Development Cooperation Report 2010 of Afghanistan

Islamic Republic of Afghanistan
Ministry of Finance

Development Cooperation Report

2010

Foreword
On behalf of the Ministry of Finance (MOF) of the Government of the Islamic Republic of Afghanistan (GoIRA),
it is my pleasure to present the first Development Cooperation Report (DCR) to the international community
and the people of our nation.

The Development Cooperation Dialogue (DCD) process was initiated to stimulate policy dialogue on
development and reconstruction between the GoIRA with its Development Partners (DPs) to help strengthen
the relationship and cooperation between the GoIRA and its partners. This report, the outcome of a successful
round of negotiations, will serve as a critical tool for GoIRA and our DPs to assess the development
achievements of the country since 2002, identify the challenges to development in Afghanistan encountered
both by the Government and the international community and will hopefully provide policy directions to
further strengthen and accelerate the development process in Afghanistan.

We greatly appreciate the sustained assistance to Afghanistan provided by the international community for
development and gratefully acknowledge how such support helped bring positive changes to the lives of
Afghans since 2002. We acknowledge the significant contributions made to our nation’s development, through
provision of support to the financing of Afghanistan’s medium and long term strategies (Afghanistan National
Development Strategy and the national priority programs- NPPs). This report makes a brief assessment of the
utilization of development assistance to date and further analyzes the effectiveness of the delivery of
development assistance as based on the principles of Aid Effectiveness, agreed upon by the international
community and announced in Paris in 2005.

DCR reviews the financial trends of Official Development Assistance (ODA) flows since 2002 multi-year
projections of financing provided by DPs and the differences and disparities in financial support and
development progress across sectors and geographic areas. Dissemination of information and overview
analyses contained in reports of this nature contribute to transparency and accountability of development
finance utilization for the benefit of all stakeholders - the GoIRA, DPs and most importantly, the Afghan public.

The development dialogue process and the record of information collected, analyzed and shared widely have
the best potential of strengthening mutual trust between GoIRA, the international community and the Afghan
population. If appropriately used, these reports can provide decision making tools for the Government and
the international community for better aid coordination promoting improved medium and long term planning
of development interventions that can produce development results generating sustainable economic growth
and development benefits for the people of Afghanistan.

I express GoIRA’s commitment to serve the needs of the Afghan nation and its public and to this effect make
best efforts to strengthen cooperation, based on mutual accountability, with its DPs. The current report, with
its basic data and policy analysis, serves these objectives. Thus, our commitment is to make the DCDs an
annual event and publish annual reports generated out of the process. Our DPs' continuous support to this
process through provision of optimal information about their development financing to Afghanistan will
ultimately maximize public information both in Afghanistan and in donor countries about the benefits of our
DPs’ development interventions in Afghanistan.

MOF, on behalf of GoIRA, takes this opportunity to extend its gratitude to the Afghan population and the
international community for their continued support to GoIRA. We also thank UNDP for the technical and
financial assistance in support of the DCDs.

Dr. Omar Zakhilwal
Minister of Finance

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Contents

Foreword................................................................................................................................................................ I
Contents...............................................................................................................................................................IV
Acronyms ..............................................................................................................................................................V
Executive Summary............................................................................................................................................... 1
1. Introduction .................................................................................................................................................. 4
2. History of Foreign Assistance in Afghanistan ............................................................................................... 6
2.1. Pre-Cold War era (1919-50s)................................................................................................................ 6
2.2. The Cold War era (1960s-1990s) .......................................................................................................... 6
2.3. Post 9/11 (2001- present) .................................................................................................................... 7
3. Landmark Conferences ................................................................................................................................. 9
3.1. Bonn Conference (2001) ...................................................................................................................... 9
3.2. Tokyo Conference (2002) ..................................................................................................................... 9
3.3. Berlin Conference (2004) ..................................................................................................................... 9
3.4. The London Conference ..................................................................................................................... 10
3.5. Rome Conference (2007) ................................................................................................................... 10
3.6. Paris Conference on Afghanistan (2008)............................................................................................ 11
3.7. Hague Conference (2009) .................................................................................................................. 11
3.8. London Conference (2010)................................................................................................................. 12
3.9. Kabul Conference (2010).................................................................................................................... 12
3.10. Lisbon Conference (2010) ...................................................................................................................... 12
Assessment ..................................................................................................................................................... 14
4. Aid Dependency (Reality of Aid in Afghanistan) ......................................................................................... 15
5. Overview of External Assistance ................................................................................................................ 18
5.1. Synopsis.............................................................................................................................................. 18
5.2. Geographic Distribution of External Assistance ................................................................................. 21
5.3. Loans .................................................................................................................................................. 22
5.4. Aid Predictability ................................................................................................................................ 22
5.5. Main Delivery Channels of External Assistance ................................................................................. 23
5.5.1. External Assistance for Security Sector...................................................................................... 23
Analysis ........................................................................................................................................................... 25
5.5.2. External Assistance for Development ............................................................................................ 27
5.5.2.1. Trust Funds ............................................................................................................................ 28
5.5.2.2. Assistance through Government Systems ............................................................................. 30
5.5.2.3. Support for Government Operating Budget .......................................................................... 31
5.5.2.4. Share of Aid as Percentage of Government Budget .............................................................. 31
6. Aid Effectiveness in Afghanistan ................................................................................................................ 34

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6.1. Introduction ....................................................................................................................................... 34
6.2. The Achievements in Brief ................................................................................................................. 34
6.3. The Lapses Preventing Optimization of Benefits of International Assistance in Afghanistan ........... 35
6.4. Absence of Strong Donor-Afghan Government Partnership ............................................................. 35
6.5. Paris Declaration and Accra Agenda for Action Addressing the Lapses............................................. 36
6.6. Paris Declaration and Accra Agenda Aid Effectiveness Principles in Action in Afghanistan .............. 37
6.6.1. Ownership.................................................................................................................................. 37
6.6.2. Alignment................................................................................................................................... 37
6.6.3. Harmonization ........................................................................................................................... 38
6.6.4. Mutual Accountability ............................................................................................................... 39
6.6.5. Managing for Development Results .......................................................................................... 40
6.7. Primary Challenges to Implementation of Aid Effectiveness Principles in Afghanistan .................... 41
6.7.1. Continuing Insecurity ................................................................................................................. 41
6.7.1.1. Analysis .................................................................................................................................. 41
6.7.2. Inadequate Capacity of National Institutions ............................................................................ 42
6.7.2.1. Analysis .................................................................................................................................. 43
6.7.3. Low National Budget Execution ................................................................................................. 44
6.7.4. Corruption.................................................................................................................................. 44
6.7.4.1. Analysis .................................................................................................................................. 45
6.8. Conclusion .......................................................................................................................................... 46
Annex-I Introduction to Development Partners …………………………………………………………….………. …….48

1. ADB (ASIAN DEVELOPMENT BANK) ASSISTANCE TO AFGHANISTAN ......................................................... 49
2. THE AGA KHAN DEVELOPMENT NETWORK (AKDN) IN AFGHANISTAN ...................................................... 50
3. AUSTRALIA IN AFGHANISTAN ..................................................................................................................... 52
4. CHINA IN AFGHANISTAN - COMMITTED TO THE SPIRIT OF GIVING ........................................................... 54
5. Canada’s (CIDA) aid to Afghanistan ............................................................................................................ 55
6. Czech Official Development Assistance to Afghanistan ............................................................................. 57
7. Danish Development Assistance to Afghanistan ........................................................................................ 59
8. European Union IN AFGHANISTAN ............................................................................................................. 61
9. Finland’s Contribution to Afghanistan........................................................................................................ 63
10. France’s Assistance to Afghanistan ............................................................................................................ 64
11. Reconstruction and Development - German Cooperation with Afghanistan ............................................ 65
12. India’s Development Cooperation Program in Afghanistan ....................................................................... 68
31. Participation of Islamic Republic of Iran in the reconstruction of Afghanistan.......................................... 70
14. ITALY’S SUPPORT TO AFGHANISTAN .......................................................................................................... 72
15. Japan’s Assistance to Afghanistan .............................................................................................................. 73
16. LITHUANIAN DEVELOPMENT COOPERATION IN THE ISLAMIC REPUBLIC OF AFGHANISTAN..................... 75
17. THE NETHERLANDS IN AFGHANISTAN – A SMALL COUNTRY WITH A BIG FOOTPRINT .............................. 76
18. NEW ZEALAND DEVELOPMENT PROGRAM ................................................................................................ 77
19. Norway’s Development Assistance to the Government of the Islamic Republic of Afghanistan............... 78
20. Poland’s Assistance to Afghanistan ............................................................................................................ 80


21. Spanish Cooperation concentrated in Badghis Province............................................................................ 81
22. The Swedish Development Assistance to Afghanistan 2002-2010 ............................................................ 83
23. Swiss Commitment to Afghanistan - a contribution to a better future ..................................................... 84
24. TURKEY’S CONTRIBUTION TO AFGHANISTAN ............................................................................................ 86
25. Afghanistan Development Co-operation Report - UK Input....................................................................... 88
26. USAID ASSISTANCE TO AFGHANISTAN ....................................................................................................... 90
27. WORLD BANK IN AFGHANISTAN ................................................................................................................ 92

Annex-II Tables and Graphs………………………………………………………………………………………………………………………… 95


Acronyms
AAA Accra Agenda for Action
AACA Afghanistan Assistance Coordination Authority
AC Afghanistan Compact
ACBAR Agency Coordinating Body for Afghan Relief
AIA Afghan Interim Authority
ANA Afghan National Army
ANCOP Afghan National Civil Order Police
ANSF Afghan National Security Forces
APPF Afghan Public Protection Forces
APRP Afghanistan Peace and Reintegration Trust Fund
AREU Afghan Research and Evaluation Unit
ASFF Afghanistan Security Forces Fund
ASNGP Afghanistan Sub-national Governance Program
CDP Capacity Development Program
CERP Commander’s Emergency Response Program
CIM Centrum für Internationale Migration und Fachkräfte
CIMIC Civil Military Cooperation
CNTF Counter Narcotics Trust Fund
CPI Corruption Perception Index
CSR Civil Service Reform
DAC Development Assistance Committee
DAD Donor Assistance Database
DCD Development Cooperation Dialogue
DCR Development Cooperation Report
DFID Department for International Development
DFR Donor Financial Review
DMU Debt Management Unit
DOD Department of Defense
DODCN Department of Defense and Counternarcotics
DOD-CN Drug Interdiction and Counter-Drug Activities
DP Development Partner
EPHS Essential Package of Hospital Services
FY Fiscal Year
GDP Gross Domestic Product
GoIRA Government of the Islamic Republic of Afghanistan
HIPC Heavily Indebted Poor Countries
I-ANDS Interim Afghanistan National Development Strategy
IFC International Finance Corporation
IMF International Monetary Fund
M&E Monitoring and Evaluation

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MCP Management Capacity Program
MOF Ministry of Finance
NIP National Immunization Program
NPPs National Priority Programs
NRAP National Rural Access Program
NRVA National Risk and Vulnerability Assessment
OECD Organization for Economic Cooperation and Development
OEF Operation Enduring Freedom
OG Operational Guide
PAR Public Administration Reform
PD Paris Declaration
PDP Provincial Development Planning
PEFA Public Expenditure Financial Assessment
PFEM Public Finance and Expenditure Management
PITF Political Instability Task Force
PRR Priority Reform and Restructuring
PRSP Poverty Reduction Strategy Paper
PRT Provincial Reconstruction Team
QIP Quick Impact Project
SAF Securing Afghanistan’s Future
SDC Swiss Agency for Development and Cooperation
SIGAR Special Inspector General for Afghanistan Reconstruction
TA Technical Assistance
TF Trust Fund
TIKA Turkish International Cooperation and Development Agency
TVET Technical and Vocation Education Training
UK United Kingdom
UN United Nations
UNHCR United Nations High Commissioner for Refugees
UNMAS United Nations Mine Action Service
UNOPS United Nations Office for Project Services
USA United States of America
USAID United States Agency for International Development
USDoD US Department of Defense
USSR Union Soviet Socialist Republic
WB World Bank

DEVELOPMENT COOPERATION REPORT | V

Executive Summary
The Development Cooperation Report (DCR) 2010, prepared by the Aid Management Directorate (AMD)
of the Ministry of Finance (MoF), is a living proof of the determination of Government of Islamic
Republic of Afghanistan (GoIRA) officials to make inflow of foreign assistance effective for Afghanistan
and its people. The results of the Development Cooperation Dialogues (DCDs) between the MoF officials
and their DPs (DPs), along with other measures introduced by MoF (e.g. organizational restructuring for
aid management and an aid management policy; Donor Financial Review (DFR); reform of Development
Assistance Database (DAD)), are expected to pave the way for effective development.

Tracing the long history of foreign involvement in Afghanistan, the DCR advances the analysis to the 21st
century and the complex aid scenario in this country, which, devastated by decades of war, was
compelled to marginalize development of its people for decades. This DCR covers the years post-9/11, a
period in which GoIRA and its DPs have worked to reconstruct the country from the ashes. The
impediments on their way are all-embracing: threats to human security resulting from terrorist violence;
weak rule of law and governance; inappropriate protection of human rights; lack of resources to
educate and provide employment to millions of young people and to nurture a healthy population –men
and women - who could serve as the main contributors to increasing the country’s productivity. Low
capacity of human resources in a country where war has played havoc with the education system
exacerbates the difficulties the Afghan leaders encounter.

The DCR reflects the resolve of GoIRA to tackle these issues, both with its own limited revenue and
effective financial and technical assistance from its DPs, as per the aid effectiveness principles
announced in Paris (2005) and Accra (2008). The DCR is a call by GoIRA for the implementation of the
principles of aid effectiveness, elimination of ineffective aid and a pledge to make itself accountable to
its tax-paying public.

The DCR outlines the international community and GoIRA’s progress from 2001 to 2010, starting in
Bonn, followed by conferences in Tokyo, Berlin, London, Rome, Paris, Hague, London, Kabul and Lisbon,
where we re-pledged to legitimize a state born out of decades of conflict. The DCR sounds an alert that
many themes common to the previous conferences continue to dominate today’s agenda, as some basic
problems related to the revitalization of Afghanistan, and to also make aid delivery and utilization more
effective, have not been resolved. The DCR contends that while the inadequacies of the outcomes of the
previous conferences should not deter the GoIRA and the DPs to take new actions, acknowledgement of
the lack of progress and further resolve to take new and determined measures are essential for
sustainable resolution of the problems.

The Report contends that while the generous assistance of the international community produced some
significant outcome results, in the absence of appropriate adherence to the aid effectiveness principles,
full benefits of foreign aid have not been realized. On the DP side, deficiencies in aid delivery cover
several spectrums that restrict appropriate implementation of aid effectiveness principles. Discrepancies
in pledges, commitments and disbursements of aid finances, resulting in unpredictability in availability
of financial resources, continue to hamper long term planning. The DCR also expresses concerns about
the high aid dependency rate of Afghanistan, relying on external funding both for recurrent/operating
costs and also development expenditure. DCR identifies the risks of aid dependent economies and
proposes measures for GoIRA to take for mitigating the risks.

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The security scenario - a war on terror - pushes a large volume of external finances to address security
requirements. Itemization by DCR of a long list of funds, solely devoted to security-related
programming, vividly displays the dominance of security sector spending (representing 51% of total
external assistance), which outweighs investments in other sectors combined. While security is a pre-
condition for operation of development projects, inequity in distribution of funds between security and
non-security development sectors often results in neglecting the country’s basic development needs
prioritized by GoIRA, and aid becomes politicized and militarized.

82% of external assistance disbursed from 2002-2010 by-passed GoIRA’s national budget process, was
invested in programs/projects parallel to those of GoIRA and managed directly by the implementing
agencies of the DPs, without any accountability to the GoIRA. Such practices of tied and prescriptive
donor-driven aid violates the Paris principle of ownership of development programs by the recipient
government and alignment of donor programs with national priorities. DCR concludes that external
ODA delivery by-passing Government budget channels results in a missed opportunity for GoIRA to learn
by doing and thereby develop the required capacity to design, implement, monitor and report on
development programs. In relation to parallel mechanisms for aid program delivery, the ill-conceived
contracting and sub-contracting processes of the DPs and their negative impact on the Afghan economy
has been raised in the DCR.

According to DCR’s assessment, donor coordination in Afghanistan is less than satisfactory and
harmonized actions are few. Program Based Approaches (PBAs) and Sector Wide Approaches (SWAPs)
have hardly gained ground. The result is fragmentation of aid, duplication of programs in the absence of
well shared information amongst DPs and unbalanced and inequitable development resulting from
overcrowding of certain sectors or geographic areas by too much funds invested by too many DPs.
Meanwhile, other areas with greater needs are left with little investment.

These problems emanate from inadequate attention by the DPs to accountability needs. GoIRA has
limited knowledge about one third of the total external assistance investment in the country since 2001,
as many DPs do not disclose information on project activities and results, while others do not have
information readily available . Under such circumstances, when results to be attained by the donor-
funded programs are not clearly recorded and communicated, managing for development results
becomes rather rhetorical.

Other than accountability for development results, mutual accountability needs demand further actions.
DPs demand accountability from GoIRA in areas such as faster project/program execution, increasing
absorptive capacity, improved public performance management and greater transparency to control
corruption. The DCR outlines the measures undertaken by GoIRA to address these accountability
requirements, as demanded by the DPs. The expectations are that transparent and regular DCDs would
help build up mutual accountability and trust. The DCR provides a lengthy list of actions to be taken to
address the lapses (as identified above), to which a lack of attention will lead to failure in effective aid
delivery and utilization, which, in turn, will have huge impact on Afghanistan’s reconstruction and
development.

Other than those actions directly related to promoting aid effectiveness, critical points integral to
balanced development and reduced aid dependency include increased revenue generation and
implementation of the related reforms in tax and customs administration, and engendering an enabling


environment for private sector development through implementation of business investment and
banking laws and control of corrupt practices. Actions for promotion of equalitarian practices in
development investment will include emphasis on women’s development, which will help utilize the
productive capacity of 50% of the Afghan population. Urban-rural disparities should be countered with
transfer of more aid resources to, and better development programming for, the rural areas through
Provincial Development Planning that would facilitate balanced allocation of funds.

The DCR concludes with a summary of the GoIRA-DP commitments at the Kabul Conference (2010). The
highlights of these commitments included: greater proportion (at least 50%, within the next two years)
of aid delivery through the Afghan budget (or on-budget support), along with measures taken to
maximize aid effectiveness benefits from off-budget assistance (as per the guidance outlined in the
Operational Guide for Off–Budget Development Financing). Both are expected to help reduce
Afghanistan’s aid dependency and enable the Government to utilize aid resources identified in needs-
based development, in priority sectors.

The DCR confirms that the international community’s commitments were matched at the Kabul
conference by GoIRA’s commitments for reforms to strengthen public finance management systems,
reduce corruption, improve budget execution and increase revenue collection. GoIRA is determined to
take further measures to make aid utilization more effective. GoIRA’s expectation is that timely delivery
on its own commitments, translated into concrete monitorable actions, shall elicit concomitant delivery
from the international community. Future DCRs will report on the progress in the planning and
implementation of the commitments made by both GoIRA and the DPs.

(Hard data on donor profiles and aid flow and distribution are available in the main text)


1. Introduction
Overall, this report aims to provide an analysis of aid flows to Afghanistan and their effectiveness.
Following this first DCR, similar future reports will provide more comprehensive information on foreign
assistance and improve public awareness on its role in the stabilization and development of Afghanistan.

After the establishment of the Interim Administration in 2001, following the Bonn Conference, the
international community committed to support the new transitional Government in Afghanistan by
providing both development and military assistance. Since then, billions of dollars of development
assistance have been provided in different forms: financial grants, loans, and in-kind and technical
assistance.

The need for oversight of the high and intensive volume of international assistance to track the inflow of
aid and ensure aid coordination and management was acknowledged as a priority by GoIRA. The GoIRA
thus established the Afghanistan Assistance Coordination Authority (AACA) in April 2002 through a
presidential decree. In August 2003, the AACA was dissolved and the functions of aid coordination and
management were incorporated into the General Budget Directorate of MOF.

In 2006, MoF initiated the semi-annual Donor Financial Review (DFR) process, with the aim to: (a) obtain
and analyze data on donor assistance to Afghanistan and (b) support preparation of the National Budget.
Such a process helped build cooperative ties between GoIRA and its DPs and promoted mutual
accountability and transparent exchange of information. These outcomes assisted GoIRA in planning
spending priorities and appropriation of development finances through tracking the inflow of donor
finances. In 2008, MoF published the first DFR report on development assistance to Afghanistan. The
2008 and the subsequent reports have, to date, serve as useful digests providing information on foreign
assistance to Afghanistan.

Initially presented as priorities by H.E. President Hamid Karzai during his inaugural speech of his second-
term appointment as president, and later officially introduced in the Kabul Conference (July 20, 2010),
GoIRA and the international community endorsed the Kabul Process, an Afghan-led action plan to
improve governance, social and economic development, and security, prioritized from the Afghanistan
National Development Strategy (ANDS). GoIRA prioritized the needs in the form of National Priority
Programs (NPPs).

For promotion of effective cooperation between the GoIRA and its DPs, significant resolutions were
adopted at the Kabul Conference, which are highlighted below:

 In line with the London Conference Communiqué, the international community restated its strong
support for channeling at least 50% of development aid through GoIRA’s core budget within two
years. Concomitantly, GoIRA resolved to undertake the necessary reforms to strengthen its public
financial management systems, reduce corruption, improve budget execution, and increase
revenue collection to finance key NPPs and progressively achieve fiscal sustainability.

 The international community expressed its readiness to progressively align donor development
assistance with the NPPs, with the GoIRA achieving 80% of alignment within the next two years.


 The international community committed to work with GoIRA to take concrete steps necessary to
address GoiRA’s current limited capacity for absorption of funds.

 The international community expressed its intent to begin work with GoIRA to practically
implement the principles outlined in the 2030 “Operational Guide: Criteria for Effective Off-
Budget Development Finance”.

 The DPs expressed their intent to work with GoIRA to improve procurement procedures and
pursue due diligence in international contracting process over the course of a year; endeavor to
reduce sub-contracting unless a clear evidence of added value for adoption of such an approach
was provided; and take responsibility for ensuring transparency and accountability of all sub-
contracting networks.

The Kabul Process, the commitments made by all parties to improve partnership, and the interest
generated in addressing the issues that would help implement these commitments, created a
heightened sense of need for comprehensive and regular dialogues with DPs on aid and development
effectiveness. In view of this, AMD of MoF started the first series of direct bilateral dialogues in late
November 2010 with individual DPs, the process called the Development Cooperation Dialogues (DCDs).
It is believed that comprehensive discussions between the GoIRA and the DPs, promoted by DCDs,
would better attend to the need for compliance with development effectiveness principles and devise
measures to improve effective and efficient delivery and utilization of aid. Successful dialogues would
certainly help advance the implementation of the aid effectiveness principles of the Paris Declaration
(2005) and Accra Agenda (2008).

The DCD meetings provide the opportunity to the international community and GoIRA to discuss and
internalize the importance of the commitments made and the challenges ahead. There are clear signals
that a process of this nature helps both the GoIRA and its DPs to work in close collaboration to maximize
the impact of development assistance. The success of the first set of DCDs is best evidenced in DPs’
transparent release of information of their assistance provided to Afghanistan and joint Afghan
Government and DPs’ review of the obstacles and solutions to effective aid delivery and utilization.

This report, which presents quantitative and qualitative analysis of foreign assistance to Afghanistan, is
mainly developed based on DCDs and other complementary studies such as PD Evaluation 2010, PD
Monitoring Surveys and Principles of Good International Engagement in Fragile States and Situations.
The expectation is that regular reports of this nature will further promote accountability and
transparency of ODA to both the Afghan and donor country publics. Notably, this DCR marks a
departure from the former DFR Reports as it includes inputs from all DPs engaged in Afghanistan and
contributing to its development.

The report begins by setting out the history of ODA since 2002 (including international conferences on
Afghanistan), followed by presentation of significant trends in the flow of development assistance,
Afghanistan’s aid dependency, an analysis of the relationship between the military and development aid
and aid distribution. The report subsequently analyzes ODA’s impact in Afghanistan and explores the
remaining critical challenges to be addressed. Finally, it focuses on the implementation of aid
effectiveness principles of the Paris Declaration (2005) and the Accra Agenda for Action (AAA-2008) in
the Afghanistan-specific context, along with recommendations for the way forward.


2. History of Foreign Assistance in Afghanistan
Foreign assistance has played an important role in Afghanistan’s history, with Afghanistan receiving its
first monetary assistance from the East India Company during the British rule in South Asia. Although the
mentioned financial assistance did not necessarily put Afghanistan in the category of aid dependent
nations, the country has rarely achieved fiscal sustainability even after it gained de jure and de facto
status of state. The degree of its aid dependency changed from time to time, with changes in economic
and political situations in the country.

The history of the influx of foreign assistance to Afghanistan can be divided into the following three
periods, each of which was characterized by factors influencing the country’s aid dependency:

1. Pre-Cold War (1919-1950s)
2. The Cold War era (1960s-1991)
3. Post 9/11 (2001-present)

2.1. Pre-Cold War era (1919-50s)

In order to modernize the centralized economy, several attempts were made to scale up economic
growth during King Amanullah’s regime. These included widening the revenue base such as tax
collection. The basics of domestic revenue mobilization came from the tax on agricultural products,
which accounted for 60% of domestic revenues. The amount of revenue from this category declined to
18% in 1953, and 7% in 1958, respectively. As a result, the domestic revenues were not enough to
finance the needs of the country, which, in turn, made the economy run a fiscal deficit. In order to fill
the deficit, the then Government sought foreign assistance from major donor countries of the time. The
major sectors receiving support in this period were infrastructure and education. Selected results of
such assistance can be cited in the construction of schools; the most ancient ones, Malalai and Estiqlal,
were built with the help of the French Government, Germany constructed Amani and the USA built
Habibia High School. Due to a lack of information, however, it is difficult to track the exact volumes of
foreign assistance, their type and the results achieved.

2.2. The Cold War era (1960s-1990s)

Even before 1960s, the economy was heavily influenced by factors associated with the Cold War. In
order for the country to survive the pressures of the superpowers during the Cold War period, the then
Prime Minister, Mohammad Daud Khan, sought foreign assistance from both USA and the Soviet Union.

From the late 1950s to 1970s, Afghanistan received 50% of its foreign assistance from the former USSR,
and 30% from the USA, which included approximately USD 160 million commitments in the form of
loans (DMU, MoF). Assistance was also received from multilateral DPs such as the World Bank and ADB.
Foreign assistance mainly focused on infrastructure and agricultural sectors. The major outputs were the
Salang Tunnel and 1200 km of paved roads, which played an active role in economic growth.

The 1970s was marked by an economic downturn characterized by severe droughts, low agricultural
production, consequent famine and a centralized economy, which hampered private investment. In


such a difficult period, western aid assistance also declined, which pushed the country into further
economic turmoil.

The deteriorating scenario made the country rely mostly on former USSR assistance. During the Soviet
occupation of Afghanistan, the inflow of former USSR assistance to the country got further momentum,
which helped develop infrastructure and boost trade opportunities. In the decade of 1970s, the amount
of loans Afghanistan received from the USSR stood at USD 11 billion (DMU, MoF). Notably, although the
enormous flow of financial assistance from the former USSR helped Afghanistan cover its fiscal deficits,
it had an adverse impact on potential influx of assistance from other countries and multilateral agencies.

During the Soviet occupation, illicit (informal) components were introduced into the licit (formal)
economic structure. The illicit economy was promoted with case and in-kind assistance from
neighboring countries, and from the USA to the Mujahidin and refugees. During this period, NGOs led
the humanitarian response and provision of assistance.

In the absence of proper records, it is not possible to report the exact amount of foreign assistance in
support of the Mujahidin. However, available data confirms that USSR’s aid to GoIRA contributing to the
licit pie of the economy in 1980 alone was USD 1 billion, which further grew in subsequent years (Steve
Coll, 2004).

The official inflow of assistance to Afghanistan stopped after the downfall of Dr. Najeebullah’s regime,
which also marked the end of the Cold War in 1992. However, small scale humanitarian assistance from
a few countries via NGOs and UN agencies continued between 1992 and 2000. Due to unavailability of
information, it is not possible to present the exact amount of assistance during this period.

2.3. Post 9/11 (2001- present)

The post-Taliban era was a turning point in the economic history of Afghanistan as it was the first time
since the end of the Cold War that Afghanistan moved to the top of the ODA 1agenda. Acknowledging
the mistakes made, and the resulting negative impact of withdrawal from substantive engagement in
Afghanistan, the international community recognized the need to help Afghanistan become a stable
state for global security reasons. The international community therefore re-entered Afghanistan, a
country with war-torn infrastructure, a feeble economy and weak governance incapable of delivering
basic services to its people.

The re-intervention process began with the establishment of the Interim Government in late 2001. In
response to a large number of needs and challenges in the country, a remarkable volume of
development assistance has been provided. For further details on distribution of aid, refer to the
overview section below.

External assistance provided to date, has enormously contributed towards achieving some significant
results in various sectors of the economy. Building, reconstructing and rehabilitating physical
infrastructure, amongst other major achievements of foreign assistance, played a key role in economic
development in Afghanistan. For the first time in history, more than 4000 kilometers of paved highways,
secondary and tertiary roads have been built with aid money. The investment in the energy sector

1
Official Development Assistance in the form of grand or loan from a sovereign Government to a developing
country or multilateral agency for the promotion of economic development and welfare.

provided 30% of the people with access to electricity. The increasing GDP rate since 2001 is a highlight.
These are just a few examples of the impacts of external assistance, the detailed account of which can
be found in Chapter 3.


3. Landmark Conferences

3.1. Bonn Conference (2001)

Representatives of Afghanistan, under the initiative of Mr. Lakhdar Brahimi, Special Representative of
the United Nations Secretary General for Afghanistan, met in December 2001, and agreed to bring an
end to the coalition war against the Taliban and build a new Government in cooperation with the
international community. From the Bonn conference emerged the Afghan Interim Authority (AIA), made
up of 30 members, headed by a chairman. AIA was inaugurated December 22, 2001 with a six-month
mandate, followed by a two-year Transitional Authority (TA), after which democratic elections were to
be held for formation of a permanent Government.

The Bonn Agreement authorized the establishment of the NATO-led International Security Assistance
(ISAF) Force for oversight of security in Afghanistan. The Afghan Constitution Commission also
established in Bonn to draft a new constitution in consultation with the public. A judicial commission
was established to rebuild the justice system in accordance with Islamic principles and international
standards of the rule of law, Afghan legal traditions and inauguration of a Supreme Court.

In the Bonn Conference, the international community did not pledge any financial assistance, but they
expressed determined political commitments to support a prosperous and peaceful Afghanistan.

3.2. Tokyo Conference (2002)

The International Conference on Reconstruction Assistance to Afghanistan was held on January 21-22,
2002 in Tokyo, with ministerial level participation, co-chaired by H.E. Hamid Karzai of the Afghanistan
Interim Administration, Japan, the US, the EU and Saudi Arabia.

The conference provided the AIA an opportunity to reaffirm its determination to pursue the process of
reconstruction and development of Afghanistan according to the Bonn Agreement principles and
provided the international community the opportunity to express its political support for this process
with pledges of concrete assistance. The international community strongly emphasized the importance
of rapidly establishing a comprehensive macroeconomic and monetary framework. Thus the focus was
placed on sound economic reforms to achieve sustainable economic development. A cumulative total
pledge of more than USD 5.1 billion of assistance was announced to support the implementation of the
commitments of the conference.

3.3. Berlin Conference (2004)

The Berlin conference was held on March 31, 2004 in Berlin, Germany. The conference was co-chaired
by the UN and the Government of Afghanistan, Federal Government of Germany and Government of
Japan.

This Conference had three major aims: (1) Renewal of commitments for reconstruction funds; (2) long-
term commitments from the International Community for continued support to Afghanistan; and (3)


concrete planning for the post-Bonn phase of reconstruction. The conference reaffirmed the need to
boost Afghanistan's fragile reconstruction efforts, improve security conditions to promote peaceful
presidential election in 2004 and the parliamentary and provincial elections of 2005, and furthermore to
clamp down on the burgeoning opium trade.

The following were the major outcomes of the conference: (a) GoIRA agreed on a development
framework entitled “Securing Afghanistan’s Future (SAF)”, (b) NATO committed to expand ISAF's mission
by establishing five additional Provincial Reconstruction Teams by the of Summer 2004 and further PRTs
thereafter; and c) ISAF agreed to assist in securing the conduct of elections.

At the end of the conference, multiyear pledges were made for the reconstruction and development of
Afghanistan totaling USD 8.2 billion for the three years from March 2004 to March 2007. But this
amount included earlier commitments and thus new confirmed commitments amounted only to USD
5.6 billion

3.4. The London Conference

The London Conference was held on January 31 and February 1, 2006, in the capital city of UK where 66
states and 15 international organizations participated. The conference was co-chaired by British Prime
Minister H.E. Tony Blair, The President of Afghanistan H.E. Hamid Karzai and UN Secretary-General Kofi
Annan. In this conference GoIRA presented the Interim Afghanistan National Development Strategy (I-
ANDS), through which the future development framework was envisaged.

The delegates adopted the Afghanistan Compact, a political agreement between the international
community and the GoIRA, and agreed to establish a Joint Coordination and Monitoring Board (JCMB)
for overall strategic coordination of the implementation of the Afghanistan Compact. This identified
three critical and interdependent areas or pillars of activity for the next five years: Security, Governance,
Rule of Law and Human Rights, and Economic and Social Development. An additional focus was on a
critical issue cross-cutting across all pillars: elimination of the narcotics industry, a formidable threat to
the people and state of Afghanistan, the region and globally.

The Afghanistan Compact marked the formal conclusion of the Bonn process The compact served as a
basis for the next phase of reconstruction, with commitments to rely more on the country's own
institutions and support the Afghanistan National Development Strategy (ANDS) development process.

At the end of the conference the donor countries and development agencies pledged to provide a total
of USD 10.5 billion for a period of five years to support the implementation of ANDS. After the
confirmation of pledges and exclusion of the reiterated pledges, the actual new pledge was confirmed to
be USD 8.7 billion.

3.5. Rome Conference (2007)

The Rome conference was held on July 2, 2007 in Rome, Italy. The conference was co-chaired by
Government of Afghanistan, Government of Italy and the United Nations and focused on strengthening
the rule of law and justice sector in Afghanistan. The framework for the rule of law and justice reform


was provided by the Afghanistan Compact and its benchmarks, based on the vision of “Justice for All”
and within the overall conceptual framework of the Afghanistan National Development Strategy (ANDS).

In this conference, GoIRA committed itself to finalize a national justice sector strategy and to implement
comprehensive rule of law reform with the assistance of the International Community, through a
national justice program. The DPs promised to support Afghanistan on its path towards the rule of law
and justice, based on the GoIRA proposed national justice program and pledged a total of USD 360
million. However, after the confirmation and exclusion of reiterated pledges, the new pledge was
verified to be USD 40 million.

3.6. Paris Conference on Afghanistan (2008)

The International Conference in Support of Afghanistan was held on June 12, 2008 in Paris, the capital of
France, under the chairmanship of the three co-chairs: H.E Nicolas Sarkozy, President of France, H.E
Hamid Karzai, President of Islamic Republic of Afghanistan and H.E Ban Ki-moon, UN Secretary-General.

This conference marked a new commitment of the international community to work in closer
cooperation under the Afghan leadership to support Afghanistan’s first five year National Development
Strategy (ANDS). GoIRA and the international community agreed to retain the Afghanistan Compact as
the foundation of future activities. The agreed priority was to strengthen institutions and economic
growth, particularly in agriculture and energy sectors. The other key elements identified in the
Declaration of this conference were the importance of holding free, fair and secure elections in 2009
and 2010; ensuring protection of human rights and the provision of humanitarian assistance; and the
need to improve effective utilization of aid in order to ensure concrete and tangible development
benefits for all Afghans.

At the end of the conference the international community announced a generous financial pledge of
USD 20 billion, of which only USD 14 billion was confirmed to be new pledges.

3.7. Hague Conference (2009)

The Hague conference was held on March 3, 2009 based on the initiative of the Government of the
Netherlands. The conference was hosted by the Government of Netherlands and co-chaired by the
Foreign Minister of the Islamic Republic of Afghanistan, the Foreign Minister of the Kingdom of
Netherlands and the Special Representative of the UN Secretary-General for Afghanistan.

The conference agreed on the urgent need for a clear direction for provision of strengthened support to
the people of Afghanistan, for enhanced security, improved life conditions and protection of their
democratic and human rights. The U.S Government unveiled a new strategy, which committed
additional funds and troops for Afghanistan, and a renewed focus on targeting al Qaeda militants on the
Afghanistan/Pakistan border. In this conference the GoIRA presented a new policy to promote
reconciliation with the Taliban. Overall, the conference participants agreed to pursue the following
priority for promotion of good governance and stronger institutions in Afghanistan; generation of
economic growth; strengthening security and enhancing regional cooperation.


3.8. London Conference (2010)

The second international conference on Afghanistan in London was held in January 2010 where the
prime focus was to set a timetable for advancing security operations tied to a political process in
Afghanistan. The conference was organized by British Prime Minister Gordon Brown and co-chaired by
the President of Afghanistan H.E. Hamid Karzai and United Nations Secretary-General Ban Ki-moon. This
Conference represented a decisive step towards greater Afghan leadership to secure, stabilize and
develop Afghanistan.

The aim of the 2010 London Conference was to draft plans to hand over security responsibilities from
ISAF to Afghan forces and to encourage Taliban members to renounce violence. The conference laid out
a plan for what was hoped to be a new phase addressing the conflict of Afghanistan. One of the major
outcomes of the conference was the agreement on the transition of security to Afghan Security Forces
in a gradual fashion where Afghan security forces to take the responsibility of security province by
province until 2014. Together, the GoIRA and the international community committed to make intensive
efforts to ensure that GoIRA would be prepared to increasingly meet the needs of its people through
developing its own institutions and resources.

3.9. Kabul Conference (2010)

The landmark Kabul Conference was held on July 20, 2030 in Afghanistan’s capital, Kabul. Hosted by
GoIRA and co-chaired by the United Nations, the conference agreements followed up on the London
communiqué of January 2010 and reaffirmed renewed commitment to the Afghan people. It was
historic as it was the first time that a conference of this kind was held in Afghanistan and by Afghans.

GoIRA presented an Afghan-led plan for improving development, governance and security, including the
NPPs and Public Financial Management Roadmap. An Operational Guide was introduced for promoting
alignment of off-budget development financing with GoIRA development priorities and, thereby,
improving the effectiveness of aid. In order to enable GoIRA to implement its prioritized agenda,
renewed emphasis was placed on the need for sustained and coherent capacity-building support at
national and sub-national levels.

The Kabul Conference was a critical stepping stone to the Kabul Process of transition to full Afghan
leadership and responsibility for the country’s security, development and reconstruction in all spheres,
building on previous international commitments including the London Conference of 2010 and the
GoIRA-led Consultative Peace Jirga of June 2-4, 2010.

3.10. Lisbon Conference (2010)

The NATO Conference was held in November 2010 in Lisbon and chaired by the NATO Secretary-General,
Anders Fogh Rasmussen. This was the third major international conference of 2010 for Afghanistan.
NATO’s mission in Afghanistan was the main topic of discussion.

At Lisbon, 28 heads of states of NATO elaborated the policy statement related to special training (to be
started in the beginning of 2011) for capacity building of Afghan security forces to make them able to


assume the security responsibilities for Afghanistan by the end of 2014. The assumption of responsibility
by Afghans will help pave the way for withdrawal of NATO and its allies from Afghanistan.

Other agreements included the allies’ agreement with Russia to jointly expand support for Afghanistan,
including by broadening transit arrangements, extending training of counter narcotics officials and
providing equipment to Afghan security forces.

Table 1: Summary of major outcomes of the international conferences on Afghanistan

Conference Major Outcomes Pledges
1. The Afghan Interim Authority (AIA) was inaugurated with a six-month mandate to
be followed by a two-year Transitional Authority (TA), after which elections were to
Bonn be held.
Conference 2. Establishment of the NATO-led International Security Assistance Force mission for
(2001) Afghanistan.
3. Establishment of the Afghan Constitution Commission to draft a new constitution in
consultation with the public.
4. The establishment of a national justice sector strategy, and a judicial commission to
rebuild the justice system
1. GoIRA and International Community reaffirmed commitment to pursue the process
Tokyo of reconciliation, reconstruction and development, according to the Bonn US$5.1
Conference Agreement. billion
(2002) 2. GoIRA and International Community reaffirmed the commitment to establish a
comprehensive macroeconomic and monetary framework.

1. The final publication of Securing Afghanistan’s Future (SAF) document was
Berlin produced by the World Bank, the UN and GoIRA.
Conference 2. NATO committed to expand ISAF's mission by establishing five additional Provincial US$5.6
(2004) Reconstruction Teams by summer 2004 and further PRTs thereafter, as well as the billion
readiness of ISAF and OEF to assist in securing the conduct of elections.
1. Adoption of Afghan Compact.
London 2. Establishment of a Joint Coordination and Monitoring Board (JCMB) for overall US$8.7
Conference strategic coordination of the implementation of the Afghanistan Compact. billion
(2006) 3. Commitment to Afghan National Development Strategy.
4. Eliminating the narcotics industry.
Rome 1. Finalization of a national justice sector strategy. US$0.04
Conference 2. The implementation of a comprehensive rule of law reform through a national billion
(2007) justice program.
1. New commitment of International Community to work more closely together under
Afghan leadership to support Afghanistan’s first five-year National Development
Strategy (ANDS).
2. Commitment to strengthen institutions and economic growth, particularly in
Paris agriculture and energy sectors. US$14
Conference 3. Commitment to hold free, fair and secure elections in 2009 and 2010. billion
(2008) 4. Commitment to ensure respect for human rights and the provision of humanitarian
assistance.
5. Commitment to improve aid effectiveness
1. Commitment to promote good governance and stronger institutions; to generate
economic growth; to strengthen security and to enhance regional cooperation
2. Pledged a stronger military offensive against the Taliban insurgency, to invest in civil
reconstruction, to tackle the drug trade and to stabilize neighboring Pakistan.
Hague 3. The U.S Government unveiled a new strategy, which combined extra funds and
Conference troops for Afghanistan, and a renewed focus on targeting al-Qaeda militants on the
(2009) Afghan/Pakistan border.
4. GoIRA presented a new policy to reconcile with Taliban and give opportunities to
reintegrate into Afghan society.


1. Drafted a plan to hand over security responsibilities from ISAF to Afghan forces and
London to encourage Taliban members to renounce violence.
Conference 2. A Peace and Reintegration Trust Fund mooted to offer economic alternatives to
(2010) those who renounce violence.
3. Commitment to making intensive efforts to ensure that GoIRA is increasingly able to
meet the needs of its people through developing its own institutions and resources.
1. An Afghan-led plan for improving development, governance and security, including
National Priority Programs, was presented by GoIRA to enhance service delivery.
Kabul 2. Commitment to sustained and coherent capacity-building support at national and at
Conference sub-national levels.
(2010) 3. Commitment to support Afghan ownership and leadership, strengthening
international partnership.
1. Special training of capacity building of Afghan forces would be resumed in 2011 to
make them able to assume the security responsibility of all Afghanistan by the end
of 2014.
Lisbon 2. Commitment to broaden transit arrangements, extending training of counter
Conference narcotics officials and providing equipment to Afghan security forces.
(2010) 3. Signed an agreement with the NATO Secretary General on a long-term partnership
between the Alliance and Afghanistan that will endure beyond the combat mission.

Assessment

The international community and GoIRA have marched from Bonn in 2001 to Tokyo, Berlin, London,
Rome, Paris, Hague, London, Kabul and Lisbon in 10 years, re-pledging delivery of development and
reconstruction, security, governance and rule of law, and helping to legitimize a Government and a state
born out of decades of conflict.

At the base of all conferences lay the intent to revitalize Afghanistan and bring new hope for the future.
While much optimism must boost our activities, it is unwise to avoid a realistic assessment of how much
of what was planned, agreed upon and promised in the past costly conferences have been delivered to
Afghans. It is important that we do not repeat the mistakes of the past. The issue of accountability, in
fact, has been raised repeatedly at national and international levels, regrettably with no real impact in
producing better results.

Indeed, with generous support from the international community, some results are seen on the ground.
But given that we started at ground zero in 2001, any improvement is bound to be seen as a sign of
progress. Many of the themes common to the previous conferences continue to dominate the joint
agenda of the international community and Afghans, as some basic problems have not been resolved.
Full resolution of these issues could not have been expected, but the lack of improvement on issues
significantly important for Afghanistan's survival, development and eventual exit from aid dependency
must be noted. Not that the inadequacies of the results of the past should deter us from taking new
actions and continue the previous resolve, but acknowledgement of the inadequacies and probing their
causes are essential for future success.


4. Aid Dependency (Reality of Aid in Afghanistan)
A country is truly aid dependent when it relies on external funding to cover its day-to-day operating
(recurrent) costs and development expenditures. Afghanistan has been aid dependent for over 60 years,
with the roots of dependency going back to the middle of the 20th century, which has been explained
under the previous section “History of External Aid”.

As stated earlier, Afghanistan has become one of the largest recipients of external aid since 2002. After
the fall of the Taliban, external aid has accounted for a substantial portion of the country’s Gross
Domestic Product (GDP). The following graph shows the trend of the contribution of ODA as a
percentage of GDP over the past few years.

Figure 1: Aid as Percentage of GDP

At the level of 71%, the aid dependency ratio in Afghanistan is one of the highest in the world. Similarly,
dependency in Afghanistan is high compared to its neighboring countries like Pakistan, where the aid to
GDP ratio is 1.1%, Iran, with a ratio of 0.1%, and Uzbekistan, with a ratio of 2.4% (Nation Master 2010).

Since 2002, the entire Development Budget, and on average up to approximately 45% (44% for 2010-
2011) of the Operating Budget, has been financed by external aid. It is worth acknowledging that this
assistance has helped the country achieve a lot in terms of development over the past years. External
assistance has helped build infrastructure, increase primary school enrolment, increase access to basic
health for almost the entire population and has helped to generate revenues from nationally conducted
economic activities. The following graph shows the trends of national revenue versus operating
expenditures:


Figure 2: Domestic Revenue vs. Operating Budget

Despite an increasing trend in domestic revenue, it still accounts for less than 10% of total GDP (MoF
2011). The argument that Afghanistan is heavily dependent on external assistance continues to be valid
and is supported by the fact that the entire development budget and a significant portion of the
operating budget of Afghanistan are financed by external assistance.

Similarly, the above graph shows that there is also an increasing trend in operating expenditures of the
country which puts a heavy burden on the Government and increases the reliance of the country on
external financing. It is anticipated that this burden and the gap between the national revenue versus
operating expenditure will increase even further, given the new fiscal pressures such as the transition
process and strengthening of ANA and ANP.

It is anticipated that aid dependency will remain a reality for Afghanistan for a number of years.
Therefore, efficient aid delivery and effective coordination among DPs and between DPs and the
Government is important to ensure that the aid money is spent on revenue generating sectors that
guarantee maximum return on investment and sustainable development.


Section I

Overview of External Assistance

5. Overview of External Assistance

5.1. Synopsis
Figure 1: Overview of External Assistance (2002-2010)
This section presents an overview of external assistance
to Afghanistan since late 2001. Since the establishment
of the interim Government, a total of USD 90 billion in
aid has been pledged for Afghanistan (for the period of
2002-2013) by the international community through a
series of pledging conferences and supplementary
means. From the total ODA pledged, USD 69 billion has
been formally committed to be disbursed from 2002 to
2010. Of the total ODA committed, USD 57 billion forms
the actual amount of ODA disbursed to finance a wide
range of programs and projects as part of the
reconstruction and development process. [See figure 1]

Since 2002, the volume of total annual development
assistance increased from a total of USD 3.2 billion in
commitment in 2002 to USD 16.8 billion in 2010. [See
figure 2] The reason for a two-fold rise in the amount of
assistance in 2007 was due to an increase from the
United States (2007 Supplementary Budget).

In 2008 and 2009, similar levels of development
assistance were retained. However, 2010 marked the peak of assistance committed to funding
development and security-related activities in Afghanistan. Despite this large increase in the volume of
ODA committed, the total volume of assistance disbursed has only been USD 10.9 billion, indicating a
65% execution rate by DPs.

Figure 2: Classification of ODA by Year (2002-2010)


Not all commitments made from 2002 to 2010, have been translated into 100% disbursements. The
reasons for slow disbursement are manifold. Amongst all, security deterioration is considered to be a
major obstacle hampering project implementation across the country. Security cannot be accepted as
the sole excuse, however, because other DPs such as the United Kingdom, Canada, Japan, and the
Netherlands fully disbursed the amount of development assistance they committed from 2002 to 2010.
The European Union comes fifth with a 90% disbursement rate, followed by the United States with 84%,
and the World Bank with 81%. In terms of the volume of ODA disbursed, however, the USA is by far the
largest donor, followed by Japan, EU, UK, WB and Canada. [See figure 3]

Figure 3: Classification of ODA by Donor (2002-2010 – in US$ billions)

For the bulk of external assistance disbursed from 2002 to 2010 for both security and development, two
main channels of delivery have been used: a) Off-budget, and b) On-budget. Off-budget support consists
of assistance that bypasses the Government’s Public Finances Management System with little or no
Government involvement in planning, implementation or monitoring of the programs/projects. On-
budget support consists of assistance that either has been given to the Government as bilateral support
or provided through the Trust Funds. Most such on-budget programs are Government designed,
implemented and monitored. Administered by multilateral agencies, Afghanistan Reconstruction Trust
Fund (ARTF), Law and Order Trust Fund for Afghanistan (LOTFA) and Afghanistan Peace and
Reintegration Trust Fund (APRTF) provided the largest sources of on-budget support to the Government.

However, an analysis of ODA disbursement for financing security, reconstruction and development
related development activities reflect the ratio of on-budget to off-budget support as 18:82. In other
words, only 18% of external assistance disbursed in the period 2002 to 2010 has been provided through
the Government’s Core Budget. The remaining 82% of assistance has been managed by the DPs alone
through projects/programs implemented parallel to those of the Government. [See figure 4]


Figure 4: Ratio of On-budget versus Off-budget Support (2002-2010)

Notably, from year to year, the percentage of ODA channeled through the Government’s budget might
fluctuate, with the on-budget amount slightly higher in some years while lower in others. For the sake of
simplicity, the ratio of on-budget assistance has been calculated from the cumulative volume of external
assistance disbursed since 2002. Despite the fact that only a fraction of external assistance has passed
through Government’s treasury, the trend of DP’s on-budget contributions, in terms of volume, has
experienced an upward trend. [See figure 5] However, after the commitments made at London and
Kabul Conferences, in January and July 2010 respectively, GoIRA expects an increase in the volume of
on-budget assistance by its DPs.

Figure 5: DPs’ Contribution through the Government’s Budget


5.2. Geographic Distribution of External Assistance

Since the start of reconstruction and development in Afghanistan, data collection based on geographical
distribution of external assistance has always been a challenge for GoIRA. Despite a number of initiatives
taken by MoF since 2003, such as the establishment of the DAD and carrying out portfolio reviews with
the individual DPs and/or DFR processes, the Government has not been able to collect accurate and
reliable data on distribution of aid across different provinces. However, according to [Figure 6], which
only reflects data for the top 10 provinces and is the only data available at MoF, the highest amount of
external aid - USD 2.8 billion - which includes both security and development spending, has been
disbursed in the capital Kabul, followed by Helmand, Kandahar, and Nangarhar provinces. On average,
the provinces of Herat, Kunar, Ghazni, Paktika, Paktya and Balkh have received USD 476 million each.
For further details of provincial distribution of external assistance, please refer to [Graph 2] in Annex-II
of this report.

In addition to the assistance provided for reconstruction and development purposes by our DPs, the
bulk of disbursements made in all these provinces include spending through military means such as the
PRTs and CERP.

The GoIRA underscores that sustainable development requires a more equitable distribution of
investment across sectors and geographical areas, and therefore the DPs are encouraged to make use of
the current systems in place to provide maximum information about aid distribution and to use the
information made available through these systems for better coordination and planning of aid flows in
the future.

Figure 6: Top 10 Recipient of External Assistance (2002-2010)


5.3. Loans

Since the late 1960s, Afghanistan, in addition to receiving external assistance in grants, has received
foreign assistance in the form of loans from bilateral and multilateral creditors. Total loans committed
between 1966 and 2008 stand at USD 13 billion, of which USD 11 billion or the largest proportion has
been provided by the former Soviet Union during the Soviet era in Afghanistan. While a large portion of
ODA provided to Afghanistan since 2002 is in the form of grants, a fraction of it, which is around USD 1.5
billion, has been provided in the form of loans. [Table 5] in Annex-ii shows that Asian Development Bank
(ADB) is the second largest provider of loans to Afghanistan, followed by the World Bank (WB).

Afghanistan is obliged to repay the loans it has received from every bilateral and multilateral creditor.
Although the country has received a total amount of USD 10.5 billion as debt relief under the Heavily
Indebted Poor Countries (HIPC) 2Debt Initiative, its total debt stock or outstanding loans to be repaid
stand at USD 2.3 billion. It is envisaged that Afghanistan will receive a sum of USD 225 million as debt
relief under the HIPC over the next 20 years.

Figure 7: Predictability of Aid
5.4. Aid Predictability

As committed in the Accra Agenda for Action,
providing full and timely information on annual
commitments and actual disbursements will allow
recipient countries to record the actual amount of aid
flows in their budget estimates and their accounting
systems. It was agreed that, “DPs will provide
developing countries with regular and timely
information on their rolling three-to-five-year forward
expenditure and/or implementation plans, with at
least indicative resource allocations that developing
countries can integrate in their medium-term planning
and macroeconomic frameworks.” (AAA, 2008)

In the context of Afghanistan, aid predictability has
been a challenging problem where most DPs have not
been providing GoIRA with information on their rolling
three-to-five-year onward level of assistance and/or
indicative resource allocations for projects/programs that are implemented in the country. [Figure 7]
shows predictability of external assistance for 2011-2013. According to available information at MoF,
USD 4.4 billion is estimated to be spent during 2011. However, the trend is declining to USD 1.2 billion in
2012 and USD 0.7 billion in 2013, respectively. It is worth noting that these figures are best estimates
only, and may change overtime.
2
The HIPC program was initiated by the International Monetary Fund (IMF) and the WB in 1996, following
extensive lobbying by NGOs and other bodies. It provides debt relief and low-interest loans to cancel or reduce
external debt repayments to sustainable levels. To be considered for the initiative, countries must face an
unsustainable debt burden which cannot be managed with traditional means. Assistance is conditional on the
national Governments of these countries meeting a range of economic management and performance target.

5.5. Main Delivery Channels of
External Assistance Figure Main Delivery Channels of External
7: Assistance (2002-2010)
With respect to sectoral distribution of external
assistance in Afghanistan, the security sector carries
a slightly heavier weight compared to the rest of
the sectors combined. As indicated in [Figure 7],
51% of external assistance disbursed to date has
been invested in security, whilst the remaining 49%
supported development activities across different
sectors. The overview is divided into two main
sections: a) Security, and b) Reconstruction and
Development, which are discussed below:

5.5.1. External Assistance for Security Sector

After the ousting of the Taliban regime and with the establishment of the Afghan Interim Government in
late 2001, building of the Afghanistan National Security Forces was one of the first priorities of the
Government and DPs. To serve this purpose, the international security forces started to actively support
the establishment of Afghanistan National Police (ANP) and Afghan National Army (ANA). As far as
involvement of international security forces in the reconstruction and development is concerned, in
2002 the U.S. Department of Defense (USDoD) began providing funds to small scale reconstruction and
development projects in support of their counter-insurgency activities in provinces. Until 2004, the U.S.
forces were the only international security forces, under the International Security Assistance Forces
(ISAF) mandate, to provide reconstruction and development funding to Afghanistan.

After the transfer of ISAF command to North Atlantic Treaty Organization (NATO) in 2004 and expansion
of NATO peacekeeping to the provinces, more donor countries with military presence began providing
development funding through PRTs with civil-military mandates to respond to the immediate
reconstruction and development needs of the provinces. Although there was no initial plan to rely on
the PRTs for delivering assistance in the long term, these channels continue to deliver assistance in the
provinces.

5.5.1.1. U.S. Department of Defense (USDoD)

The United States is by far the largest provider of security assistance for Afghanistan. According to the
SIGAR report of January 2011, from 2002 to 2011, the USDoD has appropriated a total amount of USD
31.98 billion in support of the Afghanistan National Security Forces, of which USD 28.85 has been
committed, and USD 26.05 billion has been disbursed. Afghanistan Security Forces Fund (ASFF),
Commander’s Emergency Response Program (CERP), and Drug Interdiction and Counter-Narcotics


Activities (DOD-CN) are the three main military programs financed by the United States in support of the
Afghanistan National Security Forces, and reconstruction and development efforts in Afghanistan.

5.5.1.2. Afghanistan Security Forces Fund (ASFF)

The Afghanistan Security Forces Fund
was created by the United States to U.S. Military Funding (2002-2010)
provide the Afghan National Security In US$ billions
Forces with equipment, supplies, services Agency Pledge Commitment Disbursement
and training in addition to building ASFF 27.83 25.43 23.08
infrastructure facilities. Since 2005, total CERP 2.64 1.99 1.54
funding appropriated for ASFF stands at DoD-CN 1.51 1.43 1.43
USD 27.83 billion, of which USD 25.43
Total 31.98 28.85 26.05
has been committed. The total amount
disbursed stands at USD 23.08 billion, of Source: SIGAR Report – Jan, 2011
which USD 14.80 is for ANA, and USD 8.16 is for the ANP (SIGAR, Jan 2011). [See Figures 8 and 9]

Figure 8: ASFF Disbursements for the ANA (2005-2010) Figure 9: ASFF Disbursements for the ANP (2005-2010)

5.5.1.3. Commander’s Emergency Response Program (CERP)

The Commander’s Emergency Response Program (CERP) is solely focused on the provision of
humanitarian relief and reconstruction assistance in an emergency response mode, providing urgent
assistance to the local population in the areas where U.S. security forces are positioned. This program is
providing funding for small projects that are estimated to cost less than USD 500,000 each. According to
the SIGAR report of Jan 2011, total cumulative funding appropriated for CERP stands at USD 2.64 billion.
The total amount committed is USD 1.99 billion, of which USD 1.54 billion has been disbursed. For
detailed geographical distribution of CERP funding please refer to Annex-II [Graph 1].


5.5.1.4. Drug Interdiction and Counter-Drug Activities (DOD-CN)

The DoD-CN provides support to the counter-narcotics effort by supporting military operations against
drug traffickers, expanding Afghan interdiction operations and building the capacity of Afghan law
enforcement—including Afghan Border Police—with specialized training, equipment, and facilities.
According to the SIGAR report of Jan 2011, total cumulative funding appropriated for DOD-CN stands at
USD 1.5 billion. The total amount committed is USD 1.4 billion, which has been fully disbursed.

5.5.1.5. Provincial Reconstruction Teams (PRTs)

After the transfer of command from ISAF to North Atlantic Treaty Organization (NATO) in 2004,
expansion of the international security forces to the provinces was planned. The first PRT was
established in Kunduz Province. The initial objective behind the establishment of the PRTs was to
extend the authority of the central Government and improve security, thereby facilitating the
reconstruction process at the provincial level. In 2004, the PRTs were further expanded to the North
and West of the country. Currently, there are 27 operational PRTs, comprised of 14 different nations.

PRTs are not development agencies, as such, but are engaged in development projects through their
reconstruction groups such as Civil Military Cooperation (CIMIC) and Quick Impact Project (QIP). In
general, the total PRT contribution towards reconstruction and development in all provinces of
Afghanistan stands at around USD 900 million. For further details, refer to [Table 3] in the Annex-II.

5.5.1.6. Law and Order Trust Fund

Administered by UNDP, LOTFA was established in 2002 to mobilize resources for the support of
Afghanistan National Police (ANP). It is a Multi-Donor Trust Fund which is jointly funded by several DPs.
LOTFA is delivered through a series of sequenced phases. The combined phases of the Trust Fund
provided a mechanism for coordinating contributions from DPs to cover police salaries, as well as to
pursue other police reform activities. In addition, LOTFA has contributed to strengthening the capacity
of the Ministry of Interior (MoI) through a range of projects. Approximately 23 DPs contributed to
LOTFA from 2002-2011. As at February 2011, USD 1.8 billion has been invested in LOTFA by the DPs. The
largest DPs of the trust fund are the U.S.A with USD 694.64 million contributions, and the European
Commission (EC) and Japan with USD 422,722,490 and USD 324.62, respectively. [Table 4 in Annex-II
includes further details].

Analysis

It is estimated that overall, to date, military spending exceeds 50% of the total assistance provided to
Afghanistan. In most cases, security spending, including the contribution of military agencies for
reconstruction and development, are not appropriately reported to GoIRA or even their relevant
countries’ diplomatic missions (embassies, development agencies) because the funding for the military
assistance comes from the donor country’s Ministry of Defense, while the development funds come
through the countries’ Ministry of Foreign Affairs or the development agency with ODA responsibility.

Despite the contribution that military aid has made to the reconstruction process, during the earlier
years when there was little or no Government infrastructure, their modality of delivery and spending
have been criticized for a variety of reasons. The aid provided by these agencies is essentially


“militarized”, and is an often critiqued approach of aid provision, serving the military or political agenda
of the donor country. Humanitarian assistance provided through PRTs and other military means are
considered militarized for winning the hearts and minds of the people, mainly for the protection of the
foreign troops. Such aid provision not only undermines the neutrality and impartiality principles of aid
principles but they undermine development needs-based programming.

To resolve the problems associated with militarized aid, a gradual shift to successful Afghan national
programs like the NSP, EQUIP and other national programs are being pursued, under the clusters
approach. Moreover, a strategy is being considered for a gradual phase out of PRT-provided and other
militarized forms of aid; and for promoting military institutions’ sole focus on direct security related
activities and building capacity of security forces in the provinces. Translation into action of such plans
and strategies will help pave the way for the Government to acquire some control over planning of
external resources to serve GoIRA priorities.


5.5.2. External Assistance for Development

Pure commitment for reconstruction and development purposes for the period (2002-2010) stands at
USD 37.6 billion, out of which USD 28.1 billion has been disbursed so far. In terms of sectoral allocation
of finances, infrastructure has received the largest amount of assistance followed by agriculture & rural
development, governance, social protection, education, private sector and health. [Graph 2] shows both
commitment and disbursement figures for each sector. Infrastructure, which is the second largest sector
in terms of foreign assistance investment, has received a total of USD 9.20 billion in commitment, of
which USD 6.02 billion, or 65% of the commitment, has been disbursed. [See Figure 10]

For the volume of external assistance disbursed from 2002 to 2010 solely for reconstruction and
development, again two main delivery channels have been used: a) Off-budget, and b) On-budget.
MoF’s analysis shows that 10% of the disbursed assistance has been provided through the Government’s
core budget. The remaining 70% of assistance has been managed by the DPs (DPs) for financing
projects/programs implemented parallel to those of the Government. [See figures 11 and 12]

Figure 10: External Assistance for Reconstruction and Development (2002-2010)

3

3
Unclassified sector consists of assistance provided for cross-cutting activities such as gender, anti corruption etc,
and/or outside of ANDS classification.

Figure 11: Disbursement only to the Development Sector

Figure External Assistance only for
5.5.2.1. Trust Funds 12 Development

As stated above, resources that are provided to the
Government through Trust Funds such as ARTF, LOTFA, CNTF
and PITF are all considered as on-budget support. After the
formation of the Interim Government in late 2001,
Afghanistan was rising from the ashes of three decades of
war and unrest, when the institutional capacities were very
low. The existing rules and procedures, especially the Public
Financial Management System, could hardly meet
international standards. In order to respond to the capacity
inadequacies, the international community, in consultation
with GoIRA, decided to establish the Trust Funds
mechanisms, managed by multilateral agencies such as the
World Bank and UNDP with an aim to mobilize more on-
budget resources to finance Government’s priority programs
across Afghanistan.

5.5.2.1.1. Afghanistan Reconstruction Trust Fund (ARTF)

The Afghanistan Reconstruction Trust Fund (ARTF), which is a multi-donor pooled funding mechanism,
was established in 2002. It is composed of two windows, recurrent window for partially supporting the
Government’s operational costs and the investment window to support Government’s development
budgets. Administered by the World Bank, ARTF has been successful in meeting the Government’s
priorities in both areas, thanks to the generous contributions of ARTF DPs.


To date, entire DPs’ contributions to ARTF, the largest trust fund, stand at USD 4.1 billion. Contributions
to ARTF have increased on an annual basis from a total of USD 185 million in 2002 to USD 657 million in
2009. DPs’ assistance in 2030 may exceed those of 2009, provided that all pledges, which stand at
around USD 1 billion, are translated into firm commitments. Contributions made to ARTF are of two
kinds: (i) Preferenced investment allowing DPs to invest up to 50% of their contribution to ARTF for a
specific program in the Trust Fund; and (ii) Non-Preferenced contribution, whereby the remaining 50%
of a donor’s contribution will remain at the discretion of the ARTF Management Committee to decide
where the funds should be allocated. The volume of Preferenced allocation has increased from USD 21
million in 2003 to USD 325 million in 2010, limiting the volume of funds for the Non-Preferenced
portion, reducing discretionary power of GoIRA in funds investments in priorities it identifies. [See figure
13]

Figure 13: Summary of DPs’ Contribution to ARTF (2002-2010)

Source: ARTF Report, January 2011

5.5.2.1.2. Counter-Narcotics Trust Fund

Formed in 2005, the Counter Narcotics Trust Fund (CNTF) received a sum of USD 0.04 billion from
different DPs until late 2007. This program was aiming to counter narcotics cultivation and trafficking in
Afghanistan. Resources out of this basket of funds have been invested in the agriculture and rural
development sectors to find other crop alternatives for Afghan farmers to cultivate, rather than poppy.
This trust fund’s operation was unsuccessful and it was closed in 2007.

5.5.2.1.3. Afghanistan Peace and Reintegration Trust Fund

Finally, the Afghanistan Peace and Reintegration Trust Fund (APRTF) came into existence after the
consultative Peace Jirga in June 2010 in Kabul with a mandate to support the Peace and Integration
Program. This trust fund consists of three windows, which are managed by MoF, UNDP and UK,


respectively. Until date, a total of USD 85 million has been received in support this important initiative,
of which USD 6 million has been preferenced for community recovery through the National Solidarity
Program (NSP). [Figure 14] shows DPs’ contribution to all Trust Funds since 2002.

Figure 14: Summary of DPs’ Contribution to Trust Funds (2002-2010)

Source: Trust Funds Reports, January 2011

5.5.2.2. Assistance through Government Systems

From 2002 to 2010, out of USD 57 billion total aid disbursed, actual on-budget external assistance
provided through the Government systems stands at USD 10.15 billion, of which USD 8.5 billion has
been invested in the reconstruction and development sectors, and USD 1.65 billion has financed security
related activities. [Figure 15] shows DPs’ contribution to both development and operating budgets of
the Government. Further breakdown of the total on-budget assistance for operations is given below:
Figure 15: ODA through Government Systems


5.5.2.3. Support for Government Operating Budget

As stated above a sizable proportion of the total ODA, disbursed through the Government systems, has
financed the operating costs. In addition to Government’s own revenues, support to the Government’s
operating budget is made out of funding from a wide range of other sources. As stated earlier, ARTF and
LOTFA have been two of the largest sources of support for the Government’s operating budget since
2002. The next largest sources are funding from the USDoD with a total contribution of USD 592 million
from 2007 and 2030. ADB’s commitment of USD 4.9 million in 2010 will fund the security cost of the
Qaisar-Balamurghab road in the North-West of the country through Afghan Public Protection Forces
(APPF). [See Figure 16]

Figure 16: Support for Government Operating Budget

Note: though the total pledge for ARTF in the year 2010 is around USD 1 billion, the actual disbursement is USD 523
as of February 2011. Some DPs have withheld their contribution to ARTF because of the lack of an IMF program.

5.5.2.4. Share of Aid as Percentage of Government Budget

Since 2002, Afghanistan’s national budget has been highly dependent on foreign aid, with 300% of its
development budget, and, on average, around 45% of its operating budget financed externally. [Figure
17] shows the share of aid as a percentage of the Government national budget, inclusive of
development and operating, since 2003. For further details on DPs and Government’s contribution
please refer to [Table 8] in Annex-II of this report.


Figure 17: Share of Aid as Percentage of Government National Budget


Section II

Aid Effectiveness in Afghanistan

Development Cooperation Report 2010 of Afghanistan

Development Cooperation Report 2010 of Afghanistan

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