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World Bank

Volume 21: debated on Wednesday 7 April 1982

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asked the Secretary of State for Foreign and Commonwealth Affairs what increase in front-end fees required by the World Bank has been made in the past 12 months; and whether increases are envisaged in the course of 1982.

The executive board of the International Bank for Reconstruction and Development agreed on 5 January to establish a front-end fee of 1·5 per cent. on new IBRD loans, the fee being a one time charge due on the date of effectiveness of a loan. Borrowers may elect to capitalise the fee and have it financed from the loan. The amount and the continued existence of the front-end fee is subject to periodic review by the executive board in the light of the bank's income prospects. There are no immediate plans to increase or decrease it.

asked the Secretary of State for Foreign and Commonwealth Affairs how much more will be paid to the World Bank by developing countries in 1983, as compared with 1982, on account of higher interest charges and lower disbursements from IDA funds.

About $10 million more will be paid by developing countries in 1983 than in 1982 in respect of the new service fee on undisbursed balances of IDA loans which was agreed in January. It is not possible, however, to quantify how much more they will pay as a result of the introduction of the front-end fee on new IBRD loans as borrowers have the option of deferring payment and capitalising the fee as part of the loan.To compensate for the expected shortfall in IDA commitments during the World Bank financial year to 30 June 1982, lending by the IBRD to developing countries is being increased by $800 million over this period. Current terms for IBRD loans are repayment averaging about 17 years, including a four-year grace period, at 11·6 per cent. interest—which has remained unchanged this year—and the 1·5 per cent. front-end fee. This compares with IDA terms of repayment over 50 years, including a 10-year grace period, at no interests, with a service charge of ¾ per cent. on disbursed balances and the ½ per cent. fee on undisbursed balances. The amount of interest payable in 1983 on the new IBRD loans will depend on the timing and rate of their drawdown, and any variation in the interest rate for loans not yet approved.