- 28 -

112. Indirect user charges in the roads sector are typically collected in the form of fuel taxes, import duties on vehicles and tires, and licensing and registration fees. The total revenues from these sources amounted to more than 100% of total road expenditures (but excluding congestion costs) in eight of the 22 sample countries. As noted above, many governments regard fuel taxes primarily as a direct revenue source rather than as a type of road user charge. Because such taxes are paid mainly by road users, it is not incorrect for the Bank to assess their adequacy partly in terms of the SRMC of road transport. However, they also need to be analyzed from a general revenue perspective. It is possible that the transport sector is being overtaxed in some countries while other sectors are undertaxed. Two of the 22 projects reviewed included fuel pricing covenants; in both cases the arguments were made in terms of sectoral rather than fiscal objectives.

# Recurrent Cost Financing by Governments

113. In four of the sectors there is significant government financing of recurrent costs: education, health, irrigation and railways. In the ducation sector, of the 50% of the SARs that reported on cost recovery, the government financed 80-100% of recurrent costs. These amounted to an average of 14% of total government recurrent expenditures (ranging from 7-23%). The education sector was the only one that routinely reported the relative significance of sectoral expenditures in-terms of the overall government budget.

114. In health, recurrent expenditures accounted for an average 40% of total sectoral expenditures (ranging from 31-95%). While a breakdown of financing sources for recurrent costs alone was not provided, such figures are available for total health costs. The central government contributed an average 54% of total costs (ranging from 10-100%), while user charges accounted for 28% (ranging from 0-85%) and state, local and other sources made up the rest. Thus if one were to assign all user charges to recurrent costs, they would cover an average of 70%.

115. In the j irriatD sector, of the 80% of projects reporting on cost recovery, the government financed an average of about 50% of recurrent costs. This average covered a wide variation, with 36% of projects needing no government support for recurrent costs, 36% needing full government subsidy and 27% requiring levels of government subsidy ranging from 40-60%. Irrigation was the only sector to define a 'cost recovery index" (based on both investment and recurrent costs) which was reported by 57% of the SARs reviewed. It ranged from 6-42%, with a mean value of 24%.

116. Six of the seven raily= projects reviewed needed government financing of recurrent costs. The levels ranged from 3-51%, with a mean value of 19%. In some cases government subsidies are explicitly tied to the running of unremunerative branch lines or losses on passenger train service due to government tariff policy.

117. It is difficult to analyze the extent to which shortfalls in recurrent cost financing in these four sectors are consistent with efficiency pricing objectives. The importance of externalities in the education and health sectors makes it infeasible to estimate economic