The discount rates and inflation rates for project appraisal and financial evaluation purposes are as follows:
Test Discount Rate for Economic Evaluation and Appraisal Purposes
The Test Discount Rate (TDR) for use in cost benefit analysis and cost effectiveness analysis for public sector projects is 5%. This is the rate in real terms (i.e. excluding projected inflation) and should be applied to a project’s future costs and benefits expressed in constant prices (i.e. excluding projected inflation). There is a further guidance note on the test discount rate in section E of the Public Spending Code website – http://publicspendingcode.per.gov.ie/technical-references/.
Discount rates for project appraisal and financial evaluation purposes – Q1 2019
1. The NDFA advises that for Design, Build & Operate projects of more than 10 & less than 20 years, it is recommended that a discount rate of 3.15% be used for discounting project cash flows.
2. In respect of PPPs involving Unitary Payments over a period of 20 years and more, NDFA will provide a project specific discount rate in line with the Department of Finance guidance.
It should be noted that the discount rates above are nominal rates and should be applied to nominal cash flows (i.e. including projected inflation).
Inflation indices for use in Public Sector Benchmarks (“PSB”) or equivalent budgets
When preparing PSB or equivalent budgets the appropriate inflation indices and rates are as follows:-
- For services with a labour component below 50%, the Harmonised Index of Consumer Prices (“HICP”) should be applied. The applicable medium to long term HICP rate is 2%;
- For services with a labour component in excess of 50%, HICP + 1% is to be applied.
For construction and construction related services, the relevant technical advisor will advise on a project specific basis the inflation rates to be used