Overview

    • Economic recovery is slow as continued insecurity curtails private investment and consumer demand. Growth remains principally driven by agriculture. The fiscal position remained strong in the first half of 2017. Poverty has increased since the start of the international troop withdrawal in 2011 and amid the resulting decline in economic growth.
    • Afghanistan faces numerous political challenges as it fights the insurgency. On August 21, the US announced its new strategy for Afghanistan, calling for a modest increase in troops and a stronger regional approach. Parliamentary and district council elections are scheduled for July 07, 2018.
    • World Bank Group engagement pursues a programmatic approach to support the Afghanistan National Peace and Development Framework (ANPDF). Advisory work and operations focus on macro-fiscal management and institution building, stimulating private investments and growth, governance and anti-corruption, human development and service delivery, citizen engagement and gender equality, and urbanization, infrastructure and connectivity.

    Country Context

    The security situation has worsened. Civilian casualties are at their highest since 2002, with an unprecedented level of conflict-induced displacement. In 2017 alone, more than 202,000 Afghans were internally displaced by conflict and 44,000 others were displaced by natural disasters. A surge in returnees from Iran and Pakistan (over 296,000 in 2017) has brought mounting pressure on humanitarian assistance.

    Afghanistan’s Government continued to pursue its ambitious reform agenda. In October 2016, the Government presented the new Afghanistan National Peace and Development Framework (ANPDF) at the Brussels Conference on Afghanistan (BCA). At the conference, attended by representatives of around 70 countries and 30 international organizations, development aid of $3.8 billion per year was

    Recent Economic Developments

    Insecurity is taking a heavy toll on private investment and consumer demand. Business sentiment shows no sign of recovery. Growth is projected at 2.6 percent in 2017, only slightly higher than the 2.2-percent achieved in 2016. Inflation rose slightly in the first half of 2017, edging up to 5.1 percent in July from 4.5 percent in December 2016, driven by higher food prices—particularly for fruit and vegetables. The annual trade deficit of around 33 percent of GDP is financed by foreign aid inflows. Gross foreign exchange reserves remain unchanged at around $7 billion--equivalent to nearly 10 months of imports. 

    The fiscal position remained strong in the first half of 2017, with aid being disbursed as planned and domestic revenues maintained around the targeted levels. Revenue collection showed about a 10 percent increase from the same period last year. Expenditures remained close to the previous year’s level over the same period.

    Because of the sluggish economic growth and the deteriorating security situation since 2011, the poverty rate increased to 39.1 percent in 2013-14 (latest available survey data), up from 36 percent in 2011-12, meaning that 1.3 million people fell into poverty over this period. Rural areas, where most of the population lives, saw the biggest increase, from 38.3 to 43.6 percent. Labor demand in the off-farm sector declined. Most of the jobs created in the service sector during the pre-transition phase were lost.

    The most recent household survey (ALCS 2016-17) showed an increase of about 1 percentage point in the unemployment rate over the past two years. In 2013/14, the unemployment rate stood at 22.6 percent, with the female unemployment rate two and half times higher than the male rate. Unemployment is particularly severe amongst low-skilled, illiterate workers, who historically are at the greatest risk of falling into poverty.

    Economic Outlook

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    Growth is expected to increase from 2.6 percent in 2017 to 3.4 percent in 2018, assuming political stability and no further deterioration in security. However, with an average annual population growth rate of 3 percent and 400,000 Afghans entering the labor market each year, living conditions may further deteriorate.

    Afghanistan’s fiscal position is improving. Domestic revenues are projected to increase marginally from 10.5 percent in 2016 to 10.8 percent of GDP by end-year. Over the medium-term, there will be growing fiscal challenges. Development spending needs and security costs are expected to increase, yet resources will remain tight. Any delay or shortfall in the disbursement of pledged aid would also strain fiscal positions. 

    Long-term, sustained economic growth requires a structural economic transformation and new sources of growth. Increased human capital investment and improved agriculture productivity could provide significant opportunities. Development of the extractives sector could help generate domestic revenues and foreign exchange earnings against a possible decline in future aid flows. 

    Last Updated: Oct 17, 2017

  • Afghanistan became a member of the World Bank in 1955. Shortly after the Soviet invasion in 1979, World Bank operations were suspended, although the Bank continued to provide assistance to Afghans through its office in Pakistan.

    Prior to 1979, the World Bank provided 21 no-interest loans, known as ‘credits’, to Afghanistan across a wide range of areas, including education, roads, and agriculture. Of the original $230 million in credits approved by the International Development Association (IDA), the Bank’s concessionary lending arm, $83 million was disbursed and $147 million was subsequently canceled. Afghanistan repaid $9.2 million to IDA and was up-to-date on debt service payments until June 1992, when it stopped making payments.

    Operations resumed in May 2002 to help meet the immediate needs of the poorest people while assisting the government in developing the administrative systems required for longer-term nationwide development. Aid has since grown tremendously. To date, the World Bank has provided a total of over $3.46 billion for development and emergency reconstruction projects, and five budget support operations in Afghanistan. This support comprises over $3.02 billion in grants and $436.4 million in no-interest loans. As of April 2017, the Bank has 15 active IDA projects in Afghanistan with net commitment value of over $1.1 billion.

    International Finance Corporation (IFC), the World Bank Group’s private sector development arm, continues to work with its investment and advisory service partners in Afghanistan. IFC’s cumulative committed portfolio stood at $52 million as of end-FY 2017 and its advisory services portfolio stood at $8.8 million. IFC’s Investment portfolio includes investments in the telecommunication sector and financial markets. The investment pipeline looks promising and includes further investments in the financial markets as well as investments in the power sector and agribusiness. 

    IFC’s Advisory Services program has been supporting the Investment program in access to finance, Small and Medium Enterprises (SMEs) capacity development, job creation, strengthening horticulture export, access to renewable energy, corporate governance structure enhancement, and investment climate reform interventions.

    The World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) has $116.5 million of gross exposure for three projects in Afghanistan. MTN is a joint effort with IFC in the country’s critical telecommunication sector. The other two projects support dairy and cashmere production.

    The Afghanistan Reconstruction Trust Fund (ARTF) was established in 2002 to provide a coordinated financing mechanism for the Government of Afghanistan’s budget and national investment projects. Since its inception, 34 donors have contributed over $10 billion to the ARTF, making it the largest single source of on-budget financing for Afghanistan’s development.  

    The ARTF has a three-tier governance framework (Steering Committee, Management Committee, and Administrator), plus three working groups. This sound framework has enabled the ARTF to adapt to changing circumstances and development priorities with consistency and consensus. The World Bank is the administrator of the trust fund. The Management Committee consists of the World Bank, Islamic Development Bank, Asian Development Bank, United Nations Development Programme (UNDP), Ministry of Finance (MoF), and the United Nations Assistance Mission in Afghanistan (UNAMA) as an observer. 

    Last Updated: Oct 17, 2017

  • The World Bank Group’s current engagement with Afghanistan is determined by the Country Partnership Framework (CPF), which is closely aligned with the government’s Afghanistan National Peace and Development Framework (ANPDF). 

    The World Bank Group’s support to Afghanistan over 2017-2020 aims to help Afghanistan build strong and accountable institutions to deliver services to its citizens, and to encourage growth of the private sector. The CPF also aims at supporting economic growth that includes all members of society, with a focus on lagging areas, urban informal settlements, and people driven from their homes by conflict. 

    The World Bank Group strategy aims to help Afghanistan:

    • Build strong and accountable institutions to support the government’s state-building objectives and enable the state to fulfil its core mandate to deliver basic services to its citizens, and create an enabling environment for the private sector;
    • Support inclusive growth, with a focus on lagging areas and urban informal settlements; and
    • Deepen social inclusion through improved human development outcomes and reduced vulnerability among the most underprivileged sections of society, including the large numbers of internally displaced persons and returnees.

    Over the CPF period the World Bank expects to provide $250-$300 million in grants annually to Afghanistan through the World Bank Group’s International Development Association, the fund for the poorest countries.  Additionally, the Afghanistan Reconstruction Trust Fund could provide up to $800 million per year in grants, depending on donor commitments. The International Finance Corporation, the World Bank Group’s private sector arm, aims to expand from the current $54 million portfolio to about $80 million. The Multilateral Investment Guarantee Agency, the Bank Group’s political risk insurance arm, stands ready to provide support with a focus on finance, manufacturing, agribusiness, and infrastructure. 

    Last Updated: Oct 17, 2017

  • Selected World Bank Achievements in Afghanistan

    Social Service Delivery: The Citizens’ Charter Afghanistan Project (CCAP) is the successor to the highly successful National Solidarity Programme (NSP), which introduced a community-driven development approach toward rural infrastructure and service delivery and reached about 35,000 communities over the past 14 years. CCAP’s objective is to improve the delivery of core infrastructure and social services to participating communities through strengthened Community Development Councils. These services are part of a minimum service standards package that the government is committed to delivering to the citizens of Afghanistan. CCAP aims to contribute to the government’s long-term goals of reducing poverty and deepening the relationship between citizens and the state.

    By now, CCAP implementation is progressing systematically, with key staffing for both implementing agencies completed and recruitment of all but one Facilitating Partner (FP) finalized. Social mobilization has begun in 1,051 rural communities, with 243 communities having completed community profiles, 132 having finished CDC elections, and 61 having finalized Community Development Plans (CDPs). FPs in urban areas have established 18 CDCs (four each in Herat, Jalalabad, and Kandahar, and six in Mazar-e-Sharif).

    Education: The Education Quality Improvement Program (EQUIP), currently in its second phase, aims to increase equitable access to quality basic education, especially for girls. Program interventions are primarily targeted toward general education, teacher training, and education management. The program is fully aligned with the Afghanistan National Education Strategic Plan and supports the institutional development of the Ministry of Education’s program staff. Funds are directed through School Management Shuras (councils), functioning in 14,932 schools. EQUIP II has supported the construction of 1,137 schools and six teacher training colleges (TTCs). Under EQUIP II, 16,588 schools have received Quality Enhancement Grants for purchase of school supplies, laboratory equipment, and other resources. Moreover, 154,811 teachers have been trained under the In-Service Teacher Training (INSET) courses 1-5, of whom 35 percent are women.

    The Skills Development Program revived two key institutions in Kabul: the National Institute of Management and Administration (NIMA) that prepares young professionals to acquire junior-level jobs in the public and private sectors; and the National Institute of Music that trains gifted young musicians, establishing a nurturing platform for music in the country. Under the Afghanistan Second Skills Development Program, 100 national occupational skills standards (NOSS) have been benchmarked to an international level with the support of an international certification agency, and corresponding curricula developed for 15 trades.

    Over 35 institutes have benefited from two rounds of a Recognition Grant, while an additional eight institutes have been selected for a Development Grant, which supports reforms to improve academic management, school administration, linkages with local industries, and curriculum revision. In addition, over 522 Technical and Vocational Education and Training (TVET) graduates have been supported with scholarships through a voucher program, which facilitates further professional studies for meritorious students that graduate from TVET institutes. 

    Health: Bringing most of the efforts in public health service delivery under one umbrella in Afghanistan, the World Bank’s System Enhancement for Health Action in Transition (SEHAT) Project aims to support the implementation of a Basic Package of Health Services (BPHS) and Essential Package of Hospital Services (EPHS) through contracting arrangements across the country. SEHAT also supports efforts to strengthen the capacity of the Ministry of Public Health at central and provincial levels to effectively carry out its stewardship functions.

    Rural Development: Improving access to basic services and facilities through secondary and tertiary roads, the Afghanistan Rural Access Project will increase the number of people living within two kilometers (km) of feeder roads and reduce travel time to essential services. To date, more than 15,000 km of rural roads and related drainage structures have been upgraded or rehabilitated through four projects under these programs financed through IDA, ARTF, and other funds.

    Horticulture and Livestock: Building on the 5,300 hectares (ha) of fruit orchards established since 2009 through its predecessor, the National Horticulture and Livestock Project (NHLP) has financed the establishment of 16,750 ha of new pistachio and fruit orchards. In addition, over 90,000 ha of existing orchards have been rehabilitated and some 96,000 kitchen gardening schemes established.

    The project has also supported construction of 1,037 small water harvesting structures, improving farmers’ resilience to weather changes by allowing harvest and storage of water during the rainy season and gradual release in the growing period based on crop needs. A total of 997 raisin drying houses has been constructed on a cost-sharing basis to reduce post-harvest losses of grapes and improve the quality of raisins produced.

    Regarding livestock activities, NHLP continues to focus on key activities, including poultry production and animal health and extension services, while expanding work programs to other areas such as fishery and dairy. To date, the project has supported 122,800 farmers (78,968 women and 43,872 men), forging them into 5,768 producer groups, including poultry producer groups, to benefit from animal production and health services. It has also extended its activities to new geographical areas under sanitary mandate activities, and is supporting MAIL’s relevant directorate to implement them. 

    Irrigation: With over 85 percent of rural population relying on agriculture, irrigation remains a pressing need in rural Afghanistan. The Irrigation Restoration and Development Project (IRDP) envisages support to rehabilitate irrigation systems serving some 217,000 hectares of land and design of a limited number of small multi-purpose dams and related works, while establishing hydro-meteorological facilities and services. In the irrigation component, a total of 162 irrigation schemes has been rehabilitated, covering over 165,000 hectares of irrigation command area (compared to the end project target of 215,000 hectares and over 267,000 farmer households).

    In the small dam component, a prefeasibility review of 22 small dams resulted in a feasibility study being conducted on the six best ranked dams in the northern river basin (which is not on international rivers). A detailed social and environmental study will be carried out. In the hydro-met component, installation of 127 hydrological stations and 56 snow and meteorological stations located in various locations on the five river basins in the country is ongoing. In addition, 40 cableway stations for flow measurement at selected hydrology stations have been installed.

    Rural Enterprise: Since its inception, the Afghanistan Rural Enterprise Development Project (AREDP) has established 5,190 Savings Groups with a membership of some 60,700 rural poor (54 percent women) in 694 villages. The SGs have saved over $4.2 million and members have accessed more than 41,900 internal loans (64 percent by female members) for productive and emergency purposes with a repayment rate of 95 percent.

    To generate economies of scale, 505 Village Savings and Loan Associations (VSLAs) have been established as federations of the SGs. The VSLAs maintain accurate and up-to-date records of accounts with a good governance structure in place. On average, each VSLA has $5,780 as loanable capital, which is further boosted with a seed grant injection. This improves access to finance for group members who would like to increase productivity or engage in entrepreneurial activities but cannot access such funds from commercial banks or microfinance institutions.

    AREDP also works toward strengthening market linkages and value chains for rural enterprises by providing technical support to 1,336 Enterprise Groups (63 percent female) and 657 (15 percent female) small and medium enterprises that have been selected for their potential as key drivers of rural employment and income generation.

    Market Development: The Afghanistan New Market Development Project is piloting a business development program in the four urban centers of Kabul, Mazar-e-Sharif, Jalalabad, and Herat, which are the major hubs of economic activity. The project aims to help enterprises gain market knowledge, improve product quality, boost productive capacity, acquire new technologies, and develop and implement business plans to increase their presence in both domestic and export markets.

    The Facility for New Market Development (FNMD), created under the project, was officially launched on March 12, 2013. It has received 1,050 applications across the four cities of Kabul, Mazar-e-Sharif, Jalalabad, and Herat. Assistance has been provided to 372 firms (against a revised target of 375) and 53 business associations (against a revised target of 30). The target of creating 1,500 jobs has been met with 1,516 jobs created, of which the target of 5 percent for women has been surpassed at 30.6 percent. Finally, the “product or market diversification” target of 20 has been exceeded with 21 new or improved products introduced and 44 new international markets in 12 countries reached. 

    Building Institutions: The Capacity Building for Results (CBR) Facility supports government in developing its internal human capacity, organizational structures, and functions over the medium term to improve service delivery to the population. CBR promotes accountability in line ministries by introducing results-based reform and services improvement programs. CBR is also one of the key tools for the government to reduce reliance on external technical assistance and parallel structures. The grant helps finance the costs associated with (i) technical assistance for preparation and implementation of capacity building programs; (ii) recruitment of some 1,500 managerial, common function, and professional staff for key positions in selected line ministries; (iii) a management internship program; (iv) training of civil servants; and (v) project management, monitoring, and evaluation.

    CBR is demand driven and open to all line ministries and independent agencies.  Based on pre-agreed criteria, including service delivery potential and reform readiness, line ministries and agencies are grouped as either Category 1 (high priority) or Category 2.  Of the selected CBR positions, 700 have been contracted to date, 54 of whom are women (6 percent of selected positions), with the remainder 800 contracts at various stages of quality review and approval.

    Last Updated: Oct 17, 2017

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Additional Resources

Country Office Contacts

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+93 (0) 701133328
infoafghanistan@worldbank.org