Proposing a Financial Solution to Unlock Financial Opportunities in Afghanistan (Fragile or Conflict

State (FCS): Integrating International Development Association’s (IDA) Private Sector

Window (PSW)

Final ProjectBy

Hussain Ahmad Sirajof

Financing for Development : Unlocking Investment Opportunities

World Bank Group’s Massive Open Course (MOOC)

Afghanistan: Country Context

The Islamic Republic of Afghanistan is a landlocked country located within South Asia and Central Asia.

Population of approximately 32 million - 42nd most populous country in the world

Bordered by Pakistan in the south and east; Iran in the west; Turkmenistan, Uzbekistan, and Tajikistan in the north; and China in the far northeast.

Territory covers 652,000 km2 (252,000 sq mi) - 41st largest country in the world.

Political History of the Country

The political history of the modern state of Afghanistan began with the Hotak and Durrani dynasties in the 18th century.

In the late 19th century, Afghanistan became a buffer state in the "Great Game" between British India and the Russian Empire.

Following the Third Anglo-Afghan War in 1919, King Amanullah unsuccessfully attempted to modernize the country.

Remained peaceful during Zahir Shah's forty years of monarchy. A series of coups in the 1970s was followed by a series of civil

wars that devastated much of Afghanistan and continues to this day.

In December 2001, Taliban government was overthrown and the new Afghan government under President Hamid Karzai was formed.

Political History of the Country (Contd) International Security Assistance Force (ISAF) was established by

the UN Security Council to help assist the Karzai administration and provide basic security.

Shortly after their fall from power, the Taliban began an insurgency to regain control of Afghanistan.

In the decade following 2002, over five million Afghans were repatriated, including some who were forcefully deported from Western countries.

After the May 2011 death of Osama bin Laden, many prominent Afghan figures were assassinated.

2014 presidential election, Ashraf Ghani became President.The US war in Afghanistan (America's longest war) officially ended

on 28 December 2014. However, thousands of US-led NATO troops have remained in the country to train and advise Afghan government forces.

2001–present war has resulted in over 90,000 direct war-related deaths, which includes insurgents, Afghan civilians and government forces. Over 100,000 have been injured.

Fragile & Conflict State (FCS): Afghanistan

Afghanistan, an impoverished least developed country, one of the poorest countries in the world due to lack of foreign investment, government corruption and the Taliban insurgency.

Attempts are being made, with the support of foreign donor countries, to improve the country's economy, healthcare, education, transport, and agriculture.

Corruption by Western defense and development contractors and associated Afghans reached unprecedented levels in a country .

Unemployment rate was reported in 2008 at about 35%.About 42% of the population lives on less than $1 a day.

Problem: SDG Goal 8 – Sustainable EconomyAfghanistan is facing a Non-Stable Economy due to

the decades long civil wars and political instability. This results in non availability of necessary finances for the development of the economy.

Solution:

Afghanistan needs to be stabilize politically to attract domestic and foreign resource mobilization to make available resource for the Sustainable Economy in the country .

Complex Bottlenecks to Transparent Private Finance Flow to Stabilize Economy

According to Development Finance Forum, complex barriers inside and outside the resource extraction sector are varied and not limited to the following:

Difficult for fragile countries to catch up once domestic stability has returned, increasing the risk of falling back into a destructive cycle of conflict

Diminishing growth and extreme poverty Threaten stability and economic growth Inadequate infrastructureNarrow tax base - widespread exemptions, weak

capacity of tax administrationHard-to-tax economic activity of informal sectorMigration and forced displacements

Complex Bottlenecks to Transparent Private Finance Flow to Stabilize Economy (Contd)

International crime havens, which fuel illicit financial flows around arms, narcotics and rare minerals.

Political processes more vulnerable to patronage and corruption at the expense of transparency and accountability.

Data desertsWeak governance Poor or no educationPoor health and nutritionAdverse demographics and blatant opportunism

and patronage hindered much-needed private finance for development and helped perpetuate a cycle of “deprivation, destitution and oppression”.

Doing-Business index of Afghanistan is not improved in 2017 as compared to 2016, Its all because of the bottlenecks described in the previous slides.

Complex Bottlenecks to Transparent Private Finance Flow to Stabilize Economy (Contd)

Source: Doing Business Index- 2016, 2017 WBG

Ratio of ODA/GNI of Afghanistan-38.3 ODA per capita of Afghanistan-$103

Complex Bottlenecks to Transparent Private Finance Flow to Stabilize Economy (Contd)

Private Sector Window of IDAAccording to Development Finance Form, scaling up private finance in

FCS to support sustainable development and job creation is urgently needed and will significantly contribute to achieve the goals of the Addis Ababa Action Agenda (AAAA) and the 2030-Agenda.

By 2030, 62% of global poor will live in fragile-conflicted situation. As mention by Axel Van Trotsenburg, IDA replenishment for FY 18 to

20 is US$ 75 Billion financing package offers exceptional value for money, with every one dollar in partnership contributions generating about three dollars in spending authority.

Focus: It focuses on following main areas:

Increasing productivity Supporting Innovation Reducing Risks

Types of Financings: Long term and Short term Loans Equity Capital First Loss Cover Advisory Service

World Bank Strategy for Afghanistan

The World Bank strategy for Afghanistan focuses on following three areas of support:

Building the capacity and accountability of the state, primarily to ensure the provision of services that are affordable, accessible, and of adequate quality for citizens

Promoting growth of the rural economy and improving rural livelihoods

Supporting growth of a formal, modern, and competitive private

Solution: Sustainable Economy - Business Environment Reforms (BER) for Domestic & Foreign Private Resource Mobilization

Provision of finances is the pivotal factor in the National Development Plan (NDP) for country’s Sustainable Economy transformation. Afghanistan is lacking the huge level of resources readily available for investment. Therefore, Afghanistan needs to take necessary Business Environment Reforms (BER) to develop investment climate in the country to attract the investors - domestic and foreign.

Political stability Transparency & Rule of Law Fair trade and Equal Access Assessment of economic and political risks Tax System Reform as Smart Tax Administration Use the Multilateral Development Banks (MDBs) and International

Monetary Fund (IMF) to mobilize and crowd in public and private resources to fund the development projects (Multiplier Effect).

Develop a strategy to attract Public Private Partnership (PPP)

Business Environment Reforms (BER) for Domestic & Foreign Private Resource Mobilization (Contd) 

Blended Finance Diaspora Bond could be used to attract the foreign remittance

as lots of Afghanis are living as emigrants in other countries Scale-up the use of guarantees by international financial

institutions. Consider opening up Multilateral Investment Guarantee

Agency (MIGA) to cover domestic investors Reduce the first loss risk of pioneer investors Unbundle, or ‘top-slice’, risk Standardize ‘Reset’ investment authorities and ‘commercial’ diplomacy Invest in the enabling environment for technology adoption Provide local currency loans Invest in skills and jobs for young people Above all, stay committed

Photo Log of Project Funded by different Organizations:

Villagers work on a community project, which has been financed under NSP in a village in Farah Province

A cross drainage structure and bridge have been built under NEEPRA project in Kapisa Province

A view of Salang Pass, being rehabilitated under the World Bank-financed Transport Project

Photo Log of Project Funded by different Organizations:

A teacher dictates to a student at a primary school in Balkh Province

A doctor examines a female patient in a health clinic in Sar-e-Pul Province

Customs officials in Herat Province use ASYCUDA system

References:Afghanistan https://en.wikipedia.org/wiki/AfghanistanAxel Van Trotsenburg, The Role of IDA in Development Finance. Joaquim Levy, Unlocking investment opportunities in fragile-markets,

2016.https://www.youtube.com/watch?v=Symgtay13Dw.“From Billions to Trillions: Transforming Development-Finance Post-

2015 Financing for Development: MDF”, 2015 Development Committee.

International Fianance Institution and Development through the Private Sector, Joint Report.

Private Sector Window http://www.gafspfund.org/content/private-sector-window

Strengthening Public Financial Management in Post-conflict Countries, WBG, Economic-Premise, 2011.

The World Bank in Afghanistan, Country Update, April 2017Unlocking Opportunities in fragile-markets, Development Finance

Forum, Dublin, 2016.