The Afghan government is being encouraged to increase its revenue collection by reforming the customs administration and enabling the growth of the private sector

In December 2008, Afghanistan Reconstruction Trust Fund (ARTF) donors and the Afghan government agreed on a new approach to support the government's operating budget, including its wage bill. Known as the ARTF Incentive Program, the new approach establishes a phased decline in ARTF support for recurrent costs over the ten remaining years of the fund (through 2020). At the same time, it positions the ARTF as an important tool to support the government's revenue-raising efforts on its path to self-reliance.

The program encourages the Afghan government to increase its collection of revenues through reform of the customs administration and other departments, as well as by creating an enabling environment for the growth of the private sector. It rewards progress in these areas against annual benchmarks agreed upon each year by the government and a core group of donors. If these benchmarks are met, the ARTF provides additional incentive funds to support the government's recurrent costs for the following year.

In May 2009, the government successfully completed the first year of the program. It will therefore access the incentive funds of $40 million in 2009-2010 (Solar Year 1388). A great deal has been achieved even in this first year of the program. This includes administrative reforms in the customs department, kicking off the asset declaration program for senior officials, and establishing the criteria to test teachers for competency. These, and the other areas supported, will be further pursued in the years ahead.

By providing the Afghan government with the right mix of incentives to strengthen its revenue collection, the program allows the ARTF to make a phased and predictable exit from the Recurrent Cost Window. It also proactively supports the government's economic reform agenda by empowering reformers to deliver on their programs. At the same time, the program ensures that ARTF donors, who are financing around half the civilian wage bill every year, have a genuine stake in the performance of the Afghan government.