AFGHANISTAN COUNTRY BRIEF

Media Contact: In Kabul: Abdul Raouf Zia Phone: (93) 700 280800 Email: azia@worldbank.org AFGHANISTAN COUNTRY BRIEF Development Context July 2010 After more than two decades of conflict, Afghanistan has begun an enormous political, economic, and social transformation since it was catapulted onto the world stage in 2002. Progress to date has been encouraging, but tremendous challenges remain. The Economy: The agriculture sector accounts for around one third of the economy (excluding the illicit drug sector) with around 80 of the population living in rural areas. GDP growth is expected to be around 7 percent in 2010/2011 (SY1389), down from last year s 15 percent growth. In 2010/2011 (SY1389), the Key Development Indicators Infant mortality rate, per 1,000 live births: Down from 129 in 2006 to about 111 in 2008. Under-5 mortality rate, per 1,000 live births: Down from 191 in 2006 to about 161 in 2008. Prenatal care to pregnant women: Up from 11% in 2004 to 49% in 2008. Child immunization rates: Up from 12% in 2005 to 33% in 2008. GDP per capita is estimated to surpass $501 for the first time in the country s history (from an estimated $449 in the previous year). Although almost tripled since 2001, the GDP per capita is one of the lowest in the world. Social Indicators: Life expectancy is a mere 43.6 years, compared to 59 years for low income countries worldwide. According to the recently released World Bank Poverty Profile the national poverty rate is 36 percent. Despite the significant increase in school enrollment since 2002, literacy rates remain very low. Only 37.6 percent of the young adult population (aged 15 to 24) is able to read and write and the literacy rate of women is less than half of that of men: 22 percent against 51 percent. Enrollment rates for primary school children (aged 6 to 9) have increased nationwide by about 40 percent between 2005 and 2007/08, but only 34.9 percent of kids are enrolled and regularly attending school. Afghanistan s health situation remains dire. Only 27 percent of Afghans have access to safe drinking water and 5 percent to adequate sanitation. Nevertheless, there has been considerable progress over the last nine years. Almost 85 percent of the population is now living in the areas covered by a Basic Package of Health Services (BPHS) contract. Infant and under five mortality in 2008 has declined to 111 (13 percent reduction) and 161 per thousand live births (15 percent reduction) respectively from 129 and 191 per 1000 live births respectively in 2006. Health service utilization increased among project area populations from a rate of 0.3 consultations per capita annually at the outset to 1.44 per capita at the end of 2009. Access to electricity is among the lowest in the world. The situation has however improved significantly in Kabul after the import of power from Uzbekistan and the rehabilitation of two old hydro plants 1

Mahipar and Sarobi that have been partially completed. Nearly 41 percent of Afghan population has access to electricity from grid based power, micro hydro or solar panel stations. The new imported source of electricity from Uzbekistan reaches households in the major urban population centers along the critical North East corridor between Mazar e Sharif and Kabul. On June 20, the World Bank released the Afghanistan Public Expenditure Review (PER). The government has made notable advances in recent years in broad economic governance. The Public Financial Management (PFM) system, especially at the Ministry of Finance (MoF), has undergone a structural transformation, confirmed by a significant improvement in the Public Expenditure and Financial Accountability (PEFA) indicators between 2005 and 2007. For more information, please visit: http://go.worldbank.org/ifyjgsrdw0 The World Bank Group and Afghanistan Afghanistan became a member of the World Bank in 1955. Shortly after the Soviet invasion in 1979, World Bank operations were suspended although the Bank continued to provide assistance to Afghans through its office in neighboring Pakistan. Operations were resumed in May 2002 to help meet the immediate needs of the poorest people while assisting the government in developing the administrative systems required for longer term nationwide development. Prior to 1979, the World Bank had provided 21 no interest loans, known as "credits" to Afghanistan across a wide range of areas including education, roads, and agriculture. Of the original $230 million in credits approved by the International Development Association (IDA), the Bank s concessionary lending arm, $83 million was disbursed and $147 million was subsequently canceled. Afghanistan had repaid $9.2 million to IDA and was up to date on debt service payments until June 1992, when it stopped making payments. In 2002, Afghanistan cleared its debt to the World Bank, in part with the help of Japan, the UK, Sweden, Norway, and Italy, who contributed to a trust fund for this purpose. Additional funds from the multidonor Afghanistan Reconstruction Trust Fund (ARTF), which is administered by the World Bank, helped to clear the remaining arrears, allowing Afghanistan to become eligible for loans for projects designed to help meet the country's longer term development needs. In January 2010, the World Bank's International Development Association (IDA) and the International Monetary Fund (IMF) agreed to support $1.6 billion in debt relief for the Islamic Republic of Afghanistan. The Boards of both institutions agreed that Afghanistan had taken the necessary steps to reach the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Afghanistan becomes the 27th country to reach the completion point under the Initiative. This will generate total debt service savings of $1.6 billion, which include $1.3 billion from the HIPC Initiative, $260 million from Paris Club creditors beyond HIPC, and $38.4 million from the Multilateral Debt Relief Initiative (MDRI). For more information, please visit: http://go.worldbank.org/26c2p910w0. Since April 2002, the World Bank has committed over $2 billion for development and emergency reconstruction projects and four budget support operations in Afghanistan. This support comprises over $1.66 billion in grants and $436.4 million in no interest loans known as "credits." Currently, the Bank 2

has 23 active projects in Afghanistan with net commitments of over $883.6 million. So far, a number of Bank financed projects have been completed. For more information about closed projects, please visit: www.worldbank.org.af Projects & Programs page. The International Finance Corporation (IFC), the World Bank Group s private sector development arm, continues to work with its investment partners in Afghanistan. IFC now has an investment portfolio totaling more than $90 million in six companies. This includes commitments in the financial (First Microfinance Bank of Afghanistan, BRAC Afghanistan Bank, Afghanistan International Bank), telecom (MTN Afghanistan), hospitality (Serena Kabul Hotel) and healthcare (Acomet Family Hospital) sectors. Moreover, IFC continues to work on its pipeline of projects in a variety of sectors in order to expand its Afghan investment portfolio. The World Bank also administers the Afghanistan Reconstruction Trust Fund (ARTF). Supported by 31 donor countries, the ARTF has mobilized over $3.7 billion since 2002. The ARTF has emerged as one of the main instruments for financing the country s recurrent budget and investment needs. All investment projects are aligned with the government s Afghanistan National Development Strategy (ANDS) and new cluster approach. They include agriculture and rural development, justice, private sector development, capacity development, education, urban development, transport and energy. To date more than $2 billion has been disbursed to the Government of Afghanistan to help cover recurrent costs, such as civil servants salaries, and over $1 billion had been made available for investment projects. The ARTF has in the last two years introduced a conditionality based program known as the ARTF Incentive Program (IP). The IP is an important tool for coordinating multi donor policy dialogue with the MoF. The program allocates additional (discretionary) funding (up to $70 million) on a performance basis in line with the Afghan budget cycle. A small working group including the UK, US, EC, Germany and Italy, negotiates reform benchmarks with the Ministry of Finance, facilitated by the World Bank. To date, the IP has supported important government led reforms in customs and revenue, in asset declaration and the role of the High Office of Oversight, the corporatization of public utilities and the regulatory environment for the extractive industries sector. The latest IP round of benchmarks was successfully negotiated in June 2010. Among other elements, the latest program includes the critical reforms in internal and external audit, anti corruption, civil service reform, transparency in the mining sector and ongoing corporatization steps for the power utility. World Bank Strategy The World Bank s current engagement with the country is determined by the Interim Strategy Note (ISN) for Afghanistan. The ISN is aligned with the government s Afghanistan National Development Strategy (ANDS). World Bank support emphasizes national programs that have resulted in improving lives of millions of Afghans across the country, including in areas of health, education, rural development and public finance management. The Interim Strategy Note (ISN) for Afghanistan covers the period 2009 2011 and envisages a grant program of around $600 million. 3

The World Bank made a five year pledge of $1.1 billion (approximately $220 million per year) at the June 2008 Paris Conference provided that the country performs better than average compared to other post conflict countries, and IDA 16 donors are generous again when replenishing in 2011. Achievements: Since 2002, more than 6.3 million students and teachers have returned to school. The World Bank is helping to rehabilitate primary schools and train teachers, while giving technical assistance to strengthen the Ministries of Education and Higher Education. The Bank s Education Quality Improvement Program (EQUIP) fund communities to rehabilitate or construct school buildings and access teaching and learning materials. Funds are directed through School Shuras. These Shuras are now functioning in over 10,172 of the country s 12,000 schools. It is envisaged that by the close of the project in 2012, some 1,592 schools will have been built, with a priority on girls schools; 8622 School Shuras formed and active, with 1999 more Shuras to be formed; over 110,000 teachers and around 9000 school administrators trained; 2750 girls in 25 provinces receiving scholarships to complete their two year studies at TTC; and 750 qualified lecturers recruited in 18 provinces. Under the World Bank s Strengthening Higher Education Program (SHEP) eleven overseas universities partnerships have been formed with participating Afghan universities to restore basic operations at these universities. With the World Bank support in 18 provinces from 2003 to 2008, the number of health facilities has nearly tripled from 148 to 432. The National Risk and Vulnerability Assessment 2007/08 indicate good progress in reducing infant and under five mortality. Infant and under five mortality in 2008 has declined to 111 (13 percent reduction) and 161 per thousand live births (15 percent reduction) respectively from 129 and 191 per 1000 live births respectively in 2006. Health service utilization increased among project area populations from a rate of 0.3 consultations per capita annually at the outset to 1.44 per capita by the mid 2009. Health care for expectant mothers expanded, with the number of deliveries assisted in facility by trained health workers jumping from 6 percent to 24 percent. The number of pregnant women who received at least one prenatal care visit rose from 11 percent in 2004 to 36 percent in 2008. Child immunization full rates in rural areas are still low but have improved from 12 percent in 2005 to 33 percent in 2008. Around 20,000 community health workers half of them women have been trained and deployed throughout the country, increasing access to family planning and boosting childhood vaccinations. The number of facilities with trained female health workers rose from 25 percent before the project to 74 percent today. The National Solidarity Program (NSP) is providing jobs and improving infrastructure throughout the country. The World Bank is the largest international source of funds for the NSP which finances small projects based on the priorities of the rural population. The program has financed over 50,000 community projects in more than 22,000 villages in all 34 provinces. About 80 percent of the projects involve infrastructure such as irrigation, rural roads, electrification, and drinking water supply, all critical for the recovery of the rural economy. Over half the projects have been completed. 4

The National Emergency Rural Access Project (NERAP) is working to provide year round access to the rural areas of Afghanistan. Since launching of this project in 2007, over 1037 kms of secondary and tertiary roads and around 8,200 meters of cross drainage structures have been completed. The project has generated around 2 million unskilled labor days of employment throughout the country. In just over seven years of operations, the Expanding Microfinance Outreach and Sustainability Project has disbursed 1.5 million loans worth $765 million. There are now 13 microfinance institutions (MFIs) with 304 branches in 26 provinces, and more than 434,000 savings and loan clients. Sixty one percent of the clients are women; the loan repayment rate is 93 percent. The sector now employs almost 4122 people and half the management positions are held by Afghans. According to a 2007 study, each loan creates 1.5 employment opportunities. Therefore more than 650,000 current jobs in Afghanistan are attributable to microfinance and many more have received support over the years. Since the implementation of an Automated System for Customs Data (ASYCUDA), the collection of transit fees in major transit corridors in Afghanistan has improved and customs revenues increased by more than 700 percent in Solar Year 1387 (2008/09). This was largely attributable to computerized control over transit shipments, tighter control over the clearance of goods, and the enhanced capacity of the Afghan Customs Department (ACD) staff. To date customs processes have been automated at major Inland Customs Depots (ICD), including at the Kabul Airport which receives approximately 55 percent of all the country's customs declarations. Similarly, ASYCUDA is now functional at four major transit axes which receive some 65 percent of Afghanistan s transit trade by value. The Power Rehabilitation Project has helped to provide improved and more reliable supply of electricity to the residents of Kabul. This has been facilitated by the rehabilitation of several facilities: 110 kv link between Kabul and the North East Power Transmission System (NEPS) with rehabilitation of Kabul North and Kabul North West sub station; the 110 kv line that brings power from the Naghlu and Mahipar Hydropower Plants into the city grid; completion of high capacity optical fiber ground wire system (Chimtallah and Pul e Khumari) to control and operate the NEPS facilities; and rehabilitation of the part of Medium Voltage system of Kabul. This has helped in providing the consumers in Kabul with much better power supply, doing away with the need to rely on the generation of expensive diesel power. Moreover, thanks to this project residents of Khair Khana and Ahamad shah Mina also started receiving the benefits of grid power supply. Under the Horticulture Component of the Horticulture and Livestock Project, so far, over 2,100 ha of new orchards (grapes, apricots, almonds, and pomegranates) have been planted, and over 600 women participated in this program. Farmers contributed 25 percent of the cost for the new orchards. An additional 900 ha of new orchards are planned for fall 2010. In addition to establishing new orchards, extension messages and inputs were provided for the improvement of existing orchards owned by over 36,000 farmers. Under the Animal Health Component of the Horticulture and Livestock Project, 114 government veterinary clinics have been transferred to trained veterinarians for private operation. The Poultry Component helped poor women enhance their incomes from poultry production of the project. Under 5

this component, the 7,000 intensive poultry units that were started in July 2009 have produced over 8 million eggs. An additional 4,000 poultry units will be established in 2010. The Irrigation Rehabilitation Project helped rehabilitate 632 medium and large size traditional irrigation schemes serving more than 660,000 ha of land in various parts of the country. As a result of the rehabilitation, an additional 132,000 ha of land area are now receiving irrigation supplies, and crop yields have increased substantially. Installation of 105 of the 174 hydrology stations in different part of the country has been completed. Work on installation of 40 Cableways has commenced. These facilities will enable measurement of river flows for future use in planning and developing water resources in the country. Governance and Capacity Building 9% Overview of World Bank active portfolio as of July 2010 Agriculture and Rural Development 35% Economic Growth and Infrastructure 36% Human Resource Development 20% 6