Regions and Countries

	Table of Contents
p. 9 of 10 BACK | NEXT Executive Summary I. Current Development Trends and Issues II. The Government's Development Strategy III. ADB's Development Experience IV. ADB's Strategy V. ADB's Assistance Program VI. Risks and Performance Monitoring and Evaluation

Afghanistan: Initial Country Strategy and Program 2002-2004

---

V. ADB's Assistance Program

A. Overall Assistance Level

81. At the Tokyo Conference in January 2002, ADB committed a total assistance package of $500 million including a substantial grant component over two and a half years until June 2004 for the reconstruction of Afghanistan. It is currently envisaged that grant assistance will amount to about $50 million in 2002 and the loan component will be $150 million. However, provision of loan funds to Afghanistan is contingent upon (i) Afghanistan's clearance of arrears of about $15.8 million, and (ii) agreement with ADF donors on Afghanistan's access to ADF resources. Also, as an ADF recipient, Afghanistan's ADF allocation will be based on the ADB-wide performance-based allocation exercise each year. Beyond 2002, the balance of $300 million is planned for allocation in 2003 and 2004 depending on the review of this initial strategy through the CSP Update process in 2003. The actual assistance levels will also depend on the country's absorptive capacity.

82. The Government lacks capacity and experience in funds flow mechanisms and will require substantial assistance in this area to establish sound governance policies and practices. ADB will coordinate with all development partners in this endeavor.

83. The 2002-2004 lending program is shown in Table A4.1 (Appendix 4); the nonlending program is shown in Table A4.2. The lending program is aimed at reviving the economy, restoring livelihood, and initiating the long road to sustainable poverty reduction. The nonlending program is designed to provide substantial initial capacity building and institutional strengthening to ensure success of the reconstruction process. A special feature of the 2002 program is ADB's proposed preparation of four pilot projects. These would pave the way for formulation and implementation of larger scale investments for rehabilitation, reconstruction, and development of specific sectors in priority areas financed by loans from ADB. The pilot projects could also provide the framework for large-scale investments by other bilateral and multilateral agencies in these sectors. The proposed pilot projects will contribute to the overall objective of stimulating pro-poor growth and reducing poverty by reviving agricultural production, creating employment, improving the supply of basic needs (education, health, water, and sanitation), and improving the mobility of people and goods. The pilot projects totaling $35 million would address the immediate rehabilitation and reconstruction needs of the most devastated regions and severely affected populations in 50-60 districts of the country. Particular attention will be given to the districts that have been hit by the recent earthquake. These districts and population groups will be finalized in consultation with the IAA. The sectors selected are the agriculture, social, and roads sectors.

84. In addition to the lending and nonlending program shown in Tables A4.1 and A4.2, ADB may also be called upon to undertake other quick-impact projects funded from the Afghanistan Reconstruction Trust Fund (ARTF) resources. No such projects are known or planned at this stage. However, Management clearance will be sought for such operations, and ADB's Board will be kept appropriately informed.

85. Finally, the 2002 program also includes a Postconflict Multisector Program Loan of about $150 million. The objective of the Program would be to promote economic recovery and growth by addressing policy and institutional constraints to the functioning of the agriculture, social sectors, transport and energy sectors through support for market-based policies, institutional reforms, and sustainable financing. Substantial amounts of the loan could be earmarked to meet the specific costs of adjustments and to support agriculture sector rehabilitation, national road building, and rehabilitation of primary schools and other facilities. Approval of this loan will be subject to the conditions stated in para. 81. Some flexibility in the actual design of this project is needed in the Afghan context. This assistance may be provided as a sector development program or a project loan depending on conditions in Afghanistan later in the year. Management and the Board will be informed accordingly if there is a change in the modality of this assistance as currently proposed.

B. Sector/Thematic Plan/Program and ADB Assistance

86. The thematic focus of ADB's operations guides its sector focus. ADB's concern with reconstruction and rehabilitation of physical infrastructure as the key to reviving economic activity, generating employment, and reducing poverty is reflected in the allocation of 75% of assistance in 2002 to physical infrastructure development. Social development and capacity building will claim 12.5% each in 2002, a clear indication of ADB's interest in enhancing Afghanistan's social indicators and strengthening skills, and the creation of an appropriate policy and institutional environment. Allocation for gender development will be covered under these three themes. ADB's overarching objective is poverty reduction. In terms of poverty focus, the ADB operational program presented in this ICSP may be classified as poverty interventions since over 50% of Afghanistan population lives below the poverty line.

87. In terms of specific sectors and subsectors, agriculture will receive a little more than one fifth of the total allocation in 2002, mainly for community-based reconstruction of agricultural infrastructure, agricultural administration system, and irrigation and input supply capacity. Support will also be provided for rural finance. Social sectors such as education, health, water, and sanitation, on the other hand, will receive about a fourth of total assistance in 2002 in support of rehabilitation, with particular emphasis on women and vulnerable groups. This will include assistance for the education sector, capacity building for higher education planning, institutional strengthening of the Ministry of Education, education reconstruction, capacity building for skills development and nonformal education, youth and adult nonformal education, and skills development. In the health sector, emphasis will be placed on capacity building in the Ministry of Health and the health care system, strengthening of the preventive and public health care system, rationalization of the health care delivery system, and training. The road transport and energy (petroleum, gas, and electricity) sectors will require 53% of total assistance for the period. Finally, governance and finance will receive the remaining 1% for capacity development of microfinance and enterprise finance.

C. External Funding Coordination and Partnership Arrangements

88. ADB's Special Liaison Office in Kabul is facilitating the coordination of ADB assistance with the Government and development partners. As resources start flowing from ADB and others, the Government will play a lead role in managing the aid coordination process. The Ministry of Finance will serve as the executing agency accountable for externally funded projects and will be responsible for coordination of the flow and utilization of external assistance. MOF will be assisted in these tasks by the Ministry of Planning, which is responsible for coordination with donors on planning of new projects; by the Ministry of Reconstruction, for review of project proposals submitted by line ministries; and by line ministries and departments, for implementation of sector programs and projects. The Afghan Assistance Coordination Authority (AACA) will be responsible for overall reporting on these activities. These arrangements for aid coordination are still evolving and could change in the future. The agencies mentioned above need to build up staff and expertise as quickly as possible, for which ADB will provide support. The CNA missions noted overlapping mandates and risk of duplication of roles, fragmentation of functions, and centralized state-led development. For example, responsibility for agriculture and rural development is spread over three ministries: the Ministry of Agriculture, Ministry of Irrigation and Water Resources, and Ministry of Rehabilitation and Rural Development. ADB will work closely with the Government and development partners in resolving these important institutional issues.

89. Coordination is also weak between the central government and the provincial authorities in matters of reconstruction and development, security, administration, and revenue collection. It is expected that the IAA and its successor, the Transitional Authority, will address these issues in a decisive manner.

90. ADB's assistance strategy to Afghanistan has been developed in close coordination with the international aid community. The Afghanistan Reconstruction Steering Group (ARSG), established in November 2001, stressed and set the stage for international assistance for Afghanistan's reconstruction. The European Union, Japan, Saudi Arabia, and the United States are the co-chairs of ARSG. At meetings of ARSG it was agreed that an Implementation Group would be established and would meet quarterly in Kabul, chaired by the IAA, with ADB, the Islamic Development Bank (IsDB), UNDP, the World Bank, and the Chair of the Afghanistan Support Group (ASG; currently Norway) as vice chairs. The Implementation Group is the primary umbrella for coordination among aid agencies and ensures that the key priorities of Afghanistan's reconstruction and development are supported.²⁰ The first meeting of the Implementation Group was held in Kabul on 10-11 April 2002. The meeting set the stage for strong aid coordination in the field in Afghanistan, and is expected to gradually develop into a consultative group process as in the case of other countries.

91. During the ARSG meeting in Brussels on 21-22 December 2001, it was agreed that the ARTF would be established to ensure orderly channeling of external assistance to Afghanistan. The ARTF would cover the following eligible expenditures: (i) salaries, nonproject TA, operation and maintenance, and other recurrent expenditure costs in the IAA's budget; (ii) relatively small unfunded investment activities and programs, including quick-impact recovery projects; and (iii) costs of contributions to reconstruction by Afghan experts resident abroad, and training programs for Afghans in Afghanistan. The ARTF has now been established. It will be administered by the World Bank, which will have overall fiduciary responsibility. ADB, together with the IsDB, UNDP, and the World Bank will be a member of the management committee, which is responsible for determining resource allocations in consultation with the Government.

92. Having completed the PNA, ADB staff are now working with UNDP and the World Bank to complete the CNA. A series of sector-based multi-donor missions have been fielded to Afghanistan for this purpose. ADB has led bilateral and multilateral sector missions in agriculture, education, environment, and transport. ADB has also participated in the sector missions on community development, energy, and health led by other agencies. In the areas in which ADB is taking the lead, the reports/aide memoires have already been discussed with and cleared by the IAA. Final sector reports will be ready by 15 May 2002. Other partners, especially the World Bank, are also expected to accelerate their CNA work so that it can be wrapped up by mid-2002.

93. ADB will continue to collaborate closely and build strong partnerships, not just with multilateral development banks but also with key development partners. In particular, close partnership will be sought with bilateral funding agencies such as Japan, Department for International Development of the United Kingdom, Canadian International Development Agency, and national and international NGOs in providing assistance to Afghanistan. Fifteen countries with large assistance programs (Australia, Canada, Denmark, Finland, France, Germany, Great Britain, Italy, Japan, Netherlands, Norway, Russia, Sweden, Switzerland, and USA) and the European Union founded ASG in 1997 to coordinate aid and development assistance to Afghanistan. This is an informal grouping of UN agencies, multilaterals and selected NGOs that meets annually. Norway is the chair of ASG in 2002. ASG is an important resource group for Afghanistan and plays a significant role in alleviating the worst effects of the conflict. It works with various UN organizations as well as with multilateral aid organizations active in Afghanistan. ADB will also work closely with ASG.

D. Indicative Internal Resource Requirements

94. Considerable staff and consultant resources will be required to deliver the program envisaged over the 30-month period. For 2002, ADB has provided resources to plan and process the Bank's Afghanistan program through reprivatization and reallocation of funds within the approved Administrative budget. This included necessary funds for the establishment of a Special Liaison Office in Kabul to support ADB's operations.

Back C. Strategic Focus of the Initial Country Strategy and Program	Next VI. Risks and Performance Monitoring and Evaluation