Regional Cooperation in South Asia

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May 2012: Afghanistan’s economic growth has slowed but remains at satisfactory levels to generate rising average standards of living. Real GDP growth is expected to close the fiscal year 2011-12 at 5.7 percent, down from 8.4 percent in 2010-11. The slowdown in growth was mainly due to weather-related conditions which lowered agriculture output to below-average levels.

The Economy:

This year (2012-13) GDP growth is expected to pick up again and is projected to reach 7.1 percent. Favorable weather conditions during the first quarter of the year resulted in a good harvest season, which is likely to increase agricultural output. The services sector will continue to account for about half of economic growth for next year, fueled by the growth in the telecommunications sector. In addition, donor funding and development projects will continue to drive the demand for transportation and distribution services.

Longer-term projections are less positive. Aid levels are expected to decline significantly, which will reduce GDP growth to levels of 4 to 5 percent per year. A sizeable financing gap will continue to exist through 2021 despite projections of healthy growth in domestic revenue collection. Afghanistan’s biggest economic challenge is finding sources of sustainable and equitable growth.

Transition Process: The Afghanistan transition process, which started in July 2011, is well under way. By April 2012, the International Security Assistance Force had completed the first and second phases of transition through the handover of responsibilities to Afghan national security forces in some 17 out of the 34 provinces. The first significant drawdown of foreign forces will be later in 2012, and all foreign ground forces are expected to have left Afghanistan by 2014.

Education: In 2001, after the fall of the Taliban, net enrollment was estimated at 43% for boys and a dismal 3% for girls. Moreover, there were only about 21,000 teachers (largely under-educated) for a school-age population estimated at more than 5 million—or about 240 students for every marginally trained teacher. Since 2002, school enrollment has increased from 1 million to 7.2 million children; girls’ enrollment increased from 191,000 to more than 2.71 million. More than 101,000 teachers were trained in 2011-2012 alone. Efforts are ongoing to continuously upgrade teacher qualifications and the overall access to equitable quality education in Afghanistan.

Health: According to recent data from Afghanistan Mortality Survey 2010 (AMS 2010), life expectancy at birth is at 64 years. 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. About 85 percent of the population lives in districts which now have providers to deliver a basic package of health services. About 57.4 percent of the population lives within one hour’s walking distance from a public health facility (based on AMS 2010). Infant and under-5 mortality in 2010 has declined to 77 and 97 per 1,000 live births respectively, from 111 and 161 per 1,000 live births in 2008. The pregnancy-related mortality ratio is about 327 per 100,000 births, which means that every two hours, a woman dies in Afghanistan from pregnancy-related causes.

Access to electricity: The percentage of the population with access to electricity in Afghanistan is among the lowest in the world. The Ministry of Energy and Water estimates that about 30 percent of Afghans have access to electricity from grid-based power, micro-hydro or solar panel stations. The situation has improved significantly in the major urban population centers along the critical North East corridor between Mazar-e-Sharif and Kabul, following the import of power from Uzbekistan and the rehabilitation of three hydro plants (Mahipar and Sarobi completed, and Naghlu ongoing). Increasing parts of some urban centers, for example Kabul, Herat, Mazar-e-Sharif, and Pul-e-Khumri, now have a 24-hour power supply for the first time in decades.

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 the Bank office in Pakistan.

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.

Operations 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. Aid has since grown tremendously. To date, the World Bank has committed more than $2.35 billion for development and emergency reconstruction projects and four budget support operations. This support comprises more than $1.91 billion in grants and $436.4 million in credits. As of April 2012, the Bank has 25 active projects in Afghanistan with net commitments of more than $1.1 billion. A number of Bank-financed projects have been completed.

The World Bank also administers the Afghanistan Reconstruction Trust Fund (ARTF). Supported by 33 donor countries, the ARTF has mobilized more than $5.17 billion since 2002. It is the largest single-country multi-donor trust fund the World Bank administers globally. 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 priorities. They include agriculture and rural development, justice, private-sector development, capacity development, education, urban development, transport, and energy. The ARTF also supports the government’s recurrent cost financing needs; to date more than $2.50 billion has been disbursed to the government of Afghanistan for civil servants’ salaries, and more than $540.05 million has been made available for investment projects.

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 health care (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 Bank has also undertaken considerable analytical work. In March 2012, Afghanistan’s Ministry of Economy and the World Bank released a joint report titled "Poverty and Food Security in Afghanistan: Analysis Based on the National Risk and Vulnerability Assessment of 2007/08". The study focused on connections between poverty and food security in Afghanistan. It investigated the status of food insecurity in Afghanistan with a focus on mapping provincial differences and understanding the impact of rising food prices on key measures of food security. The report found that Afghanistan faces an acute problem of malnutrition and food insecurity. It stated that Afghan children suffer from one of the highest levels of chronic malnutrition in the world. More than half (54 percent) of Afghan children under 5 are chronically malnourished and over a third (34 percent) are underweight. Almost three-quarters of them—around 72 percent—suffer from key micro-nutrient deficiencies, such as of iron and iodine. Overall, the report documents much variation in food security across geographic and economic groups, reflecting the diversity of economic and social conditions across the country. Food insecurity appears to be more pronounced in the rural areas where about 80 percent of the country's population resides. For example, calorie deficiency affects 30 percent of the rural population compared to 24 percent in the urban areas. The report is available in English and Dari.

World Bank Strategy

The World Bank’s current engagement with Afghanistan is determined by the Interim Strategy Note (ISN), which is closely aligned with the government’s Afghanistan National Development Strategy (ANDS). World Bank support to Afghanistan over 2012-2014 will be based on supporting the delivery of some of the country's most important national priorities. It is also grounded in helping the government manage the critical transition from security and development dominated by the international community to one led by the government of Afghanistan by the end of 2014. World Bank Group support will be provided around three themes:

1. Building the legitimacy and capacity of institutions
2. Equitable service delivery
3. Inclusive growth and jobs

The Bank will deliver its program through International Development Association (IDA) grants, from which Afghanistan will receive about $150 million per year, as well as the the Afghanistan Reconstruction Trust Fund (ARTF), which could potentially provide up to $800 million per year in grants during the period of the ISN (2012-14). The Bank’s private-sector arm – the International Finance Corporation (IFC) — will also strengthen its support to both the private-sector companies and improving the business environment.

World Bank support emphasizes national programs that have improved the lives of millions of Afghans across the country, including in the areas of health, education, rural development, and public finance management.

Selected World Bank Achievements in Afghanistan

Education: 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) gives funds to communities to rehabilitate or construct school buildings and access teaching and learning materials. Funds are directed through School Shuras, now functioning in more than 11,087 schools. EQUIP has supported the construction or rehabilitation of more than 1,659 schools throughout the country. Of these, some 50% have been completed while the rest are under construction. The World Bank’s Strengthening Higher Education Program (SHEP) supports 12 core universities to restore basic operations.

Health: With World Bank support in 11 provinces since 2003, the number of health facilities has nearly tripled from 148 to 432. 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. Currently the World Bank’s Strengthening Health Activities for Rural Poor Project (SHARP) is supporting Ministry of Public Health efforts to provide Basic Package of Health Services (BPHS) in 11 provinces.

Rural Development: 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 more than 61,000 community projects in more than 29,000 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. More than half the projects have been completed.

The National Emergency Rural Access Project (NERAP) is working to provide year-round access to the rural areas of Afghanistan. Since the launching of this project in 2007, more than 1,700 km of district and village roads, 2,500 linear meters of bridge, and 120,000 meters of cross drainage structures have been completed. The project has generated around 2 million days of employment for unskilled labor throughout the country.

Microfinance: In just over seven years of operations, the Expanding Microfinance Outreach and Sustainability Project has provided more than $181 million in funds. There are now seven microfinance institutions (MFIs) with 243 branches in 22 provinces, and more than 230,418 active borrowers. Seventy-three percent of the borrowers are women. The sector employs almost 3,121 people, and half the management positions are held by Afghans. According to a 2007 study, each loan creates 1.5 employment opportunities.

Revenue Collection: 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 have soared from around $50 million in 2003 (SY 1382) to over US$ 1 billion in 2011-2012 (SY 1389)—an increase of around 2,000 percent in eight years. Approximately 90 percent of imports and exports are covered through automated processing. The waiting time for trucks at the major border crossings has also decreased. The Afghan Customs Department has started the process to carry out customs performance measurement at Torkhum, Hairataan, and Kabul Inland Customs Depots.

Power Supply: The Power Rehabilitation Project has helped to provide an 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 part of the medium voltage system of Kabul. This has given consumers in Kabul a much better power supply, doing away with the need to rely on expensive diesel power generation.

Additionally, two other ARTF-funded projects (Kabul/Aybak/Mazar-e-Sharif Power Project and Afghanistan Power Sector Development Project) are currently rehabilitating the distribution networks and some of the substations in the major urban population centers along the North East corridor. These projects—which cover Mazar-e-Sharif, Puli-e-Khumri, Charikar, Gulbahar, Jabul-Seraj, and parts of Kabul city—are expected to significantly improve the situation after their expected completion in 2012.

Horticulture: Under the Horticulture Component of the Horticulture and Livestock Project, over 3,100 ha of new orchards (grapes, apricots, almonds, and pomegranates) have been planted. More than 600 women have participated in the program.

Livestock: Under the Animal Health Component of the Horticulture and Livestock Project, 166 government veterinary clinics have been transferred to trained veterinarians for private operation. The Poultry Component has helped poor women enhance their incomes. Under this component, more than 25,000 intensive poultry units have been established, 12,000 of which were established in the spring and summer of 2011. It is worth noting that out of 7,000 units that had been established by 2009, a high percentage of them started the second production cycle without financial assistance from the project, thus demonstrating sustainability. So far, more than 20 million eggs have been produced. Furthermore, 200 small-scale broiler units were also established by December 2010.

Irrigation: The Irrigation Rehabilitation Project helped rehabilitate 728 medium and large traditional irrigation schemes serving more than 802,000 ha of land in various parts of the country. An additional 164,800 ha of land are now receiving irrigation, and crop yields have increased substantially. Installation of 105 hydrology stations in different part of the country has been completed.

Rural Enterprise: The Afghanistan Rural Enterprise Development Project (AREDP) enhances the participation of the rural poor in economic activities by providing business development services, improving access to finance, and strengthening market linkages and value chains. The project will support the establishment of 13,000 Savings Groups (SGs), 6,500 Enterprise Groups (EGs) and 1,300 Village and Savings Loan Associations. The EGs will help maximize the economic potential of rural entrepreneurs to improve market access, deliver technical knowledge, raise basic business skills, and leverage economies of scale to increase the value of their sales. AREDP has set up offices and recruited provincial staff in Parwan, Bamyan, Nangarhar, Balkh, and Herat provinces. These offices are now covering 18 districts and 355 communities. In total, 2,357 savings groups (SGs) have been formed with 29,169 members. In addition, 85 enterprise groups (EGs) have been formed with savings increasing from AFN 12.82 million to AFN 31.7 million. Most of the SGs and EGs are now inter-loaning, having disbursed AFN 18.4 million to their members.