Catalog

	Table of Contents
p. 30 of 74 BACK | NEXT I. Introduction II. Background III. The Economic Rationale of A Project IV. Macroeconomic and Sectoral Context V. An Integrated Approach To Economic Analysis VI. Identification and Quantification of Costs and Benefits VII. Valuation of Economic Costs and Benefits VIII. Large Projects, Linkages, and National Affordability IX. Least-Cost and Cost-Effective Analysis X. Investment Criteria: Economic Viability A. Project Decisions B. Choosing Between Alternatives When Benefits Are Not Valued C. Choosing Between Alternatives When Benefits Are Valued D. Testing The Economic Viability of The Best Alternative E. The Chosen Discount Rate F. Project Investments and The Budget XI. Discount Rate XII. Uncertainty: Sensitivity and Risk Analysis XIII. Sustainability of Project Effects XIV. Distribution of Project Effects XV. Projects and Policies XVI. Appendices XVII. Others

Guidelines for the Economic Analysis of Projects : X. Investment Criteria: Economic Viability

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E. The Chosen Discount Rate

139. It has been standard practice for the Bank to use the EIRR criterion. The project is considered economically viable if its EIRR exceeds the economic opportunity cost of capital in the country concerned. Because it is difficult, in practice, to estimate precisely what this value should be for each country, 10 to 12 percent is used for all member countries as the minimum rate of return for projects for which an EIRR can be calculated, and the rate at which to choose least-cost options.

140. Most directly productive projects have some element of benefits or costs that cannot be quantified or valued. The minimum rate of return within the range of 10-12 percent could be interpreted to take account of these factors. The Bank would expect to

• accept all independent projects and subprojects with an EIRR of at least 12 percent;
• accept independent projects and subprojects with an EIRR between 10 and 12 percent for which additional unvalued benefits can be demonstrated, and where they are expected to exceed unvalued costs;
• reject independent projects and subprojects with an EIRR between 10 and 12 percent for which no additional unvalued benefits can be demonstrated, or where unvalued costs are expected to be significant; and
• reject independent projects and subprojects with an EIRR below 10 percent.

Back D. Testing The Economic Viability of The Best Alternative	Next F. Project Investments and The Budget