Annex 1: World Bank Group Assistance to Afghanistan

IDA and the ARTF:

1.The International Development Association (IDA) and the Afghanistan Reconstruction Trust Fund (ARTF) are the main sources of World Bank financing of country priorities in Afghanistan. The ARTF is nearly five-fold larger than IDA and has been managed by the Bank since its creation in 2002; it is a key vehicle for providing Government with predictable and transparent on-budget financing. The ARTF also plays a critical role as a forum for policy dialogue between Government and donors. A 2012 external review of the ARTF concluded that the ARTF is “fit for purpose” and stands as a bestpractice trust fund.

2.The World Bank is respected by Government and donors for its analytical and research products through economic sector work and technical assistance. In an environment where policy advice and assistance is essential, work in this area provides support for Government and donor decision making. It is expected that the World Bank will continue to play a leading role in terms of policy advice to Government through targeted, often cross-sectoral, analytic work. The Bank’s work on Transition Economics and Resource Corridors, together with its poverty analysis, has been instrumental in informing decisions of the Government and the donor community in this challenging transition period.

3.Since 2002, IDA has committed a total of $2.7 billion in grants (83 percent) and credits (17 percent) in Afghanistan. Thirty-six development and emergency-reconstruction projects and four budgetsupport operations have been committed as of end-February 2014. In addition, the ARTF has generated $6.94 billion from 33 donors, and committed $3.06 billion for the government’s recurrent costs and $3.07 billion for government investments programs. At end-February 2014 the active IDA portfolio was worth $7.30 billion and the active ARTF investment portfolio was worth $1.83 billion.

4.ARTF and IDA projects are managed with the same attention. All projects are eligible for processing under the Bank’s Special Considerations for fragile states and emergencies (incorporated into OP 10.00). In practice this has proved most useful to improve flexibility post-approval as all projects are processed under regular review procedures in order to ensure quality at entry. All Bank (IDA and ARTF) funds are channeled through the government’s budget and project accounting and reporting occurs at the central level.

5.In fiscal year 2014, the World Bank Board approved two new IDA-financed projects totaling $100 million, plus additional financing for an existing project. The new projects included $50 million for the Development Policy Grant and $50 million for Access to Finance; the Financial Sector Rapid Response project received $6.7 million in additional financing. A regional project – CASA-1000 – was approved in March 2014 by the World Bank Group’s Board of Executive Directors for total grant and credit financing of $526.5 million. Of the total project financing for CASA-1000, Afghanistan receives $316.5 million in the form of an IDA grant. The IDA commitments of $220 million in FY14 ensure that IDA-16 is fully utilized.

6.In addition, in fiscal 2014 (through March 31), the ARTF approved $74.8 million in recurrent cost financing (of which $30 million was for recurrent cost baseline financing and $44.8 million for the Incentive Program) and $380 million for Investment Window financing, including the Second

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Education Quality Improvement Program ($125 million), the Third Emergency National Solidarity Project ($200 million), the CASA Community Support Project ($40 million) and the Non-formal Approach to Training, Education and Jobs in Afghanistan ($15 million).

IFC and MIGA operations in Afghanistan:

7.IFC is following an integrated advisory and investment strategy focused on improving the investment climate, building capacity, and supporting selective investments in sectors with high development impact and job creation. IFC’s investment portfolio in Afghanistan has more than doubled since FY08 - from around $58 million to about $131 million to date. Currently, IFC’s portfolio includes two investments in the telecommunication sector (MTN - a joint project with MIGA-$60 million and Roshan-$65 million), one investment in the hotel sector (TPS-$3 million), and two operations in financial markets (First Microfinance Bank-$2 million equity, Afghanistan International Bank - trade facility). These investments have had a strong impact (in terms of access to finance and outreach), particularly in the microfinance and telecommunication sectors. Through the project with the First Microfinance Bank (FMFB)--the first licensed private sector microfinance bank in Afghanistan, IFC was able to reach over 64,000 borrowers (more than 25 % of the current market penetration) – 16 % of whom were women. Similarly, IFC has had significant impact in the telecommunication sector by improving mobile phone access and services to the poor through the investment in Mobile Telephone Networks (MTN) and more recently in Roshan Telecom. Going forward, IFC is looking to expand its investment program in Afghanistan in the areas of infrastructure, finance, manufacturing, and services.

8.The Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group has $155 million of gross exposure in Afghanistan, supporting telecoms and agri-business projects. MIGA recently launched the “Conflict Affected and Fragile Economies Facility” that will provide a first loss cover in fragile and conflict states, including Afghanistan. This will allow MIGA to greatly expand its work in these countries, while still meeting prudential limits. MIGA is currently supporting three projects in Afghanistan, of which one is a joint effort with the IFC in the telecoms sector (MTN) and the other two are MIGA-only (cashmere exporter, Traitex Industry and Mido Dairy).

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Annex 2: The Afghan Economy at a Glance

Growth declined in 2013…

…due to lower investment in non-agricultural sectors.

	45.0	6,000
	30.0	5,000
Percent	15.0	4,000
	0.0		Services
	-15.0	3,000	Construction
			Industries
	-30.0	2,000
			Agriculture
		1,000

Real GDP growth		Agriculture growth	-
Services growth		Industries growth	2012		2013
While inflation has been low and stable in 2013,			the exchange rate has constantly depreciated.

	50.0													60.0
Y Growth)	40.0													57.5
	30.0
														55.0
	20.0
(Y-o-	10.0													52.5
Percent	0.0													50.0
	-10.0													47.5
	-20.0	Nov-05	Jun-06					Jul-10				Nov-12	Jun-13	45.0
	Apr-05			Jan-07	Aug-07 Mar-08 Oct-08	May-09	Dec-09		Feb-11	Sep-11	Apr-12
					Headline

Core inflation (excl. fuel & cereals)

											85.0
											80.0
											75.0
											70.0
											65.0
	Mar-12	May-12					Mar-13	May-13			60.0
Jan-12			Jul-12	Sep-12	Nov-12	Jan-13			Jul-13	Sep-13	Nov-13

US dollar (left axis)		Euro (right axis)

Domestic revenues have declined since 2011,

and the financing gap has increased.

	14.0					2.5			30.0
	12.0					2.0			25.0
	10.0							Percent of GDP
Percent						1.5			20.0
	8.0						Billion US$
									15.0
	6.0					1.0
									10.0
	4.0					0.5
	2.0								5.0
	-					-			-
	2003	2004	2005 2006 2007 2008	2009 2010 2011	2012-12	2013
	In percent of GDP			In nominal values

	Financing gap		Domestically-financed expenditures

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Annex 3: Selected Economic Indicators

(% of GDP, unless indicated otherwise)	1389	1390	1391*	FY 1392*		FY 1393p			FY 1394p
	2010/11	2011/12	2012/13*	2013*		2014p			2015p
Real sector				1,148	1,249			1,369
Nominal GDP (excl. opium; billion Afs)	730	856	1,060
Nominal GDP (excl. opium; billion US$)	15.9	17.9	20.5	20.7	21.7			23.1
Real GDP growth (%)	8.4	6.1	14.4	3.6	3.2			4.9
GDP per capita (US$)	561	616	688	…		…			…
Prices and money					6.1			4.4
CPI inflation (period average, %)	7.7	10.2	6.4	7.7
Core inflation (excl. fuel & cereals, %)	9.8	14.6	6.6	7.0	6.0			4.1
Broad money (M2)	38.2	37.2	32.0	33.0	33.3			33.2
Fiscal sector**					10.3			10.7
Domestic Revenue	11.0	11.6	10.3	9.5
Tax revenues	5.3	5.3	4.9	4.3	5.3			5.3
Customs duties	3.8	3.6	2.7	2.5	2.7			2.4
Non-tax revenues	1.9	2.8	2.7	2.5	2.8			3.0
Donor grants	11.6	11.1	12.9	16.9	17.9			17.8
Total Core Budget expenditure	21.1	23.3	23.8	24.2	28.6			29.7
Operating	15.1	17.4	17.1	17.2	21.7			22.8
Development	5.9	5.8	6.7	7.0	6.9			6.9
Overall Core balance (incl. grants)	1.9	-0.4	-0.4	2.2	-0.4			-1.2
Security spending	8.2	10.1	10.4	11.5	14.2			13.4
Fiscal sustainability ratio	72.8	66.5	60.2	55.2	51.4			51.9
External sector					2.4			2.3
Exports of goods (billion US$) /1	2.64	2.68	2.75	2.61
Imports of goods (billion US$) /1	9.95	10.22	11.36	10.9	10.7			10.8
Trade balance	-45.9	-42.0	-41.9	-39.9	-38.0			-36.9
Current account balance (incl. grants)	2.8	3.1	3.9	3.6	3.9			0.3
Current account balance (excl. grants)	-48.5	-44.2	-43.8	-39.8	-37.5			-36.2
Gross reserves (million US$)	5,550	6,209	6,771	7,362	7,612			7,873
Gross reserves (months of imports)	6.7	6.9	7.7	7.3	7.5			7.7
Total external debt /2	8.0	6.9	6.5	6.1	5.9			6.1
Memorandum items				1,206		…			…
Nominal GDP (incl. opium; billion Afs) /3	747	896	1,086
Population (millions)	28.4	29.1	29.8	30.6		…			…
Exchange rate (Afs/US$; period average)	45.8	47.8	51.7	55.4		…			…
Real effective exchange rate (depreciation	114.4	126.2	127.0	125.3		…			…
= decrease in index)

Numbers in italics are projections/forecasts.

*All indicators for 2013 and onwards are computed for calendar year (Jan-Dec), except if otherwise indicated. For preceding years, the data corresponds to solar year (April-March), except if otherwise indicated.

**Fiscal year prior to 1391 spans over April-March, similar to solar year. Fiscal year in 1391 covers only 9 months, but the data has been prorated for 12 months. Fiscal year in 1392 and onwards corresponds to calendar year (Jan-Dec).

/1: Estimates only; includes both official and unofficial (smuggling) trade.

/2: External debt excludes Russian Federation’s loan. /3: Projected for solar year in 2013.

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