Economic and financial evaluation of investment projects : general principles and EC procedures

Abstract

Public lenders - national and international - assess competing investment projects put forward by potential borrowers according to criteria differing from those of private investors with respect to both the scope of investment analysis and the prices at which costs and benefits are reckoned. This paper considers the general principles established in the standard practices developed by public lenders and.the actual procedures followed by the European Commission (documents VIII/700/76-E of March 1976 and subsequent revisions; VIII/2057/79 of February 1979; VIII/527/79-EN and subsequent revisions). In general, evaluation procedures of this kind are useful for assembling relevant information and testing the consistency of assumptions within the project and within the economy, but the dominance of current prices limits the reliability of procedures and turns them into microeconomic exercises unless they are viewed as only a stage in the planning process, subject to successive rounds of iteration and checks.