Contents -- Abstract -- Acknowledgments -- Acronyms and Abbreviations -- Executive Summary -- 1. The Afghan Economy -- Recent Economic Performance -- Structure of the Economy -- Economic Prospects -- 2. Poverty in Afghanistan: A Preliminary Analysis -- Historical Background and Social Indicators -- Rural Poverty Profile -- Determinants of Rural Poverty -- 3. Toward Sustained Growth and Poverty Reduction -- Growth and Poverty Reduction Strategy -- Implementation Priorities and Risks -- 4. Building an Effective, Accountable Afghan State -- The State-Building Agenda -- Work in Progress -- Some Key Tasks Ahead -- The Way Forward -- 5. Encouraging and Supporting Private Sector Development -- The Afghan Private Sector -- Constraints to Private Sector Development -- Government Strategy and Implementation Priorities -- 6. Agricultural Development Priorities and Prospects -- Overview and Policy Framework -- Priority Areas for Reform -- Prospects for Afghan Agriculture -- 7. Understanding and Responding to the Drug Economy -- The Opium Economy in Afghanistan -- Lessons from Experience in Fighting Drugs -- Government's National Drug Control Strategy -- Options and Trade-Offs in Strategy Implementation -- 8. Delivering Basic Social Services with Gender Equity -- Background -- Conceptual Framework -- Improving Basic Social Service Delivery in Key Sectors -- 9. Assisting the Poor and Vulnerable -- Poverty, Vulnerability, and Coping Mechanisms -- Government Strategy and Programs -- Toward a Broad-based, Effective, Sustainable Social Protection Policy -- 10. Priorities for Action, Challenges, Prospects, and Risks -- Statistical Appendix -- References -- Map -- LIST OF TABLES -- 1.1 Macroeconomic Indicators -- 2.1 Social Indicators 2003 -- 3.1 National Priority Programs -- 3.2 Structural Reforms -- 3.3 Prices, Wages and Exchange Rates.

4.1 General Pay Levels (Afs/month) -- 4.2 Examples of Accountability Mechanisms in Proposed Laws -- 4.3 SY1382 Budget Execution -- 4.4 Domestic Revenues -- 4.5 Revenues (% of GDP) -- 4.6 Economic Activities and Probable Associations with Corruption -- 4.7 Priorities for Reducing Administrative Corruption -- 4.8 Options for Enhancing Capacities within Government -- 5.1 The Enterprise Spectrum -- 5.2 Infrastructure in Afghanistan and Selected Other Countries -- 5.3 Priority Areas for Support to the Private Sector -- 6.1 Agricultural Growth Rates (percent per annum) -- 6.2 Livestock Population Per Family -- 6.3 Regional Composition of Surface Water Resources and Irrigated Area -- 6.4 Estimated Irrigation Potential in Afghanistan -- 6.5 Estimated Rates of Return to Investment in Agricultural Research -- 7.1 Estimated Opium Cultivation, Production, and Incomes 1995-2004 -- 8.1 Public Service and Social Indicators -- 8.2 Rural Households' Access to Basic Services -- 8.3 Institutions and Accountability in Selected Services in Afghanistan -- 9.1 Essential Characteristics of Three Groups of Rural Households -- 9.2 LSP Significant Achievements in 1382 (FY 2003/04) -- A.1. Macroeconomic Indicators -- A.2. Millennium Development Goals -- A.3. Distribution of Characteristics Across Expenditure Quintiles, 2003 -- A.4. Determinants of Rural Poverty, 2003 -- A.5. Government Expenditures and Employment -- A.6. Government's National Budget -- A.7. Regional Distribution of Geographical and Arable Land, 2002 -- A.8. Cropwise Distribution of Area Cultivated, 2002 -- A.9. Area, Production and Yield of Cereals in Afghanistan: 2001-03 -- A.10. Area under Wheat and Wheat Yields by Regions in Afghanistan (1997-2003) -- A.11. Wheat Production Across Regions, 2003 -- A.12. Average Yield and Comparative Gross Income of Horticulture Crops as Compared to Other Crops.

LIST OF FIGURES -- A. The Informal Equilibrium -- B. The Formal Equilibrium -- C. A Vicious Circle -- D. Strategic Framework for Breaking the Vicious Circle -- 1.1 Afghanistan's Level of Development in International Perspective (1975-2002) -- 1.2 The Informal Economy in Different Sectors -- 1.3 The Informal Equilibrium -- 1.4 Cereal Yields -- 2.1 Selected Correlates of Rural Poverty (by quintiles) -- 3.1 The Formal Equilibrium -- 4.1 Afghanistan's Administrative Structure -- 4.2 De Jure and De Facto Centralization -- 5.1 Results of Enterprise Survey in Four Cities -- 5.2 When and How to Levy User Fees -- 6.1 Regional Distribution of Arable Land, 2003 -- 6.2 Cropwise Distribution of Area Cultivated, 2002 -- 7.1 Opium Cultivation and Production Trends, 1990-2004 -- 7.2 Opium Farm-gate Prices 1994-2004 -- 7.3 A Vicious Circle -- 7.4 Strategic Framework for Breaking the Vicious Circle -- 8.1 Accountability Relationships in Public Service Delivery -- 8.2 Education Enrollment Figures -- 9.1 Program Participation by Quintile (percent) -- LIST OF BOXES -- 1.1 Analyzing the Informal Economy -- 1.2 Discovering Afghanistan's Growth Potential -- 2.1 Gender in Afghanistan-A Politicized Issue -- 3.1 National Program Structure -- 3.2 Refugee Return and Remittances -- 3.3 The Role of Women in Afghanistan's Reconstruction -- 4.1 State Building -- 4.2 The Berlin Security and Rule of Law Declaration -- 4.3 Improvements in the Budget -- 4.4 "Water is Muddy from the Source" -- 5.1 A Raisin Factory in Kabul -- 5.2 Non-Governmental Organizations (NGOs) -- 5.3 Construction Materials in Mazar-i-Sharif -- 5.4 Zam Zam Industries: A Small Water-pump Manufacturer -- 5.5 Characteristics of Recent Investments -- 5.6 Quality Certification for Raisins -- 5.7 Constraints Faced by a Private Mobile Telephone Operator -- 6.1 Comparative Returns from Crop Cultivation.

6.2 Typical Regulatory Requirements of a Modern Agricultural System -- 6.3 Land Tenure Issues in Afghanistan -- 6.4 Outsourcing Extension Services -- 6.5 Agriculture and the Gender Division of Labor -- 7.1 The Competitive Model of the Drug Industry -- 7.2 Key Economic Linkages -- 7.3 Counter-Narcotics Experience in Afghanistan -- 7.4 Examples of Possible Innovative Approaches -- 8.1 Examples of Approaches to Improving Social Service Delivery in Afghanistan -- 9.1 Situation of Specific Vulnerable Groups -- 9.2 Safety Net Programs -- 9.3 Lessons from Oxfam's Cash for Work Program in Hazarajat.