Follow-up Operation (if any) The Inclusive Growth Development Policy Operation was implemented in parallel with the ARTF Recurrent Cost Window Incentive Program. The IP remains the major channel for multi-donor policy- based recurrent cost support to the Government of Afghanistan, providing approximately US$400 Page 6 of 26 The World Bank (P160544) million per year in recurrent cost support against policy reforms in PFM, private sector, and civil service sectors. Four prior actions (both land actions, electronic money regulation, and business license reforms) supported by the IP were also supported by the Inclusive Growth DPG, mobilizing additional resources behind high-priority reforms. Four prior actions supported by the operation were additional to those supported by the IP, either because: i) new windows of opportunity for reform emerged after IP triggers were agreed; or ii) reforms were beyond the scope of the IPs relatively narrow focus on fiscal management, civil service, and PFM. From 2018, the Incentive Program has been delivered as a World Bank Development Policy Financing instrument, and the 2019 Incentive Program standalone DPG is currently under preparation. Under this approach, the Incentive Program and World Bank Development Policy Grant support to government are fully aligned through a single, annual DPF operation which is jointly financed from IDA and ARTF resources. Incentive Program DPG operations are expected to continue on an annual basis, providing a core mechanism for government-donor dialogue around economic, structural, and PFM reforms. Box 1: The ARTF Recurrent Cost Window Incentive Program The Incentive Program was established in 2008 to support a policy reform agenda under the Afghanistan Reconstruction Trust Fund (ARTF) Recurrent Cost Window. The IP provides budgetary aid based on the achievement of agreed and pre-defined targets for reforms in different areas. IP funds can be used to flexibly finance recurrent, civilian public expenditures. In this respect IP funds differ from other ARTF funds, which – for the most part – finance public investment in specific areas. Generally, the IP was defined as a 3-year program, consisting of three components that determine disbursements: (i) the Revenue Matching Grant; (ii) the Structural Reform Scheme; and (iii) the Operations and Maintenance Facility (launched in 2013). The Revenue Matching Grant under the IP rewarded improved performance in public revenue mobilization and collection. Annual revenue targets agreed between the Ministry of Finance and the IMF were set as the benchmarks which the Government must meet to receive the incentivized funds. The IP required the Government to meet a minimum of 90% of the revenue targets to release funding. Funds earned could exceed the indicative funding envelope if the revenue target was surpassed. The Structural Reform Scheme supported the implementation of reform-oriented actions by setting structural benchmarks. The 2015 to 2017 Incentive Program supported reforms along four thematic areas: i) public financial management strengthening; ii) governance and civil service reforms, including improvement of the legal and regulatory environment for the development of a professional civil service; iii) improving the enabling environment for private sector investment and trade, including streamlining of licensing processes and modernizing customs; and iv) improving sub-national finance flows and strengthening the capacity for provincial administrations to prepare and execute budgets. The Operations and Maintenance Facility provided an incentive for increasing spending for operation and maintenance (O&M) activities to safeguard public investment and for improving fiscal flows to provinces while rewarding ‘proper management’ of resources. From a pre-defined baseline, the O&M facility matched every incremental dollar in public resources spent on civilian O&M with 1.5 dollars in ARTF funds. Page 7 of 26 The World Bank (P160544) 3. ASSESSMENT OF OUTCOMES 3.1 Relevance of Objectives, Design and Implementation Rating: High Relevance to National Priorities: The objectives of the operation were highly relevant to challenges currently facing Afghanistan. Objectives of strengthening policy frameworks to expand economic opportunities for the vulnerable and for private sector development reflected country needs in the context of slow economic growth, rising poverty, and major macroeconomic imbalanced driven by aid dependence. Objectives of the operation were aligned with the priorities established in the ANPDF, including: i) improving governance and state effectiveness through public sector reform; ii) economic growth and job creation through private sector–led development; and iii) poverty reduction and social inclusion. The operation design was highly relevant to national priorities. Support to the Policy Framework on Refugees and Returnees was aligned with government’s focus on developing and articulating a single coherent response to an urgent crisis. Reforms in land were intended to address a major constraint to inclusion. Reforms in the regulatory framework for PPPs and telecommunications sector were aligned with important private sector opportunities and emerging risks. Relevance to Bank’s Assistance Strategy: The operation was fully consistent with the priorities and approach established in the World Bank’s Country Partnership Framework for Afghanistan (FY2017-FY2020), which was discussed by Executive Directors during October 2016. The CPF is structured around three pillars: i) building strong and accountable institutions; ii) supporting inclusive growth; and iii) social inclusion. Reforms supported under both pillars of the operation directly contributed to all three pillars of the CPF, through an emphasis on institutional, legal, and regulatory reforms that were intended to both expand access to economic opportunities to disadvantaged groups and support private sector development. 3.2 Achievement of Program Development Objectives Overall Achievement of Objectives: Moderately Satisfactory Pillar I - Enhance the policy framework to expand access to economic opportunities for the vulnerable Establishing a policy framework to guide a coherent response to the returnee and displacement crisis The operation supported Cabinet approval of a cross-government policy framework guiding a coherent and coordinated policy response to the displacement and returnees crisis, between government, development partners, and humanitarian agencies. Specific policy decisions under the framework Page 8 of 26 The World Bank (P160544) included: i) establishing 100 per cent registration for all undocumented returnees arriving through major border points with Pakistan and Iran; ii) prioritizing provision of identify documents to facilitate access to basic services; iii) ensuring access to facilitation services to those who are willing to move their businesses to or reestablish their businesses in Afghanistan; iv) establishing a “whole of community” policy approach, ensuring hosts are eligible for humanitarian and development assistance so as to avoid the emergence of conflicts or contestation between displaced groups and host communities; v) harmonizing financial assistance packages between local and international agencies; and vi) assisting settlers to join local representative bodies to ensure representation of their concerns and needs. The policy framework was, overall, successful in supporting a cross-government coordinated approach to management of the returnee and displacement crisis but problems of coordination and alignment persist, given: i) the complexity of the situation; ii) the large number of actors involved; and iii) limited availability of resources to finance all policies included in the framework. Aligned with the intent to register 100 percent of returnees arriving through major border points, the results indicator was ‘an increase in the number of border-crossings at which returnee certificates are issued increases from one to four’. This result was fully achieved with the rollout of the Afghan Returnee Information System (ARIS) to register all returning Afghans (irrespective of their documentation) upon arrival at the Torkham and Spin Boldak border crossing points with Pakistan and the Islam Qala and Milak border crossings with Iran. Biographic registration is collected for all returning Afghans (inclusive of refugees) at these border points and a returnee certificate is issued. Registration has not yet reached 100 percent, however, due to a lack of systems to support biometric registration at some border points and the general porousness of borders. Progress has also been achieved against other key elements of the policy framework. Reintegration Information Centers (RICs) have been established in 17 provinces (scaling up to 25 in 2019) where returnees can register their reintegration needs and monthly Provincial Reintegration Committee (PRCs) meetings are then held (a multi-stakeholder forum of government agencies and UN/NGOs) to coordinate responses. Adherence to a ‘whole-of-community approach’ and harmonization of assistance packages is being pursued by government and international agencies, but effective implementation is constrained by lack of resources in the context of continuing very high numbers of returnees and internally displaced. Establishing the legal basis for an administrative land management system The operation supported Cabinet approval and submission to the National Assembly of a Land Management Law. The Law was subsequently passed into force by Presidential Decree. This law was intended to establish the legislative basis for a gradual transition to an administrative system of land management, replacing the existing court-based system which remains slow and vulnerable to corruption. The Law was also intended to strengthen and expand access to land property rights by allowing for the recognition of a wider range of documents – including marriage certificates – in establishing formal land ownership rights through the new land administration agency (ARAZI, later merged into the Ministry of Urban Development and Land - MUDL). The Law also allowed for the formalization of land rights for those occupying land without documentation either through demonstrating long-term occupancy or through the issuance of Land Occupancy Certificates to urban squatters, including returnees and the internally displaced. The results indicators were: i) number of landholders currently without formal land ownership records provided with formal ownership through the administrative systems established under the new law increase from zero to 500; and ii) gender disaggregated records of land ownership are available through the ARAZI digital registration system. Both results indicators were fully achieved. Regulations were Page 9 of 26 The World Bank (P160544) approved in 2017 under the new Land Administration Law establishing a process through which occupants with confirmed possessory rights could obtain an Occupancy Certificate with associated rights recorded by the land administration agency. As of end-2018, more than 2,000 Occupancy Certificates had been issued to landholders previously without formal land ownership records. The regulations provided for full rights for single women and joint-ownership for married couples, with more than 200 Occupancy Certificates so far issued to single women. The number of Occupancy Certificates being issues to men and women is being recorded through the administrative system operated by the land administration agency. Table: Issued Occupancy Certificates as of end-2018 Province Occupancy Certificates Occupancy Certificates Issues Total Issued to Women to Men/Joint Ownership 1 Kabul 136 1,224 1,360 2 Balkh/Mazar-e-Sharif 53 500 553 3 Hirat 25 1 26 4 Nangrahar/Jalalabad 6 0 6 5 Bamyan 7 181 189 6 Nili 3 6 9 TOTAL 230 1,912 2,143 Work has continued to strengthen capacity, systems, and processes to support the transition to an administrative land management system under the new law, with World Bank technical assistance support including through the Afghanistan Land Administration System Project (P164762). In 2019, a memorandum of understanding will be signed between the land administration agency and the Supreme Court formally transferring responsibility for registration of land ownership from the court system to the Ministry of Urban Development and Land (MUDL) for the city of Herat. Over the next three years, land surveying and registration through the new administrative system will be rolled out to selected urban districts of Kabul and Herat, with an expected target of 100,000 parcels in formal areas. Issuance of occupancy certificated to informal occupants of land will continue in informal settlements across eight cities, including in addition to Kabul and Herat, the cities of Jalalabad, Kandahar, Mazhar e Sharif, Nili, Farah and Bamyan, with an expected target of 150,000 parcels. Ensuring fairness and efficiency in the acquisition of land for public purposes The operation supported Cabinet approval and submission to Parliament of a new Land Acquisition Law, to replace the outdated Land Expropriation Law of 2009. The new Land Acquisition Law was passed into force by Presidential Decree in 2017 and strengthened the legal framework for public land acquisition, inter alia, by: i) establishing requirements for compensating those whose land is compulsorily acquired; ii) mandating social and environmental impact assessment; iii) strengthening transparency through publication of all compulsory land acquisitions. The results indicator was: the proportion of land acquisitions for which public notice is provided through media at least six months in advance of acquisition and social impact assessment is carried out increases from zero percent to 100 percent by 2018. While significant progress with increased public notification and use of social impact assessment has been achieved, this target is considered to have been only partially met. Inadequate data is currently available to establish full compliance. MUDL noted that ministries are aware of new requirements and estimated compliance at 70 percent but stated it does not Page 10 of 26 The World Bank (P160544) yet have adequate systems in place to either fully verify the 70 percent estimate or ensure full compliance across all land-acquiring ministries. At preparation, the team has expected a centralized information system to be established within ARAZI/MUDL to record all land acquisitions and track and enforce compliance with new legislative requirements. This system, however, has not yet been established – partly due to disruptions and delays arising from the restructuring of ARAZI into MUDL – and land acquisition processes continue to be undertaken by separate ministries without a centralized information system or full sharing of information. The Ministry of Public Works provided data showing that 100 percent of its land acquisitions followed new legislative requirements during 2018, including public notice of acquisition and social impact assessment. However, data was unavailable to verify compliance with the new requirements for other ministries that may have been undertaking land acquisition, including Ministry of Mines and Petroleum, DABS, Ministry of Energy and Water, Ministry of Rural Rehabilitation and Development, and Ministry of Transport. MUDL is now working with the World Bank under the Afghanistan Land Administration System Project to develop a centralized system for recording land acquisition processes across government and tracking and enforcing compliance to legislated public notification and social impact assessment requirements. Despite the results target being only partially achieved, there has been significant progress with processes of land acquisition. While some ministries may not be fully complying with legislative requirements for transparency and social impact assessment, several gains have been made, including: i) public notification is now being widely pursued; ii) compensation payments are being calculated using the provisions of the new law, leading to fairer outcomes; and iii) land acquisitions need to be justified on the basis of the new law and an appeals process is operational. Expanding access to electronic money and financial services The operation supported issuance of new regulations by DAB governing electronic money institutions. Issuance of these regulations provided a basic framework for an electronic money system by allowing non-bank institutions (e.g. telecom operators) to issue e-money through systems that are integrated and compatible with the overall payment system. The regulations also safeguarded users against potential risks by requiring: i) non-bank institutions to legally ringfence customer deposit funds from those associated with other business areas through the establishment of a dedicated subsidiary firm; and ii) electronic money institutions to insure the aggregated funds of customers under Afghanistan Deposit Insurance. The reform was intended to support expansion of e-money, with expected benefits for financial inclusion, financial sector development, and competition in the financial sector. The results indicator for this reform was ‘the number of registered non-bank electronic money institutions increases from zero to three by 2018’. This result was only partially achieved. Three non-bank financial institutions are currently operating in Afghanistan, and in full compliance with the regulatory framework established by DAB. But baseline and target data used to specify the result indicator appeared to be based on the number of EMIs to become subject to the new regulation, rather than the overall number of non- Bank EMIs operating in Afghanistan, as stated in the results matrix and program document. In fact, the same three non-bank electronic money institutions are currently operating in Afghanistan were already operating and licensed by DAB under previous regulations at the time the operation was prepared. All three non-bank electronic money institutions are, as expected, now operating in compliance with the new regulatory framework, increasing integration of non-bank EMIs into the broader financial system, supporting increased confidence in the sector, and safeguarding financial sector stability. Page 11 of 26 The World Bank (P160544) Broader objectives of the reform were generally achieved. The existence of multiple non-bank e-money providers has increased competition in the financial sector, reducing the costs of and expanding access to financial services. Further regulatory reforms to facilitate the expansion of e-money are progressing with World Bank technical assistance and development policy financing support, including to allow for electronic payment of civil service salaries, to allow for e-payment of taxes and customs duties, and to mandate participation of all mobile money providers, payment card issuers, and acquiring banks in a regulated payment system (APS) to enable full interoperability. Pillar II - Strengthen the policy and regulatory framework for private sector development Establishing a legal and regulatory framework for PPPs The operation supported Cabinet approval of a PPP policy and approval and submission to the National Assembly of a PPP Law. The PPP law was subsequently passed into force by Presidential decree. These reforms were intended to address gaps in the existing legislative and regulatory framework, and associated risks associated with inadequately governed, coordinated, and managed PPP transactions. The new policy and law: i) defined PPP transactions and the reasons for which they may be pursued; ii) established key principles for PPPs, including value for money, appropriate allocation of risk, affordability and protection of users, transparency, competition, consultation, and environmental and social responsibility; iii) established the institutional framework for PPPs, including the allocation of responsibilities to Cabinet, the Central PPP Authority, the PPP advisory committee, and different government agencies; and iv) established the process for PPP procurement. The PPP Law was revised and re-approved by the President in September 2018. This process was led by IMF with inputs from the World Bank, with revisions primarily focused on reporting and management of fiscal risks. Reflecting the emphasis on transparency under the new legal and policy framework, the results indicator was: proportion of PPP transactions for which invitations for expressions of interest are published on PPP unit website increases from 0 percent to 100 percent by 2018. This result has been only partially achieved. Five PPP contracts have so far been awarded by government. Invitations for expressions of interest were not published on the PPP unit website for any of these transactions. Three transactions (Kajaki Phase II Hydro Power Plant, Mazar Gas to Power, and Sheberghan Gas to Power) resulted from unsolicited proposals and were directly negotiated within the policy and legal framework established under the new PPP policy and law. Two additional solar energy transactions were initiated before the PPP policy and law were in place (and therefore did not involve an EOI process under the new policy), but the transactions were finalized in full compliance with the policy and law. An additional five PPP opportunities have been advertised on the PPP Unit website, with requests for expressions of interest, but transactions have not yet been concluded (2000 MW generation package, Hamid Karzai International Airport (HKIA) Passenger Terminal, HKIA Cargo Terminal, HKIA Export Processing Zone, and HKIA Hotel). Despite the results indicator not being fully met, the broader objectives of the new PPP policy and law have largely been achieved. Line ministries, in coordination with the Central PPP Authority and the Ministry of Finance, are now identifying and developing PPP projects in full compliance with the PPP Law and project cycle process. This standardization of this process, via the new legal framework, is helping to increase the technical quality of project preparation and is facilitating the prioritization of projects based Page 12 of 26 The World Bank (P160544) on economic impact and alignment with national development objectives. As a result, the PPP program in Afghanistan is moving away from ad hoc, opportunistic development of PPP projects, to a more strategic approach to infrastructure development focused on financial and fiscal sustainability, transparency, and the optimal use of public and private resources. Addressing constraints to competition in telecommunications The operation supported approval by the High Economic Council of an Open Access and Competitive optical fiber Policy, allowing private operators to invest in national and international fiber-optic networks. At the time, Aftel (the state-owned telecommunications company) was the sole provider of fiber-optic network. Aftel’s monopoly was undermining availability of affordable and good quality internet services in Afghanistan. Allowing for private sector-owned and operated networks was expected to provide improved services to larger segments of the population at a better price than continuing provision through state enterprises. Reflecting the goal of private provision of fiber-optic network infrastructure, the results indicator was “reduction in the percentage of the fiber optic network (by value of investment) under management of the national utility declines from 100 percent to 80 percent”. This result has only been partially achieved. Substantial private investment is now underway in Afghanistan’s fiber-optic network. Three optical fiber license agreements have been signed ( Etisalat, AWCC, ACG) and construction is planned or underway on around 1000 kilometers of fiber optic network. A fourth license is currently under negotiation. AWCC will launch 500 kilometers of network in June, 2019 connecting Afghanistan to the Pakistan network through Turkham and Kandhar area borders and to Uzbekistan at Mazar Sharif. An additional 500 kilometers of network is expected to be completed by the end of this 2019. At this point, however, no private operators have yet launched commercial fiber services. Slower-than-expected progress and the resulting partial achievement of the results indicator reflected delays in license issuance and construction works. Issuance of licenses was delayed by: i) the slow pace of policy decisions throughout the process of inviting EOIs for optical fiber licenses; ii) slow pace of negotiations in finalizing the terms and conditions of licenses including license fees; and iii) various administrative delays through signing the license agreements. Construction work was delayed by: i) time taken to negotiate and resolve right of way issues for new fiber optic cables between the contractors and various government agencies; ii) delays in release of equipment and optical fiber cable from customs; and iii) frequent security-related disruptions in some cable-laying areas. Despite these delays, the overall intent of the policy reform is expected to be fully achieved. Once construction works are completed, Aftel’s current monopoly will be broken with a substantial proportion of fiber optic cable infrastructure under private management, leading to increased affordability and better quality of service. Establishing a unified process for business licensing The operation supported reforms to the business licensing regime. Under these reforms, investment licenses previously issued by the Afghanistan Investment Support Agency (AISA) and trade licenses issued by the Ministry of Commerce were unified into a single business license, issued by the Ministry of Page 13 of 26 The World Bank (P160544) Commerce. The requirement for a trade certificate was abolished. This reform was intended to reduce the costs, time required, and steps involved in both acquiring and renewing business licenses. The results indicator for this action was: average number of days taken to renew a business license declined from 120 days to 25 days by 2018. The baseline for this results indicator was mis-specified and the result was therefore only partly achieved. At no point did acquisition or renewal of business licenses take 120 days. Acquisition of required investment and trade licenses could generally be completed over two-to-three days. Substantial delays in the business licensing process were introduced by a separate regulatory requirement that businesses acquire a Tax Clearance Certificate (TCC) from the revenue authority (ARD) before applying for or renewing a business license. Acquiring a TCC was generally much more time-consuming than the business licensing process itself, driving the cited average time of 120 days. The baseline data appears to have been taken from a consultant report that cited 120 days without disaggregating the impact of the TCC process and the actual business licensing process.1 The requirement for firms to acquire a TCC before applying for a business license was not addressed by the reforms supported under this operation, and this requirement continues to generate substantial delays in business licensing. Through a separate reform process the TCC issuance process is now being revised, with recent regulations specifying that issuance of a TCC should take a maximum of 21 days. This regulation has not yet been fully implemented and some firms continue to report delays well beyond the specified 21-day limit. Despite the result indicator being only partially achieved, supported reforms significantly reduced the number of steps involved in acquiring or renewing a business license, leading to a reduction in time from 2-3 days to only a few hours. Reforms also supported reductions in the costs of acquiring or renewing a business license, which fell drastically to just US$1.30 for a three-year license (compared to US$100- US$5,000 for one year for AISA’s investment license and from US$240 to US$40 for one year for MOIC’s trade license). Due to these changes, Afghanistan’s score against ‘starting a business’ dimension of the Doing Business indicators has increased from 82 to 92 in the 2019 edition, with Afghanistan now ranked 49th against this dimension globally. Establishing the legislative basis for a regulated accounting profession The operation supported Cabinet approval and submission to the National Assembly of a new Accountancy Law. The law was passed into force by Presidential Decree in March, 2017 and both houses of the Parliament approved the law in July 2018. The law empowers CPA Afghanistan (CPA) to regulate the accounting profession in the country including through: i) oversight of professional accountancy education and qualifications; ii) licensing and registration of individual accountants and accounting firms; iii) adoption and implementation of international standards for use in Afghanistan; and iv) establishing standards of professional conduct, including external quality assurance, investigation of misconduct and disciplinary measures. Reflecting the focus on building accounting capacity and ensuring that accountants meet qualification and licensing requirements, the results indicator was: ‘the number of accountants with accreditations recognized under the Accountancy Law increases from <20 to at least 100’. The result indicator has been 1 “Beyond the First Mile – on the road towards a Single Window for Business and IP Registration ” Afghanistan Central Business Registry, 2016, p8. Page 14 of 26 The World Bank (P160544) only partially achieved. The number of accountants registered with CPA and meeting qualification requirements under the law has increased to only 79. This shortfall has reflected slower-than-expected progress with certification of currently-practicing accountants and the time requirements for accounting students to acquire required certifications. Despite the result indicator being only partly achieved, passage of the law has led to significant gains with establishing accounting standards and regulating accountancy services in Afghanistan. Substantial progress has been achieved against the goal of building accounting capacity against a regulated licensing and qualification framework. The number of accountancy students has increased with CPA establishing a bachelor’s degree program at Kabul University. Afghan variants of tax and law papers under the Association of Chartered Certified Accountants (ACCA) certification framework have been developed. CPA Afghanistan continues to provide various scholarships for accountancy studies. The number of students enrolled in CPA-recognized accountancy courses has increased from 309 in 2016 to 752 and 1,153 in 2017 and 2018 respectively. In 2019 the total number of registered students increased further to reach 1,527. On current trends, the number of professional accountants with qualifications recognized under the accountancy law is expected to exceed the results-indicator target of 100 within one year. More generally, the law is providing a legislative basis for accounting and audit standards, with 35 audit firms now registered with CPA and operating in accordance with the new legislative framework. 3.3 Justification of Overall Outcome Rating Rating: Moderately Satisfactory The program’s overall outcome rating is moderately satisfactory. Policy actions supported by the operation strengthened policy frameworks to expand access to economic opportunities and for private sector development. Even in policy areas where results indicator targets were not fully met, reforms supported by the operation had measurable positive impact, with positive progress against results indicators achieved in all areas. The moderately satisfactory rating reflects: i) high relevance of the program objectives and design to national development priorities, including those stated in the ANPDF, at the time of design: ii) high relevance to the priorities established in the World Bank Group’s Country Partnership Framework; and iii) mixed progress against results indicators with three results indicator targets fully met and six results indicator targets partially met. 3.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development While more time is required before full poverty, gender, and social impacts of supported policies can be known, the operation is expected to have had positive impacts. Adoption of the Policy Framework for Refugees and Returnees guided a coherent policy response to the displacement crisis. While not all policy goals included in the policy framework have been achieved, border registration has expanded Page 15 of 26 The World Bank (P160544) substantially (from one to four border points), facilitating access to support and services for vulnerable returnee and refugee households. Issuance of occupancy certificates to those without formal land property rights has strengthened tenurial security, including for disadvantaged groups including the displaced and women. Measures to support private sector development have had limited poverty impacts to date but are likely to bring indirect poverty benefits over the medium-term. The PPP policy and law have established a sound basis for PPP transactions, protecting against fiscal risks and mobilizing PPP investment in vital sectors, including energy. While the scale of existing transactions is limited, mobilization of private finance (including through PPPs) will be vital for growth and poverty reduction in Afghanistan over the longer- term. Telecommunication reforms have demonstrably facilitated private investment in telecommunications infrastructure, which will over time drive lower cost and better-quality telecommunication services and support private investment, economic growth, and job creation. Reforms to the business licensing process and establishment of a legal framework for an accounting profession will have similar long-term positive benefits through improving the environment for investment and private sector activity. (b) Institutional Change/Strengthening Several important institutional reforms were supported by the operation. Specifically, the Policy Framework guiding government response to the refugee and returnee crisis facilitated cross-government coordination, establishing institutional mandates for involved agencies under well-specified governance arrangements. Land management reforms established a legal framework for a broad and ongoing institutional reform agenda for transforming land management in Afghanistan from a court-based to an administrative system. Establishment of a legislative framework for a regulated accounting profession has established clear institutional mandates and responsibilities for the CPA, including in accountancy education and qualification. The program was accompanied by technical assistance that helped build capacity and strengthen institutions. Technical assistance was provided to ARAZI through ongoing World Bank engagements, supporting the overall process of transition to an administrative system of land management. The World Bank provided ongoing technical assistance to DAB to support the utilization of e-money and broader financial sector strengthening. The World Bank also provided dedicated assistance to the Ministry of Finance to help implement the PPP policy and law, building capacity in Public Investment Management and project appraisal. 4. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME Rating: High Risks to development outcomes achieved through the operation are assessed as high. This is due to the following ongoing risks. Page 16 of 26 The World Bank (P160544) Political and governance risks. Sustaining development outcomes in several areas supported by the operation will require continued political commitment. High levels of displacement continue to strain social services and pose substantial humanitarian challenges and continued attention from government is required to ensure a coordinated response. Issuance of land occupancy certificates is ongoing, and the transition from a court-based to administrative system of land management remains in early stages of implementation. The legal and regulatory framework for PPPs is currently being successfully implemented but remains subject to political opposition and potential reversal. Political and governance risks are amplified by the current political context of: i) upcoming presidential elections in September 2019; and ii) ongoing peace talks with the Taliban which may lead to fundamental changes in policies and institutional arrangements. Capacity Constraints: Capacity constraints remain across government agencies, including the Ministry of Returnees and Refugees, the Ministry of Land and Urban Development, and the PPP unit within the Ministry of Finance. Capacity constraints could undermine ongoing implementation of supported reforms, and may be worsened in the context of security, political, or macroeconomic shocks that divert available government capacity towards competing priorities. Macroeconomic vulnerabilities: Afghanistan remains heavily dependent on aid and international partners foresee a reduction to both security and civilian support over coming years. The level of ongoing international assistance will be impacted by any potential political settlement with the Taliban and the nature of and post-settlement Afghan government. Government and development partners are working closely to ensure that the planned reduction in aid over the medium-term proceeds in an orderly fashion. Risks remain, however, that aid declines are uncoordinated and rapid, undermining macroeconomic stability and curtailing service delivery through compression of public expenditures. Security risks: The security situation in Afghanistan remains uncertain. Civilian casualties are rising and large parts of the country remain effectively beyond the reach of public servants and government institutions. Reform progress achieved under the operation could be reversed if the security situation deteriorates further, including through: i) donor withdrawal and reductions in the capacity of international partners to support and finance implementation; ii) distraction of scarce political attention and implementation capacity away from sustaining reform progress and towards managing security risks; and iii) reduction in areas over which reforms could be implemented following further loss of government territorial control. 5. ASSESSMENT OF BANK AND BORROWER PERFORMANCE 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Ratings: Moderately Satisfactory Page 17 of 26 The World Bank (P160544) Program design was appropriate and reflected country priorities. The operation supported a range of significant reforms in policy areas that were highly relevant to Afghanistan’s main development constraints. Reforms were integrated tightly with World Bank investment project engagements, achieving synergies between investment and DPF instruments and allowing significant progress despite capacity and implementation constraints typical of fragile state contexts. Continued progress in all policy areas demonstrated alignment with government priorities. Factors that led to several results indicator targets being only partly achieved – including limited institutional capacity – were explicitly identified as risks in the program document. There were some weaknesses in the design of the results framework. The success of the operation could not be fully reflected in achievement against the results framework due to some problems with particular results indicators. For some results indicators there was only a weak link between specified results and the desired outcome of policy reforms (for example, the PPP results indicator did not allow for the legitimate role of unsolicited and negotiated transactions under the new policy and legal framework). For some results indicator targets, baseline data did not fully reflect the situation at preparation. Specifically, the baseline indicator for number of days required to obtain a business license was taken from a consultant report that conflated business licensing and tax clearance processes, whereas the policy action was related only to the business licensing process. Due to apparent communication problems, there was a mismatch between the data used for the baseline number of EMIs and the expected outcome of the reforms. Data for the results indicator baseline and target were specified in terms of the number of non- bank EMIs expected to be operating under the new regulations (giving a baseline of zero and a target of three). But the wording of the results framework and program document referred to the total number of non-bank EMIs operating in Afghanistan (which was three at the time of preparation). Finally, data was not available at the time the ICR was being prepared to verify outcomes against the results indicator relating to public land acquisition. This was due to delays in the process of establishing a centralized information system within MUDL to record and track regulatory compliance of public land acquisitions. (b) Quality of Supervision Ratings: Satisfactory Through implementation, the Bank remained closely engaged with relevant agencies and provided extensive technical assistance to supported reform areas. The World Bank continued to provide critical project support to reforms in the areas of land, ICT, financial sector, PPPs, and business regulatory environment, which supported achievement of operation results. With significant in-country presence and strong relationships with key agencies, the team was able to constantly track progress with reforms, coordinate between government and other development partners, engage in high-level policy dialogue, and mobilize technical support when bottlenecks to reform were identified. One exception was in support to the development of a professional and well-regulated accountancy profession. Changeover in Bank staff working on public finance issues led to some loss of focus and engagement in this area, leading to some slippage in implementation and difficulty in tracking progress against specified results indicators over time. Page 18 of 26 The World Bank (P160544) (c) Justification of Rating for Overall Bank Performance Ratings: Moderately Satisfactory The overall Moderately Satisfactory rating reflects a Moderately Successful rating for design and a Satisfactory rating for implementation. 5.2 Borrower Performance Ratings: Satisfactory Borrower performance is rated as satisfactory. Government faced ongoing challenges throughout the period of the operation, including: i) an ongoing influx of returnees and high levels of internal displacement; ii) a difficult and deteriorating security situation; iii) the institutionalization of newly introduced power-sharing arrangements within the National Unity Government; and iv) ongoing challenges of donor coordination and management in a highly aid-dependent context. Despite this, government remained committed to the reforms supported under the operation, evidenced by significant progress in all reform areas. In some areas, lack of technical capacity and general institutional weakness meant that less progress was achieved than had been expected at design (examples include in the establishment of an accountancy profession and introduction of private operators for provision of fiber-optic infrastructure). But this generally reflected the need for government to allocate resources, senior-level political influence, and capacity between many competing priorities. Even in areas where result indicator targets were not fully met, overall progress towards policy objectives was achieved and policy-makers and senior officials remained committed to specified program outcomes and policy goals. 6. LESSONS LEARNED Policy-based support is most effective when structured programmatically. There are often weak linkages between policy reform and implementation in fragile states. Even when implementation is successful, implementation processes can be difficult and time-consuming, reflecting weak capacity and reliance on technical assistance support. This was a standalone operation and therefore supported only a single set of prior actions, completed by the time of Board presentation. Several reform areas covered by the operation, however, were also the focus of the parallel multi-year ARTF Incentive Program. The ability to structure policy-based support along a multi-year timeframe was vital to success, with the Incentive Program supporting vital follow-up implementation steps and complementary policy measures. A strength of the operation design was close integration with the ongoing Incentive Program, which helped ensure continued momentum, supporting progress against results indicators and overall program objectives. This lesson is reflected in the 2018 decision to restructure the Incentive Program as a World Page 19 of 26 The World Bank (P160544) Bank Development Policy Financing instrument, through which ARTF resources and World Bank DPF support are fully aligned and harmonized under a single annual non-programmatic series of operations. Development policy lending in fragile contexts is most effective when grounded in project-level sectoral engagement. The operation successfully leveraged the Bank’s project-level engagement in the telecommunications sector, land, financial sector, public finance, and business reform to both identify appropriate policies and ensure the availability of ongoing technical assistance with reform implementation. Development policy operations can serve a valuable purpose in focusing scarce government capacity. Some of the government agencies with responsibility for actions supported by the operation were engaged in multiple reform programs while dealing with everyday emergencies, exacerbated by the difficult political and economic environment. The operation’s focus on key policy priorities helped sustain policy attention and scarce capacity on high-priority reforms. Program actions aligned with the priorities of senior officials, and these officials were able to leverage World Bank program support to accelerate policy processes and maintain focus among many competing priorities. Continuity in Bank staff support is vital. A key factor enabling successful design and strong implementation was the good working relationship between the World Bank DPG team and government agencies. Good understanding of counterpart priorities ensured that actions supported by the operation were closely aligned with, and did not distract from, ministry priorities. During implementation, frequent open communication allowed risks to the program to be identified and managed proactively to the extent possible, including through the mobilization of technical assistance or senior-level policy dialogue. This was a particular achievement in the Afghanistan context where security developments frequently disrupt mission plans and limit mission travel. In the case of engagement around the establishment of an accountancy profession, however, changes in World Bank staff led to a loss of focus on this policy area, and a subsequent slowing of progress. Stronger handover procedures may have helped manage this risk. Development of the results framework should be integrated within the overall design process. The results matrix did not fully capture the outcomes of a well-designed and implemented operation. Several baseline indicators reflected misunderstandings or inaccurate data sources, and there was sometimes a weak linkage between the result indicator and the supported reform. Dialogue with government on the results framework, and establishment of appropriate baselines and targets, could potentially have taken place earlier during the design of the program, potentially leading to utilization of better data sources and avoiding any miscommunications. It may have been useful to integrate the development of the results matrix into the overall program design process, with results being discussed and agreed at the same time as the policy reform program was being developed and negotiated. 7. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS (a) Borrower/Implementing agencies Not applicable – Borrower ICR attached as Annex 2 Page 20 of 26 The World Bank (P160544) (b) Cofinanciers Not applicable. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) Not applicable. Page 21 of 26 The World Bank (P160544) ANNEX 1: BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Tobias Haque Senior Economist GMF06 TTL Claudia Nassif Lead Economist GMF06 TTL Omar Joya Economist GMF06 Macroeconomic framework Aman Farahi Economist GMF06 Team member Shankar Narayanan Snr Social Development Specialist GSU06 Land management Mohammad Noori Snr Social Development Specialist GSU06 Land management Christina Wieser Poverty Specialist GPV06 Poverty analysis Sulaiman Akbari Private Sector Specialist GTC06 Business reform Paul Welton Lead PFM Specialist GGOAP PFM Specialist Andrew Jones Consultant GFCME PPP Specialist Sebastian James Snr Tax Specialist GMF06 Tax reform Ahmed Rostom Snr Financial Sector Specialist GFM06 Financial sector Rajendra Singh Snr Digital Development Specialist GDD09 Telecommunications James Monday Snr Environment Specialist GEN06 Environment analysis Marcelo Acerbi Snr Environment Specialist GEN06 Environment analysis Arif Rasuli Snr Environment Specialist GEN06 Environment analysis Victor Ordonez Snr Finance Officer Finance officer Juan-Carlos Alvarez Snr Counsel LEGES Country lawyer Supervision Tobias Haque Senior Economist GMF06 TTL Tae-Hyun Lee Lead Economist GMF06 Team member Saurabh Shome Economist GMF06 Macroeconomic framework Habib Sahibzada Economist GMF06 Team member Shankar Narayanan Snr Social Development Specialist GSU06 Land management Mohammad Noori Snr Social Development Specialist GSU06 Land management Christina Wieser Poverty Specialist GPV06 Poverty analysis Sulaiman Akbari Private Sector Specialist GTC06 Business reform Ahmed Rostom Snr Financial Sector Specialist GFM06 Financial sector Marcelo Acerbi Snr Environment Specialist GEN06 Environment analysis Arif Rasuli Snr Environment Specialist GEN06 Environment analysis Rajendra Singh Snr Digital Development Specialist GDD09 Telecommunications Paul Welton Snr PFM Specialist GGOAP PFM Specialist Andrew Jones Consultant GFCME PPP Specialist Page 22 of 26 The World Bank (P160544) (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including travel No. of staff weeks and consultant costs) Lending FY17 17.2 108 Total: 17.2 108 Supervision/ICR FY18 8.5 53 FY19 4.2 25 Total: 12.7 78 Page 23 of 26 The World Bank (P160544) ANNEX 2: BORROWER'S ICR Inclusive Growth Development Policy Grant World Bank Financing Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) 100,000,000 100,000,000 100,000,000 P160544 Total 100,000,000 100,000,000 100,000,000 Total Project Cost 100,000,000 100,000,000 100,000,000 PROJECT BACKGROUND The Project Development Objective is (1) Enhance the policy framework to expand economic opportunity and (2) Strengthen the policy and regulatory framework for private sector development. The Inclusive Growth Development Policy Grant was prepared to support implementation of key ANPDF priorities and mobilize additional fiscal resources during a challenging time. Reforms supported by the operation were intended to both support social inclusion and enhance opportunities for private sector development. The operation built on lessons learned from previous DPOs in Afghanistan and was implemented in parallel with the World Bank managed ARTF Incentive Program, which was providing ongoing multi-donor recurrent cost support against key policy reforms. THE OBJECTIVES MET UNDER THE PROJECT: Pillar 1: Enhance the policy framework to expand economic opportunities to the vulnerable • Border(s) issuing returnee certification. • Landholders currently without formal land ownership records granted formal ownership under the new land management law. • Gender disaggregated land records available under the ARAZI digital registration system. • Share of land acquisitions for which there is media notice at least 6 months in advance of acquisition and social impact assessment is carried out. • Registered non-bank electronic money institutions. Pillar 2: Strengthen the policy and regulatory framework for private sector development • Share of PPP transactions with invitations for expressions of interest published on PPP website. • Percentage of fiber-optic network (by value of investment) under Aftel management • Days taken to renew a business license. Pillar I: Enhance the policy framework to expand access to economic opportunities for the vulnerable. Reforms under the first pillar were intended to broaden access to economic opportunities to excluded populations in Afghanistan, including returnees, the internally displaced, the rural poor, and newly urbanizing populations. Reforms included: i) adoption of a policy guiding response to the current Internally Displaced Person (IDP) and returnee crisis; ii) reforms to the legal governance framework for land Page 24 of 26 The World Bank (P160544) management and public land acquisition; and iii) establishment of a regulatory framework to support financial inclusion through e-money. Pillar II: Strengthen the policy and regulatory framework for private sector development. Reforms under the second pillar were intended to improve policy conditions for private sector investment, supporting job-creation, growth, and increased revenues over time. Reforms included: i) the adoption of a policy governing public-private partnerships; ii) reforms to allow private investment in new telecommunication technologies; iii) reforms to the business licensing process; and iv) the establishment of a legal framework for accounting practice and the accountancy profession. Assessments: In mid-2017 Afghanistan was facing range of overlapping economic, political, security and humanitarian challenges. A large number of refugees from Pakistan and Iran returned to Afghanistan in 2016-2017, number of internally displaced civilians was also high due to drought, poverty and insecurity. Government also accelerated their efforts to provide the returnees with land and basic services such as access to water, electricity and education. Also government prioritized their reform agenda in governance, public financial management (PFM) and land management. Government’s vision to attract private sector investment offering public private partnerships, job creations, economic growth and revenue increase through revised policies got momentum in 2017. Allowing private sector to invest in telecommunication technology by offering reforms in licensing process and tax immunities to businesses were key factors to help economy grow. Evaluations: To implement effective policies serving to returnees, displaced, land management, economic growth, job creations, revenue increase, public private partnerships, private sector investment, reforms in business licensing and establishing a legal framework for accountability and transparency government needed grant to implement such policies. The USD 100,000,000 Inclusive Growth Development Policy Grant was used to enhance the policy framework to expand economic opportunities in the vulnerable situation and to strengthen the policies and regulatory framework for private sector inclusion, economic development to create jobs and to increase revenue. Salma Alokozai Director, Aid Management Department Ministry of Finance, Afghanistan salma.alokozai@mof.gov.af Page 25 of 26 The World Bank (P160544) MAP Page 26 of 26