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p. 3 of 5 BACK | NEXT Introduction Review of ADB's Policies on cost-Sharing Limit The Other MDB's Policies on cost-Sharing Limit Proposed Revision of Cost-Sharing Limits Conclusion and Recommendation

Review of Cost-Sharing Limits for Projects Financing as an Element of ADB's 1998 Graduation Policy

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III. Other MDB's Policies on Cost-Sharing Limits

A. The World Bank’s Policies on Cost-Sharing Limits

10. Based on the World Bank Operational Manual, Operational Policies OP6.30 and Bank Procedures BP6.30, the World Bank sets cost-sharing ceilings for all its borroers, including countries eligible for foreign exchange financing only. A country’s cost-sharing limit is a function of its ability to mobilize domestic and foreign financial resources and thus is based on its per capita income.

11. The uniform cost-sharing limits applicable to all countries with each of income groups¹² are presented in Table 1.

12. Unlike the cost-sharing limits of ADB, those of the World Bank are applicable not to individual projects but to the World Bank's overall lending program for a country (excluding financial intermediary, supplemental, emergency recovery, adjustment, and technical assistance loans). The country limit is applied to a rolling 3-year investment lending program, encompassing 2 prior years and the current year. The World Bank’s cost-sharing is the ratio of loan to total project cost net of taxes and duties. The regional vice president establishes country cost-sharing limits on the basis of the income group limits. The country department documents the “country limit” in the country strategy paper. Within the country limits, the country department director determines cost-sharing for individual projects. The country department director may make exceptions to the borrower's minimum 10% cost-sharing for individual projects and may permit cofinancing to substitute for the borrower's contribution. The regional vice president may also approve a temporary increase in the cost-sharing limit for an individual country whose resource situation has become fundamentally more constrained in recent years or whose external situation has deteriorated sharply. Changes in country cost-sharing limits on grounds that are not temporary may be made only with the approval of the Office of the President.

B. The EBRD’s Policies on Cost-Sharing Limits

13. The European Bank for Reconstruction and Development (EBRD) has no formal policy on cost-sharing in public sector lending operations, except that EBRD does not finance tax and duty components of projects. As a matter of practice, EBRD sometimes asks its borrowers to fund components that may be best sourced from domestic markets with local currency. Similarly, EBRD often seeks cofinancing from other international finance institutions.

C. The IADB’s Policies on Cost-Sharing Limits

14. Inter-American Development Bank (IADB) groups its borrowing member countries on the basis of their relative level of development within the region. Group A contains the more advanced countries, including Argentina, Brazil, Mexico, and Venezuela. Group B contains middle developing countries, including Chile, Colombia, and Peru. Group C contains countries with insufficient markets, including the Bahamas, Barbados, Costa Rica, Jamaica, Panama, Suriname, Trinidad and Tobago, and Uruguay. Group D contains “the least-developed countries,” including Belize, Bolivia, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Haiti, Honduras, Nicaragua, and Paraguay.

15. The percentage of the total cost of a project to be financed in foreign exchange that will apply during the period of the Eighth Replenishment Resources are a maximum of 50% for Group A countries, 60% for Group B countries, 70% for Group C countries, and maximum 80% for Group D countries.

16. The percentage may be higher under special circumstances. On the request of the borrower, the levels of financing prescribed for different country groups may be increased by 10 percentage points for poverty-reduction projects, in accordance with the following criteria: (i) the project or program must be geographically targeted to poor beneficiaries, or (ii) a significant majority of the beneficiaries of the project or program are poor. In the case of projects that include cofinancing, such financing may be considered as part of the local contribution. IADB’s cost-sharing is the ratio of loan to total project cost inclusive of taxes and duties.

D. A Comparison of Cost-Sharing Limits of ADB, IADB, and the World Bank

17. A list of ADB’s borrowers and their cost-sharing limits as per the policies of the ADB and World Bank, are presented in Table 2. A comparison of the IADB’s and the World Bank’s costsharing limits are presented in Table 3. The main conclusions that may be drawn from those comparisons are presented below.

18. On a net of taxes and duties basis, the country cost-sharing limits in the World Bank are higher than the project cost-sharing limits in ADB for all borrowers in Group B2 and Group C categories, and the differences are quite significant for borrowers in Group C category.

19. The World Bank policies on cost-sharing limits are determined largely on per capita income basis (for countries in categories I and II, they were divided into two groups, by IDA-only and the rest) and are on an exclusive of taxes and duties basis.

20. On a net of taxes and duties basis, the project cost-sharing limits in IADB are generally higher than the country cost-sharing limits in the World Bank for individual countries. The IADB’s cost-sharing limits are higher than those of the World Bank in IADB’s Group B, Group C, and Group D categories, except four countries in the IADB’s Group D category where there is basically no difference in cost-sharing limits between the IADB and the World Bank. The differences are very significant for borrowers in IADB’s Group C and Group D categories (except the four countries mentioned above). It is further noted that, if per capita GNP is used as an indicator of economic development level, many IADB borrowers are at a relatively higher development level than many DMCs in the Asia and Pacific region. However, the cost-sharing limits of IADB and the World Bank are still quite substantial in these countries with relatively high per capita GNPs and are higher than the cost-sharing limit of borrowers in ADB’s group C category.

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