On April 13, 2004, the World Bank's Executive Directors approved a new policy framework governing the expenditures that the Bank may or may not finance in investment lending. To put this policy framework into operation, Bank Management has issued new Operational Policy and Bank Procedures statements, OP/BP 6.00, Bank Financing, and revised related statements in the Operational Manual. The policy changes are part of an overall effort to modernize and simplify the World Bank's operational policies and practices, and to make it easier to harmonize them around appropriate country systems. These changes better align the policy on the expenditures the Bank may finance with the expenditures that borrowers need to incur to implement their development programs.

The new policy rests on three guiding principles: (a) that expenditures financed by the Bank need to be productive; (b) that the impact the operations financed have on the country's fiscal sustainability needs to be acceptable; and (c) that acceptable oversight arrangements, including fiduciary oversight arrangements, need to be in place to ensure that loan proceeds are used only for the purposes intended, with due attention to considerations of economy and efficiency. The policy makes development objectives the primary determinant of Bank financing, while making sure that risks, such as those to fiscal sustainability and the use of Bank funds, are appropriately addressed. Within broad country-specific financing parameters, it offers more flexibility in setting cost-sharing arrangements, as well as in financing recurrent costs, local currency costs, taxes and duties, and other types of expenditure (land, cash compensation and other resettlement compensation paid in cash, local transportation and insurance, interest during construction, late payment penalties, bank charges, severance pay, food expenditures, leased assets and secondhand goods).

The Bank engaged in public consultations on the proposed policy update from November 21, 2003, to February 6, 2004; and it thanks stakeholders for providing comments.

Document. The paper Eligibility of Expenditures in World Bank Lending: A New Policy Framework (pdf - 403 kb), which was submitted to the Bank's Executive Directors, provides more information on the policy changes. This paper can be accessed electronically through the link in the previous sentence, and printed copies can be obtained through a local World Bank Office/Public Information Center. (A list of Public Information Centers is available at www.worldbank.org/html/pic/picworld.htm or from the World Bank InfoShop in Washington, D.C.)