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Rehabilitation and Reconstruction - ADB's Role in Afghanistan and the Region
Toward reconstruction: financing the transitionCoordinating the responseAid coordination on the rehabilitation and reconstruction of Afghanistan has been intense. In late 2001, several international conferences were held to ensure that donor activities would avoid duplication and waste. During these meetings, the Afghanistan Support Group (ASG),18 founded in 1996 by the 15 largest donor countries and the European Union, emerged as an important Afghan advocacy group. The ASG contributes to reconciliation, social and economic development, and sustainable peace and progress in Afghanistan. It is focused on improving coordination between donors and promoting human rights in aid initiatives, thereby laying a foundation for urgently needed reconstruction. The Afghanistan Reconstruction Steering Group (ARSG, also known as SG) was established19 to provide policy guidance for Afghanistan’s reconstruction. It created an Implementation Group (IG), which served as the primary umbrella for coordination among funding agencies until the Consultative Group (CG) mechanism took charge.20 A Senior Officials’ Meeting in Washington, DC, in November 2001 requested ADB, UNDP, and World Bank to conduct a needs assessment for the Afghanistan Reconstruction Steering Group Ministerial Pledging Conference held in Tokyo on 21–22 January 2002. ADB stated in late 2001 that its assistance program to Afghanistan would evolve in full partnership with the Afghan people and in full collaboration with other international financial institutions and international agencies. In preparing the preliminary needs assessment, ADB worked closely with UNDP and the World Bank, and participated in extensive consultations with Afghans, NGOs, and UN agency staff experienced in and familiar with Afghanistan. Staff of the three institutions also traveled to Kabul to consult with the Government. Assessing preliminary needsThe preliminary needs assessment presented at the Ministerial Pledging Conference provided the basis for the international community’s pledge of $4.5 billion in development assistance around agreed sector priorities and policy and institutional frameworks. ADB pledged $500 million in highly concessional loans and grants over a 30-month period ending 30 June 2004. It was agreed at the conference that comprehensive needs assessments of all key sectors would follow to put sector development plans on a firmer footing. ADB acted as the lead agency for the assessments of the agriculture, transport, education, and environment sectors. In-depth consultations were held with the IAA in preparing the comprehensive needs assessments. The Government expressed concern that the process and the outcome were largely supply-driven and that government involvement was not optimized. The Government also perceived that work on the assessments had pulled scarce human resources away from formulating projects and programs for immediate implementation. The contribution made by the assessments in providing for sector development frameworks—including policy and institutional frameworks—was, according to ADB, important for immediate implementation and long-term sector plans and should be valued. Establishing the mechanismThe Afghanistan Reconstruction Trust Fund (ARTF) was conceived in December 2001 to provide a coordinated financing mechanism for the Government’s operating and development budget, including investment projects and programs in priority sectors. The ARTF is an important multidonor initiative designed to
The ARTF covers salaries, nonproject technical assistance, operation and maintenance, and other recurrent costs, including interest payments in the IAA’s budget; relatively small unfunded investment activities and programs, including quick-impact recovery projects; contributions to reconstruction by Afghan experts residing abroad; and in-country training programs for Afghans. The fund is administered by the World Bank, which carries overall fiduciary responsibility. ADB, together with the Islamic Development Bank, UNDP, and World Bank are members of the management committee, which is responsible for determining resource allocations in consultation with the Government. The key principle guiding ARTF financing is its response to country requirements as articulated by the Government. A monitoring agent has been appointed by the World Bank to ensure proper fiduciary management. The ARTF has grown rapidly, with pledges topping $376 million by 22 countries. This has exceeded expectations, but remains short of Afghanistan’s needs. Of these pledges, paid-in contributions totaled $184 million as of 7 March 2003. Disbursements have picked up in recent months, with cumulative disbursements reaching over $114 million or 63% of total paid-in contributions as of 7 March 2003. Disbursements are expected to reach $147 million by the end of the Afghan fiscal year on 21 March 2003. Seven ARTF investment projects have been approved, for a total commitment of $48.6 million.21 Despite a slow start, commitments for the Government’s operating budget have increased significantly and, to a large extent, closed the government deficit, with the ARTF serving as the main instrument for funding recurrent costs. During its first 10 months, the ARTF has shown its capacity to disburse funds throughout the country in support of the national operating budget and to account for these expenditures, with progressive improvements in documentation and timeliness. Early indications suggest that the same is likely to be true for the development budget. Based on these encouraging early results, the Government has requested a major increase in donor contributions to the ARTF. The Government intends to use the ARTF as the primary funding mechanism for moving forward.22 This reflects its view that the National Development Budget should be the central instrument for policy and resource allocation, implying a high premium on coordinated financing instruments that provide resources to and through the budget. The Government sees the ARTF as a source of funds for providing services, and it is deemed effective by Afghan citizens in helping build a legitimate and sustainable state. The Government also sees the ARTF as a capacity-building instrument. In line with this, the Government proposes to sharply increase donor contributions to the ARTF to about $600 million for the fiscal year ending 21 March 2004, including about $200 million to cover recurrent costs and an estimated $400 million for investment projects, expatriate Afghans, and training. (Preliminary estimates suggest that the operating budget will be about $500 million, with domestic revenues around $200 million, and external financing of security expenditure at $100 million, leaving a deficit of $200 million to be covered by the ARTF.) Compared with the current level of pledges for the year to 31 March 2004 (approximately $156 million as of 7 March 2003), the ARTF has a funding gap in relation to the Government’s request of about $450 million. In addition to the ARTF, the Government intends to use the National Development Budget as a planning tool for mobilizing both domestic and external resources. This budget will remain the central instrument for policy and institutional reform, and for coordinating aid resources. The Government has expressed strong views on assistance modalities, and wants each donor to focus on three sectors to achieve greater effectiveness. The Government also perceives the sector focus as necessary to avoid stretching the capacity of the funding agencies. ADB appreciates the Government’s desire for ADB to focus on the transport, energy, and agriculture and natural resource management sectors. How this policy might affect ongoing and planned ADB support for Afghanistan’s social sectors is not known. ADB was the lead agency in preparing the comprehensive needs assessment for education, and several grant-financed activities are planned and under implementation. In addition, the interim CSP envisaged several loan-financed operations during 2003 and 2004. The Government is apparently favorably disposed to ADB continuing its existing grant programs in health and education, despite strong reservations on borrowing for social sector investments. Dialogue with the Government will continue. Limiting donor activities to three sectors is intended to maximize the benefits of assistance while achieving better coordination. The Government created a new consultative group as an institutional counterpart for aid coordination that is linked closely to the budget process. The national budget will be planned, financed, and implemented within the CGs. This CG structure (see page 24) will be led by the Government. The Government has established local level donor-government CGs, covering national development programs with one designated donor acting as the focal point for each group. An annual forum will review the progress of the previous year, discuss the budget for the coming year, and outline national priority areas and policy objectives.23 In addition, the Government has established crosscutting donor-government advisory groups for gender, environment, humanitarian affairs, and human rights, with one donor acting as the focal point for each group. ADB has been designated as the focal point for two national programs (transport and natural resource management), and one crosscutting area (environment). ADB is also a donor member of two other CGs—energy, mining, and telecommunications; and public administration and economic management—and is actively engaged in the proceedings of the CGs. BorrowingThe Government favors obtaining flexible financing to undertake complex reforms in key economic sectors. Accordingly, ADB approved in December 2002 a $150 million Postconflict Multisector Program loan. By accepting the loan, the Government demonstrated its determination to carry forward policy and institutional reforms vital for long-term sustainable growth. Rapid economic recovery depends on the rehabilitation and reconstruction of infrastructure and its efficient and environmentally sound management. With this in view, the program loan focuses on three sectors—governance and finance, transport, and energy. The program loan is a milestone in cooperation among the Government, ADB, IMF, and World Bank; and the governments of Italy, Japan, Norway, United Kingdom, and others in arranging clearance of Afghanistan’s arrears with ADB prior to loan approval. The Government of Afghanistan has been reluctant to borrow funds for financing the budget gap or reconstruction, maintaining that these should be financed through grants. Also, the Government believes that social sector activities should be funded from bilateral and multilateral grant resources. The Government and ADB have agreed, however, that while ADB will do its part to increase grant financing in its total assistance to Afghanistan, the bulk of aid will be provided through highly concessional loans. ADB’s Postconflict Multisector Program loan carries an extended repayment period of 40 years, including a 10-year grace period. The interest rate is 1% per annum and the interest charge during the grace period will be capitalized, implying that no payment on the loan to ADB will be required until 2011.24 Efforts to convince the Government of the benefits of borrowing, taking into account the full range of debt sustainability issues, are ongoing. Afghanistan and Regional Cooperation Afghanistan is central to the promotion of regional trade and commerce. For several thousand years up to the 16th century, Afghanistan was a meeting ground: a route for trade and the communication of ideas, religions, and skills between Europe and the Middle East, and the People’s Republic of China (PRC) and the Far East. With the advent of commercial shipping, which proved safer and cheaper than trade over land, the region lost its geographic importance and turned inward. Afghanistan’s isolation deepened in the 19th century with the industrialization of Europe and the partial de-industrialization of Asia. In the mid-20th century, the country acted as a buffer between Cold War groups. Isolation and occupation of the country in 1979 prevented implementation of the planned Asian-Eurasian East-West highways envisaged to connect Europe and Turkey with Southeast Asia and the PRC through Central Asia. The collapse of the Soviet Union, the emergence of Central Asian republics, the defeat of the Taliban, and the subsequent assumption of power of the present Afghan administration, should allow the country to resume its central role in regional economic cooperation. Afghanistan could potentially engage in regional cooperation in trade, energy, power, transportation, agriculture, mining and industry, and water resources. Essential to realizing greater benefits from regional cooperation is rehabilitation of Afghanistan’s road infrastructure, harmonization of customs systems, and rationalization of existing transit trade agreements. The Government has demonstrated interest in reactivating Afghanistan’s role in regional cooperation. With help from ADB, it is reviving road links with Turkmenistan and Uzbekistan in the north, and Pakistan in the southeast. Ongoing rehabilitation of damaged transmission lines in the northern power grid will enable imports of power from Turkmenistan and Uzbekistan. Transit rights are being negotiated for the proposed Turkmenistan- Afghanistan-Pakistan natural gas pipeline. Cross-border trade facilitation initiatives are also under way. Afghanistan Timeline 1966 1979 11 September 2001 22 November 2001 20 December 2001 21–22 January 2002 21–22 January 2002 4 April 2002 13 June 2002 12–13 October 2002 31 October 2002 14 November 2002 3 December 2002 4 December 2002 Education Resources for education are limited in Afghanistan. And with the lifting of Taliban restrictions on girls attending school, demand for learning opportunities is rising fast. About 900,000 students attended school under the Taliban regime, and donors expected that number to rise to 1.5 million in 2002 under the new Government. Instead, 3 million students enrolled. Donors now expect 4 million children to be in school by the end of 2002. Their needs span the full range of formal education, nonformal education, and skills training. Classes are now made up of students of varying levels of skills and ages. During the conflict, some children attended nongovernment organization (NGO)-run schools in Pakistan, others went to government schools in Iran. And many, especially girls, had no opportunity to study. As these children return to classes, their desire to learn is hindered by the limitations of devastated infrastructure. Afghanistan has about 5,000 schools, two thirds of which require reconstruction or major repairs. Many schools lack a water source or toilets. To teach at least 3 million students, more than 7,500 schools are needed. The needs go beyond physical infrastructure. Teachers have not been trained for some time, particularly women who were prevented from working during the Taliban regime. Qualified new teachers will remain scarce in coming years as most teacher training institutions have been damaged or destroyed. Schools are seriously underresourced in terms of facilities, equipment, teaching-learning materials, and supplies. The cost of education reconstruction has been estimated at more than $1 billion over 10 years, excluding annual recurrent costs. To support the rehabilitation of the system, ADB, in coordination with its development partners, is helping build professional capacity at the Ministry of Education and the Ministry of Higher Education to improve training, planning, and management activities. ADB is also implementing a community-based basic education project. Afghanistan’s expectations for an improved school system are high. Classrooms crowded with eager boys and girls represent early success in the drive for better education. Now the Government and donors must work to keep these children in school by providing accessible, secure, and quality education. ____________________
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