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$600 Million in Assistance Earmarked for Afghanistan in Updated ADB Country Program

MANILA, PHILIPPINES (1 September 2004) - The Asian Development Bank (ADB) is planning to extend $600 million in assistance to Afghanistan over the next three years, according to a Country Strategy and Program (CSP) Update for 2004-2006 endorsed by ADB's Board of Directors.

The loan pipeline, prepared in collaboration with the Government, totals $570 million over the three years for 12 programs and projects, from ADB's concessional Asian Development Fund (ADF). Afghanistan's status as a postconflict country allows for up to 50% of this allocation to be provided in the form of grants. Additional grant assistance amounting to $30 million will come from the ADB's technical assistance special fund.

The final lending allocations over the period will depend on country performance and resource availability.

Afghanistan has made good use of aid and is making good progress in recovery and rehabilitation after two decades of war and internal strife. But reconstruction and development will occur over a much longer horizon, requiring a fairly large lending program, the CSP says.

The three-year program will thus continue to support economic growth, poverty reduction, and reconstruction and development.

ADB is following a three-pronged approach to supporting Afghanistan's reconstruction: building capacity, establishing an appropriate policy and institutional framework, and rehabilitating essential infrastructure.

"Despite daunting challenges, Afghanistan is undergoing one of the most promising phases of political and economic development in its recent history. Whether peace and stability are restored and progress toward political normalcy and economic renewal continues depends largely on the ability of the Kabul authorities to reconstruct an economy devastated by more than two decades of conflict and natural disaster, and to overcome a myriad of security and drug-related difficulties," says Craig Steffensen, Principal Country Program Specialist for Afghanistan.

"It also depends on the international community's abiding agreement to provide longer-term commitments and significant technical and financial support for new programs and projects, and to address security requirements."

The 12 projects and programs planned during the period span five sectors, including:

• Natural resources: An agriculture sector program and a project for water resources and irrigation in the western basins, totaling $95 million
• Transport: Regional airport and road rehabilitation projects, including two projects to improve the Herat-Andkhoy road, totaling $235 million
• Energy: Power transmission and distribution repairs, totaling $100 million
• Financial sector: An investment guarantee facility, and a financial markets and private sector development program, totaling $85 million
• Public sector: A program for public service delivery reforms, totaling $55 million

ADB also supports the Government strategy of promoting a private sector-led economic recovery. Depending on the progress of discussions with the Government and cofinancers, ADB could invest in the energy and transport sectors as well as in bank and nonbank financial institutions to develop Afghanistan's financial sector. ADB private sector investments are expected to catalyze investments of about $240 million in 2004 and $450 million in 2005.

To complement lending assistance, ADB plans a grant program amounting to about $10 million per year in support of capacity building and policy reforms in key sectors the transport, energy, natural resource management, governance, and financial sectors.

Some 36 activities are in the TA pipeline totaling $63.6 million, of which $33.6 million will be raised from grant cofinancing. Other pilot activities may be financed by bilateral and multilateral sources to cover renewable energy and biodiversity management, and grant funded pilot efforts linked to loan financed projects.

ADB resumed operations in Afghanistan, a founder member of ADB, in May 2002 with the approval of an initial CSP 2002-2004 that committed $500 million in loans and grants.

CSPs define ADB's medium-term development strategy as agreed with the country. A CSP update is prepared every year taking into account the continued relevance of the CSP, its implementation, and ADB's operational program for the next three years.

ADB is dedicated to reducing poverty in the Asia and Pacific region through pro-poor sustainable economic growth, social development, and good governance. Established in 1966, it is owned by 63 members - 45 from the region. In 2003, it approved loans and technical assistance amounting to US$6.1 billion and US$177 million, respectively.

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