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Economic Analysis of Projects

Article 36.2 of the ADB Charter requires that decision making for all investment projects and lending in ADB should be made with due attention to considerations of economy and efficiency. As such,  Operations Manual Section G1 issued on 17 March 2017 lays down the key requirements for conduct of economic analysis, and it is subject to compliance.

The main objective of conducting a project economic analysis is to help not only assess the sustainability of investment projects but also to inform the design and select projects that can contribute to a sustainable improvement in the welfare of project beneficiaries, and the country as a whole. Economic analysis is a means to help bring about a better allocation of resources that can lead to enhanced incomes for investment or consumption purposes. Therefore, it is best undertaken at the early stages of the project cycle to enable decision makers to make an informed decision on whether to undertake a particular investment given various alternatives and their corresponding costs.

The tools of economic analysis can help answer various questions about the project’s overall effect on society, on various stakeholders/beneficiaries, its fiscal aspects and about the project’s risks and sustainability. For example, economic analysis can help determine whether the rationale for public sector intervention is justified. It can help in estimating the project’s fiscal impact and inform government/implementing agency accordingly; it can also determine whether there is scope for cost recovery and that arrangements are efficient and equitable. In addition, it can help in assessing the project’s potential environmental impact and contribution to poverty reduction.

While each sector has a different set of problems that needs to be addressed, the basic principles of economic analysis can still be applied. The analytical approach and data requirements would have to be adapted or tailored to the specific project. The key here is to select the appropriate level of analysis to inform project decision making.

The following publications are made available to help ADB staff and consultants apply the principles of project economic analysis at each stage of the project development process.


Training on Economic Analysis of Investment Projects