Regions and Countries

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p. 4 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2006-2008: Afghanistan

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IV. Country Performance and Assistance Levels

A. Proposed Lending Level

33. As a postconflict and least developed country, Afghanistan requires a predictable and multi-year commitment of donor funding for its massive rebuilding program. At the Berlin Conference in 2004, ADB pledged to consider assistance of about $800 million in Asian Development Fund loans and grants during 2005–2008. ADB’s lending program is thus projected to be some $200 million per year, subject to overall availability of funds and the performance-based allocation (PBA) system for postconflict countries. The Government has performed well against the key postconflict indicators, thus justifying the maximum annual allocation. Because of Afghanistan’s need to be extremely cautious about accumulating external debt, even on highly concessional terms, up to half of the total lending allocation will be provided on a full grant basis (as per the guidelines for ADF grants). ADB has proposed one quick-disbursing program loan at least every other year. In light of the many challenges facing Afghanistan after years of conflict and the country’s current fiscal and debt situation, ADB’s Board of Directors has also extended the waiver of Government cost-sharing for both loans and TA through to the end of 2006.

34. The entire lending program for 2005–2008 will be allocated to economic growth. In terms of poverty focus, most loans, TA projects, and other nonlending operations in the operational program will be classified as core poverty interventions. Social development and gender concerns will continue to be mainstreamed in loans and TA projects as much as possible so as to engage local governments and civil society in decision making for planning and implementing projects as well as to promote women’s participation. Efforts will also be made to mainstream antinarcotics and alternative livelihood approaches as well as enhanced accountability and anticorruption provisions in all ADB-supported activities.

35. ADB supports the Government’s strong emphasis on private-sector-led economic recovery. ADB has already identified loan and equity investments of up to $100 million in partnership with local and foreign investors, as well as guarantees of about $100 million to catalyze private investments. Areas offering private sector investment opportunities include the telecommunications, agro-business, and cement sectors.

B. Nonlending Program

36. As per its Berlin Conference pledge and the TA strategy outlined in the 2004-2006 CSPU, ADB plans to provide Afghanistan with up to $10 million per year in advisory and project preparation technical assistance. The high annual level of technical assistance is considered essential given Afghanistan’s still weak human resource base and government capacity constraints. Continued emphasis will be given to capacity development and institutional strengthening, with increased attention to performance measurement.

C. Summary of Changes to Lending and Nonlending Program

37. The proposed 2006–2008 loan program includes some “overprogramming” given the possibility of security or capacity-related delays in the implementation of earlier loans in the same sectors.

38. At the request of the Government, ADB added $800,000 for TA for small and mediumsized hydropower and renewable energy to its 2005 TA program. It is expected that this TA will result in a project loan in 2007 for small and medium-sized hydropower development, including multipurpose dams. Such a project will complement ADB’s other power and gas activities, and will help to extend electricity to more rural households (compared with other developing countries, Afghanistan has one of the lowest percentages of households with access to electricity). A planned project preparatory TA project, Feasibility Study for Road Network Improvement, was dropped from the 2005 pipeline as an earlier TA had provided sufficient engineering data to plan the projected 2006 road rehabilitation project. A planned 2005 Poverty Assessment TA has been moved to the 2006 pipeline to build upon ongoing surveys and other statistical and sectoral studies. In place of these TA projects, four new TA projects were added to the 2005 nonlending products and services pipeline: (i) Capacity Development for Irrigation and Water Resources Management, (ii) Afghanistan Renewal Fund (a TA in support of a planned ADB private sector investment), (iii) Capacity Building for Economic Management, and (iv) Building the Capacity of the Ministry of Commerce for Trade and Transit Facilitation. The 2006 and 2007 TA pipelines were updated to reflect project and capacity development-related discussions with the Government.

39. In addition to a greater focus on anti-narcotics and alternative livelihood activities, more effort will be made to incorporate a regional dimension in loan projects, such as including border facilities in road projects or ensuring connectivity with regional power transmission grids. TA projects in support of trade and transit facilitation and greater regional cooperation have been added to the TA pipeline, and discussions are underway with development partners with respect to assisting the Government to develop more accountability and stronger anticorruption measures.

40. Because of a reduction in the size of Japan Fund for Poverty Reduction (JFPR) grants (maximum $3 million) as well as staffing constraints in both project divisions and the Afghanistan Resident Mission, proposed JFPR projects amounting to $10 million per year have been dropped from the Afghanistan assistance pipeline. Depending on staff availability, consideration will be given to including multisectoral and community-based JFPR or other grantfinanced projects in ADB’s overall assistance program in Afghanistan.

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