BEYOND RATE OF RETURN - REORIENTING PROJECT APPRAISAL

Traditional approaches to project appraisal fail in practice to addres s two fundamental questions: whether a project belongs in the public o r the private sector; and what effect arty external assistance associa ted with the project has on the country's development. The first issue is of general interest to both national policymakers and internationa l donors. If the government provides a good or service that would othe rwise have been provided by the private sector, the net contribution o f the public project could be low. The second issue is of particular c oncern to donors. If financial resources are fungible, the project bei ng appraised might well have been undertaken without external financin g. In this case, donor funds are actually financing some other, unappr aised project. Both cases argue for a shift in the emphasis of project evaluation away from a concern with precise rate-of-return calculatio ns and toward broader sectoral analyses and public expenditure reviews . In this context, three areas critical for proper project appraisal i nclude a consideration of the rationale for public intervention, the f iscal impact of the reject, and the fungibility of external assistance .