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Economic and Development Policies, Management, and Performance

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Economic and Development Policies, Management, and Performance SOUTH ASIA REGION PREM WORKING PAPER SERIES Public Disclosure Authorized Public Disclosure Authorized RESPONDING TO AFGHANISTAN’S DEVELOPMENT CHALLENGE (An Assessment of Experience During 2002-2007 and Issues and Priorities for the Future) WILLIAM BYRD Report No. SASPR-11 Public Disclosure Authorized Public Disclosure Authorized A WORLD BANK DOCUMENT The findings, interpretations, and conclusions expressed inA this WORLD paper are entirely BANK those of DOCUMENTthe author(s) and should not be attributed in any manner to the The findings,World Bank, interpretations, to its affiliated and organizations, conclusions expressed or to members in this of paper its Board are entirelyof Executive those Directorsof the author(s) or the countriesand should they not represent. be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. RESPONDING TO AFGHANISTAN’S DEVELOPMENT CHALLENGE AN ASSESSMENT OF EXPERIENCE DURING 2002-2007 AND ISSUES AND PRORITIES FOR THE FUTURE William A. Byrd1 Adviser, The World Bank October 2007 1 Adviser, Poverty Reduction and Economic Management, South Asia Region, World Bank. The views, findings, interpretations, and conclusions expressed in this paper are those of the author and should not be attributed in any manner to the World Bank, its Executive Board of Directors, or the governments they represent. About the SASPR Working Paper Series The purpose of the SASPR Working Paper Series is to provide a quick outlet for sharing more broadly research/analysis of issues related to development in South Asia. Although the primary source of such research/analysis in SASPR staff, other contributors are most welcome to use this outlet for rapid publication of their research that is relevant to South Asia’s development. The papers are informal in nature and basically represent views/analysis of the concerned author(s). All papers submitted for publication are sent for an outside review to assure quality. I provide only a very light editorial touch. For enquiries about submission of papers for publication in the series or for copies of published papers, please contact Naomi Dass (telephone number 202-458-0335). Sadiq Ahmed Sector Director South Asia Poverty Reduction and Economic Management World Bank, Washington D.C. LIST OF ACRONYMS ADB Asian Development Bank MTEF Medium-Term Expenditure Framework ADF Afghanistan Development Forum MTFF Medium-Term Fiscal Framework ANDS Afghanistan National Development NA Northern Alliance Strategy ARTF Afghanistan Reconstruction Trust NATO North Atlantic Treaty Organization Fund ASG Afghanistan Support Group NPPs National Priority Programs BPHS Basic Package of Health Services NSP National Solidarity Program CAO Control and Audit Office PAR Public Administration Reform CG Consultative Group PEFA Public Expenditure and Financial Accountability CPIA Country Policy and Institutional PFM Public Finance Management Assessment DDR Disarmament, Demobilization, and PRGF Poverty Reduction and Growth Reintegration Facility EC European Commission PRR Priority Reform and Restructuring GDP Gross Domestic Product PRT Provincial Reconstruction Team HIPC Heavily Indebted Poor Countries SMP Staff Monitored Program IAB Independent Appointments Board SOE State-owned Enterprises I-ANDS Interim Afghanistan National TA Technical Assistance Development Strategy IARCSC Independent Administrative Reform UK United Kingdom and Civil Service Reform Commission IDA International Development UN United Nations Association IFI International Financial Institution UNAMA United Nations Assistance Mission in Afghanistan IMF International Monetary Fund UNCAC United Nations Convention Against Corruption ISAF International Security Assistance USA United States of America Force JCMB Joint Coordination and Monitoring VCAs Vulnerabilities to Corruption Board Assessments LOTFA Law and Order Trust Fund for WB World Bank Afghanistan MDRI Multi-lateral Debt Relief Initiative Table of Contents ABSTRACT...................................................................................................................................................i ACKNOWLEDGEMENTS..........................................................................................................................ii EXECUTIVE SUMMARY .........................................................................................................................iii Economic Background.......................................................................................................................iii Preliminary Assessment of the Past Six Years...................................................................................iv Key Priorities for the Future.............................................................................................................viii Conclusions........................................................................................................................................xi I. INTRODUCTION AND BACKGROUND ...........................................................................................1 The Challenge .....................................................................................................................................1 Background on the Economy ..............................................................................................................2 Key Development Objectives..............................................................................................................5 Chronology and Milestones ................................................................................................................6 II. PRELIMINARY ASSESSMENT OF THE PAST SIX YEARS .........................................................11 Economic Management and Growth.................................................................................................11 Public Sector Management and Governance ....................................................................................14 Development Management and Aid Coordination............................................................................17 Sector Policies and Performance.......................................................................................................21 Overall Assessment and International Comparison ..........................................................................22 Some Caveats....................................................................................................................................23 III. DYNAMICS AND WINDOWS OF OPPORTUNITY........................................................................27 Changing Dynamics: State Building, Formalization, and Security...................................................27 Changing Dynamics: The Drug Industry ..........................................................................................29 Windows of Opportunity...................................................................................................................31 IV. KEY PRIORITIES FOR THE FUTURE .............................................................................................35 Sustaining Economic Growth and Supporting Private Sector Development ....................................35 Strengthening Governance................................................................................................................39 Responding to the Challenge of the Opium Economy......................................................................43 Improving Development Management and Aid Effectiveness .........................................................45 V. CONCLUSIONS..................................................................................................................................49 Key Principles ...................................................................................................................................49 Concluding Remarks.........................................................................................................................51 LIST OF REFERENCES............................................................................................................................53 Boxes Box 1: Paris Declaration Indicators—Summary Status in Afghanistan .....................................................20 Box 2: What is Not Likely to Work in Promoting Economic Growth........................................................36 Box 3: Some Lessons from Experience with Counter-Narcotics Efforts in Afghanistan...........................44 Box 4: Options for Improving the Management, Coordination, and Financing of TA...............................48 Tables Table 1: Selected Chronology of Events—Focused on Development and Aid (2001-2007) .......................7 Table 2: Economic and Development Policies, Management, and Performance .......................................12 Table 3: Country Policy and Institutional Assessment (CPIA) Ratings for Selected Countries, 2006......24 Table 4: Windows of Opportunity in Afghanistan......................................................................................32 Figures Figure A.1: The Informal Equilibrium.........................................................................................................iv Figure A.2: The Evolving Informal Equilibrium .......................................................................................viii Figure 1: Rough Estimates
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