The World Bank in Afghanistan

The World Bank in Afghanistan

Josephine Bassinette, World Bank Office AfghanistanBrussels, February, 2011

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Agenda

I. Afghanistan Country Context

II. The World Bank in Afghanistan

III. Program Highlights and Results

IV. Implications for Transition

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Part I: Socio-economic Context

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The development challengeHuman Development Afghanistan Pakistan India BangladeshPopulation (m) 29 185 1,214 164Maternal mortality (per 100,000 live births) 1,800 320 450 570Under 5 mortality (per 1,000 live births) 257 89 69 54Life expectancy at birth 45 67 64 67Gross enrollment (both sexes) 50 39 61 52

Source: Human Development Report

Afghanistan is lagging the region and the world

Ranked 155/169 in HDI

Immense challenges of capacity, conflict, terrain and governance

But GoA has made progress, and in particular has put in place the platform for sound development partnerships

Progress in GNI/per capita, access to education and health

Commitment to basic macro-fiscal stability

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Poverty in Afghanistan Poverty affects 36% of the population: 9m Afghans not

able to meet basic needs More than half the population is vulnerable to falling

into poverty Estimated 80% of Afghans live in rural areas, where

poverty is much higher than in urban areas (29%)

Country Headcount (%) under national poverty line Survey year Year when poverty line

was defined

Afghanistan 36 2007-08 2007-08

Bangladesh 40.0 2005 2000

Bhutan 23.2 2007 2007

India 27.5*** 2004-05 1993-94

Maldives 2004

Nepal 30.9 2003-04 2003-04

Pakistan 22.3 2005-06 1998-99

Sri Lanka 15.2 2006-07 2002

Source: *PovcalNet; **Ravallion, Chen, and Sangraula (2009); ***World Bank staff estimation; ****Chen and Ravallion (2008)

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Security conditions© UNDSS SECURITY INCIDENTS

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Insecurity increased sharply from 2005

Conflict constrains development :

Accessibility for Government and development professionals/partners

Increases costs Reduces market for

suppliers Threatens M&E

Community-based programming and monitoring becomes increasingly critical

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Sustainability Economic Growth Security, Growth, Jobs all inter-linked Growth being fueled by private consumption

financed primarily by security economy and off-budget donor inflows that drive aggregate demand Contribution to GDP, (Percentage

points)

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Sources of Growth Highly Vulnerable Without external inflows, the economy very

vulnerable to shocks (i.e: bad harvest years, food/fuel price rises).

Real GDP Growth Contribution to GDP (Percentage points)

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Good News: Domestic Revenues continue to grow.

• Tax revenues:• increased by 34% (YTD Q2)

compared to same quarter last year

- Sales tax collection: 24% increase due to mandatory 2% BRT tax at border crossings and 10% BRT on services

-Income tax collection:45% higher, mainly personal and company taxes.

-• Customs duties:29% increase

Domestic Revenues 2010/11 (Actual vs. target)

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But public spending dependent on external financing Domestic revenues only cover 1/5 of public spending Government estimates external budget at $6 billion 2010/11, donors

report $9 billionTotal Budget 2010/11

Note: 2010/11 external budget est. US$ 6 billion, core budget US$ 4.6 billion with an estimated 40% execution rate by year end.10

Part II:The World Bank in Afghanistan

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Snapshot: The World Bank in Afghanistan

IDA•Grant financing•Has benefited from post-conflict exceptional allocations•$2.3bn since Fy02•Project and policy-based financing•23 active projects•Analytical & sector work underpins operations

ARTF•30 donors; largest source of on-budget financing for GoA•Supports scale up of national programs and other IDA investments•Stand-alone ARTF financed projects•$1.7bn of ARTF investments •$2.4bn of recurrent cost support•ARTF Incentive Program builds in reform

Opened office in March 2002 following Post Conflict Needs Assessment in Winter 2001

Grown to 100+ with almost 25 internationals + growing cadre of professional national staff.

Heavy emphasis on in-house capability for PFM, Procurement Security costs, “footprint”, duty of care hugely complicates normal operations Two main financing platforms + economic and sector work:

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Strategic Approach Mindful of the operating environment:

Fragile institutions and weak human capacity Particular absence of institutions/capacity at sub-national level Corruption, opium, insecurity Geographic and ethnic divides require equity and resonance w/people.

WB approach: Afghan ownership: 100% on budget, with government In for the long-haul:

Sustain and enhance core programs delivered nationally, equitably, through local structures

Build legitimacy and capability of state and other institutions Invest for growth and creation of jobs – infrastructure, connectivity, markets

Support donor- GoA coherence through use of ARTF and Bank “voice” Encourage reform and policy dialogue with financial instruments and

analytics. Supervise and Evaluate

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World Bank Financing to dateIDA

ARTF

Annual Commitments Aggregate Commitments

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Afghanistan Reconstruction Trust Fund Established in 2002 to provide pooled

financing to the operating budget Constant evolution to meet changing needs:

Platform for GoA-Donor shared vision: ARTF Strategy Group + 3-Year Financing Strategy

Policy dialogue & reform – ARTF Incentive Program Main financier for National Programs Public Financial Management at its Core

As a result, ARTF now largest source of on-budget financing for GoA – one quarter of total budget

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Part III: Program Highlights and Results

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NSP is IDA’s flagship rural program, co-financed by ARTF/JSDF.Communities vote by secret ballot…

…to elect 22,500 CDCs across all 34 provinces…

…for local infrastructure contracted by communities:

Looking ahead…..• CDCs are now acknowledged as the gateway to

development in Afghanistan’s communities.• With JSDF support, CDCs are now clustering at district

level. • CDCs are set to play a stronger governance role as

Village Councils.

• NSP has disbursed $700m through block grants to 21,300 communities

• 48,300 sub-projects financed, 34,800 completed

• 25% transport, 24% WatSAN, 18% irrigation, 13% energy, 12% education

• Sub-projects have an average ERR of 19%

• The program has an ongoing MIT/Harvard Impact Evaluation

• Around 17 million Afghans have been touched by the program

….CDCs prepare development plans……. receive a block grant..

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IDA has invested in other rural infrastructure.Irrigation rehabilitation: Rural access:

Increased irrigated land has boosted yields of staple crops such as wheat, maize, and rice, as well as of onions, melons, and watermelons.

EIRP has rehabilitated around 750 schemes…

…resulting in 130,000ha of new irrigated land…

…and a 70% reduction in water-related disputes.

600,000 households have benefited.

The need for irrigation is vast: total irrigated land pre 1979 was 3.2m hectares. In 2007, this was only 1.8m.

IDA is now preparing a significant scale up of the program.

The need remains great.

IDA is now preparing a significant scale up of the program.

The need remains great.

Rural access is critical to reduce time to market for agricultural goods.

Since 2002 the Bank has supported the government develop its rural access program.

NRAP uses community-based contracting for tertiary roads…

…and contractors for secondary roads.

Under NRAP, over 10,000kms of roads have been rehabilitated

….providing 14m labor days of work, including training for 2,800 ex-combatants..

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IDA/ARTF is increasing access to national service deliveryEducation Health

IDA/ARTF is also supporting higher education and TVET though long way to go:

Over 10,000 School Shuras have been established to administer block grants for school construction. Communities contribute up to 20% in cash or kind.

School enrollment now the highest in Afghan history. Enrollment in grades 1-12 increased from 3.9 million in 2004 to 6.3 million in 2008. Girls now make up over one third of all school children.

After the fall of the Taliban, only 43 percent of the country’s boys and a dismal 3 percent of girls were enrolled in schools.

Block grants help upgrade university facilities and partnerships build faculty capacity.

In Kabul, the National Institute for Management & Administration now has 1,700 students.

In the 11 project provinces, the number of health facilities has nearly tripled from 148 to 421.

Coverage rates rose from 9 percent of the general population in 2003 to 85 percent in 2008.

20,000 community health workers trained and deployed.

IDA has developed the basic package of health services model, which is now co-financed by US and EC.

IDA finances NGO contracts in 8 provinces, and GoA delivered services in 3. The project has also supported the Community Midwifery Education program.

IDA is also financing Johns Hopkins to monitor the sector. Johns Hopkins study reveals a 26% drop in under-5 mortality rate. 3rd party evaluation shows remarkable improvement in health center staffing, equipment, and supply stocks. Absenteeism is virtually unheard of, contrasting markedly with absentee rates of up to 40 percent among public sector doctors elsewhere in South Asia.

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IDA is investing in good business environment

ICT sector

IDA/ARTF investment in 2002 supported regulatory framework

…leveraging $1.5bn in private sector investments

Telephone access increased from less than 1 percent to 32 percent of the population.

New IDA investment in fibre optic backbone under preparation.

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IDA is supporting fiscally and economically sustainable development in AfghanistanCustoms Public Financial Management

ASYCUDA installed at 4 key customs posts, plus Kabul Airport. IDA now financing national roll-out.

Trade volumes have increased from $2bn (03) to $8bn, and an 8-fold increase in customs revenues.

Reliance on outside support is declining…

IDA is supporting GoA capacity to raise revenue and manage its finances.

2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 20010/11$0

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% of operating expenditures covered

% of operating expenditures covered by ARTF

Afghanistan now has a robust PFM system that is better than the average of Low

Income Countries.

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Part IV: Implications of Transition

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Transition – what might it mean?Transition goes beyond security – has

profound socio-economic and political economy impacts Decline in donor financing for military

spending and aid over time GoA will need to widen focus outside of

Kabul, move from emergency to sustainability, etc.

Shape of the State – center, provinces, districts?

May be difficult to adjust to just being a ‘poor country’23

What are the Fiscal Implications of Transition?Achieving fiscal sustainability will require: Substituting Donor grants to the operating & development

budget. Assuming external budget obligations on the operating budget Investment in O&M- to maintain acquired assets Paying for a share of TA , advisors/ consultants performing civil

service functions and building capacity of Afghans to assume those functions.

Continuing with the Kabul process will require selectivity: Assuming large share of the NPPs

Sustainable Security Spending will require ring-fenced donor aid or massive reallocation: Plans to increase forces to 378,000 by 2012 is a 42 % increase. Donors currently pay for 72% of the security wage bill 100% of the military equipment, training, procurement.

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Transition – what might it mean? Potential Negatives:

less money for public sector spending: new investment, O&M for existing assets?

may lead to flight of human capital and associated capacity size of Government and service delivery will need to reflect less

money ( this has particular impact on security sector) Potential Positives:

Better prioritization could improve outcomes may improve efficiency of delivery by removing high cost

overheads may start to remove market distortions eg in wage rates paid

for TA, allowing more opportunity to move to more ‘normal’ wage market and removing the parallel civil service

may reduce sources of corruption eg trucking contracts, fuel and security contracts

Opportunity in ownership and capacity building, but responsibility for results

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Transition – how is the Bank positioned? IDA/ARTF already on budget, through Government ARTF provides important platform

for Donor-Government dialogue For continued policy reform For accountable, transparent donor flows

National programs should remain at core of service delivery if financing maintained, gains locked in, and enhancements continually sought.

Analytic work: Sustainability Study; Sources of Growth

Public Administration Reform Program and PFM could be at core of Government capacity building

Long-term partner26