OP 6.00 - Bank Financing

This Operational Policy statement was revised in August 2004 to ensure consistency with the requirements of OP/BP 8.60, issued in August 2004. These changes may be viewed here. 

1.  The Bank's¹ policy with respect to expenditures that the Bank may finance from loan proceeds rests on three guiding principles: (a) the expenditures are productive; (b) the impact of the operations financed under such loans on the borrowing country’s fiscal sustainability is acceptable; and (c) acceptable oversight arrangements, including fiduciary oversight arrangements, are in place to ensure that such loan proceeds are used only for the purposes for which the loan is granted, with due attention to considerations of economy and efficiency. ²

2.  Bank loan proceeds finance the expenditures necessary to meet the development objectives of operations supported by the loan.   In determining which activities to finance, the Bank considers whether the proposed expenditures are justified by reference to the project’s development objectives, and reviews the arrangements to ensure that the loan proceeds will be used for their intended purposes.   Specific considerations in determining Bank financing include the following:

(a)  Cost sharing.  The Bank may finance activities for which the borrower has demonstrated ownership and commitment by, among other things, providing funding from its own resources.  The Bank judges the adequacy of this funding in the context of the borrower's overall development program and of its funding for the sectors on which Bank assistance would focus in particular, and determines the limit on the proportion of individual project costs that the Bank may finance in the country. The actual proportion to be financed by the Bank in each project, within the limit for the country, may vary depending on project-specific and other considerations. 

(b)  Recurrent cost financing.  Country development programs typically require both capital investment outlays and recurrent costs, such as expenditures on salaries and operating costs.   The Bank may finance recurrent expenditures.  In determining whether and to what extent to finance these expenditures, the Bank considers the project’s impact on fiscal and debt sustainability (including the country’s commitment and ability to provide continued financing for recurrent expenditures after Bank financing is completed) at the appropriate levels, including that of the project entity or entities.

(c)   Local cost financing.   The Bank may finance local expenditureswhen it is satisfied that (i) financing requirements for the country’s development program would exceed the public sector’s own resources (e.g., from taxation and other revenues) and expected domestic borrowing, and (ii) the financing of foreign expenditures alone would not enable the Bank to assist in the financing of individual projects.

(d)  Taxes and duties.  The Bank may finance the reasonable costs of taxes and duties associated with project expenditures. 

(e)  Retroactive financing.  The Bank may, under certain conditions, finance payments made by a borrower out of its own resources before the date of the Loan Agreement.³

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1. "Bank" includes IBRD and IDA;  "loan" includes IDA credit and IDA grant;  and "borrower"; includes grant recipient.  This policy applies to all loans, credits, advances under the Project Preparation Facility (PPF), and grants financed from World Bank resources, including IDA grants and Institutional Development Fund and other Development Grant Facility (DGF) grants. The policy also applies to recipient-executed grants financed from trust funds, unless, exceptionally, the terms of the agreement with the donor make provision for different requirements.  This policy does not apply to development policy lending.
2. Certain other policy statements also govern the extent to which particular expenditures may be financed.  Thus, under OP 2.30, Development Cooperation and Conflict, January 2001, the Bank does not finance humanitarian assistance or military expenditures, nor does it provide direct support for disarming combatants.  See also OP 4.09, Pest Management, December 1998; OP 4.76, Tobacco, October 1999; and the Operational Memorandum Demining—Operational Guidelines for Financing Land Mine Clearance, February 7, 1997, for conditions under which expenditures relating to the matters covered by these policy statements may be financed.
3. Retroactive financing is permitted under the following conditions: (a) the activities financed are included in the project description; (b) the payments are for items procured in accordance with applicable Bank procurement procedures;  (c) such payments do not exceed 20 percent of the loan amount; and (d) the payments were made by the borrower not more than 12 months before the expected date of Loan Agreement signing.  The date after which payments may be made is agreed at appraisal, confirmed during negotiations, and recorded in the Loan Agreement.  In extraordinary circumstances, such as in response to emergency conditions, exceptions to these limits may be approved by the Regional vice president in consultation with the Vice President, Operations Policy and Country Services.  Proposals for retroactive financing, including any exceptions to normal limits for such financing, are spelled out in the Project Appraisal Document.