Development Cooperation Report 2010 of Afghanistan

• Islamic Republic of Afghanistan Ministry of FinanceDevelopment Cooperation Report 2010

ForewordOn behalf of the Ministry of Finance (MOF) of the Government of the Islamic Republic of Afghanistan (GoIRA),it is my pleasure to present the first Development Cooperation Report (DCR) to the international communityand the people of our nation.The Development Cooperation Dialogue (DCD) process was initiated to stimulate policy dialogue ondevelopment and reconstruction between the GoIRA with its Development Partners (DPs) to help strengthenthe relationship and cooperation between the GoIRA and its partners. This report, the outcome of a successfulround of negotiations, will serve as a critical tool for GoIRA and our DPs to assess the developmentachievements of the country since 2002, identify the challenges to development in Afghanistan encounteredboth by the Government and the international community and will hopefully provide policy directions tofurther strengthen and accelerate the development process in Afghanistan.We greatly appreciate the sustained assistance to Afghanistan provided by the international community fordevelopment and gratefully acknowledge how such support helped bring positive changes to the lives ofAfghans since 2002. We acknowledge the significant contributions made to our nations development, throughprovision of support to the financing of Afghanistans medium and long term strategies (Afghanistan NationalDevelopment Strategy and the national priority programs- NPPs). This report makes a brief assessment of theutilization of development assistance to date and further analyzes the effectiveness of the delivery ofdevelopment assistance as based on the principles of Aid Effectiveness, agreed upon by the internationalcommunity and announced in Paris in 2005.DCR reviews the financial trends of Official Development Assistance (ODA) flows since 2002 multi-yearprojections of financing provided by DPs and the differences and disparities in financial support anddevelopment progress across sectors and geographic areas. Dissemination of information and overviewanalyses contained in reports of this nature contribute to transparency and accountability of developmentfinance utilization for the benefit of all stakeholders - the GoIRA, DPs and most importantly, the Afghan public.The development dialogue process and the record of information collected, analyzed and shared widely havethe best potential of strengthening mutual trust between GoIRA, the international community and the Afghanpopulation. If appropriately used, these reports can provide decision making tools for the Government andthe international community for better aid coordination promoting improved medium and long term planningof development interventions that can produce development results generating sustainable economic growthand development benefits for the people of Afghanistan.I express GoIRAs commitment to serve the needs of the Afghan nation and its public and to this effect makebest efforts to strengthen cooperation, based on mutual accountability, with its DPs. The current report, withits basic data and policy analysis, serves these objectives. Thus, our commitment is to make the DCDs anannual event and publish annual reports generated out of the process. Our DPs continuous support to thisprocess through provision of optimal information about their development financing to Afghanistan willultimately maximize public information both in Afghanistan and in donor countries about the benefits of ourDPs development interventions in Afghanistan.MOF, on behalf of GoIRA, takes this opportunity to extend its gratitude to the Afghan population and theinternational community for their continued support to GoIRA. We also thank UNDP for the technical andfinancial assistance in support of the DCDs.Dr. Omar ZakhilwalMinister of FinanceDEVELOPMENT COOPERATION REPORT |I ContentsForeword................................................................................................................................................................ IContents...............................................................................................................................................................IVAcronyms ..............................................................................................................................................................VExecutive Summary............................................................................................................................................... 11. Introduction .................................................................................................................................................. 42. History of Foreign Assistance in Afghanistan ............................................................................................... 62.1.Pre-Cold War era (1919-50s)................................................................................................................ 6 2.2.The Cold War era (1960s-1990s) .......................................................................................................... 6 2.3.Post 9/11 (2001- present) .................................................................................................................... 73.Landmark Conferences ................................................................................................................................. 9 3.1. Bonn Conference (2001) ...................................................................................................................... 9 3.2.Tokyo Conference (2002) ..................................................................................................................... 9 3.3.Berlin Conference (2004) ..................................................................................................................... 9 3.4.The London Conference ..................................................................................................................... 10 3.5.Rome Conference (2007) ................................................................................................................... 10 3.6.Paris Conference on Afghanistan (2008)............................................................................................ 11 3.7.Hague Conference (2009) .................................................................................................................. 11 3.8.London Conference (2010)................................................................................................................. 12 3.9.Kabul Conference (2010).................................................................................................................... 12 3.10. Lisbon Conference (2010) ...................................................................................................................... 12 Assessment ..................................................................................................................................................... 144.Aid Dependency (Reality of Aid in Afghanistan) ......................................................................................... 155.Overview of External Assistance ................................................................................................................ 18 5.1.Synopsis.............................................................................................................................................. 18 5.2.Geographic Distribution of External Assistance ................................................................................. 21 5.3.Loans .................................................................................................................................................. 22 5.4.Aid Predictability ................................................................................................................................ 22 5.5.Main Delivery Channels of External Assistance ................................................................................. 235.5.1. External Assistance for Security Sector...................................................................................... 23 Analysis ........................................................................................................................................................... 25 5.5.2.External Assistance for Development ............................................................................................ 275.5.2.1. Trust Funds ............................................................................................................................ 285.5.2.2. Assistance through Government Systems ............................................................................. 305.5.2.3. Support for Government Operating Budget .......................................................................... 315.5.2.4. Share of Aid as Percentage of Government Budget .............................................................. 316.Aid Effectiveness in Afghanistan ................................................................................................................ 34DEVELOPMENT COOPERATION REPORT | III 6.1. Introduction ....................................................................................................................................... 346.2. The Achievements in Brief ................................................................................................................. 346.3. The Lapses Preventing Optimization of Benefits of International Assistance in Afghanistan ........... 356.4. Absence of Strong Donor-Afghan Government Partnership ............................................................. 356.5. Paris Declaration and Accra Agenda for Action Addressing the Lapses............................................. 366.6. Paris Declaration and Accra Agenda Aid Effectiveness Principles in Action in Afghanistan .............. 376.6.1.Ownership.................................................................................................................................. 376.6.2.Alignment................................................................................................................................... 376.6.3.Harmonization ........................................................................................................................... 386.6.4.Mutual Accountability ............................................................................................................... 396.6.5.Managing for Development Results .......................................................................................... 406.7. Primary Challenges to Implementation of Aid Effectiveness Principles in Afghanistan .................... 416.7.1.Continuing Insecurity ................................................................................................................. 416.7.1.1.Analysis .................................................................................................................................. 416.7.2.Inadequate Capacity of National Institutions ............................................................................ 426.7.2.1.Analysis .................................................................................................................................. 436.7.3.Low National Budget Execution ................................................................................................. 446.7.4.Corruption.................................................................................................................................. 446.7.4.1.Analysis .................................................................................................................................. 456.8. Conclusion .......................................................................................................................................... 46Annex-IIntroduction to Development Partners .. .481.ADB (ASIAN DEVELOPMENT BANK) ASSISTANCE TO AFGHANISTAN ......................................................... 492.THE AGA KHAN DEVELOPMENT NETWORK (AKDN) IN AFGHANISTAN ...................................................... 503.AUSTRALIA IN AFGHANISTAN ..................................................................................................................... 524.CHINA IN AFGHANISTAN - COMMITTED TO THE SPIRIT OF GIVING ........................................................... 545.Canadas (CIDA) aid to Afghanistan ............................................................................................................ 556.Czech Official Development Assistance to Afghanistan ............................................................................. 577.Danish Development Assistance to Afghanistan ........................................................................................ 598.European Union IN AFGHANISTAN ............................................................................................................. 619.Finlands Contribution to Afghanistan........................................................................................................ 6310. Frances Assistance to Afghanistan ............................................................................................................ 6411. Reconstruction and Development - German Cooperation with Afghanistan ............................................ 6512. Indias Development Cooperation Program in Afghanistan ....................................................................... 6831. Participation of Islamic Republic of Iran in the reconstruction of Afghanistan.......................................... 7014. ITALYS SUPPORT TO AFGHANISTAN .......................................................................................................... 7215. Japans Assistance to Afghanistan .............................................................................................................. 7316. LITHUANIAN DEVELOPMENT COOPERATION IN THE ISLAMIC REPUBLIC OF AFGHANISTAN..................... 7517. THE NETHERLANDS IN AFGHANISTAN A SMALL COUNTRY WITH A BIG FOOTPRINT .............................. 7618. NEW ZEALAND DEVELOPMENT PROGRAM ................................................................................................ 7719. Norways Development Assistance to the Government of the Islamic Republic of Afghanistan............... 7820. Polands Assistance to Afghanistan ............................................................................................................ 80DEVELOPMENT COOPERATION REPORT | III 21. Spanish Cooperation concentrated in Badghis Province............................................................................ 8122. The Swedish Development Assistance to Afghanistan 2002-2010 ............................................................ 8323. Swiss Commitment to Afghanistan - a contribution to a better future ..................................................... 8424. TURKEYS CONTRIBUTION TO AFGHANISTAN ............................................................................................ 8625. Afghanistan Development Co-operation Report - UK Input....................................................................... 8826. USAID ASSISTANCE TO AFGHANISTAN ....................................................................................................... 9027. WORLD BANK IN AFGHANISTAN ................................................................................................................ 92Annex-II Tables and Graphs 95DEVELOPMENT COOPERATION REPORT |III AcronymsAAAAccra Agenda for ActionAACA Afghanistan Assistance Coordination AuthorityAC Afghanistan CompactACBAR Agency Coordinating Body for Afghan ReliefAIAAfghan Interim AuthorityANAAfghan National ArmyANCOPAfghan National Civil Order PoliceANSF Afghan National Security ForcesAPPF Afghan Public Protection ForcesAPRP Afghanistan Peace and Reintegration Trust FundAREU Afghan Research and Evaluation UnitASFF Afghanistan Security Forces FundASNGPAfghanistan Sub-national Governance ProgramCDPCapacity Development ProgramCERP Commanders Emergency Response ProgramCIMCentrum fr Internationale Migration und FachkrfteCIMICCivil Military CooperationCNTF Counter Narcotics Trust FundCPICorruption Perception IndexCSRCivil Service ReformDACDevelopment Assistance CommitteeDADDonor Assistance DatabaseDCDDevelopment Cooperation DialogueDCRDevelopment Cooperation ReportDFID Department for International DevelopmentDFRDonor Financial ReviewDMUDebt Management UnitDODDepartment of DefenseDODCNDepartment of Defense and CounternarcoticsDOD-CN Drug Interdiction and Counter-Drug ActivitiesDP Development PartnerEPHS Essential Package of Hospital ServicesFY Fiscal YearGDPGross Domestic ProductGoIRAGovernment of the Islamic Republic of AfghanistanHIPC Heavily Indebted Poor CountriesI-ANDS Interim Afghanistan National Development StrategyIFCInternational Finance CorporationIMFInternational Monetary FundM&EMonitoring and Evaluation DEVELOPMENT COOPERATION REPORT IV MCP Management Capacity ProgramMOF Ministry of FinanceNIP National Immunization ProgramNPPsNational Priority ProgramsNRAPNational Rural Access ProgramNRVANational Risk and Vulnerability AssessmentOECDOrganization for Economic Cooperation and DevelopmentOEF Operation Enduring FreedomOGOperational GuidePAR Public Administration ReformPDParis DeclarationPDP Provincial Development PlanningPEFAPublic Expenditure Financial AssessmentPFEMPublic Finance and Expenditure ManagementPITFPolitical Instability Task ForcePRR Priority Reform and RestructuringPRSPPoverty Reduction Strategy PaperPRT Provincial Reconstruction TeamQIP Quick Impact ProjectSAF Securing Afghanistans FutureSDC Swiss Agency for Development and CooperationSIGAR Special Inspector General for Afghanistan ReconstructionTATechnical AssistanceTFTrust FundTIKATurkish International Cooperation and Development AgencyTVETTechnical and Vocation Education TrainingUKUnited KingdomUNUnited NationsUNHCR United Nations High Commissioner for RefugeesUNMAS United Nations Mine Action ServiceUNOPS United Nations Office for Project ServicesUSA United States of AmericaUSAID United States Agency for International DevelopmentUSDoD US Department of DefenseUSSRUnion Soviet Socialist RepublicWBWorld Bank DEVELOPMENT COOPERATION REPORT | V Executive SummaryThe Development Cooperation Report (DCR) 2010, prepared by the Aid Management Directorate (AMD)of the Ministry of Finance (MoF), is a living proof of the determination of Government of IslamicRepublic of Afghanistan (GoIRA) officials to make inflow of foreign assistance effective for Afghanistanand its people. The results of the Development Cooperation Dialogues (DCDs) between the MoF officialsand their DPs (DPs), along with other measures introduced by MoF (e.g. organizational restructuring foraid management and an aid management policy; Donor Financial Review (DFR); reform of DevelopmentAssistance Database (DAD)), are expected to pave the way for effective development.Tracing the long history of foreign involvement in Afghanistan, the DCR advances the analysis to the 21stcentury and the complex aid scenario in this country, which, devastated by decades of war, wascompelled to marginalize development of its people for decades. This DCR covers the years post-9/11, aperiod in which GoIRA and its DPs have worked to reconstruct the country from the ashes. Theimpediments on their way are all-embracing: threats to human security resulting from terrorist violence;weak rule of law and governance; inappropriate protection of human rights; lack of resources toeducate and provide employment to millions of young people and to nurture a healthy population menand women - who could serve as the main contributors to increasing the countrys productivity. Lowcapacity of human resources in a country where war has played havoc with the education systemexacerbates the difficulties the Afghan leaders encounter.The DCR reflects the resolve of GoIRA to tackle these issues, both with its own limited revenue andeffective financial and technical assistance from its DPs, as per the aid effectiveness principlesannounced in Paris (2005) and Accra (2008). The DCR is a call by GoIRA for the implementation of theprinciples of aid effectiveness, elimination of ineffective aid and a pledge to make itself accountable toits tax-paying public.The DCR outlines the international community and GoIRAs progress from 2001 to 2010, starting inBonn, followed by conferences in Tokyo, Berlin, London, Rome, Paris, Hague, London, Kabul and Lisbon,where we re-pledged to legitimize a state born out of decades of conflict. The DCR sounds an alert thatmany themes common to the previous conferences continue to dominate todays agenda, as some basicproblems related to the revitalization of Afghanistan, and to also make aid delivery and utilization moreeffective, have not been resolved. The DCR contends that while the inadequacies of the outcomes of theprevious conferences should not deter the GoIRA and the DPs to take new actions, acknowledgement ofthe lack of progress and further resolve to take new and determined measures are essential forsustainable resolution of the problems.The Report contends that while the generous assistance of the international community produced somesignificant outcome results, in the absence of appropriate adherence to the aid effectiveness principles,full benefits of foreign aid have not been realized. On the DP side, deficiencies in aid delivery coverseveral spectrums that restrict appropriate implementation of aid effectiveness principles. Discrepanciesin pledges, commitments and disbursements of aid finances, resulting in unpredictability in availabilityof financial resources, continue to hamper long term planning. The DCR also expresses concerns aboutthe high aid dependency rate of Afghanistan, relying on external funding both for recurrent/operatingcosts and also development expenditure. DCR identifies the risks of aid dependent economies andproposes measures for GoIRA to take for mitigating the risks.DEVELOPMENT COOPERATION REPORT | 1 The security scenario - a war on terror - pushes a large volume of external finances to address securityrequirements. Itemization by DCR of a long list of funds, solely devoted to security-relatedprogramming, vividly displays the dominance of security sector spending (representing 51% of totalexternal assistance), which outweighs investments in other sectors combined. While security is a pre-condition for operation of development projects, inequity in distribution of funds between security andnon-security development sectors often results in neglecting the countrys basic development needsprioritized by GoIRA, and aid becomes politicized and militarized.82% of external assistance disbursed from 2002-2010 by-passed GoIRAs national budget process, wasinvested in programs/projects parallel to those of GoIRA and managed directly by the implementingagencies of the DPs, without any accountability to the GoIRA. Such practices of tied and prescriptivedonor-driven aid violates the Paris principle of ownership of development programs by the recipientgovernment and alignment of donor programs with national priorities. DCR concludes that externalODA delivery by-passing Government budget channels results in a missed opportunity for GoIRA to learnby doing and thereby develop the required capacity to design, implement, monitor and report ondevelopment programs. In relation to parallel mechanisms for aid program delivery, the ill-conceivedcontracting and sub-contracting processes of the DPs and their negative impact on the Afghan economyhas been raised in the DCR.According to DCRs assessment, donor coordination in Afghanistan is less than satisfactory andharmonized actions are few. Program Based Approaches (PBAs) and Sector Wide Approaches (SWAPs)have hardly gained ground. The result is fragmentation of aid, duplication of programs in the absence ofwell shared information amongst DPs and unbalanced and inequitable development resulting fromovercrowding of certain sectors or geographic areas by too much funds invested by too many DPs.Meanwhile, other areas with greater needs are left with little investment.These problems emanate from inadequate attention by the DPs to accountability needs. GoIRA haslimited knowledge about one third of the total external assistance investment in the country since 2001,as many DPs do not disclose information on project activities and results, while others do not haveinformation readily available . Under such circumstances, when results to be attained by the donor-funded programs are not clearly recorded and communicated, managing for development resultsbecomes rather rhetorical.Other than accountability for development results, mutual accountability needs demand further actions.DPs demand accountability from GoIRA in areas such as faster project/program execution, increasingabsorptive capacity, improved public performance management and greater transparency to controlcorruption. The DCR outlines the measures undertaken by GoIRA to address these accountabilityrequirements, as demanded by the DPs. The expectations are that transparent and regular DCDs wouldhelp build up mutual accountability and trust. The DCR provides a lengthy list of actions to be taken toaddress the lapses (as identified above), to which a lack of attention will lead to failure in effective aiddelivery and utilization, which, in turn, will have huge impact on Afghanistans reconstruction anddevelopment.Other than those actions directly related to promoting aid effectiveness, critical points integral tobalanced development and reduced aid dependency include increased revenue generation andimplementation of the related reforms in tax and customs administration, and engendering an enabling DEVELOPMENT COOPERATION REPORT |2 environment for private sector development through implementation of business investment andbanking laws and control of corrupt practices. Actions for promotion of equalitarian practices indevelopment investment will include emphasis on womens development, which will help utilize theproductive capacity of 50% of the Afghan population. Urban-rural disparities should be countered withtransfer of more aid resources to, and better development programming for, the rural areas throughProvincial Development Planning that would facilitate balanced allocation of funds.The DCR concludes with a summary of the GoIRA-DP commitments at the Kabul Conference (2010). Thehighlights of these commitments included: greater proportion (at least 50%, within the next two years)of aid delivery through the Afghan budget (or on-budget support), along with measures taken tomaximize aid effectiveness benefits from off-budget assistance (as per the guidance outlined in theOperational Guide for OffBudget Development Financing). Both are expected to help reduceAfghanistans aid dependency and enable the Government to utilize aid resources identified in needs-based development, in priority sectors.The DCR confirms that the international communitys commitments were matched at the Kabulconference by GoIRAs commitments for reforms to strengthen public finance management systems,reduce corruption, improve budget execution and increase revenue collection. GoIRA is determined totake further measures to make aid utilization more effective. GoIRAs expectation is that timely deliveryon its own commitments, translated into concrete monitorable actions, shall elicit concomitant deliveryfrom the international community. Future DCRs will report on the progress in the planning andimplementation of the commitments made by both GoIRA and the DPs.(Hard data on donor profiles and aid flow and distribution are available in the main text) DEVELOPMENT COOPERATION REPORT | 3 1. IntroductionOverall, this report aims to provide an analysis of aid flows to Afghanistan and their effectiveness.Following this first DCR, similar future reports will provide more comprehensive information on foreignassistance and improve public awareness on its role in the stabilization and development of Afghanistan.After the establishment of the Interim Administration in 2001, following the Bonn Conference, theinternational community committed to support the new transitional Government in Afghanistan byproviding both development and military assistance. Since then, billions of dollars of developmentassistance have been provided in different forms: financial grants, loans, and in-kind and technicalassistance.The need for oversight of the high and intensive volume of international assistance to track the inflow ofaid and ensure aid coordination and management was acknowledged as a priority by GoIRA. The GoIRAthus established the Afghanistan Assistance Coordination Authority (AACA) in April 2002 through apresidential decree. In August 2003, the AACA was dissolved and the functions of aid coordination andmanagement were incorporated into the General Budget Directorate of MOF.In 2006, MoF initiated the semi-annual Donor Financial Review (DFR) process, with the aim to: (a) obtainand analyze data on donor assistance to Afghanistan and (b) support preparation of the National Budget.Such a process helped build cooperative ties between GoIRA and its DPs and promoted mutualaccountability and transparent exchange of information. These outcomes assisted GoIRA in planningspending priorities and appropriation of development finances through tracking the inflow of donorfinances. In 2008, MoF published the first DFR report on development assistance to Afghanistan. The2008 and the subsequent reports have, to date, serve as useful digests providing information on foreignassistance to Afghanistan.Initially presented as priorities by H.E. President Hamid Karzai during his inaugural speech of his second-term appointment as president, and later officially introduced in the Kabul Conference (July 20, 2010),GoIRA and the international community endorsed the Kabul Process, an Afghan-led action plan toimprove governance, social and economic development, and security, prioritized from the AfghanistanNational Development Strategy (ANDS). GoIRA prioritized the needs in the form of National PriorityPrograms (NPPs).For promotion of effective cooperation between the GoIRA and its DPs, significant resolutions wereadopted at the Kabul Conference, which are highlighted below: In line with the London Conference Communiqu, the international community restated its strongsupport for channeling at least 50% of development aid through GoIRAs core budget within twoyears. Concomitantly, GoIRA resolved to undertake the necessary reforms to strengthen its publicfinancial management systems, reduce corruption, improve budget execution, and increaserevenue collection to finance key NPPs and progressively achieve fiscal sustainability. The international community expressed its readiness to progressively align donor developmentassistance with the NPPs, with the GoIRA achieving 80% of alignment within the next two years. DEVELOPMENT COOPERATION REPORT | 4 The international community committed to work with GoIRA to take concrete steps necessary toaddress GoiRAs current limited capacity for absorption of funds. The international community expressed its intent to begin work with GoIRA to practicallyimplement the principles outlined in the 2030 Operational Guide: Criteria for Effective Off-Budget Development Finance. The DPs expressed their intent to work with GoIRA to improve procurement procedures andpursue due diligence in international contracting process over the course of a year; endeavor toreduce sub-contracting unless a clear evidence of added value for adoption of such an approachwas provided; and take responsibility for ensuring transparency and accountability of all sub-contracting networks.The Kabul Process, the commitments made by all parties to improve partnership, and the interestgenerated in addressing the issues that would help implement these commitments, created aheightened sense of need for comprehensive and regular dialogues with DPs on aid and developmenteffectiveness. In view of this, AMD of MoF started the first series of direct bilateral dialogues in lateNovember 2010 with individual DPs, the process called the Development Cooperation Dialogues (DCDs).It is believed that comprehensive discussions between the GoIRA and the DPs, promoted by DCDs,would better attend to the need for compliance with development effectiveness principles and devisemeasures to improve effective and efficient delivery and utilization of aid. Successful dialogues wouldcertainly help advance the implementation of the aid effectiveness principles of the Paris Declaration(2005) and Accra Agenda (2008).The DCD meetings provide the opportunity to the international community and GoIRA to discuss andinternalize the importance of the commitments made and the challenges ahead. There are clear signalsthat a process of this nature helps both the GoIRA and its DPs to work in close collaboration to maximizethe impact of development assistance. The success of the first set of DCDs is best evidenced in DPstransparent release of information of their assistance provided to Afghanistan and joint AfghanGovernment and DPs review of the obstacles and solutions to effective aid delivery and utilization.This report, which presents quantitative and qualitative analysis of foreign assistance to Afghanistan, ismainly developed based on DCDs and other complementary studies such as PD Evaluation 2010, PDMonitoring Surveys and Principles of Good International Engagement in Fragile States and Situations.The expectation is that regular reports of this nature will further promote accountability andtransparency of ODA to both the Afghan and donor country publics. Notably, this DCR marks adeparture from the former DFR Reports as it includes inputs from all DPs engaged in Afghanistan andcontributing to its development.The report begins by setting out the history of ODA since 2002 (including international conferences onAfghanistan), followed by presentation of significant trends in the flow of development assistance,Afghanistans aid dependency, an analysis of the relationship between the military and development aidand aid distribution. The report subsequently analyzes ODAs impact in Afghanistan and explores theremaining critical challenges to be addressed. Finally, it focuses on the implementation of aideffectiveness principles of the Paris Declaration (2005) and the Accra Agenda for Action (AAA-2008) inthe Afghanistan-specific context, along with recommendations for the way forward.DEVELOPMENT COOPERATION REPORT | 5 2.History of Foreign Assistance in AfghanistanForeign assistance has played an important role in Afghanistans history, with Afghanistan receiving itsfirst monetary assistance from the East India Company during the British rule in South Asia. Although thementioned financial assistance did not necessarily put Afghanistan in the category of aid dependentnations, the country has rarely achieved fiscal sustainability even after it gained de jure and de factostatus of state. The degree of its aid dependency changed from time to time, with changes in economicand political situations in the country.The history of the influx of foreign assistance to Afghanistan can be divided into the following threeperiods, each of which was characterized by factors influencing the countrys aid dependency:1. Pre-Cold War (1919-1950s)2. The Cold War era (1960s-1991)3. Post 9/11 (2001-present)2.1.Pre-Cold War era (1919-50s)In order to modernize the centralized economy, several attempts were made to scale up economicgrowth during King Amanullahs regime. These included widening the revenue base such as taxcollection. The basics of domestic revenue mobilization came from the tax on agricultural products,which accounted for 60% of domestic revenues. The amount of revenue from this category declined to18% in 1953, and 7% in 1958, respectively. As a result, the domestic revenues were not enough tofinance the needs of the country, which, in turn, made the economy run a fiscal deficit. In order to fillthe deficit, the then Government sought foreign assistance from major donor countries of the time. Themajor sectors receiving support in this period were infrastructure and education. Selected results ofsuch assistance can be cited in the construction of schools; the most ancient ones, Malalai and Estiqlal,were built with the help of the French Government, Germany constructed Amani and the USA builtHabibia High School. Due to a lack of information, however, it is difficult to track the exact volumes offoreign assistance, their type and the results achieved.2.2.The Cold War era (1960s-1990s)Even before 1960s, the economy was heavily influenced by factors associated with the Cold War. Inorder for the country to survive the pressures of the superpowers during the Cold War period, the thenPrime Minister, Mohammad Daud Khan, sought foreign assistance from both USA and the Soviet Union.From the late 1950s to 1970s, Afghanistan received 50% of its foreign assistance from the former USSR,and 30% from the USA, which included approximately USD 160 million commitments in the form ofloans (DMU, MoF). Assistance was also received from multilateral DPs such as the World Bank and ADB.Foreign assistance mainly focused on infrastructure and agricultural sectors. The major outputs were theSalang Tunnel and 1200 km of paved roads, which played an active role in economic growth.The 1970s was marked by an economic downturn characterized by severe droughts, low agriculturalproduction, consequent famine and a centralized economy, which hampered private investment. InDEVELOPMENT COOPERATION REPORT |6 such a difficult period, western aid assistance also declined, which pushed the country into furthereconomic turmoil.The deteriorating scenario made the country rely mostly on former USSR assistance. During the Sovietoccupation of Afghanistan, the inflow of former USSR assistance to the country got further momentum,which helped develop infrastructure and boost trade opportunities. In the decade of 1970s, the amountof loans Afghanistan received from the USSR stood at USD 11 billion (DMU, MoF). Notably, although theenormous flow of financial assistance from the former USSR helped Afghanistan cover its fiscal deficits,it had an adverse impact on potential influx of assistance from other countries and multilateral agencies.During the Soviet occupation, illicit (informal) components were introduced into the licit (formal)economic structure. The illicit economy was promoted with case and in-kind assistance fromneighboring countries, and from the USA to the Mujahidin and refugees. During this period, NGOs ledthe humanitarian response and provision of assistance.In the absence of proper records, it is not possible to report the exact amount of foreign assistance insupport of the Mujahidin. However, available data confirms that USSRs aid to GoIRA contributing to thelicit pie of the economy in 1980 alone was USD 1 billion, which further grew in subsequent years (SteveColl, 2004).The official inflow of assistance to Afghanistan stopped after the downfall of Dr. Najeebullahs regime,which also marked the end of the Cold War in 1992. However, small scale humanitarian assistance froma few countries via NGOs and UN agencies continued between 1992 and 2000. Due to unavailability ofinformation, it is not possible to present the exact amount of assistance during this period.2.3.Post 9/11 (2001- present)The post-Taliban era was a turning point in the economic history of Afghanistan as it was the first timesince the end of the Cold War that Afghanistan moved to the top of the ODA 1agenda. Acknowledgingthe mistakes made, and the resulting negative impact of withdrawal from substantive engagement inAfghanistan, the international community recognized the need to help Afghanistan become a stablestate for global security reasons. The international community therefore re-entered Afghanistan, acountry with war-torn infrastructure, a feeble economy and weak governance incapable of deliveringbasic services to its people.The re-intervention process began with the establishment of the Interim Government in late 2001. Inresponse to a large number of needs and challenges in the country, a remarkable volume ofdevelopment assistance has been provided. For further details on distribution of aid, refer to theoverview section below.External assistance provided to date, has enormously contributed towards achieving some significantresults in various sectors of the economy. Building, reconstructing and rehabilitating physicalinfrastructure, amongst other major achievements of foreign assistance, played a key role in economicdevelopment in Afghanistan. For the first time in history, more than 4000 kilometers of paved highways,secondary and tertiary roads have been built with aid money. The investment in the energy sector1 Official Development Assistance in the form of grand or loan from a sovereign Government to a developingcountry or multilateral agency for the promotion of economic development and welfare.DEVELOPMENT COOPERATION REPORT | 7 provided 30% of the people with access to electricity. The increasing GDP rate since 2001 is a highlight.These are just a few examples of the impacts of external assistance, the detailed account of which canbe found in Chapter 3.DEVELOPMENT COOPERATION REPORT |8 3. Landmark Conferences3.1. Bonn Conference (2001)Representatives of Afghanistan, under the initiative of Mr. Lakhdar Brahimi, Special Representative ofthe United Nations Secretary General for Afghanistan, met in December 2001, and agreed to bring anend to the coalition war against the Taliban and build a new Government in cooperation with theinternational community. From the Bonn conference emerged the Afghan Interim Authority (AIA), madeup of 30 members, headed by a chairman. AIA was inaugurated December 22, 2001 with a six-monthmandate, followed by a two-year Transitional Authority (TA), after which democratic elections were tobe held for formation of a permanent Government.The Bonn Agreement authorized the establishment of the NATO-led International Security Assistance(ISAF) Force for oversight of security in Afghanistan. The Afghan Constitution Commission alsoestablished in Bonn to draft a new constitution in consultation with the public. A judicial commissionwas established to rebuild the justice system in accordance with Islamic principles and internationalstandards of the rule of law, Afghan legal traditions and inauguration of a Supreme Court.In the Bonn Conference, the international community did not pledge any financial assistance, but theyexpressed determined political commitments to support a prosperous and peaceful Afghanistan.3.2. Tokyo Conference (2002)The International Conference on Reconstruction Assistance to Afghanistan was held on January 21-22,2002 in Tokyo, with ministerial level participation, co-chaired by H.E. Hamid Karzai of the AfghanistanInterim Administration, Japan, the US, the EU and Saudi Arabia.The conference provided the AIA an opportunity to reaffirm its determination to pursue the process ofreconstruction and development of Afghanistan according to the Bonn Agreement principles andprovided the international community the opportunity to express its political support for this processwith pledges of concrete assistance. The international community strongly emphasized the importanceof rapidly establishing a comprehensive macroeconomic and monetary framework. Thus the focus wasplaced on sound economic reforms to achieve sustainable economic development. A cumulative totalpledge of more than USD 5.1 billion of assistance was announced to support the implementation of thecommitments of the conference.3.3. Berlin Conference (2004)The Berlin conference was held on March 31, 2004 in Berlin, Germany. The conference was co-chairedby the UN and the Government of Afghanistan, Federal Government of Germany and Government ofJapan.This Conference had three major aims: (1) Renewal of commitments for reconstruction funds; (2) long-term commitments from the International Community for continued support to Afghanistan; and (3) DEVELOPMENT COOPERATION REPORT | 9 concrete planning for the post-Bonn phase of reconstruction. The conference reaffirmed the need toboost Afghanistans fragile reconstruction efforts, improve security conditions to promote peacefulpresidential election in 2004 and the parliamentary and provincial elections of 2005, and furthermore toclamp down on the burgeoning opium trade.The following were the major outcomes of the conference: (a) GoIRA agreed on a developmentframework entitled Securing Afghanistans Future (SAF), (b) NATO committed to expand ISAFs missionby establishing five additional Provincial Reconstruction Teams by the of Summer 2004 and further PRTsthereafter; and c) ISAF agreed to assist in securing the conduct of elections.At the end of the conference, multiyear pledges were made for the reconstruction and development ofAfghanistan totaling USD 8.2 billion for the three years from March 2004 to March 2007. But thisamount included earlier commitments and thus new confirmed commitments amounted only to USD5.6 billion3.4. The London ConferenceThe London Conference was held on January 31 and February 1, 2006, in the capital city of UK where 66states and 15 international organizations participated. The conference was co-chaired by British PrimeMinister H.E. Tony Blair, The President of Afghanistan H.E. Hamid Karzai and UN Secretary-General KofiAnnan. In this conference GoIRA presented the Interim Afghanistan National Development Strategy (I-ANDS), through which the future development framework was envisaged.The delegates adopted the Afghanistan Compact, a political agreement between the internationalcommunity and the GoIRA, and agreed to establish a Joint Coordination and Monitoring Board (JCMB)for overall strategic coordination of the implementation of the Afghanistan Compact. This identifiedthree critical and interdependent areas or pillars of activity for the next five years: Security, Governance,Rule of Law and Human Rights, and Economic and Social Development. An additional focus was on acritical issue cross-cutting across all pillars: elimination of the narcotics industry, a formidable threat tothe people and state of Afghanistan, the region and globally.The Afghanistan Compact marked the formal conclusion of the Bonn process The compact served as abasis for the next phase of reconstruction, with commitments to rely more on the countrys owninstitutions and support the Afghanistan National Development Strategy (ANDS) development process.At the end of the conference the donor countries and development agencies pledged to provide a totalof USD 10.5 billion for a period of five years to support the implementation of ANDS. After theconfirmation of pledges and exclusion of the reiterated pledges, the actual new pledge was confirmed tobe USD 8.7 billion.3.5. Rome Conference (2007)The Rome conference was held on July 2, 2007 in Rome, Italy. The conference was co-chaired byGovernment of Afghanistan, Government of Italy and the United Nations and focused on strengtheningthe rule of law and justice sector in Afghanistan. The framework for the rule of law and justice reformDEVELOPMENT COOPERATION REPORT |10 was provided by the Afghanistan Compact and its benchmarks, based on the vision of Justice for Alland within the overall conceptual framework of the Afghanistan National Development Strategy (ANDS).In this conference, GoIRA committed itself to finalize a national justice sector strategy and to implementcomprehensive rule of law reform with the assistance of the International Community, through anational justice program. The DPs promised to support Afghanistan on its path towards the rule of lawand justice, based on the GoIRA proposed national justice program and pledged a total of USD 360million. However, after the confirmation and exclusion of reiterated pledges, the new pledge wasverified to be USD 40 million.3.6. Paris Conference on Afghanistan (2008)The International Conference in Support of Afghanistan was held on June 12, 2008 in Paris, the capital ofFrance, under the chairmanship of the three co-chairs: H.E Nicolas Sarkozy, President of France, H.EHamid Karzai, President of Islamic Republic of Afghanistan and H.E Ban Ki-moon, UN Secretary-General.This conference marked a new commitment of the international community to work in closercooperation under the Afghan leadership to support Afghanistans first five year National DevelopmentStrategy (ANDS). GoIRA and the international community agreed to retain the Afghanistan Compact asthe foundation of future activities. The agreed priority was to strengthen institutions and economicgrowth, particularly in agriculture and energy sectors. The other key elements identified in theDeclaration of this conference were the importance of holding free, fair and secure elections in 2009and 2010; ensuring protection of human rights and the provision of humanitarian assistance; and theneed to improve effective utilization of aid in order to ensure concrete and tangible developmentbenefits for all Afghans.At the end of the conference the international community announced a generous financial pledge ofUSD 20 billion, of which only USD 14 billion was confirmed to be new pledges.3.7. Hague Conference (2009)The Hague conference was held on March 3, 2009 based on the initiative of the Government of theNetherlands. The conference was hosted by the Government of Netherlands and co-chaired by theForeign Minister of the Islamic Republic of Afghanistan, the Foreign Minister of the Kingdom ofNetherlands and the Special Representative of the UN Secretary-General for Afghanistan.The conference agreed on the urgent need for a clear direction for provision of strengthened support tothe people of Afghanistan, for enhanced security, improved life conditions and protection of theirdemocratic and human rights. The U.S Government unveiled a new strategy, which committedadditional funds and troops for Afghanistan, and a renewed focus on targeting al Qaeda militants on theAfghanistan/Pakistan border. In this conference the GoIRA presented a new policy to promotereconciliation with the Taliban. Overall, the conference participants agreed to pursue the followingpriority for promotion of good governance and stronger institutions in Afghanistan; generation ofeconomic growth; strengthening security and enhancing regional cooperation.DEVELOPMENT COOPERATION REPORT |11 3.8. London Conference (2010)The second international conference on Afghanistan in London was held in January 2010 where theprime focus was to set a timetable for advancing security operations tied to a political process inAfghanistan. The conference was organized by British Prime Minister Gordon Brown and co-chaired bythe President of Afghanistan H.E. Hamid Karzai and United Nations Secretary-General Ban Ki-moon. ThisConference represented a decisive step towards greater Afghan leadership to secure, stabilize anddevelop Afghanistan.The aim of the 2010 London Conference was to draft plans to hand over security responsibilities fromISAF to Afghan forces and to encourage Taliban members to renounce violence. The conference laid outa plan for what was hoped to be a new phase addressing the conflict of Afghanistan. One of the majoroutcomes of the conference was the agreement on the transition of security to Afghan Security Forcesin a gradual fashion where Afghan security forces to take the responsibility of security province byprovince until 2014. Together, the GoIRA and the international community committed to make intensiveefforts to ensure that GoIRA would be prepared to increasingly meet the needs of its people throughdeveloping its own institutions and resources.3.9. Kabul Conference (2010)The landmark Kabul Conference was held on July 20, 2030 in Afghanistans capital, Kabul. Hosted byGoIRA and co-chaired by the United Nations, the conference agreements followed up on the Londoncommuniqu of January 2010 and reaffirmed renewed commitment to the Afghan people. It washistoric as it was the first time that a conference of this kind was held in Afghanistan and by Afghans.GoIRA presented an Afghan-led plan for improving development, governance and security, including theNPPs and Public Financial Management Roadmap. An Operational Guide was introduced for promotingalignment of off-budget development financing with GoIRA development priorities and, thereby,improving the effectiveness of aid. In order to enable GoIRA to implement its prioritized agenda,renewed emphasis was placed on the need for sustained and coherent capacity-building support atnational and sub-national levels.The Kabul Conference was a critical stepping stone to the Kabul Process of transition to full Afghanleadership and responsibility for the countrys security, development and reconstruction in all spheres,building on previous international commitments including the London Conference of 2010 and theGoIRA-led Consultative Peace Jirga of June 2-4, 2010.3.10. Lisbon Conference (2010)The NATO Conference was held in November 2010 in Lisbon and chaired by the NATO Secretary-General,Anders Fogh Rasmussen. This was the third major international conference of 2010 for Afghanistan.NATOs mission in Afghanistan was the main topic of discussion.At Lisbon, 28 heads of states of NATO elaborated the policy statement related to special training (to bestarted in the beginning of 2011) for capacity building of Afghan security forces to make them able to DEVELOPMENT COOPERATION REPORT | 12 assume the security responsibilities for Afghanistan by the end of 2014. The assumption of responsibilityby Afghans will help pave the way for withdrawal of NATO and its allies from Afghanistan.Other agreements included the allies agreement with Russia to jointly expand support for Afghanistan,including by broadening transit arrangements, extending training of counter narcotics officials andproviding equipment to Afghan security forces.Table 1: Summary of major outcomes of the international conferences on AfghanistanConference Major OutcomesPledges 1. The Afghan Interim Authority (AIA) was inaugurated with a six-month mandate tobe followed by a two-year Transitional Authority (TA), after which elections were toBonnbe held.Conference 2. Establishment of the NATO-led International Security Assistance Force mission for(2001)Afghanistan. 3. Establishment of the Afghan Constitution Commission to draft a new constitution inconsultation with the public. 4. The establishment of a national justice sector strategy, and a judicial commission torebuild the justice system 1. GoIRA and International Community reaffirmed commitment to pursue the processTokyo of reconciliation, reconstruction and development, according to the Bonn US$5.1ConferenceAgreement. billion(2002) 2. GoIRA and International Community reaffirmed the commitment to establish acomprehensive macroeconomic and monetary framework. 1. The final publication of Securing Afghanistans Future (SAF) document wasBerlinproduced by the World Bank, the UN and GoIRA.Conference 2. NATO committed to expand ISAFs mission by establishing five additional Provincial US$5.6(2004)Reconstruction Teams by summer 2004 and further PRTs thereafter, as well as thebillionreadiness of ISAF and OEF to assist in securing the conduct of elections. 1. Adoption of Afghan Compact.London 2. Establishment of a Joint Coordination and Monitoring Board (JCMB) for overallUS$8.7Conferencestrategic coordination of the implementation of the Afghanistan Compact. billion(2006) 3. Commitment to Afghan National Development Strategy. 4. Eliminating the narcotics industry.Rome 1. Finalization of a national justice sector strategy.US$0.04Conference 2. The implementation of a comprehensive rule of law reform through a nationalbillion(2007)justice program. 1. New commitment of International Community to work more closely together underAfghan leadership to support Afghanistans first five-year National DevelopmentStrategy (ANDS). 2. Commitment to strengthen institutions and economic growth, particularly inParis agriculture and energy sectors.US$14Conference 3. Commitment to hold free, fair and secure elections in 2009 and 2010. billion(2008) 4. Commitment to ensure respect for human rights and the provision of humanitarianassistance. 5. Commitment to improve aid effectiveness 1. Commitment to promote good governance and stronger institutions; to generateeconomic growth; to strengthen security and to enhance regional cooperation 2. Pledged a stronger military offensive against the Taliban insurgency, to invest in civilreconstruction, to tackle the drug trade and to stabilize neighboring Pakistan.Hague3. The U.S Government unveiled a new strategy, which combined extra funds andConferencetroops for Afghanistan, and a renewed focus on targeting al-Qaeda militants on the(2009)Afghan/Pakistan border. 4. GoIRA presented a new policy to reconcile with Taliban and give opportunities toreintegrate into Afghan society.DEVELOPMENT COOPERATION REPORT | 13 1. Drafted a plan to hand over security responsibilities from ISAF to Afghan forces andLondonto encourage Taliban members to renounce violence.Conference 2. A Peace and Reintegration Trust Fund mooted to offer economic alternatives to(2010)those who renounce violence. 3. Commitment to making intensive efforts to ensure that GoIRA is increasingly able tomeet the needs of its people through developing its own institutions and resources. 1. An Afghan-led plan for improving development, governance and security, includingNational Priority Programs, was presented by GoIRA to enhance service delivery.Kabul2. Commitment to sustained and coherent capacity-building support at national and atConferencesub-national levels.(2010) 3. Commitment to support Afghan ownership and leadership, strengtheninginternational partnership. 1. Special training of capacity building of Afghan forces would be resumed in 2011 tomake them able to assume the security responsibility of all Afghanistan by the endof 2014.Lisbon 2. Commitment to broaden transit arrangements, extending training of counterConferencenarcotics officials and providing equipment to Afghan security forces.(2010) 3. Signed an agreement with the NATO Secretary General on a long-term partnershipbetween the Alliance and Afghanistan that will endure beyond the combat mission.AssessmentThe international community and GoIRA have marched from Bonn in 2001 to Tokyo, Berlin, London,Rome, Paris, Hague, London, Kabul and Lisbon in 10 years, re-pledging delivery of development andreconstruction, security, governance and rule of law, and helping to legitimize a Government and a stateborn out of decades of conflict.At the base of all conferences lay the intent to revitalize Afghanistan and bring new hope for the future.While much optimism must boost our activities, it is unwise to avoid a realistic assessment of how muchof what was planned, agreed upon and promised in the past costly conferences have been delivered toAfghans. It is important that we do not repeat the mistakes of the past. The issue of accountability, infact, has been raised repeatedly at national and international levels, regrettably with no real impact inproducing better results.Indeed, with generous support from the international community, some results are seen on the ground.But given that we started at ground zero in 2001, any improvement is bound to be seen as a sign ofprogress. Many of the themes common to the previous conferences continue to dominate the jointagenda of the international community and Afghans, as some basic problems have not been resolved.Full resolution of these issues could not have been expected, but the lack of improvement on issuessignificantly important for Afghanistans survival, development and eventual exit from aid dependencymust be noted. Not that the inadequacies of the results of the past should deter us from taking newactions and continue the previous resolve, but acknowledgement of the inadequacies and probing theircauses are essential for future success. DEVELOPMENT COOPERATION REPORT |14 4. Aid Dependency (Reality of Aid in Afghanistan)A country is truly aid dependent when it relies on external funding to cover its day-to-day operating(recurrent) costs and development expenditures. Afghanistan has been aid dependent for over 60 years,with the roots of dependency going back to the middle of the 20th century, which has been explainedunder the previous section History of External Aid.As stated earlier, Afghanistan has become one of the largest recipients of external aid since 2002. Afterthe fall of the Taliban, external aid has accounted for a substantial portion of the countrys GrossDomestic Product (GDP). The following graph shows the trend of the contribution of ODA as apercentage of GDP over the past few years.Figure 1: Aid as Percentage of GDPAt the level of 71%, the aid dependency ratio in Afghanistan is one of the highest in the world. Similarly,dependency in Afghanistan is high compared to its neighboring countries like Pakistan, where the aid toGDP ratio is 1.1%, Iran, with a ratio of 0.1%, and Uzbekistan, with a ratio of 2.4% (Nation Master 2010).Since 2002, the entire Development Budget, and on average up to approximately 45% (44% for 2010-2011) of the Operating Budget, has been financed by external aid. It is worth acknowledging that thisassistance has helped the country achieve a lot in terms of development over the past years. Externalassistance has helped build infrastructure, increase primary school enrolment, increase access to basichealth for almost the entire population and has helped to generate revenues from nationally conductedeconomic activities. The following graph shows the trends of national revenue versus operatingexpenditures: DEVELOPMENT COOPERATION REPORT |15 Figure 2: Domestic Revenue vs. Operating BudgetDespite an increasing trend in domestic revenue, it still accounts for less than 10% of total GDP (MoF2011). The argument that Afghanistan is heavily dependent on external assistance continues to be validand is supported by the fact that the entire development budget and a significant portion of theoperating budget of Afghanistan are financed by external assistance.Similarly, the above graph shows that there is also an increasing trend in operating expenditures of thecountry which puts a heavy burden on the Government and increases the reliance of the country onexternal financing. It is anticipated that this burden and the gap between the national revenue versusoperating expenditure will increase even further, given the new fiscal pressures such as the transitionprocess and strengthening of ANA and ANP.It is anticipated that aid dependency will remain a reality for Afghanistan for a number of years.Therefore, efficient aid delivery and effective coordination among DPs and between DPs and theGovernment is important to ensure that the aid money is spent on revenue generating sectors thatguarantee maximum return on investment and sustainable development.DEVELOPMENT COOPERATION REPORT |16 Section IOverview of External Assistance 5. Overview of External Assistance5.1.SynopsisFigure 1: Overview of External Assistance (2002-2010)This section presents an overview of external assistanceto Afghanistan since late 2001. Since the establishmentof the interim Government, a total of USD 90 billion inaid has been pledged for Afghanistan (for the period of2002-2013) by the international community through aseries of pledging conferences and supplementarymeans. From the total ODA pledged, USD 69 billion hasbeen formally committed to be disbursed from 2002 to2010. Of the total ODA committed, USD 57 billion formsthe actual amount of ODA disbursed to finance a widerange of programs and projects as part of thereconstruction and development process. [See figure 1]Since 2002, the volume of total annual developmentassistance increased from a total of USD 3.2 billion incommitment in 2002 to USD 16.8 billion in 2010. [Seefigure 2] The reason for a two-fold rise in the amount ofassistance in 2007 was due to an increase from theUnited States (2007 Supplementary Budget).In 2008 and 2009, similar levels of developmentassistance were retained. However, 2010 marked the peak of assistance committed to fundingdevelopment and security-related activities in Afghanistan. Despite this large increase in the volume ofODA committed, the total volume of assistance disbursed has only been USD 10.9 billion, indicating a65% execution rate by DPs.Figure 2: Classification of ODA by Year (2002-2010) DEVELOPMENT COOPERATION REPORT | 18 Not all commitments made from 2002 to 2010, have been translated into 100% disbursements. Thereasons for slow disbursement are manifold. Amongst all, security deterioration is considered to be amajor obstacle hampering project implementation across the country. Security cannot be accepted asthe sole excuse, however, because other DPs such as the United Kingdom, Canada, Japan, and theNetherlands fully disbursed the amount of development assistance they committed from 2002 to 2010.The European Union comes fifth with a 90% disbursement rate, followed by the United States with 84%,and the World Bank with 81%. In terms of the volume of ODA disbursed, however, the USA is by far thelargest donor, followed by Japan, EU, UK, WB and Canada. [See figure 3]Figure 3: Classification of ODA by Donor (2002-2010 in US$ billions)For the bulk of external assistance disbursed from 2002 to 2010 for both security and development, twomain channels of delivery have been used: a) Off-budget, and b) On-budget. Off-budget support consistsof assistance that bypasses the Governments Public Finances Management System with little or noGovernment involvement in planning, implementation or monitoring of the programs/projects. On-budget support consists of assistance that either has been given to the Government as bilateral supportor provided through the Trust Funds. Most such on-budget programs are Government designed,implemented and monitored. Administered by multilateral agencies, Afghanistan Reconstruction TrustFund (ARTF), Law and Order Trust Fund for Afghanistan (LOTFA) and Afghanistan Peace andReintegration Trust Fund (APRTF) provided the largest sources of on-budget support to the Government.However, an analysis of ODA disbursement for financing security, reconstruction and developmentrelated development activities reflect the ratio of on-budget to off-budget support as 18:82. In otherwords, only 18% of external assistance disbursed in the period 2002 to 2010 has been provided throughthe Governments Core Budget. The remaining 82% of assistance has been managed by the DPs alonethrough projects/programs implemented parallel to those of the Government. [See figure 4] DEVELOPMENT COOPERATION REPORT |19 Figure 4:Ratio of On-budget versus Off-budget Support (2002-2010)Notably, from year to year, the percentage of ODA channeled through the Governments budget mightfluctuate, with the on-budget amount slightly higher in some years while lower in others. For the sake ofsimplicity, the ratio of on-budget assistance has been calculated from the cumulative volume of externalassistance disbursed since 2002. Despite the fact that only a fraction of external assistance has passedthrough Governments treasury, the trend of DPs on-budget contributions, in terms of volume, hasexperienced an upward trend. [See figure 5] However, after the commitments made at London andKabul Conferences, in January and July 2010 respectively, GoIRA expects an increase in the volume ofon-budget assistance by its DPs.Figure 5: DPs Contribution through the Governments Budget DEVELOPMENT COOPERATION REPORT |20 5.2.Geographic Distribution of External AssistanceSince the start of reconstruction and development in Afghanistan, data collection based on geographicaldistribution of external assistance has always been a challenge for GoIRA. Despite a number of initiativestaken by MoF since 2003, such as the establishment of the DAD and carrying out portfolio reviews withthe individual DPs and/or DFR processes, the Government has not been able to collect accurate andreliable data on distribution of aid across different provinces. However, according to [Figure 6], whichonly reflects data for the top 10 provinces and is the only data available at MoF, the highest amount ofexternal aid - USD 2.8 billion - which includes both security and development spending, has beendisbursed in the capital Kabul, followed by Helmand, Kandahar, and Nangarhar provinces. On average,the provinces of Herat, Kunar, Ghazni, Paktika, Paktya and Balkh have received USD 476 million each.For further details of provincial distribution of external assistance, please refer to [Graph 2] in Annex-IIof this report.In addition to the assistance provided for reconstruction and development purposes by our DPs, thebulk of disbursements made in all these provinces include spending through military means such as thePRTs and CERP.The GoIRA underscores that sustainable development requires a more equitable distribution ofinvestment across sectors and geographical areas, and therefore the DPs are encouraged to make use ofthe current systems in place to provide maximum information about aid distribution and to use theinformation made available through these systems for better coordination and planning of aid flows inthe future. Figure 6:Top 10 Recipient of External Assistance (2002-2010) DEVELOPMENT COOPERATION REPORT | 21 5.3.LoansSince the late 1960s, Afghanistan, in addition to receiving external assistance in grants, has receivedforeign assistance in the form of loans from bilateral and multilateral creditors. Total loans committedbetween 1966 and 2008 stand at USD 13 billion, of which USD 11 billion or the largest proportion hasbeen provided by the former Soviet Union during the Soviet era in Afghanistan. While a large portion ofODA provided to Afghanistan since 2002 is in the form of grants, a fraction of it, which is around USD 1.5billion, has been provided in the form of loans. [Table 5] in Annex-ii shows that Asian Development Bank(ADB) is the second largest provider of loans to Afghanistan, followed by the World Bank (WB).Afghanistan is obliged to repay the loans it has received from every bilateral and multilateral creditor.Although the country has received a total amount of USD 10.5 billion as debt relief under the HeavilyIndebted Poor Countries (HIPC) 2Debt Initiative, its total debt stock or outstanding loans to be repaidstand at USD 2.3 billion. It is envisaged that Afghanistan will receive a sum of USD 225 million as debtrelief under the HIPC over the next 20 years.Figure 7: Predictability of Aid5.4.Aid PredictabilityAs committed in the Accra Agenda for Action,providing full and timely information on annualcommitments and actual disbursements will allowrecipient countries to record the actual amount of aidflows in their budget estimates and their accountingsystems. It was agreed that, DPs will providedeveloping countries with regular and timelyinformation on their rolling three-to-five-year forwardexpenditure and/or implementation plans, with atleast indicative resource allocations that developingcountries can integrate in their medium-term planningand macroeconomic frameworks. (AAA, 2008)In the context of Afghanistan, aid predictability hasbeen a challenging problem where most DPs have notbeen providing GoIRA with information on their rollingthree-to-five-year onward level of assistance and/orindicative resource allocations for projects/programs that are implemented in the country. [Figure 7]shows predictability of external assistance for 2011-2013. According to available information at MoF,USD 4.4 billion is estimated to be spent during 2011. However, the trend is declining to USD 1.2 billion in2012 and USD 0.7 billion in 2013, respectively. It is worth noting that these figures are best estimatesonly, and may change overtime.2 The HIPC program was initiated by the International Monetary Fund (IMF) and the WB in 1996, followingextensive lobbying by NGOs and other bodies. It provides debt relief and low-interest loans to cancel or reduceexternal debt repayments to sustainable levels. To be considered for the initiative, countries must face anunsustainable debt burden which cannot be managed with traditional means. Assistance is conditional on thenational Governments of these countries meeting a range of economic management and performance target. DEVELOPMENT COOPERATION REPORT |22 5.5.Main Delivery Channels ofExternal AssistanceFigure Main Delivery Channelsof External 7: Assistance (2002-2010)With respect to sectoral distribution of externalassistance in Afghanistan, the security sector carriesa slightly heavier weight compared to the rest ofthe sectors combined. As indicated in [Figure 7],51% of external assistance disbursed to date hasbeen invested in security, whilst the remaining 49%supported development activities across differentsectors. The overview is divided into two mainsections: a) Security, and b) Reconstruction andDevelopment, which are discussed below:5.5.1. External Assistance for Security SectorAfter the ousting of the Taliban regime and with the establishment of the Afghan Interim Government inlate 2001, building of the Afghanistan National Security Forces was one of the first priorities of theGovernment and DPs. To serve this purpose, the international security forces started to actively supportthe establishment of Afghanistan National Police (ANP) and Afghan National Army (ANA). As far asinvolvement of international security forces in the reconstruction and development is concerned, in2002 the U.S. Department of Defense (USDoD) began providing funds to small scale reconstruction anddevelopment projects in support of their counter-insurgency activities in provinces. Until 2004, the U.S.forces were the only international security forces, under the International Security Assistance Forces(ISAF) mandate, to provide reconstruction and development funding to Afghanistan.After the transfer of ISAF command to North Atlantic Treaty Organization (NATO) in 2004 and expansionof NATO peacekeeping to the provinces, more donor countries with military presence began providingdevelopment funding through PRTs with civil-military mandates to respond to the immediatereconstruction and development needs of the provinces. Although there was no initial plan to rely onthe PRTs for delivering assistance in the long term, these channels continue to deliver assistance in theprovinces.5.5.1.1.U.S. Department of Defense (USDoD)The United States is by far the largest provider of security assistance for Afghanistan. According to theSIGAR report of January 2011, from 2002 to 2011, the USDoD has appropriated a total amount of USD31.98 billion in support of the Afghanistan National Security Forces, of which USD 28.85 has beencommitted, and USD 26.05 billion has been disbursed. Afghanistan Security Forces Fund (ASFF),Commanders Emergency Response Program (CERP), and Drug Interdiction and Counter-Narcotics DEVELOPMENT COOPERATION REPORT |23 Activities (DOD-CN) are the three main military programs financed by the United States in support of the Afghanistan National Security Forces, and reconstruction and development efforts in Afghanistan.5.5.1.2. Afghanistan Security Forces Fund (ASFF) The Afghanistan Security Forces Fund was created by the United States toU.S. Military Funding (2002-2010) provide the Afghan National Security In US$ billions Forces with equipment, supplies, services Agency Pledge Commitment Disbursement and training in addition to building ASFF 27.8325.43 23.08 infrastructure facilities. Since 2005, total CERP2.64 1.991.54 funding appropriated for ASFF stands at DoD-CN 1.51 1.431.43 USD 27.83 billion, of which USD 25.43Total 31.9828.85 26.05 has been committed. The total amount disbursed stands at USD 23.08 billion, of Source: SIGAR Report Jan, 2011 which USD 14.80 is for ANA, and USD 8.16 is for the ANP (SIGAR, Jan 2011). [See Figures 8 and 9]Figure 8: ASFF Disbursements for the ANA (2005-2010)Figure 9: ASFF Disbursements for the ANP (2005-2010)5.5.1.3. Commanders Emergency Response Program (CERP) The Commanders Emergency Response Program (CERP) is solely focused on the provision of humanitarian relief and reconstruction assistance in an emergency response mode, providing urgent assistance to the local population in the areas where U.S. security forces are positioned. This program is providing funding for small projects that are estimated to cost less than USD 500,000 each. According to the SIGAR report of Jan 2011, total cumulative funding appropriated for CERP stands at USD 2.64 billion. The total amount committed is USD 1.99 billion, of which USD 1.54 billion has been disbursed. For detailed geographical distribution of CERP funding please refer to Annex-II [Graph 1]. DEVELOPMENT COOPERATION REPORT | 24 5.5.1.4.Drug Interdiction and Counter-Drug Activities (DOD-CN)The DoD-CN provides support to the counter-narcotics effort by supporting military operations againstdrug traffickers, expanding Afghan interdiction operations and building the capacity of Afghan lawenforcementincluding Afghan Border Policewith specialized training, equipment, and facilities.According to the SIGAR report of Jan 2011, total cumulative funding appropriated for DOD-CN stands atUSD 1.5 billion. The total amount committed is USD 1.4 billion, which has been fully disbursed.5.5.1.5.Provincial Reconstruction Teams (PRTs)After the transfer of command from ISAF to North Atlantic Treaty Organization (NATO) in 2004,expansion of the international security forces to the provinces was planned. The first PRT wasestablished in Kunduz Province. The initial objective behind the establishment of the PRTs was toextend the authority of the central Government and improve security, thereby facilitating thereconstruction process at the provincial level. In 2004, the PRTs were further expanded to the Northand West of the country. Currently, there are 27 operational PRTs, comprised of 14 different nations.PRTs are not development agencies, as such, but are engaged in development projects through theirreconstruction groups such as Civil Military Cooperation (CIMIC) and Quick Impact Project (QIP). Ingeneral, the total PRT contribution towards reconstruction and development in all provinces ofAfghanistan stands at around USD 900 million. For further details, refer to [Table 3] in the Annex-II.5.5.1.6.Law and Order Trust FundAdministered by UNDP, LOTFA was established in 2002 to mobilize resources for the support ofAfghanistan National Police (ANP). It is a Multi-Donor Trust Fund which is jointly funded by several DPs.LOTFA is delivered through a series of sequenced phases. The combined phases of the Trust Fundprovided a mechanism for coordinating contributions from DPs to cover police salaries, as well as topursue other police reform activities. In addition, LOTFA has contributed to strengthening the capacityof the Ministry of Interior (MoI) through a range of projects. Approximately 23 DPs contributed toLOTFA from 2002-2011. As at February 2011, USD 1.8 billion has been invested in LOTFA by the DPs. Thelargest DPs of the trust fund are the U.S.A with USD 694.64 million contributions, and the EuropeanCommission (EC) and Japan with USD 422,722,490 and USD 324.62, respectively. [Table 4 in Annex-IIincludes further details].AnalysisIt is estimated that overall, to date, military spending exceeds 50% of the total assistance provided toAfghanistan. In most cases, security spending, including the contribution of military agencies forreconstruction and development, are not appropriately reported to GoIRA or even their relevantcountries diplomatic missions (embassies, development agencies) because the funding for the militaryassistance comes from the donor countrys Ministry of Defense, while the development funds comethrough the countries Ministry of Foreign Affairs or the development agency with ODA responsibility.Despite the contribution that military aid has made to the reconstruction process, during the earlieryears when there was little or no Government infrastructure, their modality of delivery and spendinghave been criticized for a variety of reasons. The aid provided by these agencies is essentiallyDEVELOPMENT COOPERATION REPORT | 25 militarized, and is an often critiqued approach of aid provision, serving the military or political agendaof the donor country. Humanitarian assistance provided through PRTs and other military means areconsidered militarized for winning the hearts and minds of the people, mainly for the protection of theforeign troops. Such aid provision not only undermines the neutrality and impartiality principles of aidprinciples but they undermine development needs-based programming.To resolve the problems associated with militarized aid, a gradual shift to successful Afghan nationalprograms like the NSP, EQUIP and other national programs are being pursued, under the clustersapproach. Moreover, a strategy is being considered for a gradual phase out of PRT-provided and othermilitarized forms of aid; and for promoting military institutions sole focus on direct security relatedactivities and building capacity of security forces in the provinces. Translation into action of such plansand strategies will help pave the way for the Government to acquire some control over planning ofexternal resources to serve GoIRA priorities. DEVELOPMENT COOPERATION REPORT | 26 5.5.2. External Assistance for DevelopmentPure commitment for reconstruction and development purposes for the period (2002-2010) stands atUSD 37.6 billion, out of which USD 28.1 billion has been disbursed so far. In terms of sectoral allocationof finances, infrastructure has received the largest amount of assistance followed by agriculture & ruraldevelopment, governance, social protection, education, private sector and health. [Graph 2] shows bothcommitment and disbursement figures for each sector. Infrastructure, which is the second largest sectorin terms of foreign assistance investment, has received a total of USD 9.20 billion in commitment, ofwhich USD 6.02 billion, or 65% of the commitment, has been disbursed. [See Figure 10]For the volume of external assistance disbursed from 2002 to 2010 solely for reconstruction anddevelopment, again two main delivery channels have been used: a) Off-budget, and b) On-budget.MoFs analysis shows that 10% of the disbursed assistance has been provided through the Governmentscore budget. The remaining 70% of assistance has been managed by the DPs (DPs) for financingprojects/programs implemented parallel to those of the Government. [See figures 11 and 12]Figure 10:External Assistance for Reconstruction and Development (2002-2010)33 Unclassified sector consists of assistance provided for cross-cutting activities such as gender, anti corruption etc,and/or outside of ANDS classification.DEVELOPMENT COOPERATION REPORT |27 Figure 11: Disbursement only to the Development Sector Figure External Assistance only for 5.5.2.1.Trust Funds 12 DevelopmentAs stated above, resources that are provided to theGovernment through Trust Funds such as ARTF, LOTFA, CNTFand PITF are all considered as on-budget support. After theformation of the Interim Government in late 2001,Afghanistan was rising from the ashes of three decades ofwar and unrest, when the institutional capacities were verylow. The existing rules and procedures, especially the PublicFinancial Management System, could hardly meetinternational standards. In order to respond to the capacityinadequacies, the international community, in consultationwith GoIRA, decided to establish the Trust Fundsmechanisms, managed by multilateral agencies such as theWorld Bank and UNDP with an aim to mobilize more on-budget resources to finance Governments priority programsacross Afghanistan. 5.5.2.1.1. Afghanistan Reconstruction Trust Fund (ARTF)The Afghanistan Reconstruction Trust Fund (ARTF), which is a multi-donor pooled funding mechanism,was established in 2002. It is composed of two windows, recurrent window for partially supporting theGovernments operational costs and the investment window to support Governments developmentbudgets. Administered by the World Bank, ARTF has been successful in meeting the Governmentspriorities in both areas, thanks to the generous contributions of ARTF DPs. DEVELOPMENT COOPERATION REPORT |28 To date, entire DPs contributions to ARTF, the largest trust fund, stand at USD 4.1 billion. Contributionsto ARTF have increased on an annual basis from a total of USD 185 million in 2002 to USD 657 million in2009. DPs assistance in 2030 may exceed those of 2009, provided that all pledges, which stand ataround USD 1 billion, are translated into firm commitments. Contributions made to ARTF are of twokinds: (i) Preferenced investment allowing DPs to invest up to 50% of their contribution to ARTF for aspecific program in the Trust Fund; and (ii) Non-Preferenced contribution, whereby the remaining 50%of a donors contribution will remain at the discretion of the ARTF Management Committee to decidewhere the funds should be allocated. The volume of Preferenced allocation has increased from USD 21million in 2003 to USD 325 million in 2010, limiting the volume of funds for the Non-Preferencedportion, reducing discretionary power of GoIRA in funds investments in priorities it identifies. [See figure13]Figure 13:Summary of DPs Contribution to ARTF (2002-2010) Source: ARTF Report, January 20115.5.2.1.2. Counter-Narcotics Trust FundFormed in 2005, the Counter Narcotics Trust Fund (CNTF) received a sum of USD 0.04 billion fromdifferent DPs until late 2007. This program was aiming to counter narcotics cultivation and trafficking inAfghanistan. Resources out of this basket of funds have been invested in the agriculture and ruraldevelopment sectors to find other crop alternatives for Afghan farmers to cultivate, rather than poppy.This trust funds operation was unsuccessful and it was closed in 2007.5.5.2.1.3. Afghanistan Peace and Reintegration Trust FundFinally, the Afghanistan Peace and Reintegration Trust Fund (APRTF) came into existence after theconsultative Peace Jirga in June 2010 in Kabul with a mandate to support the Peace and IntegrationProgram. This trust fund consists of three windows, which are managed by MoF, UNDP and UK,DEVELOPMENT COOPERATION REPORT |29 respectively. Until date, a total of USD 85 million has been received in support this important initiative,of which USD 6 million has been preferenced for community recovery through the National SolidarityProgram (NSP). [Figure 14] shows DPs contribution to all Trust Funds since 2002.Figure 14:Summary of DPs Contribution to Trust Funds (2002-2010) Source: Trust Funds Reports, January 20115.5.2.2.Assistance through Government SystemsFrom 2002 to 2010, out of USD 57 billion total aid disbursed, actual on-budget external assistanceprovided through the Government systems stands at USD 10.15 billion, of which USD 8.5 billion hasbeen invested in the reconstruction and development sectors, and USD 1.65 billion has financed securityrelated activities. [Figure 15] shows DPs contribution to both development and operating budgets ofthe Government. Further breakdown of the total on-budget assistance for operations is given below: Figure 15: ODA through Government Systems DEVELOPMENT COOPERATION REPORT |30 5.5.2.3. Support for Government Operating BudgetAs stated above a sizable proportion of the total ODA, disbursed through the Government systems, hasfinanced the operating costs. In addition to Governments own revenues, support to the Governmentsoperating budget is made out of funding from a wide range of other sources. As stated earlier, ARTF andLOTFA have been two of the largest sources of support for the Governments operating budget since2002. The next largest sources are funding from the USDoD with a total contribution of USD 592 millionfrom 2007 and 2030. ADBs commitment of USD 4.9 million in 2010 will fund the security cost of theQaisar-Balamurghab road in the North-West of the country through Afghan Public Protection Forces(APPF). [See Figure 16] Figure 16: Support for Government Operating BudgetNote: though the total pledge for ARTF in the year 2010 is around USD 1 billion, the actual disbursement is USD 523as of February 2011. Some DPs have withheld their contribution to ARTF because of the lack of an IMF program.5.5.2.4. Share of Aid as Percentage of Government BudgetSince 2002, Afghanistans national budget has been highly dependent on foreign aid, with 300% of itsdevelopment budget, and, on average, around 45% of its operating budget financed externally. [Figure17] shows the share of aid as a percentage of the Government national budget, inclusive ofdevelopment and operating, since 2003. For further details on DPs and Governments contributionplease refer to [Table 8] in Annex-II of this report. DEVELOPMENT COOPERATION REPORT |31 Figure 17: Share of Aid as Percentage of Government National Budget DEVELOPMENT COOPERATION REPORT | 32 Section IIAid Effectiveness in Afghanistan 6. Aid Effectiveness in Afghanistan6.1.IntroductionThe data presented in the overview section helps provide a basis for us to make an assessment of theeffectiveness of aid delivery and utilization, which is the focus of th