Project Name Afghanistan - Second Emergency Public Administration Project Region South Asia Region Sector BZ: General Public Administration Project P082610 Implementing Agencies Afghanistan Assistance Coord Authority (AACA) Administrative Reform and Civil Service Commission (ARCSC) Ministry of Finance (MOF) Kabul, Afghanistan Environment Category C Date PID Prepared May 13, 2003 Projected Appraisal Date May 20, 2003 Projected Board Date June 24, 2003 1. Country and Sector Background Afghanistan is now at a critical point in its history, where significant gains made in the past year and a half need to be consolidated, and the tangible benefits of development felt more widely by the Afghan people. Despite significant steps forward, the situation remains fragile with continued security problems encountered almost daily. Greater and more rapid progress in reconstruction will require continued, high-level attention and assistance from the international community. Afghanistan's partners also need to squiarely face the need to assist in bringing about greater stability and security. Priority has been placed on enhancing the cacacity within government to manage its reconstruction and development program. These efforts include refocusing the role of government on coordination, policy setting and regulation (rather than implementation), relying on international contractors when necessary to enhance capacity on an emergency capacity in key fiduciary areas, and using NGOs and the private sector to implement development and reconstruction activities whenever appropriate and feasible. The authorities have also established a mechanism to finance feasibility studies for projects within the development budget that are not yet sufficiently prepared to implement. All of these efforts should result in an escalation of absorptive capacity, consistent with the experience in othor post- conflict countries which has shown that the capacity to absorb development assistance increases dramatically after about three years. In addition to continuing and solidifying capacity building efforts already underway, concentrated focus is now being placed on enhancing own revenue through sequenced customs reforms and in escalating efforts to resolve on-going payments problems associated with the lack of adequate banking capacity. The Transitional Islamic State of Afghanistan (TISA) has a uniquc opportunity to lay thc ground work for a brighter future, by harnessing the support of the population which is looking for security, honest administration, and a realistic hope for a better future for their children. By garnering public support for sound institutions, and equitable and transparent governance, TISA has both the opportunity and the responsibility to move forward on public administration reforms. First Emergency Public Administration Project. In April 2002, IDA approved its first post-conflict grant to Afghanistan for a $10 million Emergency Public Administration Project (EPAP). EPAP's objective was to put in place, on an emergency basis, capacity in key public administration areas to facilitate better use of public resources, including donor funds, for urgent reconstruction and development efforts. Specifically, the grant finances international firms to work with government officials to carry out procurement, financial management, and audit functions. The project focused on a narrow set of priority issues, building on lessons from other post-conflict countries where procurement and fiduciary weaknesses delayed reconstruction programs and put in jeopardy the continued high-level of donor support that was needed. The three main contractors under this project were mobilized during the summer/autumn of 2002 under contracts that are about two years in duration. As of April 17, $3.4 out of $10.0 million has disbursed-ahead of original disbursement projections- and the remaining balances are largely committed. Overall, implementation has been satisfactory. Broader Public Administration Issues. The Afghan authorities confront a far-reaching, complex, and urgent policy agenda as nation building and reconstruction proceeds. While EPAP focused on a very narrow range of primarily fiduciary issues-in line with the immediate focus of the Afghanistan Interim Administration (the predecessor to TISA) to focus foremost on enhancing transparency and accountability-over the past year, the authorities have gained a better understanding of key constraints and priorities for further actions on the broader public administration and civil service reform agenda. Background. After years of war and centralized state control the civil service is in a state of crisis. In SY1381 (March 21, 2002 - March 20, 2003) there were an estimated 250,000 public sector employees although the total could be considerably higher than this and little is known about their status, competence or efficiency. Management and administrative systems and skills are lacking, and Government infrastructure has been severely damaged by war and neglect. Until recently, a major difficulty in moving forward on the public administration reform agenda has been the lack of a clear focal point on the government side for developing and taking forward policy options. After a period of some uncertainty, leadership in administrative reform has now been assigned to the Administrative Reform and Civil Service Commission (ARCSC). The Commission was established by decree on May - 2 - 2002, with a relatively modest set of functions. However, a further decree is being submitted to cabinet that will considerably strengthen its role and extend its responsibilities. Now, the ARCSC is addressing three strategic problems: * The capacity of the newly established Administrative Reform and Civil Service Commission is low, and yet it needs to quickly assume responsibility in three key areas: (i) appointments and appeals; (ii) civil service management; and (iii) administrative reform. * There is an urgent need to initiate a sensible, step-wise administrative reform program that will allow key departments to move forward with restructuring plans, and which will allow selective pay increases to key staff. Developing and implementing such a program is part of the development budget but is not yet funded. * There are additional significant funding gaps in key elements of the Public Administration Reform program as outlined in the SY1382 (2003- 04) and SY1383 (2004-05) indicative development budget. A key objective of the World Bank's Transitional Support Strategy (TSS) to Afghanistan is to support the continued development of a well- functioning state that is accountable to its citizenry and able to ensure that delivery of services in an equitable, efficient and effective manner. This project supports this key objective and one falls within one of the four TSS focus areas: governance and public administration. Within the governance and public administration reform agenda, the Bank's strategy has been to support pragmatic opportunities for action in the short term, initiating a set of immediate reforms which will be supportive of longer term improvements-but without seeking to over- prescribe at a time of great uncertainty. This has entailed: (i) ensuring that emergency capacity is in place-especially in key fiduciary areas-while launching more medium term capacity building effort; (ii) undertaking extensive diagnostic work coupled with direct, hands-on TA and policy advice, to identify and address key constraints; (iii) identifying short term goals fully-owned by government and agreed with all major donors; and (iv) providing gap financing when needed. The short-term goals that address pressing issues include passing a decree that would allow increased wage payments in selected restructured ministerial departments, regulating top-ups being paid to civil servants by NGOs and donors, improving payroll execution, and enhancing budget execution outside of Kabul. While medium and longer- term issues are clearly important (e.g., addressing deficiencies in skill-set and geographic balance or undertaking comprehensive wage reform), these measures will take time to implement and may be politically or fiscally more difficult. The World Bank's strategy recognizes that progress can be made through quick-wins, and that this could garner support for the more politically difficult medium-term measures. Key to the World Bank strategy is to ensure that short-term policy advice and recommendations "do-no-harm" in terms of locking in long term obligations that may not be consistent with the future vision of the public sector. -3- 2. Objective The objective of the Project is to assist the authorities enhance the accountability and transparency which it manages public resources and implements its Natiornal Development Budget. Specifically, this includes continued emphasis on the objective of the first EPAP-putting in place, on an emergency basis, capacity in key public administration areas to facilitate better use of public resources, including donor funds, for urgent reconstruction and developmernt efforts. A further emphasis of this project is to begin to lay the foundation for more broad-based civil service reform directed at increasing the efficiency with which basic services are delivered to the population. 3. Rationale for Bank's Involvement Emerging from decades of crisis, the Afghan administration does not have a track record of transparent and efficient implementation of a development budget. This severely limits the scope for successful implementation of a large recovery program. Furthermoro, concerns about accountability could jeopardize the magnitude of donor support that has been pledged and will be required. Continuing to assist TISA in building a nucleus of implementation capacity (in procurement and financial management) and showing credible results on the ground will help the TISA build a track record of performance, while also providing some assurance to donors of appropriate fiduciary acccuntability for budget resources. The additional activities supported by the Project begin to lay foundations for reform in selected key areas of the public administration. Although public sector enhancement is a medium-term objective, it is crucial to set the tone in the short-term with effective support for initial steps in this process. The Bank is well placed, drawing on lessons learned in other post- conflict settings and, more generally, in supporting capacity building and institutional strengthening, to provide assistance to the authorities in these areas. 4. Description The Grant will finance the continued employment by TISA of qualified firms to assist the authorities carry out, on an interim basis, government procurement and selected financial management functions; develop the administration's capacity in these areas; and assess existing systems and procedures to recommend suitable policy reforms. Services will also be provided to assist the ARCSC to develop its capacity to undertake the development and oversight of merit based appointments of sen-or civil servants and appeals, civil service management, and overa'l management and implementation of public administration reform program. Further services will be provided to ministries for approved restructuring and for studies and institution building within selected entit-es. 5. Financing Total (US$m) Government C IDA 8.4 DflD 2.5 -4- Total Project Cost 10.9 6. Implementation The project will be implemented by AACA, ARCSC, and MOF. 7. Sustainability The project puts in place emergency capacity and seeks to begin to build domestic capacity in key procurement and fiduciary areas. This capacity should facilitate the implementation of the broader reconstruction program. This emergency capacity should not be sustained, but rather transferred to local authorities as soon as feasible. By also focusing attenticn on laying the foundation on which to build a sound public administration, the project should provide the first step in a much longer term program of public sector strengthening. 8. Lessons learned from past operations in the country/sector Past experience in post-conflict settings shows that procurement and fiduciary capacities are generally weak, and that this is often a bottleneck to the reconstruction program. Past experience also shows that when capacity is weak and requirements are vast, as in post-conflict situations, it is often better to consolidate procurement capacity into a single entity. This facilitates a more rapid implementation of the reconstruction program, and it also allows for faster domestic capacity building. However, lessons also emerge that there should be a clear sunset clause for such an entity, in order to ensure that the capacity that is developed is transferred to appropriate ministries over a reasonable period of time. 9. Program of Targeted Intervention (PTI) No 10. Environmental Aspects (including any public consultation). There are no environment issues. 11. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202) 458 5454 Fax No. (202) 522 1500 Task Team Leader Linda Van Gelder The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202) 458 5761 Fax No. (202) 522 0356 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. - 5 -