The Afghanistan Reconstruction Trust Fund (ARTF) is a World Bank managed multi-donor trust fund established in 2002. The ARTF is Afghanistan’s main multi-donor mechanism for non- security on-budget assistance. It is an important vehicle for donors to channel funding for service delivery and reconstruction across the country and to meet international commitments on donor coherence and the use of country systems.
ARTF allocations are made through the Incentive Program (Recurrent Cost Window), and the Investment Window. The Incentive Program supports the improvement of fiscal sustainability by increasing domestic revenue mobilization, strengthening expenditure management and efficiency. The Investment Window provides grant financing for national development programs.
The ARTF is a valued partnership platform for the Government of Afghanistan and has been instrumental in some of the main development achievements in Afghanistan.
In particular, the ARTF provides:
A mechanism for predictable on-budget financing of Government development priorities within a robust fiduciary and monitoring framework;
A platform for policy dialogue on key reforms with the Government; and
A means to coordinate donor support in line with an agreed partnership framework and financing program.
The ARTF has a three-tier governance framework (Steering Committee, Management Committee and Administrator), plus three working groups. This sound framework has enabled the ARTF to adapt to changing circumstances and development priorities with consistency and consensus.
ARTF Steering Committee: The Steering Committee sets the strategy for the ARTF which the Management Committee is responsible for implementing. The Committee is made up of all ARTF donors, the World Bank and Ministry of Finance, with other MC members participating as observers. The Committee meets quarterly under the co-chair of the World Bank and the Minister of Finance. The full notes of all Steering Committees meetings are posted regularly on the ARTF website.
ARTF Management Committee: The Management Committee (MC) is responsible for reviewing and, if appropriate, approving funding proposals. It also reviews ARTF finances and makes recommendations to the Administrator on the management of the ARTF. Decisions are taken on a consensus basis. The Administrator is responsible for reporting on the decisions of the Management Committee to the Steering Committee. The Administrator is responsible for preparing all documentation for the Management Committee, for which it acts as secretariat and chair. The members of the Management Committee are the Ministry of Finance, the Asian Development Bank, the Islamic Development Bank, the United Nations Development Program and the World Bank. UNAMA (United Nations Assistance Mission to Afghanistan) serves as an observer. All notes of the MC meetings are posted regularly on the ARTF website.
ARTF Administrator: The World Bank is the Administrator of the ARTF and is responsible for monitoring and reporting on ARTF performance. The Bank is in particular responsible for ensuring that funds are allocated in accordance with the Financing Strategy agreed with donors and GoA and in line with defined and agreed‐upon fiduciary standards and performance measures.
The Incentive Program Working Group, the Strategy Group and Gender Working Group are technical advisory bodies accountable to the Steering Committee and representing the wider group of ARTF donors. All three working groups are Kabul-based bodies, chaired by the World Bank, with Government participation.
1. Strategy Group: The Strategy Group meets in Kabul at the technical level to review the Financing Strategy, review the implementation of the ARTF program and propose modifications to the Financing Strategy for endorsement by the Steering Committee. The Strategy Group is composed of: (i) key donors with technical expertise in Kabul, (ii) the Ministry of Finance and (iii) the Administrator, acting as secretariat and facilitator. Specifically, the Strategy Group:
- Makes recommendations to the ARTF Steering Committee on the ARTF Financing Strategy at the start of each solar year as a mechanism to guide ARTF allocations during the period;
- Informs the annual review (by the Steering Committee) of the implementation of the Financing Strategy;
- Holds ad-hoc review meetings during the year whenever necessary to discuss particular issues or bottlenecks;
2. Incentive Program Working Group: The Incentive Program (IP) Working Group is the donor group that agrees on the policy benchmarks with the Government. The benchmarks are subsequently incorporated into a memorandum of understanding between the ARTF Administrator and the Ministry of Finance. The Administrator undertakes the technical review of benchmarks for approval by the IP Working Group. The IP Working Group reports and is accountable to the ARTF Steering Committee.
3. Gender Working Group: The Gender Working Group was established in December 2012 as a sub-group to the ARTF Strategy Group. The Gender Working Group (GWG) is chaired by the World Bank and consists of interested Strategy Group members. The GWG meets in Kabul at the technical level and reports to the Strategy Group. The GWG is supported by the World Bank’s gender team in Kabul. The working group convenes quarterly or as needed. The GWG: (i) reviews gender aspects of ARTF-financed activities; (ii) shares knowledge and expertise on innovations in gender as they relate to the ARTF; (iii) proposes recommendations to how gender aspects can be better captured in the ARTF Results Management Framework; and (iv) provide support for gender mainstreaming in ARTF portfolio management, pipeline development and new initiatives like the new Research and Analysis Facility.
The ARTF Investment Window is based around investments that support core national priorities programs (NPPs) in line with the Afghanistan National Peace and Development Framework (ANPDF) – 2017-2021. ANPDF is the government’s plan to achieve self-reliance and increase welfare of the Afghan people. The ARTF is one of the important mechanisms by which the international community can support these NPPs.
On the website, all ARTF reports and documents have been organized under specific sections to make them more easily accessible. Main sections are: Strategy and Finances: includes monthly financial statements; ARTF portfolio: provides relevant documents about ongoing projects as well as closed projects; Results: ARTF at Work- Stories from the Field, annual Results Scorecard; and External Reviews: third-party monitoring agent reports and external evaluation reports.
On December 17th, 2008, ARTF Donors agreed with the Government of Afghanistan to establish the ARTF Incentive Program (IP) within the Recurrent Cost Window of the ARTF. The Incentive Program supports the Government’s reform agenda, with a focus on fiscal sustainability and economic governance. The IP recognizes the annual automatic decline in baseline ARTF Recurrent Cost Window financing and offers an offsetting incentive package, based on concrete progress in the reform agenda. The overall objective of the Incentive program is to support the Government of Afghanistan with a reform program that aims at improving fiscal sustainability by increasing domestic revenue mobilization, strengthening expenditure management and efficiency.
The World Bank maintains an ARTF Portfolio Results website. This website presents basic information on all investment projects financed by ARTF and provides easy access to results reporting for each of the projects. The website provides access to all core project documents, including the Project Appraisal Documents and Implementation Status and Results reports, which is the World Bank’s mechanism for results reporting.
The first ARTF Financing Strategy was introduced at the London 2010 Conference to strengthen the fund’s predictability, transparency and ownership. It set out a three-year rolling allocation plan per solar year. Since then the implementation of the Financing Strategy has been reviewed in regular meetings of the ARTF Strategy Group and endorsed annually by the Steering Committee.
The ARTF Financing Strategy set the overarching strategic allocation of the fund, for recurrent cost expenditure (including the Incentive Program), investment financing, and monitoring and results reporting. The framework covers five priority sectors which correspond to the Government’s development clusters: Agriculture, Rural Development, Infrastructure, Human Development and Governance/Public Sector Capacity. Implementation of the Financing Strategy dependeded on donor contributions as well as capacity in the line ministries to implement approved projects developed with the World Bank.
In June 2018, the Financing Strategy was replaced with the Partnership Framework and Financing Program (PFFP).
The first ARTF Partnership Framework and Financing Program (formerly called ARTF Financing Strategy) was introduced at the London 2010 Conference to strengthen the fund’s predictability, transparency and ownership. It set out a three-year rolling allocation plan per fiscal year. Since then the implementation of the PFFP has been reviewed in regular meetings of the ARTF Strategy Group and endorsed annually by the Steering Committee.
The ARTF Partnership Framework and Financing Program (PFFP) sets the overarching strategic allocation of the fund, for recurrent cost expenditure (including the Incentive Program), investment financing, and monitoring and results reporting. The framework covers different priority programs which correspond to the Government’s development clusters outlined in the ANPDF. Implementation of the PFFP depends on donor contributions as well as capacity in the line ministries to implement approved projects developed with the World Bank.
The PFFP is a flexible rolling mechanism, which will evolve over time in response to emerging needs, government capacity and actual paid-in contributions. The Strategy Group reviews the PFFP with the World Bank and Ministry of Finance after which it is presented to the ARTF Steering Committee annually for endorsements.
The International Development Association (IDA) funding for Afghanistan is determined through IDA’s performance based allocation plus a post-conflict premium. Given IDA’s limited size in comparison with the much larger ARTF, IDA resources are being used strategically particularly in piloting programs and new approaches.
A portion of IDA may be provided in the form of Development Policy Grants in order to support further improvements in governance and an improved environment for effective investment. This continues to be dependent on a satisfactory macroeconomic framework, appropriate fiduciary controls and commitment to a reform program.
The WBG Gender Strategy, covering fiscal years 2016-2023, builds on past achievements and commits the WBG to: (i) close remaining gender gaps in human development (education and health); (ii) remove constraints so that women can access more and better jobs; (iii) improve women’s access and control of resources; and, (iv) enhance women’s voice and agency and engage men and boys (see figure 1). The WBG portfolio including the ARTF programs in Afghanistan uses the framework of the WBG Gender Strategy to support the gender mainstreaming agenda of the Government of Afghanistan and ARTF donors. In particular, as described in the Afghanistan Country Gender Action Brief (CGAB) – a tool that all countries in the South Asia Region of the WBG have prepared to guide the implementation of the WBG Gender Strategy – the Afghanistan portfolio will focus on addressing gender gaps in education, health and women’s economic empowerment over the next five years. To support these commitments, the WBG created the Gender and Social Inclusion Platform (GSIP), a programmatic task that will help define key operational, technical and analytical work for impact on the implementation of the Country Partnership Framework and CGAB.
The Gender Working Group established in 2012 to discuss gender issues of relevance to the ARTF portfolio convenes monthly in Kabul to: (i) review gender aspects of ARTF-financed activities; (ii) share knowledge and expertise on innovations in gender as they relate to the ARTF; (iii) propose recommendations to how gender aspects can be better captured in the ARTF Results Management Framework; and (iv) provide support for gender mainstreaming in the ARTF portfolio management and pipeline development.
ARTF investment projects are subject to the same fiduciary arrangements as all IDA-financed projects in Afghanistan. The World Bank requires that each project maintains financial management and procurement systems capable of accurately reporting on use of funds, linking funds flow to project activities, ensuring compliance with agreed procurement procedures and providing timely and reliable financial and procurement progress reports. These systems (encompassing budgeting, procurement, accounting, internal control, funds flow, financial reporting, and auditing arrangements) are assessed before each new project and are reviewed as part of formal and ongoing project supervision. A comprehensive fiduciary risk assessment is likewise conducted for each new investment.
During implementation the World Bank ensures that the systems are maintained and continue to produce reliable information. Financial management and procurement missions are scheduled as part of regular project supervision during which quarterly interim unaudited financial reports, annual audited financial statements and auditors’ management letters, and financial management and disbursement arrangements are all reviewed to ensure compliance with the World Bank’s requirements. Large-value procurements (above an agreed threshold set for each project) require World Bank “No Objection.
In addition to these regular procedures, the Administrator has hired a Third-Party Supervisory Agent for the Investment Window to further strengthen the Bank’s technical supervision and reporting.
Donors generally make annual pledges which are paid in during the Afghan budget cycle (December to December). The following steps are necessary to make a contribution:
- Donors can contact the World Bank, acting as Administrator for the ARTF, to indicate its intention to make a contribution. The main point of contact is Keiko Nagai, Coordinator of ARTF, based in Kabul.
- Following initial discussions, a legal agreement is drafted by the World Bank and sent to the donor agency for review and clearance.
- Once both the donor and the Bank are comfortable with the draft, it is signed and sent for signature in duplicate to the donor agency.
- Following counter-signing, a call of funds letter (CoF) is sent to the donor and the donor pays in the contribution.
- Donors are free to make further contributions whenever they are able. A simple ‘amendment’ letter is drafted, approved and countersigned.
- For better cash management, the donors are requested to pay in their contributions early in the year and not wait till end of the year.
The Investment Window Supervisory Agent has been contracted to carry out on-site monitoring of physical progress, quality of construction and usage of physical investments for selected projects supported by ARTF, to enhance portfolio monitoring and reporting. The agent carries out site visits across all 34 provinces on national programs: The agent works with a team of trained Afghan engineers who review physical progress, quality of construction and usage of physical investments. The agent is also responsible for registering and mapping all assets financed by the ARTF. The agent reports directly to the World Bank as Administrator and the Bank makes the information available to the responsible line ministries as well as the Ministry of Finance to ensure identified issues are addressed.
The World Bank has a policy of not permitting ear‐marking of donor funds for particular activities in the trust funds that it administers. However, donors can express preferences for projects or programs for a portion of their overall contribution. While a preference is not an earmark, and therefore not legally binding, it is a formal recognition by the Administrator of the donor’s preference to allocate a certain portion of a contribution towards a particular project. There are some key rules that guide this system:
1.The ARTF will not accept preference in excess of 50 percent of a donor’s contribution in a fiscal year.
2. Geographic preference is not accepted by the ARTF.
3. Preferences must be for ongoing, on-budget, programs outlined in the Partnership Framework and Financing Program, that have a clear funding gap
Four external evaluations of the ARTF were undertaken by an independent consulting group over the last years. The first evaluation (published March 2005) provided recommendations concerning reporting, government‐donor dialogue, and the investment window. The second evaluation (published August 2008) made recommendations for better integration of the investment and recurrent windows, the development of a 3-year partnership framework and improved performance monitoring and donor engagement.
The last evaluation took place in 2017. The review assessed the extent to which the ARTF is a Fit for Purpose mechanism that can adapt to Government [of Afghanistan’s] (GoA) needs, purpose and priorities as presented in the ANPDF. The review set out to identify areas where the ARTF could operate more effectively by on the one hand assessing the ARTF as a funding mechanism (strategy and performance; governance and administration; portfolio management and quality; monitoring and evaluation), while also looking at roles and performance of the ARTF stakeholders. The review concluded that “in a challenging and rapidly changing context, the ARTF remains a critical arena for joint analysis, discussion and decision; a mechanism for directive, prioritized collective action; a cost-efficient tool for channeling financial and technical support to the Government’s priorities; and an enduring commitment and partnership with Afghanistan’s future that allows and invites critical assessments of choices ahead” (External Evaluation 2017, “Taking Charge Government Ownership in a Complex Context”).
Finally, the World Bank’s own Independent Evaluation Group in 2012 undertook a major evaluation of the World Bank’s program since 2002, including the ARTF. These results are publicly available.
The government is gradually improving its own revenue base, through customs and taxation, so that it can pay its recurrent expenditures fully in the future. Improvements in revenue collection are being made. However, it will take some time before the government is fully able to support its recurrent expenditures by domestic revenues. Therefore, ARTF remains a critical part of the government’s fiscal sustainability, reimbursing a major component of non-security related costs. The annual budget is first approved by the Cabinet and, since SY1385, subsequently by the National Assembly. From SY1388 onwards, the ceiling for ARTF recurrent cost financing includes financing for the ARTF Incentive Program. This program envisages an automatic annual decline in guaranteed resources (baseline financing) through the Recurrent Cost Window, with an additional incentive top-up, based on the Government’s performance against reform benchmarks.
The Articles of Agreement of the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD) (together, “the World Bank”) prohibit the World Bank from involvement in the political affairs of its member countries. In addition, the Articles of Agreement spell out the purposes of the World Bank, which purposes have been interpreted by the World Bank’s Board of Executive Directors not to permit involvement in military or security related activities of member countries. The World Bank in its capacity as the trustee of the ARTF is guided by the overall purposes of the World Bank, the political prohibition clause and the other provisions in the Articles of Agreement. Funding military or other security-related expenditures would be outside the World Bank’s mandate and would violate the political involvement prohibition.
The Administrator has a contract with an auditing firm, who serves as a Monitoring Agent (MA). The MA is responsible for reviewing recurrent cost expenditures for compliance with the eligibility criteria under the ARTF Recurrent Cost Trust Fund. The MA checks compliance with (i) Government's internal controls; (ii) ARTF requirements; and (iii) efficiency standards. The MA reviews all of the expenditures codes to ensure they are eligible for ARTF funding and in line with the budget. The MA also reviews some expenses in more detail. The MA decides which expenses to examine more thoroughly by applying a carefully designed risk-based approach to monitoring. While the ARTF only finances part of the Government’s operating budget, the MA monitors the entire civilian operating budget for eligibility.
The MA’s review of expenditures comprises first, an assessment of the controls applicable to the expenditures to be reimbursed and then based on this assessment the Agent plans and carries out a review in two steps: (i) a desk review of all expenditures and (ii) site visits to test a sample of expenditures against support. Central to the work of the MA is the understanding that all non-security recurrent costs are monitored.
Government’s recurrent expenses are reimbursed by the ARTF as long as they adhere to the ARTF grant agreement, Government's financial management regulations and the fiduciary standards agreed with the Government. To date, approximately 74 percent of recurrent costs have been for payroll expenses, including teachers and health workers, and 26 percent for operations and maintenance expenses.
Firstly, any security related expenditures are ineligible for ARTF financing. In addition, any expenditure that does not adhere to the government's budget and procurement rules, or to the reporting and cash management standards agreed with the World Bank, or with the ARTF grant agreement would be ineligible. When an expenditure is found to be ‘ineligible’ it does not necessarily imply misuse or wrongdoing. The ARTF only finances eligible expenditure.
The Monitoring Agent (MA) is under contract with the World Bank, as the ARTF Administrator, which works closely with the MA to monitor their performance and work outputs. They meet regularly to review findings and determine follow up actions. A consulting firm is hired by the Bank to conduct an external evaluation of the ARTF which also covers the review of the Monitoring Agents’ performance, and provide recommendations. In addition, as part of the Administrator's fiduciary framework for all operations (whether financed by the World Bank or the ARTF), an annual independent audit is conducted. The World Bank follows up with the Government and the MA on audit findings.
At the start of the Recurrent Cost Window support, the ARTF provided an initial advance of $50 million to the government. This was used to finance the government’s operating budget and since then the costs have continued to be reimbursed through the Recurrent Cost Window. After a review of the eligibility by the ARTF Monitoring Agent, the Government submits expenditure details to the World Bank, which reimburses Government for the eligible amounts verified by the Monitoring Agent.
After ineligible expenditures are detected by the ARTF Monitoring Agent, they are deducted from the other eligible reimbursements made by the ARTF to the Government. Sometimes this happens in the same month the expenditure is submitted but often it happens later due to the lag in the monitoring process. For this reason the ineligible expenditures reported each month can vary as amounts are reconciled through an ongoing process. The same process is followed if funds have been misused but in such cases the ARTF brings the issue to the direct attention of the Ministry of Finance so that controls may be strengthened in the future.
All donor contributions are credited to the ARTF trustee account (parent account) managed by the Bank. Following the ARTF Management Committee approvals, funds are transferred to investment and the Recurrent Cost child trust funds. The amount transferred to these child trust funds are called committed (allocated) funds and, the balance available in the ARTF trustee account is called unallocated (uncommitted) balance.
Once money is allocated to an investment project, most of these funds will be tied to contracts either signed or in the bidding process for project implementation. Disbursements to various contractors/consultants will start as soon as project implementation commences. Disbursements will be made from the total allocated funds for the project. The amount allocated to a project minus disbursed funds, represents the undisbursed balance.
ARTF investment projects are subject to the same fiduciary arrangements as all IDA-financed projects in Afghanistan. The World Bank requires that each project maintains financial management and procurement systems capable of accurately reporting on use of funds, linking funds flow to project activities, ensuring compliance with agreed procurement procedures and providing timely and reliable financial and procurement progress reports. These systems (encompassing budgeting, procurement, accounting, internal control, funds flow, financial reporting, and auditing arrangements) are assessed before each new project and are reviewed as part of formal and ongoing project supervision. A comprehensive fiduciary risk assessment is likewise conducted for each new investment.
During implementation the World Bank ensures that the systems are maintained and continue to produce reliable information. Financial management and procurement missions are scheduled as part of regular project supervision during which quarterly interim unaudited financial reports, annual audited financial statements and auditors’ management letters, and financial management and disbursement arrangements are all reviewed to ensure compliance with the World Bank’s requirements. Large-value procurements (above an agreed threshold set for each project) require World Bank “No Objection.
In addition to these regular procedures, the Administrator has hired a Third-Party Supervisory Agent for the Investment Window to further strengthen the Bank’s technical supervision and reporting.