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The multilateral Afghanistan Reconstruction Trust Fund (ARTF) was set up in May 2002 to provide support to Afghanistan in two areas. First, it provides for the recurrent costs of the government, such as the salaries of teachers, health workers, civilian staff in ministries and provinces, operations, and maintenance expenditures; and bulk purchases of essential goods for the government. Second, it supports investment projects, capacity building, feasibility studies, technical assistance, and the return of expatriate Afghans.

The ARTF is administered by the World Bank under the supervision of a Management Committee comprising the Asian Development Bank, the Islamic Development Bank, the United Nations Development Program, and the World Bank. To date, 2,188 ex-combatants and rural poor from poppy growing areas have received classroom training, and most of them are now on job training as paid employees of the contractors on NEEP road/bridges subprojects. In addition, most of the graduates are now hired either under NEEP projects or others in the market. In addition, out of the total planed length of 372 km of roads, 212 km are completed and the remaining is scheduled to be completed within the project duration.

As of October 22, 2006, 25 donors had pledged US$1.66 billion to ARTF, of which more than US$1.45 billion has been received. Over US$943 million had been disbursed to the Government of Afghanistan to help cover recurrent costs, and US$246 million has been disbursed for investment projects.

The ARTF has emerged as one of the main instruments for financing the country’s recurrent budget deficit, and is set to evolve into a major source of technical assistance and investment support for Afghanistan.

The ARTF Recurrent Costs Window (US$958 million)

The ARTF recurrent window finances salaries and wages of more than 200,000 non-uniformed civil servants, over half of whom are working outside the city of Kabul, and the government’s operating and maintenance expenditures outside of the security sector, including bulk purchases of essential supplies. The SY1385 National Budget includes US$270 million of disbursements from ARTF for recurrent costs. Over the last three years, the Government of Afghanistan has established a new framework for Public Finance Management comprising the national budget as the main policy instrument, a commitment to transparency, and a centralized computerized system, the Afghanistan Financial Management Information System (AFMIS), to issue checks and record revenues and expenditures of the ordinary and development budgets. Parallel improvements have been made in the Da Afghanistan Bank payment systems.

Currently there are 11 ongoing investment projects funded by the ARTF with combined commitment of around US$350 million as follows. For ARTF co-financed investment projects, please see above.

The ARTF Microfinance Support for Poverty Reduction Project (US$74.3 million) aims to assist the government in developing a sustainable microfinance sector that will provide flexible, convenient, and affordable financial services to poor people. The goal is to build an integrated financial sector and remove the barriers that separate the microfinance community from the broader mainstream financial system. In just over three years of operations, the project has provided more than US$67 million in funds including US$43 million in loans.

A Women in Herat Province uses microfinance credit to set up her business.

There are now 13 microfinance institutions (MFIs) with a network of over 209 branches, in 21 provinces, with nearly 250,000 loan and savings clients. Seventy-five percent of the clients are women, and the repayment rate is 96 percent. In 2006 the sector disbursed US$7 million in loans every month and added more than 10,000 clients per month The sector now employs over 2,800 Afghans and has trained over 600 Afghans, The project is also expanding in the seven poppy growing provinces identified by the government to provide alternative livelihood opportunities to poppy growing farmers. The project anticipates that it will reach at least 600,000 poor households in most provinces by the end of 2007. The sector as a whole is already covering 80 percent of its costs from its own income earned from lending activities. Two of the microfinance institutions have already reached operational self sufficiency, and it is believed that most of the other MFIs will achieve sustainability by end of 2007.

The Rehabilitation of Telecommunications Systems Project (US$6.1 million) aims to establish international connectivity between Afghanistan and other countries, particularly neighboring countries. The project consists of three components: rehabilitation of the satellite earth station in Kabul, expansion and improvement of transmission links, and the billing system.

President Karzai meets Paktia provincial authorities through a video conference facility.

The expansion and improvement of telecommunication transmission links has been completed and is operational. The satellite earth station at Mahtab Qila in Kabul has also been rehabilitated. The project is expected to be completed byend-December 2006.

National Emergency Employment Program Phase I (NEEP-I) (US$36.8 million ARTF Grant): NEEP-1 evolved from the IDA Grantfunded Labor-Intensive Public Works (LIPW) Roads component of the Emergency Community Empowerment and Public Works Program. The aim of the project is to assist the government in providing employment in rural areas at a minimum wage, as a safety net, to as many people and in as short a time as may be feasible through rural access and irrigation rehabilitation subprojects. Physical works under the original NEEP-1 Grant of US$16.62 million were 100 percent completed by July 31, 2005. NEEP-1 has been further extended after receiving additional funding of US$20.2 million from DFID and USAID through ARTF. The extension of NEEP-1 targets the construction and rehabilitation of 520.2 km of roads, 434m of bridges, and will generate 2.64 million days of unskilled labor. Overall a total of 383 subprojects were implemented constructing 2,476 km of rural access roads and 3,073m of cross drainage structures. In addition, 98 natural resource management subprojects, 25 small irrigation subprojects, and four large irrigation subprojects in Shamalan area were completed. A total of 3.77 million labor days were paid to date.

The ARTF-financed Urban Water Supply and Sanitation Project (UWSS) provides US$41 million to support the government’s short-term UWSS Program and has five components: Kabul water supply, Kabul sanitation, provincial towns WSS, engineering support and technical assistance, and financial support to the Central Authority for Water Supply and Sewerage (CAWSS) operations. The first tranche of US$20 million became effective in February 2005; the second tranche of US$21 million became effective in November 2005. Investment components are currently at various stages of procurement. Contracts with technical support agencies are ongoing for the Kabul water, Provincial Towns WSS, and CAWSS FSO components. The Kabul water and provincial towns WSS components are based upon feasibility studies that have been completed for Kabul (financed by KfW) and 11 provincial capitals currently served by CAWSS. In addition, the ARTF has also financed feasibility studies for 11 cities not yet served by CAWSS. The Kabul sanitation component is based on the strategic sanitation plan and associated Master Plan covering solid waste, on-site sanitation, and sewerage and storm water drainage. The Financial Support to operations has now been effective since August 2005. It has significantly contributed to building the management capacity in all 14 units of CAWSS, and has generated detailed technical, financial and commercial data for the first time. Following the announcement of the sector policy and institutional development plan in October 2005, a Presidential Decree to corporatize CAWSS was issued in January 2006. The Working Group mandated under the decree has been established by MoUD and MoF. Consultants to support the Working Group mobilized in Kabul in early September 2006.

The Improvement of Power Supply to Kabul project (US$7.4 million) is working to improve the availability and reliability of power supply in Kabul by supplementing and extending activities financed under Afghan-German Financial Cooperation. It has the following three components: partial rehabilitation of Mahipar Hydropower Station, rehabilitation of 110 kV transmission lines, and supply and installation of street lighting in Kabul. The transmission and street lighting components have been completed. The hydropower rehabilitation is expected to be completed by March 2007.

Rural Water Supply (US$5 million): has two objectives: (i) improve the health of rural communities by increasing awarenessthrough integration of health and hygiene education with the provision of water supply and sanitation services; and (ii) strengthen and build the capacities of the central and provincial governments for sector development as well as that of NGOs, the private sector, and the communities so as to scale up provision of sustainable water supply and sanitation services. The implementing agency for this project is Ministry of Rural Rehabilitation and Development (MRRD). The project will initiate support to the government’s Rural Water and Sanitation sector development program and will finance: (i) capacity building of: (a) government agencies; (b) NGOs, (c) private sector, and (d) community; (ii) construction of water points and sanitary latrines in rural Afghanistan; and (iii) studies, such as for developing service delivery mechanism for pastoral communities (Kuchis) and “Rural Towns”. Procurement of different consultants and contractors are underway to start actual implementation on the ground.

Afghan Civil Service Capacity Building Program (US$13 million) consists of two components: The first component—Afghan Expatriates Program (US$10 million)—will increase the contribution of professional Afghans living abroad in the reconstruction of Afghanistan by enhancing public sector policy and institutional capacity. This component also aims to close the skills gap in information technology, engineering, and teaching with well-trained overseas Afghans, by providing local Afghans with opportunities for on-the-job training to enhance their technical skills. Since September 2004, around 92 Afghan Experts have been placed in government ministries and agencies.

The second component—Lateral Entry Program (US$3 million)—includes a pilot phase, which aims to place 100 lateral entrants from NGOs and international organizations in middle- and senior-level line positions in government ministries and agencies for a period of up to two years to assist with the reform and restructuring process, and to build institutional capacity. If successful, the pilot phase will be expanded. Since August 2005, around 100 lateral entrants have been recruited.

A new program—the Managerial Capacity Program (MCP) to replace the AEP and LEP—is currently under design and is expected to be appraised in February 2007. This program follows from independent reviews of the Afghanistan Expatriates Program and Lateral Entry Program. The key objective will be to build managerial capacity and capacity in the common functions (procurement, financial management, human resource management, project management).

Technical Assistance and Feasibility Studies (US$18.5 million): This project provides technical assistance to line ministries to make programs and projects suitable for funding by key development partners or private sources. Specialists have been recruited to help guide the preparation and supervision of reconstruction and development activities, and to design and supervise feasibility studies. In addition, the project funds feasibility studies by qualified firms to prepare larger investment projects.