Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00005728 IMPLEMENTATION COMPLETION AND RESULTS REPORT < TF017016> ON A GRANT IN THE AMOUNT OF US$110 MILLION TO THE Islamic Republic of Afghanistan FOR THE Kabul Municipal Development Program December 13, 2021 Urban, Resilience And Land Global Practice South Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective December 13, 2021) Currency Unit = Afghani 103.60 Afghani = US$1 US$1.40 = SDR 1 FISCAL YEAR July 1 - June 30 Regional Vice President: Hartwig Schafer Country Director: Melinda Good Regional Director: John A. Roome Practice Manager: Catalina Marulanda Task Team Leader(s): Abdul Wali Ibrahimi ICR Main Contributor: Maximilian Fischbach ABBREVIATIONS AND ACRONYMS AFMIS Afghanistan Financial Management Information System AM Aide Memoire CPIA Country Policy and Institutional Assessment CPF Country Partnership Framework EOI Expression of Interest ESF Environmental and Social Framework ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan EZ-Kar Eshteghal-Zaiee Karmondena Project FCV Fragility, Conflict and Violence FMM Financial Management Manual GCS Gozar Cooperating Shuras GRC Grievance Redressal Council GRM Grievance Redressal Mechanism ISAF International Security Assistance Force ISR Implementation Status and Results Report ISN Interim Strategy Note ISM Implementation Support Mission KM Kabul Municipality KMDP Kabul Municipal Development Project KURP Kabul Urban Reconstruction Project KUTEI Kabul Urban Transport Efficiency Initiative M&E Monitoring and Evaluation MIS Management Information System MoF Ministry of Finance MTR Mid-Term Review NPA National Procurement Authority NPC National Procurement Commission PAD Project Appraisal Document PDO Project Development Objective PLR Performance and Learning Review PMU Project Management Unit REACH Relief Effort for Afghan Communities and Households RFP Request for Proposals SWM Solid Waste Management ToC Theory of Change TOR Terms of Reference TPMA Third Party Monitoring Agent TTL Task Team Leader U-NPP Urban National Priority Program TABLE OF CONTENTS DATA SHEET .......................................................................................................................... 1 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 5 A. CONTEXT AT APPRAISAL .........................................................................................................5 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) .......................................8 II. OUTCOME ...................................................................................................................... 9 A. RELEVANCE OF PDOs ..............................................................................................................9 B. ACHIEVEMENT OF PDOs (EFFICACY) ...................................................................................... 10 C. EFFICIENCY ........................................................................................................................... 14 D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 15 E. OTHER OUTCOMES AND IMPACTS (IF ANY) ............................................................................ 15 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 16 A. KEY FACTORS DURING PREPARATION ................................................................................... 16 B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 17 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 18 A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 18 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 20 C. BANK PERFORMANCE ........................................................................................................... 21 D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 22 V. LESSONS AND RECOMMENDATIONS ............................................................................. 22 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 23 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 30 ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 32 ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 33 ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 35 ANNEX 6. SUPPORTING DOCUMENTS (IF ANY) ..................................................................... 36 ANNEX 7. REVISED TOC DIAGRAM FOR THE RESTRUCTURED PROJECT .................................. 37 ANNEX 8. SUPPORT OF FINANCIAL MODULES FOR BETTER SERVICE DELIVERY ...................... 38 The World Bank Kabul Municipal Development Program (P125597) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P125597 Kabul Municipal Development Program Country Financing Instrument Afghanistan Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency Islamic Republic of Afghanistan Kabul Municipality (KM) Project Development Objective (PDO) Original PDO The Project Development Objectives are to: (i) Increase access to basic municipal services in selected residential areas of Kabul city; (ii) Redesign KM’s Financial Management system to support better service delivery; and (iii) Enable early response in the event of an eligible emergency. Page 1 of 40 The World Bank Kabul Municipal Development Program (P125597) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 110,000,000 110,000,000 92,273,735 TF-17016 Total 110,000,000 110,000,000 92,273,735 Non-World Bank Financing 0 0 0 Borrower/Recipient 0 0 0 Total 0 0 0 Total Project Cost 110,000,000 110,000,000 92,273,735 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 03-Apr-2014 11-Apr-2014 27-Apr-2016 31-Dec-2019 30-Jun-2021 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 05-Dec-2017 53.69 Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Moderately Satisfactory Modest RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 27-Jun-2014 Satisfactory Satisfactory 8.86 Page 2 of 40 The World Bank Kabul Municipal Development Program (P125597) 02 27-Dec-2014 Satisfactory Satisfactory 15.42 03 29-Jun-2015 Satisfactory Satisfactory 20.20 04 20-Dec-2015 Moderately Satisfactory Moderately Satisfactory 28.00 05 30-Jun-2016 Satisfactory Satisfactory 33.28 06 13-Dec-2016 Satisfactory Satisfactory 35.92 07 17-Apr-2017 Satisfactory Moderately Satisfactory 43.38 08 15-Dec-2017 Satisfactory Moderately Satisfactory 58.67 09 21-Jun-2018 Satisfactory Moderately Satisfactory 63.13 10 21-Dec-2018 Satisfactory Moderately Satisfactory 73.99 11 11-Jun-2019 Satisfactory Moderately Satisfactory 76.99 12 17-Dec-2019 Satisfactory Moderately Satisfactory 85.99 13 29-Jun-2020 Satisfactory Moderately Satisfactory 85.99 14 26-Jan-2021 Moderately Satisfactory Moderately Satisfactory 89.52 Moderately 15 30-Jun-2021 Moderately Satisfactory 96.49 Unsatisfactory SECTORS AND THEMES Sectors Major Sector/Sector (%) Public Administration 38 Sub-National Government 37 Other Public Administration 1 Transportation 30 Other Transportation 30 Page 3 of 40 The World Bank Kabul Municipal Development Program (P125597) Water, Sanitation and Waste Management 32 Sanitation 20 Other Water Supply, Sanitation and Waste 12 Management Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Public Sector Management 10 Public Finance Management 5 Public Expenditure Management 5 Public Administration 5 Transparency, Accountability and Good 5 Governance Urban and Rural Development 91 Urban Development 91 Services and Housing for the Poor 91 ADM STAFF Role At Approval At ICR Regional Vice President: Philippe H. Le Houerou Hartwig Schafer Country Director: Robert J. Saum Melinda Good Director: John Henry Stein John A. Roome Practice Manager: Ming Zhang Catalina Marulanda Task Team Leader(s): Deepali Tewari Abdul Wali Ibrahimi ICR Contributing Author: Maximilian Fischbach Page 4 of 40 The World Bank Kabul Municipal Development Program (P125597) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. At appraisal, Afghanistan was affected by high levels of conflict and institutional fragility. Violence was rising and the International Security Assistance Force (ISAF) was preparing to end its combat mission, handing off responsibility for security to the Government of the Islamic Republic of Afghanistan (GoIRA)1. Afghanistan’s nascent institutions continued to be extremely weak. Its Country Policy and Institutional Assessment (CPIA) score was low and presidential elections were set to take place at the end of 20142. 2. Afghanistan was one of the world’s poorest and most rapidly urbanizing countries. Its GDP per capita was the lowest in Asia and over a third of the population lived under the poverty line3. The urban population’s growth rate of almost four percent, one of the world’s highest, was driven by conflict, drought-induced migration, and returning refugees. These trends were especially pronounced in Kabul. The city had doubled in size since 20044. The city’s infrastructure and institutions had not kept up with the pace of change. 3. Kabul therefore faced significant infrastructure and service delivery deficiencies across all sectors. In 2014, an estimated 70 percent of residents lived in informal settlements without access to basic services5. Conflict from 1992 to 2001 had damaged or destroyed much of the city’s urban infrastructure, including roads, drainage systems, and the waste management system. Roads were especially at risk of deteriorating due to Kabul Municipality’s (KM) lack of technical, financial, and administrative capacity to maintain them. 4. The dire state of KM’s financial management system – severely lacking in transparency, accountability, and efficiency – further impeded effective service delivery. No financial report was generated on a recurrent basis to present overall financial performance. The municipality used a weak single entry accounting system. Accounting did not take place by service type and the costs of service provision were therefore unknown, making it difficult to ensure value for money. The reconciliation of collected revenues and executed payments lagged. The expenditure management system was poor. Budget execution was hampered by slow procurement and controls were weak. 5. The Kabul Municipal Development Program (KMDP) was designed to tackle these national priorities. The project was fully consistent with the three pillars of the Bank’s Interim Strategy Note (ISN) for Afghanistan for 2012 to 2014, which mirrored Afghan government goals, namely providing equitable service delivery, building institutional legitimacy, and promoting inclusive growth and jobs6. KMDP was preceded by the Kabul Urban Reconstruction Project (KURP), which closed in April 2012 after improving basic service delivery in underserved areas. KMDP scaled up and further expanded on KURP’s outcomes7. The project was also conceived and processed concurrently with the Kabul Urban Transport Efficiency Initiative (KUTEI) so as to upgrade Kabul’s infrastructure across sectors. KUTEI sought to upgrade primary roads while KMDP upgraded the adjacent neighborhoods. 1 Civilian casualties increased by 22 percent in 2014 (Annual Report on Protection of Civilians in Armed Conflict, UN, 2014). 2 Afghanistan’s CPIA score for 2013 – 2014 was 2.68. These are scored on a scale of 1 (low) to 6 (high) (CPIA, World Bank, 2014). 3 Poverty Status in Afghanistan, World Bank, 2010. 4 World Development Indicators, World Bank, 2012 and Country Operations Profile, UNHCR, 2011. 5 KMDP Project Appraisal Document, World Bank, 2014. 6 Afghanistan’s first Country Partnership Framework (CPF) (2017 – 2020) was only finalized after appraisal. 7 KURP’s Project Development Objective was “to upgrade urban infrastructure to improve the delivery of basic urban services in underserviced communities in Kabul Municipality”. The Outcome Rating was Moderately Satisfactory. Page 5 of 40 The World Bank Kabul Municipal Development Program (P125597) Theory of Change (Results Chain) 6. The Project Appraisal Document (PAD) was prepared before the Theory of Change (ToC) requirement was introduced. For this ICR, the ToC was prepared based on the project description in the PAD and in the Legal Agreement. See the ‘Quality of M&E’ section for a critical discussion of the ToC. Constraints Activities Outputs Outcome indicators PDO Infrastructure and Carry out civil works (a) Community and trunk roads paved, community and service delivery trunk drains lined, area of neighborhoods upgraded Number of beneficiaries deficiencies Procure equipment Equipment for emptying septic tanks, sweeping from upgrading in both roads, clearing snow, maintaining secondary roads planned and unplanned Increased access to basic GPS trackers for 667 vehicles and the establishment areas municipal services in of control rooms selected residential Provide technical assistance Recommendations to improve solid waste collection Number of people in areas of Kabul Recommendations to improve sanitation services urban areas provided Geo-referenced household surveys for service delivery conducted for KM with access to all-season Master plan for storm water drainage system, study of catchment area, and roads within 500m range technical survey of the existing drainage system produced Construction Upgraded KM office building Redesign KM’s financial Weak financial Fully costed, time-bound, realistically sequenced action plan for the management system to management system implementation of institutional reforms that integrate IT solutions for revenue, Report on financial support better service accounting, and management developed (b) management reforms delivery when reforms Limited institutional Project implementation (c) Project Management Unit (PMU) established are implemented capacity Trainings and workshops KM staff and PMU exposed to best practices Three assumptions underpin the ToC: (a) industry capacity is sufficient to absorb and implement the civil works contracts; (b) KM officials have incentives to contribute to changes to financial management processes; and (c) KURP staff will join the KMDP PMU and mitigate risks from the client’s limited fiduciary capacity. Project Development Objectives (PDOs) 7. The objectives of the project are to: (a) increase access to basic municipal services in selected residential areas of Kabul city; (b) redesign Kabul Municipality’s financial management system to support better service delivery when reforms are implemented; and (c) enable an emergency response in the event of an eligible crisis or emergency8. 8 Note that the phrase “when reforms are implemented” is in the Legal Agreement (page 4) but not in the PAD (page 4 ). Page 6 of 40 The World Bank Kabul Municipal Development Program (P125597) Key Expected Outcomes and Outcome Indicators 8. Progress towards the achievement of the PDO was to be measured through several PDO indicators. 9. The PDO indicators for PDO outcome (a) were: a. Number of beneficiaries from upgrading in both planned and unplanned areas b. Number of people in urban areas provided with access to all-season roads within a 500-meter range under the project 10. The PDO indicator for PDO outcome (b) was: c. Report on financial management reforms Components 11. The project consisted of the following five components: 12. Component A: infrastructure upgrading program (US$85 million): 13. Component A (i): upgrading of basic municipal infrastructure (US$65 million): a. Works to deliver basic municipal services to people in underserved settlements on government owned land. Works would include community roads and drains, culverts, footpaths, street lighting, community parks, community solid waste collection points, and water supply. b. The rehabilitation of trunk roads and drains within existing Rights of Way. 14. Component A (ii): service delivery support for Sanitation and Roads departments (US$20 million): a. Goods for KM’s departments of Sanitation and Roads. Goods would include equipment for emptying septic tanks, emergency equipment for clearing snow, and for the maintenance of secondary and community roads. It would finance GPS trackers on 667 vehicles as well as control room equipment for monitoring. b. The services of an international advisor to support the departments to design and implement actions to improve the efficiency of services delivered. 15. Component B: redesign KM’s financial management system (US$3 million): a. A consultant as Financial Management Advisor to the Deputy Mayor of KM for Finance and Administration. b. A consultancy firm to develop a fully costed, time-bound realistically sequenced action plan for the implementation of institutional reforms that integrate IT solutions for revenue management, accounting, and management development. 16. Component C: studies (US$5 million): 17. Component C (i): household survey (US$1 million): a. Data collection through two household surveys for the collection of reliable data on service delivery for KM. b. One-time procurement of hardware and software for conducting a paperless survey. 18. Component C (ii): drainage studies (US$4 million): a. The preparation of a master plan for the storm water drainage system of Kabul city. b. A detailed study for the Kanal Wazir Abad catchment area, providing options for solving the flooding that routinely impacts residents and businesses in the basin. The study would also provide detailed engineering designs for the selected option. 19. Component D: project management, works design and supervision (US$17 million): a. The cost of consultants as well as staff Incremental Operating Costs. b. Trainings, workshops, and knowledge sharing events. c. An office building on government land for the municipality’s infrastructure improvement program. Page 7 of 40 The World Bank Kabul Municipal Development Program (P125597) 20. Component E: contingency emergency response. This component would allow for a rapid response through the reallocation of project funds following an eligible emergency. B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 21. The project underwent a Level 2 restructuring on December 5, 2017. The Grant closing date was extended by 18 months from December 31, 2019 to June 30, 2021. The PDO was not revised. 22. The PDO indicators for PDO outcome (a) were not revised. The first indicator’s target was increased. The second indicator’s target was introduced. It had not initially been set because doing so required an on-the-ground survey. Table 1: Changes to PDO Outcome (a) Targets PDO indicator Original target Revised target Number of beneficiaries from upgrading in both planned 775,000 1,052,660 and unplanned areas Number of people in urban areas provided with access to --- 500,000 all-season roads within a 500-meter range under the project Revised PDO Indicators 23. The PDO indicator for PDO outcome (b) was revised: Table 2: Change to PDO outcome (b) Indicator Original PDO indicator Revised PDO indicator Report on financial management reforms Public access to key financial information, in particular, the expenditure by type of services Revised Components 24. Table 3 summarizes the overall changes to the components: Table 3: Changes to Project Components Component Description Allocation Rational Component A (i): No change Increased by Increased in line with infrastructure upgrading US$26.5 million government counterpart priorities expressed during MTR Component A (ii): Dropped Decreased by Dropped due to cancellation of goods for KM US$20 million goods procurement by Acting departments Mayor of KM, who wanted to privatize municipal services Component B: Two activities introduced: Increased by Increased in line with redesign financial Financial Management US$3 million government counterpart management system Framework and Afghanistan priorities expressed during MTR Financial Management Information System (AFMIS) Page 8 of 40 The World Bank Kabul Municipal Development Program (P125597) Component C (i): Dropped Decreased by Dropped because required household survey US$1 million information to conduct the survey was not made available Component C (ii): Dropped Decreased by Dropped because government drainage studies US$4 million had already contracted this out to the German Corporation for International Cooperation (GIZ) Component D: project One activity dropped: Decreased by Dropped because KM decided to management, works building of KM office for US$4.5 million renovate existing facilities in lieu design and supervision infrastructure program of building a new structure Other Changes 25. Other changes were made to the Results Framework accordingly. Intermediate indicators for PDO outcome (a) were adjusted. Intermediate indicators for PDO outcome (b) were introduced. See Annex 1 for more detail. Rationale for Changes and Their Implication on the Original Theory of Change 26. The Grant closing date was extended to ensure that there was enough time to use the reallocated funds. Fragility, Conflict and Violence (FCV)-related constraints, especially the difficult security situation and severe capacity issues, slowed the implementation of civil works as well as the implementation of institutional reforms9. 27. Table 3 summarizes the rationale for the changes to the individual components. 28. Funds that were freed up as a result of the changes were reallocated to Component A (i) and to Component B. This was in line with the priorities expressed by the GoIRA during the April 2016 Mid-Term Review (MTR) and viewed as a better path to achieve the overall expected project outcomes. 29. These changes did not have implications for the original ToC. See Annex 7 for the revised ToC diagram. II. OUTCOME A. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating 30. At closing, KMDP was strongly aligned with the World Bank Afghanistan Country Partnership Framework (CPF) for 2017 to 202210. KMDP supported Pillar 1: building strong and accountable institutions, which emphasizes that the Bank “[w]ill continue to support municipal management in Kabul, with a focus on improving infrastructure and developing financial management capacity”. 31. PDO outcome (a) is fully aligned with the CPF Objective 1.2: improved performance of key government ministries and municipalities. Under this objective, the framework stresses the need to facilitate more effective service delivery through the government apparatus, placing special emphasis on improved road services. PDO outcome (b) is fully aligned with the CPF Objective 1.1: improved public financial management and fiscal self-reliance, which highlights the need to increase the government’s capacity for revenue and expenditure management. It also stresses that “[p]ublic financial management, including budget execution, accounting, transparency, procurement, 9 The security situation made it difficult for small contractors to finish civil works by envisaged deadlines. High political turnover made the advancement of reforms especially challenging. 10 The CPF expiration date was extended from 2020 to 2022 following the 2019 Performance and Learning Review (PLR). Page 9 of 40 The World Bank Kabul Municipal Development Program (P125597) and [the] development of [AFMIS]” is a priority. 32. In addition, KMDP was strongly aligned with the government’s Urban National Priority Program (U-NPP) for 2016 to 2025. PDO outcome (a) is in sync with Pillar 2: ensuring adequate housing and basic urban services for all, as well as Pillar 3: harness the urban economy and infrastructure, which focus on urban renewal and improving public spaces through infrastructure investments. PDO outcome (b) is aligned with Pillar 1: strengthening urban governance and institutions, which calls for standardized financial management and the deployment of an integrated financial management system. 33. Circumstances in Afghanistan changed dramatically in mid-August 2021 with the fall of the GoIRA. KMDP’s PDO nevertheless remains relevant: access to basic municipal services in Kabul is still in need of expansion and an effective financial management system will continue to play a key role in supporting better service delivery. Relevance rating: High B. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome 34. The changes during restructuring do not trigger a split rating. The project’s scope expanded under the restructuring. Under Component A, the number of target beneficiaries increased by almost 75 percent. Under Component B, the project went from aiming to deliver a report on potential reforms to facilitating their implementation. The scope was not reduced by dropping Components A (ii), C (i) and C (ii) and amending Component D. The operation is thus assessed based on the more ambitious revised PDO indicators and targets. 35. KMDP’s achievements were considerable despite the challenging FCV context. The operating environment was characterized by high levels of violence, political instability, weak institutional capacity, an unfavorable macroeconomic environment, and, in the later stages, the COVID-19 pandemic. PDO outcome (a): increase access to basic municipal services in selected residential areas in Kabul 36. PDO outcome (a) was overachieved, as summarized in Table 4. The first PDO indicator was overachieved by 62 percent and the second PDO indicator was overachieved by 15 percent. Table 4: PDO (a) Outcomes Outcomes End target Actual Number of beneficiaries from upgrading in both planned and 1,052,660 1,706,901 unplanned areas that are upgraded Number of people in urban areas provided with access to all season 500,000 574,769 roads within 500-meter range under the project 37. All intermediate indicators were overachieved, as summarized in Table 5. Civil works were carried out in 21 out of 22 districts11. Approximately 75 percent of the upgrades were in informal and unplanned areas. Quality assurance and control procedures on par with international standards were applied to civil works. The quality of design and construction were such that no maintenance is foreseen for the next five to ten years, apart from routine cleaning. Beneficiary surveys during the MTR evaluation in April 2016 indicated high levels of satisfaction, with 93 percent of beneficiaries rating the paved roads as either “very good” or “good”12. 11 The district that was left out was more remote than the others. 12 No survey was carried out after project closure because of the fall of the GoIRA in mid-August 2021. Page 10 of 40 The World Bank Kabul Municipal Development Program (P125597) Table 5: PDO (a) Outputs Outputs End target Actual Area upgraded (hectares) 3,020 3,641 Kilometers of community roads paved 560 711 Kilometers of trunk road paved 37 63 Kilometers of community drains lined 745 988 Kilometers of trunk drains lined -- 56 38. Four street and drainage upgrading subprojects were not fully completed by the closing date of the project due to COVID 19-related time overruns. However, the remaining works and contracts were transferred to the Eshteghal-Zaiee Karmondena (EZ-Kar) Project (P166127) for completion13. This transfer did not affect the achievement of PDO outcome (a) given that the relevant indicators were already significantly surpassed. 39. KMDP-financed activities contributed to the expansion of municipal infrastructure and services. Beyond the results captured through formal indicators, the project financed a range of complementary interventions that were tracked by the PMU and the project team. The project financed sidewalks and water supply pipes and planted trees as part of neighborhood rehabilitation interventions. It also financed the cleaning of Wazir Abad Canal and the upgrade of the Macrorayan residential complex’s water supply system by financing the digging of four wells, the construction of five pump houses, and the procurement of four pumps. KMDP rehabilitated four parks, providing electrification and lighting. The project supported the rollout of a community-managed solid waste collection mechanism through 765 trainings, which were carried out in the neighborhoods prior to the initiation of works14. 40. KMDP also contributed to the service provision capacity of the municipality by procuring equipment for the Sanitation, Roads, and Greenery departments. The project procured and installed 684 GPS devices on official KM vehicles. Three control centers were set up to track the GPS devices and to provide electronic daily reports of the vehicles’ movements and fuel use. A 2016 KMDP report estimated that the monitoring of vehicles reduced KM’s fuel expenditure by up to 40 percent, constituting potential savings of roughly US$5.6 million per year. Table 6: Additional Outputs Contributing to PDO (a) Outputs Completed Kilometers of sidewalks 88 Kilometers of water supply pipes 59 Trees planted 29,941 Park area upgraded (hectares) 11 Trainings for solid waste collection mechanism 675 GPS devices 684 Control centers (including monitors and servers) 3 41. Efficacy for PDO outcome (a) is therefore rated high. The PDO and intermediate-level indicators were all overachieved. The project also implemented additional activities that beyond the formal project indicators. 13 Component 4 of EZ-Kar was also being implemented by the KMDP PMU. The four contracts that were transferred to EZ-Kar amounted to US$2,024,563. 14 The government, independently of the project, subsequently provided fixed containers as primary collection points and ensured that the monthly costs of door-to-door assortment were paid by users. Page 11 of 40 The World Bank Kabul Municipal Development Program (P125597) PDO outcome (b): redesign KM’s financial management system to support better service delivery when reforms are implemented 42. PDO outcome (b) was partly achieved, as summarized in Table 7. Table 7: PDO (b) outcome Outcome End target Actual Public access to key KM presents on its website financial KM can now produce financial reports that financial information, in statements as per international disaggregate revenue and expenditure by particular, expenditures standards and a report providing type of services provided as per international by type of services expenditure details by type of standards15 16. However, KM cannot present services provided. financial statements on its website17. 43. The project enabled KM to generate and publicly disclose detailed financial reports as per international standards through the rollout of AFMIS, a digital accounting system. This includes the official KM Fiscal Year 2019- 2020 financial report. These financial reports facilitate the analysis of financial performance in the interest of better service delivery. The maintenance of accurate accounting records and the breakdown of revenue and expenditure by service type allow the municipal government to make more informed service delivery choices. 44. This is, given the context, a substantial achievement. Prior to the project, no financial report was generated on a recurrent basis to present the municipality’s overall financial performance. Reporting was limited to aggregated expenditure and revenue data to present yearly budget execution to the Ministry of Finance (MoF). No accounting took place by service type and the costs of service provision were therefore unknown. There were issues in terms of reporting delays and reconciliation in revenue accounting. 45. Enabling KM to publish these detailed financial reports required serious improvements to its weak underlying financial management system. Reform was difficult due to political economy issues: AFMIS was first used at the MoF and then tailored to KM’s needs. KM officials were reluctant to share a common financial management system with the MoF and had to be persuaded of its benefits (see ‘Key Factors during Implementation’). 46. Intermediate indicators – which were designed to measure these underlying financial management improvements – were partly achieved, as summarized in Table 8. Table 8: PDO (b) Outputs Output End target Actual KM’s Financial Financial Management Framework, KMDP received proposals to develop the Management specific to KM needs and based on best framework in July 2020 but consultants Framework practices, developed and implemented. could not be appointed, as explained below. Implementation of Eight modules implemented Six modules - all except HR and inventory - Financial Management (accounting, budgeting, HR, inventory, implemented, as well as a Payroll module, Information System asset, fleet, procurement, revenue). and a Revenue, Budget, and Expenditure (AFMIS/FreeBalance) Dashboard. 47. The first intermediate indicator was not achieved, mainly because of FCV-related constraints. High turnover at 15 Other parameters include departments, period, and location. 16 International standards refers to the Generally Accepted Accounting Principles (GAAP), a common set of accounting principles, standards, and procedures. 17 The project intended to procure a consultancy to ensure that KM could present the financial statements on its website. This consultancy was not procured due to high political turnover, the limited capacity of the national procuring entity, and intensified fragility that led to a shift in political priorities. Page 12 of 40 The World Bank Kabul Municipal Development Program (P125597) senior levels in KM resulted in three rounds of changes to the Terms of Reference (TOR), causing substantial delays to the initiation of the procurement process18. The capacity of the National Procurement Authority (NPA), responsible for the procurement of contracts over specific value thresholds, was limited. KMDP received two technically sound proposals in July 2020 but a contract was not awarded due to delays in evaluation. Further, the political and security environment in Afghanistan deteriorated in the last two years of implementation. Heightened uncertainty led to a shift in mayoral priorities, effectively halting activities that were not already underway19. 48. The second intermediate indicator was mostly achieved. The project revised the KM Chart of Accounts and implemented six financial management modules, covering accounting, revenue, budgeting, asset management, fleet management, and procurement. This is a major accomplishment that involved the redesign of the business process and capacity building as well as the replacement of paper-based processes with technology. 49. These modules were introduced to structure the existing opaque and haphazard financial management system. The existing single entry accounting system was not comprehensive. Revenue collection, executed at the district level, and payment processing, executed at headquarters, required manual entries and reconciliation processes were slow, leaving officials with no real time understanding of the fiscal situation. Expenditure management was poor. Budget formulation was undermined by the lack of timely revenue information and budgets did not provide allocations at a detailed level. Budget execution was hampered by slow procurement. Internal controls were weak. There was no system for tracking contracts, balances, and payments. Asset registration was incomplete and the system to track fleet parameters was inefficient. The payroll was manual and therefore susceptible to corruption. 50. The AFMIS core module, covering accounting, revenue, and budgeting, allowed KM to automate and integrate these public financial management processes. It facilitated the maintenance of accurate accounting records as well as capturing aggregated and disaggregated revenue and expenditure data. AFMIS allowed for timely data entry at headquarters and at districts and automated reconciliation. It supported expenditure management as per the accounting manual and made budget formulation and budget management more efficient. It also enhanced internal controls by integrating approval processes based on user authentication and by providing an audit trail. 51. The additional modules improved overall system management. The Purchasing module allowed users to track the contract management process, the Asset Management module facilitated the registration of assets, and the Fleet module tracked fuel consumption and vehicle maintenance. The Payroll module reduced processing times and the risk of ineligible salary payments as well as facilitated the identification of ghost employees. The Revenue, Budget, and Expenditure Dashboard provided municipal management and the public quick access to KM’s financial data. 52. Two of the originally planned modules - Inventory and HR - were not implemented under the project because of capacity issues within KM as well as time overruns20. However, the functions of these modules were substantially covered by other modules. The Asset Management module includes the functionality to enter data on fixed assets and inventories and thereby covers some features of the Inventory module. The Payroll module provides some of the key functionalities envisaged in the HR module (except those relating to recruitment). 53. Efficacy for PDO outcome (b) is therefore rated modest despite considerable achievements. The PDO- and intermediate-level indicators were partly achieved. However, the PDO indicator was too narrow and not the most relevant metric: publishing figures on the KM website is desirable in facilitating public oversight but is not essential in redesigning the financial management system. The incomplete achievement of the intermediate indicators, 18 The request for Expressions of Interest (EOI) was advertised in November 2019, EOIs were received in January 2020, and it took four months to complete the evaluation. The Request for Proposals (RFP) was finally issued in May 2020. 19 The withdrawal of international troops was announced in early 2020, planned for early 2021, and carried out in mid-2021. 20 While other modules were developed building on existing applications, the Inventory and HR models required new systems to be built from scratch. They therefore required additional resources that could not be deployed within the project timeline. Page 13 of 40 The World Bank Kabul Municipal Development Program (P125597) which were ambitious for an FCV context, does not capture the extent to which the project reshaped the system. See ‘Quality of M&E’ for a discussion of the indicators and Annex 8 for a more detailed discussion of the outcome. PDO outcome (c): enable early response in the event of an eligible emergency 54. This outcome does not apply because there was no eligible emergency. Justification of Overall Efficacy Rating Efficacy rating: Substantial 55. The efficacy of the operation is rated Substantial21. PDO outcome (a) was high, PDO outcome (b) was modest, and PDO outcome (c) does not apply. It is possible to either round-up or round-down on the basis of the evidence when half of the objectives warrant High and half only warrant Modest. The rating is rounded to Substantial given the project’s considerable achievements in enabling comprehensive financial reporting by automating and integrating public financial management processes. The Results Framework did not adequately capture these changes. C. EFFICIENCY Assessment of Efficiency and Rating Economic analysis 56. At appraisal, economic analysis was carried out using property values data from select areas upgraded under KURP to estimate the Economic Rate of Return (ERR) and the Net Present Value (NPV) at a ten percent discount rate. The analysis used data for three sites: a planned settlement, an unplanned settlement, and a mixed settlement. However, the investment costs used for this analysis were only 2.34 percent of the proposed outlay for KMDP at appraisal. An economic analysis has been carried out at completion using the same methodology as at appraisal. However, due to limited data availability, the analysis is not disaggregated by the type of settlement. The results of the analysis at appraisal and completion are presented in Table 9. The ERR for upgrading the areas through infrastructure investments is 17 percent at completion while the NPV at a 10 percent discount rate is $3.6 million. Investments considered in the analysis at completion are 17.06 percent of the total outlay under KMDP, and this is therefore a significantly larger sample than that considered at appraisal. This data is more representative and the results demonstrate that the investments were economically justified. The results at completion are more realistic compared to the estimates at appraisal using KURP data, which are not based on KMDP investments. Further details of the economic analysis are provided in Annex 4. Table 9: Results of the Economic Analysis at Appraisal and at Completion Appraisal Results Completion Results Informal Mixed Formal (planned) Aggregate Economic Rate of Return 95 94 74 17% Net Present Value ($ million) 24.92 36.95 29.46 3.60 57. Several aspects of implementation increased efficiency. The unit costs of infrastructure upgrading in planned and unplanned areas were 24 percent lower than anticipated at appraisal because cost-effective technical adjustments were made, the implementation period for subprojects was shorter than under KURP, and competition between contractors increased due to depressed market conditions. Qualified staff were available for KMDP after the closing 21Note that the last Implementation Status and Results Report (ISR) conservatively downgraded the ‘Progress toward achievement of PDO’ from Moderately Satisfactory to Moderately Unsatisfactory because of concerns related to the formal achievement of PDO outcome (b) indicators. However, available evidence shows that substantial overall progress was achieved. Page 14 of 40 The World Bank Kabul Municipal Development Program (P125597) of KURP, resulting in efficiency gains. The use of local consultants, which were brought on because the poor security situation stymied the hiring of international experts, also resulted in savings. 58. This generated cost savings. The reduction in the cost of subprojects resulted in savings of US$9.25 million under Component A. The project also retained US$5.86 million under Component D at closing. However, savings of almost half of the allocated budget under this component suggests that it was not adequately costed at appraisal. Nevertheless, the costs of project extension were compensated with these savings and the money was spent as intended. The extension enabled additional outcomes and did not result in waste expenses. 59. Other implementation aspects simultaneously decreased efficiency. FCV-related constraints, especially the high turnover of senior political appointees in KM, slow national procurement processes, and the deteriorating political and security situation prolonged the procurement of key consultancies. The revision of KM’s Financial Management Framework was therefore not implemented, resulting in an unspent US$3.61 million under Component B. The initial reluctance of KM officials in implementing AFMIS substantially slowed progress. Planned trainings abroad could not be carried out due to COVID-19 related travel restrictions. 60. Fiduciary processes were efficient for most of the project but slowed before closing. The average time between bid opening and contract signature was 82.97 days from 2013 to 2018 but increased to 140.88 days in 2019 because of government capacity issues and longer approval processes22. Implementation efficiency in the final stages of the project was hampered by inadequate records management, delays in the resolution of questionable fixed asset expenditures, low budget utilization, weak funds management, and delays in payment processing, though these issues were resolved before closing. 61. Overall, 84% of the grant was used. Annex 3 shows the divergence between estimated component costs at appraisal, restructuring, as well as at closing. The analysis shows that grant funds mostly provided good value for money, particularly when considering the FCV context. Efficiency rating: Substantial D. JUSTIFICATION OF OVERALL OUTCOME RATING Overall outcome rating: Moderately Satisfactory 62. The overall outcome rating is Moderately Satisfactory. Relevance was High, while efficacy and efficiency were Substantial. The outcome is rated Moderately Satisfactory as the achievement of PDO (b) is rated Modest. E. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 63. The project increased women’s voice and agency. An estimated 70 percent of direct beneficiaries were women and children. 94 elected female Gozar Cooperating Shuras (GCS) provided feedback on the draft designs for area upgrading. They also assisted in addressing disputes and are now involved in operation and maintenance. 1,387 consultation sessions were held with women during the project23. 12 female Grievance Redressal Councils (GRCs) were established overall, though the number of grievances registered by women remained low. 22 2019 is the latest year for which data is available. 23 These primarily provided training on the Grievance Redressal Mechanism (GRM) and on the community Solid Waste Management (SWM) mechanism. Page 15 of 40 The World Bank Kabul Municipal Development Program (P125597) Institutional Strengthening 64. Sustained engagement on infrastructure upgrading has had a deep impact on KM’s institutional development. The PMU’s capacity was built up significantly in terms of project management, safeguards, fiduciary processes, community consultations, and the application of technical standards. PMU staff were retained after project closing and made responsible for the EZ-Kar and the Relief Effort for Afghan Communities and Households (REACH) projects. The financial management system was substantially strengthened (see ‘Efficacy’). Mobilizing Private Sector Financing 65. A KMDP ‘Lessons learned’ study on the impact of neighborhood infrastructure upgrading on land, housing, and real estate during 2015 – 2018 in 616 hectares of southeast Kabul found that project investments led to further private investment, which grew by an additional 5.1 percent in subsequent years24. Poverty Reduction and Shared Prosperity 66. Almost 4.50 million employment days were created through civil works and benefitted mainly poor workers. Contracts were also mostly executed in unplanned areas where residents were likeliest to be poor. KMDP created 1.25 million days of temporary employment in order to mitigate the fallout from COVID-19 lockdowns. Other Unintended Outcomes and Impacts 67. KMDP neighborhood infrastructure upgrades contributed to boosting housing supply and real-estate values. The ‘Lessons learned’ study found that the built-up area increased by 187,000 square meters after upgrading. The open space ratio decreased by three percent in selected neighborhoods that were upgraded before 2015, indicating further densification. Real-estate prices in neighborhoods upgraded in the 2013 – 2015 period increased by an average of 36 percent. It is likely that the project’s interventions are not solely responsible for these outcomes but the study does indicate a positive correlation25. 68. KMDP- financed activities contributed to an increase in KM’s revenue generation potential. The project carried out household and business registrations. The project added the names of over 17,000 households to the Safayi tax rolls and transmitted them to KM to facilitate tax collection26. Data entry clerks also registered 65,638 small businesses and 36,271 larger businesses. This was expected to raise annual revenue by over US$2.30 million27. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 69. The complex operating environment in Afghanistan shaped project design. Appraisal saw a dramatically altered security landscape: the number of armed clashes between the government and non-state actors was rising and the international troop presence was being substantially reduced. 70. Keeping in mind the FCV context, the project set realistic objectives and kept the design simple. KMDP’s objectives were informed by KURP and scaled up accordingly28. The indicator for PDO outcome (b) was initially 24 The full title is ‘Lessons learned from a decade of area-wide urban upgrading in a fragile country’. The study used remote sensing data to detect post-upgrading changes in the built-up volume of buildings and to estimate private investment. 25 There are several additional limitations. The study does not cover all neighborhoods in which upgrades were carried out and it does not span the entire project implementation period. The results of the study are therefore only indicative. 26 Safayi tax is a form of property tax. 27 This assumes revenue is collected from half of the newly registered firms. 28 KMDP was not named KURP II in order to reflect the project’s different implementation arrangements. KURP was Page 16 of 40 The World Bank Kabul Municipal Development Program (P125597) conservative in scope and was only expanded during restructuring. The project design took weak public sector capacity into account and was intended to minimize demands on under-staffed institutions. 71. The Results Framework was designed based on the preceding project, and while it was inadequate in some respects, a comprehensive M&E system was devised and stakeholders were appropriately selected. The Management Information System (MIS) and the criteria for the selection of settlements for upgrading were adopted from KURP. The KMDP team completed a survey of 16 percent of the houses in six of the settlements to better understand the demographic profile of beneficiaries. 72. Implementation risks and mitigation measures were adequately identified. The security situation was assessed as increasing overall risks due to political and economic uncertainties as well as difficulties in project implementation and supervision29. Risks identified included political interference in project management as well as weaknesses in technical capacity, procurement and financial management. These were sought to be offset through proactive engagement with the political leadership and the early establishment of a strong PMU. Risks were deemed Substantial and not High because of the considerable experience of PMU staff. 73. There was a high level of readiness for implementation. A critical mass of KURP staff carried over to KMDP. This included the engineering team as well as financial management, contract management, and procurement staff. B. KEY FACTORS DURING IMPLEMENTATION 74. FCV-related constraints strongly affected all other key implementation factors. For example, the fragility of institutional structures exacerbated the impact of intragovernmental disagreements and political turnover as well as further slowed down fiduciary processes. However, the project’s implementation arrangements were well suited to this context. The MTR was undertaken as planned in April 2016. Factors subject to the control of government and/or implementing entities 75. KM was initially reluctant to implement the AFMIS software due to concerns about a potential loss of autonomy. The previous system was entirely manual. KM officials persisted in wanting to renegotiate the 2017 decision between the MoF, the Treasury, and KM to rollout AFMIS at the municipality and requested new comparative assessments of software solutions. As the MoF had rights to the AFMIS software and spare licensing, which allowed other entities to use it, the decision was made to tailor it to KM’s needs and roll it out at the municipality. Necessary financial information was not always provided to the PMU in a timely manner. This issue was resolved through dialogue, including with the President’s Office, the Minister of Finance, the Mayor, and the Bank team. 76. Frequent changes in municipal leadership slowed project implementation. There were seven Mayors from appraisal to closing, not all of whom shared the same vision for KM, resulting in changes to project components (see ‘Rationale for Changes’). Changes in leadership also resulted in delays in the procurement of goods as well as slow bid evaluations due to the appointment of new evaluation committee members. The changes led to ad hoc adjustments to civil work contracts after award, resulting in variation orders and extensions. 77. There were persistent challenges in terms of PMU staffing. The staff positions were filled during the initial stages of the project. However, staff shortages became prevalent in the procurement, contract management and financial management departments. There was no Project Director between 2015 and 2019. 78. Several fiduciary issues affected implementation. Large procurement packages were processed by the NPA, which implemented by the Ministry for Urban Development. KMDP was implemented by KM. 29 For example, a deterioration in the security situation was likely to affect the Afghan construction industry given its high dependence on imports. Page 17 of 40 The World Bank Kabul Municipal Development Program (P125597) was more time consuming than when done by the PMU. Procurement also slowed due to long approval processes and a shortage of qualified local firms. The project lagged in implementing the World Bank Financial Management Manual that was introduced in February 2019. This led to inadequate records management and questionable fixed asset expenditures. These issues were highlighted in internal audits, which were only addressed slowly. The Designated Account was therefore not replenished on time, temporarily resulting in liquidity issues. Factors subject to World Bank control 79. Bank supervision, follow up, and reporting were adequate. There was a moderate turnover of Task Team Leaders (TTLs): three led the project over seven years. Staff maintained close relationships with KM officials and were very involved in persuading the municipality to implement the AFMIS software. Issues were candidly captured in Implementation Status and Results Reports (ISRs) and Aide Memoires (AMs). 80. The task team identified risks and introduced appropriate mitigation measures. Risks stemming from political turnover were mitigated through proactive engagement with new Mayors. The risk of institutional inertia was addressed through dialogue. PMU staffing challenges were tackled through strong emphasis on recruiting additional staff. Fiduciary issues were dealt with through the strict monitoring of procurement and financial management processes. Contract packaging helped ensure that contracts were manageable in size, given weak local industry capacity. Risks were also mitigated through the use of a Third-Party Monitoring Agent (TPMA)30. 81. The Bank agreed with the government to make the KMDP PMU responsible for the implementation of Component 4 of EZ-Kar (effective since February 2019) and REACH (effective since September 2020). This added complexity and uncertainty in workflow planning to the PMU’s work and may have slowed implementation. Factors outside the control of government and/or implementing entities 82. Pervasive insecurity in Kabul hampered project progress. Security closures delayed implementation by small contractors. Permit requirements restricted vehicles from the delivery of materials. Heightened uncertainty during the last two years resulted in a shift in political priorities and drew attention away from outstanding activities. 83. Unfavorable market conditions in Afghanistan made the selection of contractors difficult. There were few qualified local contractors who could execute small contracts in unplanned neighborhoods. Contractors were often qualified on paper but unable to deliver works on time and recruited inexperienced engineers at low salaries. International firms did not express much interest in bidding for project activities due to the security situation. 84. In KMDP’s final year, significant procurement and disbursement delays were caused by the COVID-19 pandemic. Implementation slowed by two months due to lockdown restrictions, closed government offices, and the fact that more than half of the PMU staff fell sick with the virus. This resulted in four incomplete work packages, which were transferred to EZ-Kar, as well as negatively impacted progress in delivering on institutional reforms. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 85. The appraisal stage PDO (a) indicators were specific, measurable, attributable, relevant, and time bound. These 30The TPMA was in place to review subproject progress as well as safeguards and fiduciary issues. TPMAs are external agents contracted to assist the Bank in performing essential monitoring and compliance verification activities in order to strengthen supervision. They are typically used in FCV contexts characterized by severe access constraints. The Afghanistan TPMA covered the entire country portfolio, including KMDP. Page 18 of 40 The World Bank Kabul Municipal Development Program (P125597) constituted the bulk of the project’s indicators. The relationship between the outcome indicator and the intermediate indicators was clear. The intermediate indicators had appropriate baselines and targets where possible, though several targets were not set because they required an on-the-ground survey. 86. However, the appraisal stage PDO (b) indicators had shortcomings. The causal logic by which the desired outcomes stemmed from intermediate results was not evident. The outcome indicator was the same as the output. The outcome indicator was “report on FM reforms” and the output was “plan for the implementation of institutional reforms that integrate IT solutions”. There were no intermediate indicators. 87. Changes to the design during restructuring did not improve the PDO (b) indicators. The outcome indicator was much narrower than the outcome of the PDO statement. The new indicator was also not the most relevant metric: it was desirable but not essential to redesigning the financial management system to support better service delivery. The project should have drawn up several indicators instead of relying on the single indicator. 88. More appropriate intermediate PDO indicator targets could have been selected under this outcome. These were overly ambitious for an FCV context and expected the implementation of eight specific financial management modules, even though the functions of two of these modules were already substantially covered by other modules. 89. The M&E arrangements in place to collect, compile, analyze, and report the necessary data were appropriate. These included Quarterly Implementation Progress Reports, an MIS, and a GRM. These arrangements were supplemented by social and environmental monitoring reports as well as financial management reports. M&E Implementation 90. Quarterly Implementation Progress Reports comprehensively monitored and tracked the progress of Results Framework indicator targets. These reported cumulative data and were submitted by the PMU on time. They were of a high quality after iterative discussions between KMDP staff and the Bank. Methodological concerns regarding the collection of beneficiary data were resolved before restructuring. KMDP conducted a full census of each neighborhood to report on the number of beneficiaries for each subproject. 91. ISRs candidly reported progress on, and obstacles to, the achievement of the indicator targets. The task team rated project progress conservatively and flagged potential obstacles to the indicator targets whenever possible. 92. The MIS and the GRM were in place throughout the life of the project. KMDP’s MIS was fully functional and capable of producing accurate reports for monitoring. KMDP staff used the MIS system to monitor the progress of subprojects and performance and analyze upgrading costs. However, the GRM database only differentiated between environmental and social issues during the project’s final six months. M&E Utilization 93. The Quarterly Implementation Progress Reports and the MIS were used by the government, project agencies and the Bank for project monitoring and evaluation. Indicators and targets were modified during restructuring based on relevant inputs. For example, PDO outcome (a) results were scaled up based on the tracked figures. M&E arrangements became especially relevant during the last six months when several civil works were at risk of not being completed by project closure. These resources were used to assess the situation and accelerate implementation. Most subprojects were completed. Overall, progress was closely monitored by the PMU and the Bank and discussed during regular missions. Justification of Overall Rating of Quality of M&E M&E rating: Modest 94. Overall, the quality of M&E was Modest. There were shortcomings in the design of the M&E system. PDO outcome (b) indicators had shortcomings before and after restructuring. The new PDO (b) indicator was not the Page 19 of 40 The World Bank Kabul Municipal Development Program (P125597) most relevant metric and did not provide a complete account of the PDO outcome. The new intermediate-level indicators were overly ambitious. However, M&E implementation as well as utilization constituted good practice. B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE Environmental and Social (E&S) compliance 95. Overall E&S performance was rated “Satisfactory”. At appraisal, KMDP was classified as Category “B”. The project triggered the following environmental and social safeguard policies: (i) Environmental Assessment (OP/BP 4.01), (ii) Physical Cultural Resources (OP/BP 4.11), and (iii) Involuntary Resettlement (OP/BP 4.12). Environmental and social adverse impacts were associated with civil works from Component A and the Environmental and Social Management Framework (ESMF) provided general provisions to mitigate anticipated impacts31 32. Environmental and Social Management Plans (ESMPs) were prepared and the contracts included safeguard management obligations. With the onset of COVID-19, the ESF/Safeguards Interim Note was made mandatory. 96. The project did not involve involuntary land acquisition and resettlement. However, land donation by community members was practiced under the project, especially for street widening. Documents were prepared and recorded for such land donations as per Bank guidelines. The project kept a list of lands donated along with the signed consent letters from donors33. The project GRM received and resolved a total of 495 complaints, 46 of which were registered by women34. Feedback was used to inform planned interventions. Fiduciary compliance 97. Financial Management compliance was rated “Moderately Satisfactory”. The performance rating was consistent throughout, except during the last quarter of FY 2020, when it was downgraded to “Moderately Unsatisfactory”. This was the result of questionable expenditures of US$2.20 million identified during the second and third Statement of Expenditure (SOE) review of FY 2020 and settled during the second quarter of FY 202135. The Bank Financial Management review during June 2020 also identified questionable expenditures of US$40,269 related to fixed assets procured without an approved procurement plan. These issues have since been resolved. However, there are still undocumented advances of US$ 4.9 million. An SOE of US$ 4.5 million was verified by the TPMA but not documented with the Bank36. The TPMA is collecting information on, and verifying, the remaining advances. 98. The reviews also noted a few other control weaknesses in financial management. These comprised low budget utilization, weak funds management, non-compliance with the Financial Management Manual, including delays in payment processing, inadequate record management, and non-application of the manual’s procedures. These issues were resolved. The project submitted Interim Unaudited Financial Reports on time, with few exceptions. Internal audit was assigned to KM’s internal audit directorate, which did not conduct them, despite follow-up, due to a lack of capacity. Progress was slow in addressing external audit findings related to control weaknesses. The last external audit report was not submitted because the Supreme Audit Office of Afghanistan is not functional37. 31 Environmental and social adverse impacts were mainly land degradation, air pollution, noise generation land acquisition, health, and safety concerns from civil construction operations. 32 The ESMF spelled out guidelines for the preparation of the site-specific ESMPs. It also outlined clear provisions on program specific EHS Guidelines and GRM for the program in addition to the community consultation guidelines. 33 The project has also kept a detailed log of the obstacles removed under the project. 34 Most complaints were related to contractor activities, such as construction delays and payments to subproject labor. 35 Two contracts were identified as being potentially non-compliant with procurement procedures. 36 This was not documented with the Bank because of the fall of the GoIRA in mid-August 2021. 37 The audit report for the Fiscal Year ending on December 21,2020 was due for submission on September 21, 2021. The audit reports for the entire Afghanistan portfolio are overdue. The Bank is currently considering alternative assurance mechanisms. Page 20 of 40 The World Bank Kabul Municipal Development Program (P125597) 99. Procurement performance was rated “Moderately Satisfactory”. All procurement was subject to approval by KM management. High-value contracts were subject to the National Procurement Commission’s (NPC) approval. The project was able to procure more than 90 percent of the activities in the procurement plan. The project team monitored contracts awarded and ensured that completion was within stipulated timeframes. All necessary documents were uploaded to the Systematic Tracking of Exchanges in Procurement system. Measures to mitigate risks included continuously keeping project procurement staff on board, Bank support for complex and high value contracts, and the provision of training to KMDP’s procurement team. However, there were several activities where deviations were noted, such as the NPC’s rejection of Evaluation Committees' decision on the award and extension of the GPS contract. The project was not able to procure the Financial Management Manual consultancy. C. BANK PERFORMANCE Quality at Entry 100. KMDP’s strategic relevance at appraisal was strong. The project aligned closely with the World Bank’s ISN for Afghanistan for 2012 to 2014. The approach pioneered by KURP was scaled up. Project appraisal was thorough, and paid close attention to technical, financial, and economic aspects. The design took gender and social development aspects seriously: GCS were intended to ensure the active participation of women in project implementation as well as to facilitate community ownership. Potential environmental and social issues were comprehensively surveyed and relevant Bank policies were triggered. 101. The project design and implementation arrangements took the FCV context into account. Implementation risks and mitigation measures were adequately identified. The overall security situation was assessed as exacerbating existing risks by, inter alia, increasing uncertainty and intensifying access constraints. The team carried out a fiduciary assessment during preparation which highlighted that KM did not have sufficient procurement or financial management capacity to implement the project. The team sought to offset these risks through the establishment of a strong PMU early in the project cycle. A moderate shortcoming at approval was the quality of the M&E design. Quality of Supervision 102. Adequate supervision was key in advancing the project in a difficult FCV environment. The political and security environment deteriorated from early 2020 and intensified after early 2021 with the announced international troop withdrawal, elevating uncertainty and making Bank supervision especially complex. 103. The task team proactively identified threats to the PDO and devised mitigation measures to address them. These measures included proactive engagement with officials, the recruitment of additional staff, and the strict monitoring of fiduciary processes. Issues were candidly reflected in the project’s reporting. The Bank focused on ensuring compliance with relevant policies by building the PMU’s capacity for financial management, procurement, environmental, social, and M&E aspects. Fiduciary and safeguard processes were appropriately supervised. 104. During the MTR, the task team drew on M&E inputs, identified bottlenecks to project implementation, and subsequently restructured the project accordingly. However, the Bank could have paid greater attention to the Results Framework, especially on the indicators for PDO outcome (b). 105. The deployment of Bank supervision staff was adequate. The TTL was based in Kabul from September 2020 onward, allowing for frequent engagement with government counterparts. Fiduciary and safeguards staff were primarily drawn from the country office throughout implementation. The Bank fielded two Implementation Support Missions (ISMs) per year despite substantial security risks, with fifteen in all. Remote supervision was conducted in the final stages due to the COVID-19 pandemic. The Bank ensured adequate transition arrangements for the supported activities after closing, transferring four partially completed work packages to EZ-Kar. Page 21 of 40 The World Bank Kabul Municipal Development Program (P125597) Justification of Overall Rating of Bank Performance Bank performance rating: Moderately Satisfactory 106. Overall, Bank performance was Moderately Satisfactory. There were moderate shortcomings in the quality of entry related to the M&E design. The quality of supervision was Satisfactory. D. RISK TO DEVELOPMENT OUTCOME 107. Ongoing developments in Afghanistan potentially threaten the development outcomes achieved by the project. 108. In terms of PDO outcome (a), there is a high risk that KM’s financial position will be weakened by the withdrawal of the international community. This risk is temporarily mitigated by the fact that the quality of design and construction were such that no maintenance is foreseen for the next five to ten years, apart from routine cleaning. 109. In terms of PDO outcome (b), there is a high risk that the financial management reforms will not receive continued support. Institutional development reforms take time, require sustained commitment by the political leadership, as well as ongoing donor support. This risk is aggravated by the lack of clarity regarding the continued availability of the technical staff running the AFMIS system. 110. Some of the development outcomes achieved by the project may therefore not be sustained over the long-term. V. LESSONS AND RECOMMENDATIONS The lessons detailed below focus on the main takeaways which may be helpful to Bank operations in FCV settings: 1. The extent to which the Implementing Agency has an operational mandate – as opposed to regulatory responsibilities – critically affects urban project outcomes in fragile environments. KURP was implemented by the Ministry for Urban Development and faced significant delays, as its staff had to negotiate implementation with KM officials, which had the mandate for service provision. KMDP was implemented by KM, which significantly reduced these delays and enabled the project to achieve infrastructure outcomes more rapidly and at scale. 2. Carefully navigating center/local relationships is key to ensuring positive project outcomes . The perception that project activities are reinforcing the center’s hold on local agencies – enhancing the MoF’s ability to supervise KM, for example – is likely to risk increasing tensions. This is especially relevant in fragile settings where institutional relationships and oversight are not always as clearly defined as in other contexts. 3. Turnover of politically appointed leadership, capacity constraints, and the limited interest of international consultancies make institutional reforms exceptionally difficult in FCV settings. During project design, the extent to which teams are realistic, avoid setting the bar too high in terms of outcomes, and abstain from excessive reliance on international consultancies can be an important determinant of successful project implementation. 4. Technical solutions in financial management can increase transparency and accountability and consequently improve expenditure management – even in FCV environments – but ambition does need to be tempered. For example, the implementation of the AFMIS system identified ghost workers, ensured the timely payment of staff, and reduced fuel consumption. However, this was not sufficient to ensure that the outcome indicator was met. 5. Combining urban upgrading, a more top down approach, with community consultations, which are bottom up, accelerates implementation while also re-building a fractured social contract. KMDP was centrally administered, allowing for rapid implementation in a difficult operating environment. However, the continuous involvement of GCSs in providing feedback also expedited subproject execution and ensured community ownership. . Page 22 of 40 The World Bank Kabul Municipal Development Program (P125597) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Increase access to basic municipal services in selected residential areas of Kabul city Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of beneficiaries from Number 0.00 775000.00 1,052,660.00 1,706,901.00 upgrading in both planned and unplanned areas that are 14-Feb-2014 14-Feb-2014 13-Nov-2017 24-Jun-2021 upgraded. Number of people in urban Number 0.00 0.00 500,000.00 574,769.00 areas provided with access to all season roads within a 500 meter range under the project. Comments (achievements against targets): Objective/Outcome: Redesign KM’s Financial Management system to support better service delivery Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 23 of 40 The World Bank Kabul Municipal Development Program (P125597) Public access to key financial Text Qatia accounts KM presents on its This is partly achieved. information, in particular, the prepared reporting website financial KM can now produce expenditure by type of expenditures against statements as per financial reports that services single line budget. international disaggregate revenue standards and a report and expenditure by providing expenditure type of services details by type of provided as per services provided. international standards. However, KM cannot present financial statements on its website. 27-Jun-2017 13-Nov-2017 24-Jun-2021 Comments (achievements against targets): A.2 Intermediate Results Indicators Component: Component A: upgrading of basic municipal infrastructure Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Kilometers of community Kilometers 0.00 0.00 560.00 711.55 roads paved 14-Feb-2014 14-Feb-2014 13-Nov-2017 24-Jun-2021 Comments (achievements against targets): Page 24 of 40 The World Bank Kabul Municipal Development Program (P125597) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Kilometers of trunk road Kilometers 0.00 0.00 37.00 62.96 paved 14-Feb-2014 14-Feb-2014 13-Nov-2017 24-Jun-2021 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Kilometers of community Kilometers 0.00 745.00 988.33 drains lined 13-Nov-2017 13-Nov-2017 24-Jun-2021 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Kilometers of trunk drains Kilometers 0.00 0.00 0.00 55.57 lined 14-Feb-2014 14-Feb-2014 13-Nov-2018 24-Jun-2021 Comments (achievements against targets): Page 25 of 40 The World Bank Kabul Municipal Development Program (P125597) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Area Upgraded Hectare(Ha) 0.00 1773.00 3,020.00 3,641.43 14-Feb-2014 14-Feb-2014 13-Nov-2017 24-Jun-2021 Comments (achievements against targets): Component: Component B: redesign KM's financial management system Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Implementation of Financial Text Payroll module Eight modules The indicator is partly Management Information implemented. implemented achieved. Six modules System (AFMS/FreeBalance) (Accounting, were implemented, Budgeting, HR, covering accounting, Inventory, Asset, revenue, budgeting, Fleet, Procurement, asset management, Revenue). fleet management, and procurement. The HR and inventory were not implemented. The project implemented a ‘Revenue, Budget, and Expenditure Page 26 of 40 The World Bank Kabul Municipal Development Program (P125597) Dashboard’. 30-Sep-2017 13-Nov-2017 24-Jun-2021 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion KM Financial Management Text MOF financial FM framework specific This indicator is partly (FM) Framework regulations used to KM needs and achieved. A new FM which are not specific based on best framework (e.g. FM to KM needs. practices, developed manuals, trainings, and implemented competency framework, etc) tailored specifically to KM's needs was not created under the project. However, the project team did finalize detailed TORs for its development. 30-Sep-2017 13-Nov-2017 15-Nov-2020 Comments (achievements against targets): Page 27 of 40 The World Bank Kabul Municipal Development Program (P125597) = B. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: increase access to basic municipal services in selected residential areas of Kabul city 1. Number of beneficiaries from upgrading in both planned and unplanned areas that are upgraded Outcome Indicators 2. Number of people in urban areas provided with access to all-season roads within a 500-meter range under the project 1. Area upgraded (hectares) 2. Kilometers of community roads paved Intermediate Results Indicators 3. Kilometers of trunk road paved 4. Kilometers of community drains lined 5. Kilometers of trunk drains lined 1. 3,641 hectares upgraded 2. 711 Kilometers of community roads paved 3. 63 Kilometers of trunk road paved 4. 988 Kilometers of community drains lined 5. 56 Kilometers of trunk drains lined 6. 88 Kilometers of sidewalks Key Outputs by Component 7. 59 Kilometers of water supply pipes (linked to the achievement of the Objective/Outcome 1) 8. 29,941 trees planted 9. 11 hectares of park areas rehabilitated 10. 675 training sessions to establish community-managed solid waste collection mechanism 11. 684 GPS devices procured 12. 3 control centers established Page 28 of 40 The World Bank Kabul Municipal Development Program (P125597) Objective/Outcome 2: redesign Kabul Municipality’s financial management system to support better service delivery when reforms are implemented 1. Public access to key financial information, in particular, expenditure Outcome Indicators by type of services 1. Kabul Municipality’s Financial Management (FM) Framework Intermediate Results Indicators 2. Implementation of Financial Management Information System (AFMIS/FreeBalance) 1. TORs developed for Financial Management (FM) Manual 2. 6 modules implemented (core financial module covering Key Outputs by Component accounting, revenue, budgeting; purchasing module; asset (linked to the achievement of the Objective/Outcome 2) management module; fleet module) 3. 1 additional module implemented (payroll module) 4. Revenue, Budget, and Expenditure dashboard Page 29 of 40 The World Bank Kabul Municipal Development Program (P125597) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. TASK TEAM MEMBERS Name Role Preparation Deepali Tewari Task Team Leader(s) Asif Ali Procurement Specialist(s) Akram Abdelaziz Hussein Mohame ElShorbagy Financial Management Specialist Juan Carlos Alvarez Counsel Asta Olesen Social Specialist Mariam Haidary Team Member Mohammad Yasin Noori Social Specialist Obaidullah Hidayat Social Specialist Supervision/ICR Abdul Wali Ibrahimi Task Team Leader(s) Aimal Sherzad, Rahimullah Wardak, Muhammad Abbass Procurement Specialist(s) Rahimi Muhammad Ishaq Zahwal Financial Management Specialist Roderick M. Babijes Team Member Tahir Akbar Team Member Obaidullah Hidayat Environmental Specialist Syed Waseem Abbas Kazmi Team Member Tariq Ashraf Social Specialist Sally Beth Murray Team Member Ghazal Shobair Procurement Team Hamidullah Azizi Team Member Masooda Mehdizada Team Member Page 30 of 40 The World Bank Kabul Municipal Development Program (P125597) B. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY12 12.058 137,025.69 FY13 17.047 138,238.33 FY14 29.641 169,677.30 FY15 12.137 50,756.41 FY16 3.440 18,856.23 FY17 0 0.00 Total 74.32 514,553.96 Supervision/ICR FY11 2.226 6,500.42 FY12 2.725 72,874.07 FY13 0 4.82 FY14 4.625 40,850.71 FY15 35.020 234,036.78 FY16 92.045 343,492.05 FY17 64.368 290,512.30 FY18 38.937 228,692.54 FY19 44.938 282,248.29 FY20 48.295 247,666.12 Total 333.18 1,746,878.10 Page 31 of 40 The World Bank Kabul Municipal Development Program (P125597) ANNEX 3. PROJECT COST BY COMPONENT Amount at Approval Amount at Actual at Project Percentage of Components (US$M) Restructuring (US$M) Closing (US$M) Restructuring (US$M) Infrastructure Upgrading Program 85 91.50 82.25 90% (US$91.5 million) Redesign KM’s Financial 3 6.00 2.39 40% Management System (US$6.0 million) Studies 5 0 0 100% Project Management, Works Design and 17 12.50 6.64 53% Supervision (US$12.5 million) Contingency 0 0 0 0 Emergency Response Total 110 110.00 92.27 84% Page 32 of 40 The World Bank Kabul Municipal Development Program (P125597) ANNEX 4. EFFICIENCY ANALYSIS 1. Economic analysis was carried out for the upgradation of basic municipal infrastructure, such as community roads, drains, footpaths, and street lighting, in underserved areas. The analysis used a change in the value of property in an area to quantify the benefits accruing from the project, such as improved mobility, physical and mental health, and recreation, all of which improves productivity. It should be noted that this is only a partial assessment of benefits as other benefits of the project are difficult to quantify. 2. The economic analysis undertaken at appraisal used data for property values from select areas uplifted in KURP to estimate the Economic Rate of Return (ERR) and the Net Present Value (NPV) at a ten percent discount rate. The analysis used data for three sites: a planned settlement, an unplanned settlement, and a mixed settlement. The ERR and NPV for the base case from appraisal is shown in Table 1 below. The ERR ranges from 74 to 95 percent while the average NPV is US$30.4 million. Table 1: Results of economic analysis at appraisal Economic Rate of Return (percent) Net Present Value (US$ million) Informal 95 24.92 Mixed 94 36.95 Formal (planned) 74 29.46 3. Economic analysis conducted for this ICR follows a similar methodology to that used at appraisal to (i) allow a consistent and fair comparison and (ii) quantify benefits from the project in the most reasonable way. Data was available for property values in 2014 and 2016 for select areas, with corresponding project information on the amount invested in specific infrastructure projects in upgrading those areas (or gozars) between 2013 and 2015, as well as the number of households present.38 Due to the conflict and the security dynamics in Afghanistan and the change in government, this was the only data available to conduct the analysis. Therefore, the analysis is limited and does not allow disaggregating by type of settlement. The analysis uses the percentage change between 2014 and 2016 to estimate the annual increase in property values. This is used to estimate the property values in 2013, which is taken as the inception year. 4. In the analysis, the ‘with project’ improvement was compared to the ‘without project’ alter native. In the former, the annual increase (7.08 percent) is extrapolated for the period 2013 to 2020. For the without project alternative, the annual increase in property values is assumed at half the rate (3.54 percent).39 In both situations, an annual increase is assumed as consistent each year. These two scenarios are then used to estimate the ERR and the NPV at the standard 10 percent discount rate. Operation and Maintenance (O&M) expenditure is assumed to set in from the second year (as these are distinct projects) at 1.5 percent of the capital expenditure. A relatively conservative estimate is used for O&M because the quality of the design and construction of the infrastructure is such that minimal maintenance is foreseen for the next five to ten years beyond routine cleaning. The economic benefits are estimated at 95 percent of the financial benefits in the analysis, in order to reflect market factors such as taxes and duties. 38 The property values were in Afghan Afghani (AFN) which were converted to US Dollar (USD) amounts for the corresponding years. 39 This is consistent with the assumption used in the economic analysis at appraisal. Page 33 of 40 The World Bank Kabul Municipal Development Program (P125597) 5. Sensitivity analysis was also carried out to test the robustness of the results by calculating the effect of a 20 percent reduction in the economic benefits. The results are shown in the table below. In the base case, the ERR is 17 percent, whereas the sensitivity analysis yields an ERR of 12 percent. The NPV for the base case US$3.6 million, while in the sensitivity case the NPV is US$0.85 million. This suggests that even with conservative estimates of project benefits, the project was economically productive. Table 2: Results of the Economic Analysis at Completion Economic Rate of Return (percent) Net Present Value (US$ million) Base case 17% $3.60 Sensitivity case 12% $0.85 6. The economic analysis discussed above does not capture the full benefits of the project due to constraints in the data and what is quantifiable. For example, benefits from project investments related to improvements in quality-of-life due improved delivery of basic services have not been considered. In addition, other benefits, such as the crowding in of private investment in these areas, for instance in housing, is also not fully captured. Analysis conducted by the project team suggest this is substantial (see ‘Mobilizing Private Sector Financing’). In gozars upgraded under KMDP, private investment grew by 15.7 percent annually in 2014 to 2018, compared to the 10.6 percent annual growth before the project (2010 to 2014). Finally, other aspects of the project’s investment, such as in KM’s financial management system, will also produce benefits that are not easily quantifiable as they are inputs into future improvements in outcome. Page 34 of 40 The World Bank Kabul Municipal Development Program (P125597) ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS It has not been possible to obtain Borrower’s comments on the ICR due to the fall of the GoIRA in mid-August 2021. Page 35 of 40 The World Bank Kabul Municipal Development Program (P125597) ANNEX 6. SUPPORTING DOCUMENTS (IF ANY) Supporting documents available in the project files are: • Project Appraisal Document • Legal Agreement • Restructuring Paper • Project Aide Memoires and Management Letters • Project Implementation Status and Results reports Other World Bank Group documents: • World Bank (2012 – 2014) Interim Strategy Note for Afghanistan • World Bank (2017) Afghanistan Country Partnership Framework • World Bank (2019) Performance and Learning Review of the Country Partnership Framework Government of the Islamic Republic of Afghanistan documents: • Urban National Priority Program (U-NPP) (2016 – 2025) Page 36 of 40 The World Bank Kabul Municipal Development Program (P125597) ANNEX 7. REVISED TOC DIAGRAM FOR THE RESTRUCTURED PROJECT Constraints addressed Activities Outputs Outcome indicators PDO Infrastructure and Carry out civil works (a) Community and trunk roads paved, Number of beneficiaries from service delivery community and trunk drains lined, area of upgrading in both planned deficiencies neighborhoods upgraded and unplanned areas Increased access to basic municipal services in Number of people in urban selected residential areas provided with access to areas of Kabul all-season roads within a 500m range Weak financial FM framework specific to KM needs and based on best practices developed KM's website provides annual Redesign KM’s financial management system and implemented financial statements as per management system to Support for rolling out AFMIS, Fully functioning AFMIS system (8 international standards and a support better service including training, software modules) report providing expenditure delivery when reforms license fees, the purchase and details by types of services are implemented installation of equipment (b) provided Limited institutional Project implementation (c) Fully functional PMU established capacity Knowledge sharing through KM staff and PMU exposed to best trainings and workshops practices Three assumptions underpin the revised ToC: (a) industry capacity is sufficient to absorb and implement the civil works contracts; (b) KM officials have incentives to contribute to changed financial management processes; and (c) KURP staff will stay with the KMDP PMU and mitigate the risks from the client’s limited fiduciary capacity. Page 37 of 40 The World Bank Kabul Municipal Development Program (P125597) ANNEX 8. SUPPORT OF FINANCIAL MODULES FOR BETTER SERVICE DELIVERY Situation before the project 1. Prior to KMDP, no financial report was generated by KM on a regular basis to present the municipality’s overall financial performance. Reporting was limited to aggregated expenditure and revenue data to present the yearly budget execution to the MoF. There was no accounting by service type and the cost of service provision was therefore unknown. The system could not generate detailed revenue reports by type, location, and period. 2. This lack of clarity on financial flows affected service delivery because it was difficult to optimize the municipality’s processes and ensure value for money. The municipality could not plan in a meaningful way because segregated and detailed financial data was not available. These difficulties in reporting were related to the city’s weak underlying financial management system. 3. KM used a single-entry accounting system with limited public financial management functions. Expenditure at KM was incurred at the Head Office, while revenue was collected at the directorate and district levels. Prior to the project, revenue was manually recorded in the system and sent to the Head Office by the district administrators on a monthly basis. This slowed revenue accounting and made it difficult to ascertain district level revenue information in real time. The expenditure was recorded against a few codes and data for expenditure by type of service was not available. 4. Budget formulation was affected by this lack of timely information on revenue collection. Expenditure decisions had to be made without a clear understanding of the city’s fiscal situation. A reserve fund existed to ensure that the city could cover its monthly expenditure obligations when monthly revenues were insufficient. Moreover, the expenditure budget was not prepared based on the detailed allocation of expenditures for each period (month/quarter), unit (directorates/districts/Head Office), or function. Budget execution was undermined by lengthy and time-consuming procurement processes that were, inter alia, the result of poor record keeping. KM had no system to produce timely reports specifying the number of contracts awarded to each vendor, the status of completion, and the outstanding balances. Vendor records were not easily available. 5. KM’s system also suffered from weak internal controls. The system lacked internal mechanisms to create, review, and approve revenue entry, thus offering the potential for the misrepresentation of revenue collections. It also lacked controls to review payments and did not have a complete audit trail of transactions. KM officials could therefore drag out payment processes, leading to delays. 6. Asset registration and management were manual and incomplete. KM’s Asset and Inventory Management department did not have the capacity to provide the total number of existing assets on the municipality’s premises. There were no instruments to ascertain the availability or the state of goods procured and stored. There was also no efficient system to track fleet parameters, an important factor in cost control. 7. KM managed the payroll of thousands of employees manually, with no means to prevent the payment of excess salaries to certain staff or payments to ghost employees. The municipality was said to be paying duplicate salaries and making payments to employees who had been terminated. Cashiers were suspected to be taking cuts from salary payments. Impact of project interventions 8. The project enabled KM to generate and publicly disclose detailed financial reports through the rollout of AFMIS, a digital accounting system. This included the official KM Fiscal Year 2019-2020 financial report. Page 38 of 40 The World Bank Kabul Municipal Development Program (P125597) These reports provide details of revenues and expenditures by type, location, and period. They facilitate the analysis of financial performance for better service delivery. The provision of accurate accounting records and the breakdown of revenue and expenditure by service type allow the municipality to make more informed service delivery choices. This includes identifying revenue gaps and planning accordingly. This improved reporting was made possible through substantial changes in the underlying financial management system. 9. The AFMIS core module, which covers accounting, revenue and budgeting, allowed KM to automate and integrate public financial management processes. The AFMIS core financial module was deployed in February 2019 and was rolled out in five KM directorates and ten districts. AFMIS captures both aggregated and disaggregated expenditure and revenue data in close to real time and allows users to know the municipality’s cash position at any point. It also enables more efficient reconciliation, facilitating timely revenue entry into the system at the Head Office, directorate and district levels, with reporting times reduced from a monthly to a daily basis. This eased the reconciliation of revenue with Bank statements. 10. AFMIS supports expenditure management as per the accounting manual and facilitates budget formulation and budget management. It requires the municipality to prepare budgets with detailed expenditure allocations. AFMIS controls expenditures: the municipality cannot exceed the budgetary allocations for each period, unit, or function. Once detailed allocations are entered into the system, the system does not allow expenditures to exceed budgetary allocations. It also allows the municipality to monitor its budget more effectively, check balances continuously, and track by service, function, output and department. 11. In addition, the module mitigates the risk of irregularities through greater internal control. AFMIS is designed to create, control, and approve payments based on user authentication. It tracks the payment process, showing date/time and user ID. The system accelerated the contractor payment process from several weeks to one to two days. It also further eased the audit trail of transactions. 12. The project implemented four additional modules to improve the underlying financial management processes in support of better service delivery. The Purchasing module, which was deployed in August 2020, facilitates the budget execution process by allowing the municipality to track the contract management process after award. It facilitates the maintenance of records of vendors and their respective contracts with details of contract values, duration, and status. It also tracks vendor payments. 13. The Structured Query Language (SQL) Asset Management Application was deployed in March 2020. The project supported the municipality in developing a fixed asset module implementation manual which outlined the classification of fixed assets, recognition criteria, applicable rules and regulations, as well as asset tagging. Based on this manual, all assets acquired during 2019 to 2021, and 60 percent of assets acquired during 2016 to 2019 have been registered40. Registered assets have been tagged, with records of the time of purchase, custodian, category, condition, and location. 14. The Fleet module was deployed in May 2021. KM used this module to register and control fuel consumption as well as track vehicle maintenance and replacement. In conjunction with the procured GPS equipment, it supported the reduction in fuel expenditure by 40 percent between initiation and closing. 15. The project also deployed the Payroll module before restructuring. This module substantially reduced the 40 40 percent of assets from this last time interval could not be registered due to the unavailability of relevant documents. Page 39 of 40 The World Bank Kabul Municipal Development Program (P125597) risk of duplicate or ineligible salary payments through a unique employee ID and facilitated the identification of 23 ghost employees in 2018. The module reduced KM’s payroll processing time from ten days to one. Staff also reported increased salary payments, as salaries were transferred directly to their bank accounts and there were no leakages. 16. In sum, the project improved the municipality’s financial management processes to support better service delivery. The improved system is the basis for optimizing service provision. Page 40 of 40