Strengthening Public Investment Management James Brumby Kai Kaiser PREM Public Sector & Governance Brasilia June 16-17, 2011

Strengthening Public Investment Management

James BrumbyKai Kaiser

PREM Public Sector & Governance BrasiliaJune 16-17, 2011

The World Bank Page 2Public Sector & Governance

Aiming for Infrastructure Results

Public Investment

"Social" Infrastructureeducation and health facilities and housing

"Economic" Infrastructure

transport, communications, energy, irrigation systems, water

and sanitation

Creating and preserving economically and social productive public assetsEfficiency is “value for money”: budget to final cost, completion time to actual timeHow long will they last?

“Right” starting quality/standardDepreciation versus “service value”, O&MRisk: build, neglect, rebuild….


Value for Money?

An g o la

Alb a n ia

Un ite d Ara b Emira te s

Arg e n tin a

Arme n ia

Au s tra lia

Az e rb a ija n

Bu ru n d i

Be lg iu m

Be n inBu rk in a F a s o

Ba n g la d e s h

Bu lg a ria

Ba h ra in

Bo s n ia a n d He rz e g o v in a

Bo liv ia

Bra z il

Ba rb a d o s

Bo ts wa n a

Ce n tra l Afric a n Re p u b lic

Ca n a d a

Switz e rla n d

Ch ile

Co te d 'Iv o ire

Ca me ro o n

Co lo mb iaCa p e Ve rd e

Co s ta Ric a

Cz e c h Re p u b lic

Ge rma n y

Do min ic a n Re p u b lic

Alg e ria

Ec u a d o r

Eg y p t, Ara b Re p .

Es to n ia

Eth io p ia

Fin la n d

Fra n c e

Un ite d Kin g d o m

Ge o rg ia

Gh a n a

Ga mb ia , T h eGu a te ma la

Gu y a n a

Ho n g Ko n g SAR, Ch in a

Ho n d u ra s

Cro a tia

In d o n e s iaIn d ia

Ira n , Is la mic Re p .

Is ra e l

Ita ly

J o rd a n

J a p a n

Ka z a k h s ta n

Ke n y aCa mb o d ia

Ko re a , Re p .

Ku wa it

L e b a n o n

Sri L a n k a

L e s o th o

L ith u a n ia

Mo ro c c o

Mo ld o v aMa d a g a s c a r

Me x ic o

Ma li

Mo n te n e g ro

Mo n g o lia

Mo z a mb iq u e

Ma u rita n ia

Ma u ritiu s

Ma la wi

Ma la y s iaNa mib ia

Nig e ria

Nic a ra g u a

Ne th e rla n d s

No rwa y

Ne p a l

Ne w Z e a la n d

Oma n

Pa k is ta n

Pa n a ma

Ph ilip p in e s

Po rtu g a l

Pa ra g u a y

Qa ta r

Ro ma n ia

Ru s s ia n Fe d e ra tio n

Rwa n d a

Sa u d i Ara b ia

Se n e g a l

Sin g a p o re

El Sa lv a d o r

Se rb ia

Slo v a k Re p u b licSwa z ila n d

Sy ria n Ara b Re p u b lic

Th a ila n d

Ta jik is ta n

Trin id a d a n d To b a g o

Tu n is ia

Tu rk e y

Ta n z a n ia

Ug a n d a

Uk ra in e

Uru g u a y

Un ite d Sta te s

Ve n e z u e la , RBVie tn a m

So u th Afric a

Za mb ia

2.0

3.0

4.0

5.0

6.0

7.0

0.0 5.0 10.0 15.0 20.0 25.0Gov Investment / GDP (%) (WEO)

Quality of Overall Infrastructure (WEF 2010) Fitted values

Source: World Economic Forum (2010) & IMF WEO (2011)

Government Investment & Infrastructure QualityWEF InfrastructureQuality


Quality of Effort?

Afg h a n is ta n

An g o la

Alb a n ia

Un ite d Ara b Emira te s

Arg e n tin a

Arme n iaAn tig u a a n d Ba rb u d a

Au s tra liaAz e rb a ija n

Bu ru n d iBe lg iu m

Be n in

Bu rk in a F a s o

Ba n g la d e s hBu lg a ria

Ba h ra inBa h a ma s , T h e Bo s n ia a n d He rz e g o v in aBe liz e

Bo liv iaBra z il Ba rb a d o sBh u ta n

Bo ts wa n a

Ce n tra l Afric a n Re p u b licCa n a d a

Switz e rla n dCh ileCo te d 'Iv o ireCa me ro o n

Co n g o , Re p .Co lo mb ia

Co mo ro s

Ca p e Ve rd eCo s ta Ric aCz e c h Re p u b licGe rma n y

Djib o u ti

Do min ic a Alg e ria

Ec u a d o r

Eg y p t, Ara b Re p .

Eritre a

Es to n ia Eth io p iaFin la n dFijiFra n c e

Ga b o nUn ite d Kin g d o m

Ge o rg ia

Gh a n a

Gu in e a

Ga mb ia , T h e

Gu in e a -Bis s a u

Eq u a to ria l Gu in e a

Gre n a d a

Gu y a n a

Ho n g Ko n g SAR, Ch in a

Ho n d u ra sCro a tia In d o n e s ia

In d ia

Ira n , Is la mic Re p .

Ira qIs ra e l Ita ly

J o rd a n

J a p a n Ka z a k h s ta nKe n y a

Ca mb o d ia

St. Kitts a n d Ne v isKo re a , Re p .

Ku wa it

L e b a n o n

L ib y aSt. L u c ia

Sri L a n k a

L e s o th o

L ith u a n ia

Mo ro c c o

Mo ld o v a

Ma d a g a s c a r

Ma ld iv e sMe x ic oMa li

My a n ma r

Mo n te n e g roMo n g o lia

Mo z a mb iq u eMa u rita n ia

Ma u ritiu s

Ma la wi

Ma la y s ia

Na mib ia

Nig e rNig e riaNic a ra g u a

Ne th e rla n d sNo rwa yNe p a l

Ne w Z e a la n d

Oma n

Pa k is ta n

Pa n a maPe ruPh ilip p in e s

Pa p u a Ne w Gu in e aPo rtu g a l

Pa ra g u a yQa ta r

Ro ma n iaRu s s ia n Fe d e ra tio n Rwa n d a

Sa u d i Ara b ia

Su d a n

Se n e g a lSin g a p o re Sie rra L e o n e

El Sa lv a d o rSe rb ia

Sa o T o me a n d Prin c ip e

Su rin a me

Slo v a k Re p u b lic Swa z ila n d

Se y c h e lle s Sy ria n Ara b Re p u b licCh a dTo g o

Th a ila n d

Ta jik is ta n

Tu rk me n is ta n Trin id a d a n d To b a g o

Tu n is iaTu rk e y

Ta n z a n ia

Ug a n d a

Uk ra in e

Uru g u a yUn ite d Sta te sUz b e k is ta n

St. Vin c e n t a n d th e Gre n a d in e sVe n e z u e la , RB

Vie tn a m

Sa mo aYe me n , Re p .

So u th Afric a

Co n g o , De m. Re p .

Za mb ia

-10.0

0.0

10.0

20.0

30.0

0.0 5.0 10.0 15.0 20.0 25.0Gov Investment / GDP (%) (WEO)

Change in Gov Investment Level (% Points GDP) (WEO) Fitted values

Source: IMF (2011)

Government Investment 2008-9 (Exp Allocation)

Investment “Stimulus 2008-09Additional % GDP


Ex Post Benchmarking

Source: CoST (2011b:3)


Addressing Infrastructure Gaps: Multiple Sectors & Modalities Engaged

General Government

Sector (Central State, Local)

Public Corporations (Nonfinancial)

Private Sector

Fiscal financing

Other sources of financing

Some fiscal & some corporate financing

Examples•Power•Roads•Telecommunications/Internet•Schools•Clinics/Hospitals•Stadiums•“Green” Infrastructure; Adaptation

Business Environment

PrivateInvestment

6

Public Investment

Management

PPPs

Mainly fiscal

Mainly regulatory

Financial Sector role

Financial Sector role


Public Investment Policy Choices• How much to spend

– Levels (% GDP)– Volatility– Availability of financing

• Quality of spending– PIM Process

• Public Investment Modalities– “Standard” Public Investment

• Across levels of governnment

– Donor-financed public investment– Public-Private Partnerships– SOEs/Quasi-Fiscal– Resource for Infrastructure Deals


A Framework for Assessing PIM

• Two pillars of the approach– Desirable features of well-functioning system in 8 cycle– Diagnostic Indicators to assess actual system

• Focus on how to inform reform design to enhance efficiency by Gap-AnalysisDesirable Institutional

FeaturesActual Functioning

DiagnosticIndicators

Gap

Analysis

9

The Eight “Must-Have” Core PIM Features

-

1

Guidance &

Screening

2

Formal Project

Appraisal

3

Appraisal Review

4

Project Selection

& Budgeting

7

ServiceDelivery

6

Project Changes

5

Implementation

8

Project Evaluation

Pre-feasibility

Feasibility

CE

CBA

Regulatory requirements

Project development

Detailed project design

Basic completion

review

Evaluation


Different Countries Facing Various Challenges


PIMI – LICs and MICs


State Diversity in the US

Source: Pew Center on the States (http://www.pewcenteronthestates.org)Grading the States Report, 2008

http://www.pewcenteronthestates.org/

http://www.pewcenteronthestates.org/


Public Asset Creation and Preservation

• Options for addressing infrastructure gaps in periods of fiscal consolidation– Managing fiscal space; balance sheet and operating

spending– Leveraging modalities; full choice of interventions

• Information/monitoring to improve quality– PIM cycle; supported by management information– Operations & Maintenance (O&M)

• Special challenge of managing across levels of government, PIM modalities


Strengthening “Good Enough” PIM prioritization in project portfolio

Source: Rajaram et al (2010)

Well executed

Poorly executed

Good projects A CPoor projects B D


Monitoring Implementation

• Test: do current systems generate CoST type statistics and is it reported?

• Variety of systems– Single system– Interlinked systems

• Feedback mechanisms/demand critical


65% of the current roads projects have time overruns In a sample of 10 road projects, 7 had time overruns with completion time

of 3.1 years compared to original plan of 1.8 years. Delays were worse in the directly contracted projects

16

Case: These planning and budgeting problems show up in project execution


O&M Monitoring

• Returns are high; commitments are low– Suggests incentive problem

• Budget/costing benchmarks• De Facto responsibility across levels of government/types of

assets?• Special institutions

– Road Funds• Feedback mechanisms

– Demand side, parents & schools• Accounting measures & capability

– Accruals, balance sheets & capital charges


60 percent of the national paved road network is in poor condition

However, capital repair expenditures did not benefit from the expenditure boom…

…and have declined as a proportion of capital stock and of new investments

18

Case: Low allocative efficiency: under-prioritization of maintenance and repair


Case: Balance sheet approach

• rebuilding the state balance sheet buffer against future adverse events

• systematically working to reduce the state’s risk exposures, including through strengthening the economy

• sharpening incentives on State agencies to use existing state capital well

• continuing to look at introducing private sector capital and disciplines where appropriate to help drive up the performance of State assets, and

• more actively reprioritizing State capital to its highest value use.


PIM Reforms

• Three common challenges:– You need to work with politics– High corruption risk– PIM as extremely demanding area of public management

• It is important therefore to ensure that PIM reforms are incentive compatible

– Based on a sound understanding of and tailored to fit individual country paths, circumstances and practices

– Technically feasible, relying on good enough practice– Carefully designed and sequenced– Targeted

20

Lessons Learned

• Ownership of assessment is important– Often, but not always MoF at the center of process– Develops the framework for investment decision and

has oversight control of public investment• Clarity of roles and responsibilities is crucial for

effective PIM– Coordination across sectors and levels of government

• The role of central guidelines are a particularly critical aspect of a well functioning PIM

21

Lessons Learned

• Monitoring is important for early remedial action• Building capacity : gradual approach

– PIM system do not operate in isolation– Well functioning PEM and budgeting system, SOE

governance and debt management system is also important

• Tailoring PIM to country context

22


Catering “good fit” to country context: Programmatic Approach

Country cases; analytic & advisory work• A synthesis of the findings of 15 case studies, presents a country typologies, and an assessment

of patterns of binding constraints to PIM system performance and approaches to reform (w/ AusAID, Korea): incl. Brazil, Peru, East Timor, Vietnam, Korea, Australia

Toolkits/Benchmarking– Rajaram et. al. (2009) eight “must-have” or minimum features of a sound public investment

management and offers a systemic approach (studies inc: Korea, Chile, Vietnam, Peru).– Public Investment Management (PIMI) Benchmarking Indicator– PEFA “Drill Down” for Capital Spending

Peer to peer• Facilitate exchange of experiences between developing countries that have successfully

implemented reforms and those who are seeking to fill operational knowledge gaps• Seoul, Hanoi• Brasilia (5/2011), APEC Conference DC (6/2011)

Bank operations• Fee-for-service• DPL, as in case of Vietnam or IL/TA

Documents

Strengthening Public Investment Management James Brumby Kai Kaiser PREM Public Sector & Governance Brasilia June 16-17, 2011