Overview

Economy: The deteriorating security environment and persisting political uncertainty continue to undermine private sector confidence and affect economic activity in Afghanistan. Economic growth increased only marginally from 1.3 percent in 2014 to an estimated 1.5 percent in 2015. Domestic demand remains weak, with no signs of a pick-up in private consumption and investment. The number of new firm registrations – as a proxy for business activities -- indicate only a small increase in new investment activities in 2015, but it remains significantly below the levels of 2012-2013. Consumer prices dropped to -1.5 percent, down from 4.5 percent in 2014, due to lower private consumption and global commodity prices.

Agriculture, which is the second largest contributor to GDP growth after services, declined by a projected 2 percent in 2015. With   population growth estimated at 3 percent per year and 45 percent of the poor relying on agriculture for their livelihood, sluggish GDP growth and a decline in agriculture production put continuous upward pressure on poverty, which is projected to have further increased from the 39.1 percent estimated using the latest data available. Declining job opportunities and growing insecurity have also driven up migration in 2015.

The fiscal position has improved significantly. Domestic revenues rebounded to 10.6 percent in 2015, after a significant decline to 8.7 percent in 2014. The government also continued to exercise prudent expenditure controls in 2015. Total expenditures increased marginally from 26.2 percent in 2014 to 27.7 percent in 2015. Improvement in revenue collection, more realistic budgeting and restraints on expenditures helped to balance the budget.

The exchange rate strongly depreciated by 7 percent against the US dollar in 2015. On the one hand, foreign aid inflows have declined, which makes foreign currency more valuable vis-à-vis the Afghani. On the other hand, growing uncertainty around the political and security environment have caused demand for Afghani to decline; both through consumer’s preference to retain their savings in US dollar, and through lower capital inflows which naturally increase demand for foreign currency. Moreover, increased out-migration might have also been associated with larger capital outflows.

The medium-term outlook points towards a slow recovery over the next three years. Growth is projected at 1.9 percent in 2016, assuming adjustment in domestic consumption and investment. Growth is projected to gradually increase from 1.9 percent in 2016 to 3.6 percent in 2018, predicated on political stabilization and stronger reform efforts. However, further deterioration in the security environment pose significant downside risks and could weaken growth prospects.

Education: In 2001, after the fall of the Taliban, net enrollment was estimated at 43 percent for boys and a dismal 3 percent for girls. Moreover, there were only about 21,000 teachers (largely under-educated) for a school-age population estimated at more than 5 million — or about 240 students for every trained teacher. Since 2002, school enrollment has increased from 1 million to 8.7 million, of which 36 percent are girls and the number of teachers has grown to more than 185,000. The majority of the teacher force has received teacher training either through Teacher Training Centers or In-service Teacher Training. Efforts are ongoing to continuously upgrade teacher qualifications and overall access to equitable and quality education in Afghanistan. Although the number of teachers hired and trained has risen with enrollments, the quality of teachers is a concern. The teaching profession does not attract the best candidates, because teacher pay is low and the profession attracts the least qualified of those progressing to higher education. Half of Afghanistan's 412 districts do not have qualified female teachers. Moreover, the deployment of teachers across provinces is sub-optimal, leading to unemployed teachers in urban areas and teacher vacancies in rural zones.

Health: The Afghan health system has made considerable progress during the past decade thanks to strong government leadership, sound public health policies, innovative service delivery, careful program monitoring and evaluation, and development assistance. Data from household surveys (between 2003 and 2011) show significant declines in maternal and child mortality. The under-5 mortality rate and infant mortality rate dropped from 257 and 165 per 1,000 live births to 97 and 77 respectively. The maternal mortality ratio is 327 per 100,000 live births, compared with 1,600 in 2002. The number of functioning health facilities increased from 496 in 2002 to more than 2,000 in 2012, while at the same time the proportion of facilities with female staff increased.

Despite significant improvements in the coverage and quality of health services, as well as a drop in maternal, infant and under-5 mortality, Afghan health indicators remain below average for low income countries, indicating the need to further lower barriers for women accessing services. Afghanistan has one of the highest levels of child malnutrition in the world, with about 40.9 percent of children under five suffering from chronic malnutrition while both women and children suffer from high levels of vitamin and mineral deficiencies.

Access to Electricity: Afghanistan has one of the lowest rates of electricity usage in the world.  It is in the bottom 10 percent globally (around 100 kilowatt hours per year per capita consumption) and only about 38 percent (as of June 2015) of its population is connected to the grid. In 2011, the last year for which reliable data is available, Afghanistan’s estimated 32 million people consumed only about three million megawatts (MW) of grid-supplied electricity. Imported power supplied almost three-quarters of this energy, while domestic hydro supplied about 17 percent and the balance (13 percent) came from diesel thermal plants in Kabul and generators. The reliability of the grid, particularly in Kabul, has improved significantly over the past few years. But load shedding and outages are still a sufficiently common occurrence that few have given up their private generators.

Low connectivity to the grid conceals a vast difference between rural and urban access. While over 75 percent of the population in large urban areas like Kabul, Kandahar, Herat, and Mazar-e-Sharif have electricity, less than 10 percent of the rural population has access to grid-connected power. Large parts of Kabul, Mazar-e-Sharif and Pul-e-Khumri have a 24-hour power supply. These cities are part of the North East Power System (NEPS), which imports up to 300 MW from Uzbekistan throughout the year, and up to 300 MW from Tajikistan during the summer. Currently total installed Transmission Lines Capacity is: 326MW from Uzbekistan, 164 MW from Iran, 433 MW from Tajikistan and 77 MW from Turkmenistan.

Last Updated: Apr 08, 2016

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 the Bank office in Pakistan.

Prior to 1979, the World Bank had 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 were disbursed and $147 million were subsequently canceled. Afghanistan had 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 $3.34 billion for development and emergency reconstruction projects, and five budget support operations in Afghanistan. This support comprises over $2.90 billion in grants and $436.4 million in no-interest loans known as ‘credits’. As of April 2016, the Bank has 15 active IDA projects in Afghanistan with net commitments value of over $1.3 billion.

The 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 Investment Services now has a committed investment portfolio totaling some US$130 million in five companies, including commitments in the financial, telecommunication, and hospitality sectors. IFC is exploring investment opportunities across the manufacturing, services, financial markets, and infrastructure sectors. IFC Advisory Services has active projects in the areas of financial sector reform, business regulatory reform, Public Private Partnerships, horticulture, and Small and Medium Enterprise management training. 

The World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) has US$154 million of gross exposure in Afghanistan, supporting telecommunication and agribusiness projects. MIGA recently launched its ‘Conflict Affected and Fragile Economies Facility’, which will boost the agency’s capacity to insure investments in Afghanistan. The telecommunication project (MTN) is also receiving financing from IFC. The two agribusiness projects are in dairy and cashmere production.

The Afghanistan Reconstruction Trust Fund (ARTF) was established in 2002 to provide a coordinated financing mechanisms for the GoA’s budget and national investment projects. Since its inception, 34 donors have contributed over $8.9 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, UNDP, Ministry of Finance (MoF), and UNAMA as an observer. 

Last Updated: Apr 08, 2016

The World Bank Group’s current engagement with Afghanistan is determined by the Interim Strategy Note (ISN), which is closely aligned with the government’s Afghanistan National Development Strategy (ANDS). World Bank support to Afghanistan over 2012-2015 is based on supporting the delivery of some of the country's most important national priorities. World Bank Group support is being provided around three themes:

1.      Building the legitimacy and capacity of institutions

2.      Equitable service delivery

3.      Inclusive growth and jobs

The Bank delivers its program through International Development Association (IDA) grants, from which Afghanistan will receive about $150 million per year, as well as the Afghanistan Reconstruction Trust Fund (ARTF), which could potentially provide up to $800 million per year in grants during the period of the ISN (2012-15). The Bank’s private-sector arm—the International Finance Corporation (IFC) — is also strengthening its support to both private sector companies and improving the business environment.

The World Bank Group support emphasizes national programs that have improved the lives of millions of Afghans across the country, including in the areas of health, education, rural development, and public finance management.

The World Bank Group (WBG) carried out public consultations with a wide range of stakeholders on Afghanistan’s Systematic Country Diagnostics (SCD) in September 2015. The SCD is an evidence-based, diagnostic report to identify key constraints and priorities for Afghanistan to accelerate progress toward reducing poverty and promoting shared prosperity in a sustainable way. It is not intended to be limited to expected areas of WBG engagement, but rather to inform the policy discussion with a broad community of stakeholders in Afghanistan’s development.

The SCD engagement process included meetings with a number of stakeholders, including government officials, private sector, civil society representatives, and development partners. Upon completion of the SCD in early 2016, the World Bank Group started preparations to develop its future WBG Country Partnership Framework for the coming four years (2017-2020). Another round of public engagement and consultative process is scheduled to take place later this year.

Last Updated: Apr 08, 2016

Selected Achievements in Afghanistan

Education: The World Bank is helping to rehabilitate primary schools and train teachers, while giving technical assistance to strengthen the Ministries of Education and Higher Education. The Bank’s Education Quality Improvement Program (EQUIP) gives funds to communities to rehabilitate or construct school buildings and access teaching and learning materials. Funds are directed through School Management Shuras (councils), now functioning in more than 14,400 schools. Since 2002, a total of 1,033 schools have been constructed. In addition, 11,543 schools have received a total of $25 million in Quality Enhancement Grants under EQUIP I and II for the purchase of school supplies, laboratory equipment, and other materials that help strengthen the learning environment.

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. To date, over 35 institutes have benefitted from two rounds of a ‘Recognition Grant’, while an additional 8 institutes have been selected for a Development Grant, which support reforms to improve academic management, school administration, linkages with local industries, and curriculum revision. In addition, over 500 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: Over the past decade, Afghanistan has made steady progress in the health sector. Around 20,000 community health workers—half of them women—were trained and deployed throughout the country, increasing access to family planning and boosting childhood vaccinations. The number of facilities with trained female health workers rose from 25 percent to 74 percent today. The number of functioning health facilities increased from 496 in 2002 to more than 2,000 in 2012, while at the same time the proportion of facilities with female staff increased. Births attended by skilled health personnel among the lowest income quintile increased to 35 percent from 15.6 percent. Contraceptive prevalence rate (using any modern method) increased to 30 percent from 19.5 percent.

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 the Basic Package of Health Services (BPHS) and Essential Package of Hospital Services (EPHS) through contracting arrangements across the country. SEHAT also supports efforts in strengthening the capacity of the Ministry of Public Health at central and provincial levels to effectively carry out its stewardship functions.

Rural Development: National Solidarity Program (NSP) is government’s flagship program is in its third phase and aims at generating a strong sense of ownership and social stability while enhancing service delivery and security through empowerment and development activities that communities identify, plan, manage, and monitor on their own. Since 2003, NSP has successfully established Community Development Councils (CDCs) in over 35,000 communities, and supported subsequent rounds of CDC elections in over 11,500 of these communities. Cumulatively, over all the NSP phases to date, CDCs have received over $2.31 billion, of which some $1.61 billion have gone to communities through block grants to finance over 89,600 sub-projects. More than 79,000 sub-projects have closed, while the rest is ongoing.  The financed sub-projects include transportation (30 percent), water supply and sanitation (25 percent), irrigation (26 percent) power (5 percent) and other small-scale infrastructure schemes (14 percent).

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 13,000 km of rural roads and related drainage structures have been upgraded or rehabilitated under these programs through four projects financed through IDA, ARTF, and other funds.

Horticulture and Livestock: Building on the 5,300 hectares of fruit orchards established since 2009 through its predecessor, the National Horticulture and Livestock Project (NHLP) has financed the establishment of another 12,000 hectares of new orchards, about 34 percent of which are in new provinces. Further, NHLP continues to introduce innovative lines of investment support. It has successfully introduced production techniques to, inter alia, extend the production period of vegetables through establishment of some 1840 production schemes based on the use of micro greenhouses; create a culture of high productivity dry land cultivation, by having already supported establishment of 1,990 ha—a cumulative target of 300 ha—of pistachio groves with high yielding varieties; and promote modernization of horticulture sector, through establishment of 52.7 ha of demonstration of high and medium density orchards. In addition, over 1,250,800 young cattle and 6.2 million young sheep and goats have already been vaccinated since 2013.

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) is ensuring irrigation of some 300,000 hectares of land by rehabilitating irrigation systems and building a limited number of small multi-purpose dams. In the irrigation component a total of 98 irrigation schemes have been rehabilitated, benefiting 100,000 hectares of irrigation command area and 63,000 farmers. In the small dam component, the completed pre-feasibility study had selected seven dam sites in the northern provinces.  A feasibility study of the six best-ranked small dams in the northern river basin (which are not on international rivers), selected from a pre-feasibility study of 22 small dams, has been completed. In the hydro-met component, 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 5,561 Savings Groups with a membership of some 68,000 rural poor (52 percent women) in 747 villages. The SGs have saved over $3.37 million and members have accessed more than 27,000 internal loans for productive and emergency purposes with a repayment rate of 95 percent.

On average each VSLA has $6,500 as loan-able 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 towards strengthening market linkages and value chains for rural enterprises by providing technical support to 1,238 Enterprise Groups (65 percent female) and 563 (13 percent female) Small Medium Enterprises that have been selected for their potential as key drivers of rural employment and income generation. Six Provincial Situation Analysis (PSA) have been completed and 10 PSAs are underway. Support was given to 113 Kochies (nomads) and 143 disabled people to enhance their enterprise development skills and productivity. AREDP uses Community Development Councils as an entry point into communities and is currently working in 20 districts of five provinces: Parwan, Bamyan, Nangarhar, Balkh, and Herat. 

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. Since then it has received 1,051 applications from small and medium enterprises (SMEs), and signed cost-sharing grant contracts worth $10 million with 430 firms and associations. Moreover, FNMD has processed 74 additional grant agreements with the SMEs that successfully completed their first cycles of agreements. Also through FNMD, over 1,500 jobs have been created across the country, including more than 30 percent for women, with 166 new or improved products introduced in either domestic or export markets.

Telecommunications: The Afghanistan Information and Communication Technology Sector Development Project supports policy and regulatory reforms and strategic infrastructure investment to expand connectivity and enable more users to access high quality mobile and Internet services. It also helps mainstream the use of mobile applications to improve public service delivery and program management in strategic government sectors. The project helps develop the local IT industry by expanding the pool of skilled and qualified IT professionals, and supporting the incubation of ICT companies in Afghanistan. To date, major milestones under the project include progress in construction of optical fiber cable, completion of about 440 kilometers of ducting, and operationalization of the four nodes on the northeast segment. A total of 1,500 Afghans have been trained under the IT skills development program and another round of specially designed job-oriented training programs will run in 2016. Two rounds of the Innovation Support Program awarded 15 local innovators for their ideas on how mobile technologies could help address challenges in various sectors including agriculture, education, and health. The ICT business incubator complex has been constructed in the ICT Institute area of MCIT and eight start-up business entities have undergone training programs in the complex to date.

Last Updated: Apr 08, 2016


LENDING

Afghanistan: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments