It says 5 billion of promised funds has never materialised – while 3 billion of the 7.5 billion actually spent has found its way back to wealthy donor countries rather than helping the Afghan economy.
This has happened through a mix of "high levels of corruption", bumper company profits of up to 50 per cent and the vast earnings potential of foreign consultants, who can take home up to 250,000 a year as a result of hardship payments and "danger money".
Some 5 billion of promised aid is still with foreign governments, apparently because of delays in reconstruction on the ground, corruption and the inability of the Afghan government to keep tabs on the vast sums of cash.
Five American companies are named as having scooped the lion's share of their country's cash – with huge sums eaten up by an opaque web of sub-contractors.
The consultants' six-figure salaries are in shocking contrast to the millions of Afghans who live in extreme poverty. About half of the 27 million population are thought to live on 50p a day, and one in five children dies before his or her fifth birthday.
Last night, opposition politicians in Britain said the discrepancy between the aid pledged and delivered was "staggering", and there was a "real danger" of failing Afghanistan's desperately poor population.
Total foreign aid to Afghanistan amounts to 3.5 million a day – a fraction of the 50 million the United States government spends each day maintaining its military presence.
Meanwhile, the security situation continues to deteriorate, as Afghans grow increasingly disillusioned with the international presence. There are about 57,000 troops in the war-torn country, including 7,800 from the UK.
The new report, by Oxfam's Afghanistan policy adviser, Matt Waldman, on behalf of 94 aid agencies operating in the country, makes clear that the failure to tackle poverty directly increases the risk of further insurgencies.
He says: "The reconstruction of Afghanistan requires a sustained and substantial commitment of aid – but donors have failed to meet their aid pledges to Afghanistan. Too much aid from rich countries is wasted, ineffective or unco-ordinated.
"Given the slow pace of progress in Afghanistan, and the links between poverty and conflict, the international community must urgently get its act together."
David Miliband, the Foreign Secretary, who visited Afghanistan last month, described the country as an "incubator for al-Qaeda" and said it would become a failed state if international forces withdrew.
Some 90 per cent of spending in Afghanistan is funded by foreign governments, and the aid money is meant to help rebuild the infrastructure and support the fledgling government of the president, Hamid Karzai, who was elected three years after the fall of the Taleban in 2001. He has been struggling to forge national unity, disarm regional militias and tackle drug production – the country supplies more than 90 per cent of the world's opium, the raw ingredient of heroin.
But the report for the Agency Co-ordinating Body Afghan Relief (Acbar) says: "Thus far, aid has been insufficient and, in many cases, wasteful or ineffective.
"Vast sums of aid are lost in corporate profits of contractors and sub-contractors, which can be as high as 50 per cent on a single contract. A vast amount of aid is absorbed by high salaries, with generous allowances, and other costs of expatriates working for consulting firms and contractors."
It says the Afghan government has no idea where more than 1 billion of the aid money has been spent.
Examples of where cash has been wasted include a maternity hospital in Kabul, where more than half the 1.1 billion budget was apparently spent on four sub-contractors, and a stretch of road between Kabul city centre and the airport that cost 1.2 million a kilometre – at least four times the average local cost.
As for donor nations, the US, by far the biggest, is blamed for failing to meet more than half its 5.2 billion commitment, while France and Spain are accused of making "scant contributions". Germany and the European Commission are also named as failing to deliver.
The UK, through the Department for International Development, has pledged more than 700 million and delivered some 650 million.
A spokesman for USAID in Afghanistan said its country's shortfall was down to insecurity on the ground – meaning it was impossible to progress schemes quickly enough to spend the cash. He said: "We have money that we just can't disburse."
The Acbar report warns that focusing aid in the most insecure provinces risks encouraging the insurgency to spread to areas that are comparatively peaceful. It could also create the perverse belief that uprisings are rewarded with international aid – while more peaceful rural areas are left with little support.
Mr Waldman says: "The priority now is to increase the volume of aid and ensure it makes a sustainable difference for the poorest Afghans, especially in rural areas."
The five US companies said in the report to swallow almost half of USAID's Afghanistan budget are KBR, the Louis Berger Group, Bearing Point, Chemonics International and Dyncorp International.
The report says: "The total cost of each full-time expatriate consultant, working in private consulting companies, is in the region of 125,000 per year, with a significant number costing up to 250,000 a year. This is some 200 times the average annual salary of an Afghan civil servant, who is paid less than 500."
Michael Moore, the Liberal Democrats' international development spokesman, said: "The discrepancy between the amount of aid pledged and that delivered is staggering.
"It is clear the West is not only failing to support the military effort in Afghanistan, but is falling short on its development obligations too. That up to 40 per cent of aid money spent is returned to the donor country through its companies and consultants undermines the whole development strategy for Afghanistan.
"We are in real danger of failing the people of Afghanistan. It is high time the international community delivered on its pledges."
COUNTRY SCARRED BY DECADES OF WAR
ALMOST 30 years of civil war following the Soviet invasion of 1979 have left Afghanistan's infrastructure in ruins and its economy almost totally dependent on foreign aid.
This has denied them health care and schooling – it was illegal under the Taleban for girls to go to school – and left up to 40 per cent of rural dwellers malnourished.
More than 90 per cent of the money spent by the Afghan government comes from donations from foreign states, who accept they have to help in order to restore peace.
Some 12.5 billion has been pledged since 2001, but aid agencies say too little goes on easing poverty and too much on addressing military or political concerns. They say Afghanistan has received far less support (28 per head) than either Bosnia (340) or East Timor (117) as they recovered from war.
The UK government is two years into a 500 million, ten-year funding deal with Afghanistan. It supports the Afghan government in building better state institutions, developing the economy and targeting rural communities. It points to successes since the overthrow of the Taleban in 2001 – six million children are now in school, 4.8 million refugees have returned home and 233 new health centres were built in 2006-7. Also, 35,000 children who would have been expected to die from disease are alive today as a result of immunisation.
The British cash has also been targeted at building small businesses. Loans of as little as 100 are given to people unable to get money from banks to allow them to set up as shopkeepers, tailors, farmers and builders.
In total, the UK has funded 102 million of such loans to 311,583 people – three-quarters of them women.
MATERNITY UNIT REBORN
FILTHY, overcrowded and starved of even the most basic medical instruments – but for thousands of Afghani women each year this was where they had no option but to give birth.
Built by the Soviet Union in 1981, the Khair Khana maternity hospital in Kabul had so few doctors they could be counted on two hands.
It was hardly the place frightened mothers would want to come – but in a country with one of the world's highest maternal mortality rates and where the vast majority had no access to any medical care whatsoever, they had no option. Conditions were dire – but it was better than nothing.
There were only two maternity hospitals equipped for life-saving surgery, some ten miles away, and there was no ambulance.
Imagine, then, the joy when the Italian government announced it was funding a 1.1 billion rebuilding of two of the hospital wings.
But this became one of the worst examples of post-war waste, when half the cash disappeared in contract payments and then further delays were experienced when the new construction had to be rebuilt, to bring it up to scratch.
Finally, there is a clean delivery room and an up-to-date operating theatre where Caesarean sections can be performed. The capacity has doubled, and the hospital now handles some 30-40 deliveries per day.
"In the past we didn't have instruments for surgery," one doctor said. "We didn't have ultrasound machines; now we have three."