Afghanistan Incentive Program Development Policy Grant

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The Incentive Program Development Policy Grant (IP-DPG) Operation supports continued progress with key reforms under the Afghanistan National Peace and Development Framework (ANPDF). Reforms supported by the operation are organized under two pillars: a) strengthening the policy framework to support state effectiveness, private investment, and socialinclusion; and (b) improving the policy and institutional framework for public financial management. The operation will be supported by a US$90 million IDA grant and a US$210 million grant from the Afghanistan Reconstruction Trust Fund (ARTF), and is the first of three planned operations aligned with Government’s current three‐year program of policy reforms. World Bank Board approval is sought for IDA financing in support of the program. The ARTF Management Committee will approve the ARTF grant financing in support of the program. The operation includes several innovations over standard Development Policy Grant design. First, the operation will be composed of eight tranches. The first tranche of US$90 million of IDA resources is associated with three prior actions. Seven tranches of US$30 million each of ARTF resources are associated with tranche release conditions that are expected to be fulfilled by a specified Completion Date (November 15, 2018). Second, disbursement amounts associated with tranche release conditions will be timing dependent. The tranche associated with three prior actions will be released immediately and in full after the effectiveness conditions are met. The remaining seven tranches will be released upon the fulfilment of each tranche release condition. Tranches will decrement in amount if fulfilment of the tranche release conditions extends past the targeted completion date, providing continued incentives for the fulfilment of agreed reforms by Government. The use of a single operation, rather than a programmatic series, provides an opportunity to trial this innovative approach, while being sensitive to the Afghanistan context by providing flexibility to adjust and refine both the reform program and various elements of the program design over planned subsequent operations. Afghanistan currently faces important challenges in: 1) stimulating growth in the context of a protracted slowdown; 2) generating jobs for the large number of Afghans entering the labor market; 3) improving livelihoods in the context of high widespread poverty; and iv) mobilizing revenues in the context of expected declines in aid over the medium‐term. Addressing these challenges depends on strengthening institutions, fostering private investment, and improving government effectiveness. The first pillar of the operation aims to strengthen the policy framework to support state effectiveness, private investment, and social inclusion including through: i) the national roll‐out of E-payments and mobile money; ii) supporting civil service reform; iii) improving the business enabling environment through legal and regulatory reforms; iv) improving financial management and sustainability of the power utility; v) issuance of ownership certificates to strengthen land rights for current informal occupants of government land; and vi) establishing a legal and policy framework for improved management of irrigation and water. Under the second pillar, this operation will strengthen the policy and institutional framework for improved public financial management, including: i) strengthened public investment management; ii) improved tax administration through electronic tax services; and iii) improved processes and efficiency in Government O&M expenditure.