Improving Public Investment Efficiency

Transcription

1 Improving Public Investment Efficiency ESCAP Expert Group Meeting November 14-15, 2108 Bangkok IMF Fiscal Affairs Department (FAD) and Capacity Development Office in Thailand (CDOT) Holger van Eden IMF Regional Public Financial Management Advisor for SE Asia Activities of the Advisor are funded by resources for capacity development provided to the IMF by the Government of Japan

2 Key findings of recent IMF Research and Technical Assistance Public investment levels globally have begun to recover from historic lows with some convergence in infrastructure between rich and poor countries. On average, about one-third of the potential impact of that investment is being lost, however, due to inefficiencies ( the efficiency gap ) in public investment processes. Strengthening public investment management (PIM) can reduce the efficiency gap by up to two-thirds, making public investment more predictable, credible, and productive. The resulting higher public investment efficiency would also increase significantly (in some cases double) the impact of that investment on economic output. The new PIMA diagnostic tool can help countries evaluate strengths and weaknesses of their public investment management institutions and identify priorities for reform and technical assistance. 2

3 Percent of GDP Percent of GDP Thousands PPP$ per capita Public investment globally has not fully recovered from decades of steady decline Public investment still falling in advanced economies, but recovering elsewhere Public Investment (% of GDP) Growth in the public capital stock has outpaced population but not output Public Capital Stock (Real Value and % of GDP) Public Capital Stock (LHS) Real Public Capital Stock per Capita (RHS) Advanced Emerging Developing Advanced Emerging Developing 3

4 Infrastructure not only provided by Public Investment The private sector accounts for the bulk of core infrastructure investment in many advanced economies UK Investment in Core Infrastructure (US$ 257 billion, ) While the public sector still dominates the provision of core infrastructure in emerging and developing economies India Investment in Core Infrastructure (US$ 485 billion, ) % 33 13% 59 23% Public PPP Private 24 5% % % Public PPP Private Source: McKinsey (2013) 4

5 Roads per capita Public education infrastructure Public health infrastructure Electricity per capita Access to water (RHS) Some Convergence in Infrastructure Quality, but still large Disparities in Quantity/Access Survey measures suggest some convergence in infrastructure quality between rich & poor countries. but physical measures highlight the large and persistent disparities in infrastructure access & quality between rich and poor Perceptions of Infrastructure Quality ( ) Measures of Infrastructure Access (Latest year) Advanced Emerging Developing Advanced Emerging Developing

6 Infrastructure index - Hybrid indicator (100=AE average) (Output) Public Investment Efficiency Index (PIE - X) Estimating a hybrid infrastructure index reveals sizeable gaps in public investment efficiency... Large public investment efficiency gaps both across and within different income groups Average country is 27% below efficiency frontier with largest efficiency gaps among low-income countries. Public Capital Stock and Infrastructure Performance Public Investment Efficiency Index (PIE-X) Efficiency Gap Average efficiency gap of 27% AE EM LIDC Frontier Real Public Capital Stock per Capita (2005 international dollars) 0.0 AEs {n=28} EMs {n=57} LIDCs {n=34} All Countries {n=119} 6

7 Output impact (percent) Output impact (percent) Closing this gap could significantly increase output Most efficient public investors get twice the economic dividend from their investment compared to least efficient public investors Public Investment and Economic Output Impact on output after 4 years of a 1% of GDP increase in investment Profile of output impact of a 1% of GDP increase in public investment by efficiency group Highest quartile rd quartile 2nd quartile Lowest quartile Lowest Second Third Highest Efficiency Quartile t-1 t t+1 t+2 t+3 t+4 7

8 SDG Composite Index SDG Composite Index SDG performance strongly correlated with economic growth (and expenditure).. SDG Composite Index Score, By Income Group SDG Composite Index Score, By Government Expenditure Moldova Croatia Sweden Cyprus Central African Republic 50 Angola Primary Expenditure (Percent of GDP) Source: IMF staff calculations, using data from 2018 SDG Index and Dashboards Report. LIDCs EMEs AEs 8

9 Improving Public Investment Management is key to Increasing Efficiency Both volume and efficiency of public investment have an important impact on economic growth. The efficiency of public investment is linked with the strength of PIM Institutions. Public Investment Management (PIM) 9

10 The IMF has developed a new diagnostic to evaluate the strength of PIM practices Legal, institutional, and procedural arrangements for public investment management play a role in determining the level, composition, and impact of public investment. Differences in the efficiency of public investment partly reflect differences in the relative strength of PIM institutions. The Public Investment Management Assessment (PIMA) is a diagnostic tool for evaluating a country s public investment management practices. 10

11 The PIMA framework identifies 15 institutions in the 3 phases of the PIM process) Framework to evaluate the strength and weaknesses of PIM practices Macro-fiscal perspective of PIM Broad coverage (e.g., public enterprises, public-private partnerships) PIMA Framework Evaluates 15 key institutions in 3 phases of the PIM process Planning Allocation Implementation Identifies priorities for reforms tailored to country-specific needs 11

12 PIMA methodology 45 indicators: for each of the 15 PIM institutions, three key design features are identified. Countries are given a PIMA score for each key features. 0= not in place, 5= partly in place, 10= fully in place. A final score between 0 and 10 is calculated by indicator and by country, corresponding to the mean of all scores

13 Higher PIMA scores linked to improved public investment performance Stronger PIM institutions help to improve investment efficiency and productivity: The strength of all three phases of the PIM process is significantly correlated with investment efficiency, both individually and in combination; Countries with strong PIM institutions get a bigger output bang for their investment buck. Stronger PIM institutions are also associated with other performance indicators: Less volatile levels of total investment; Stable allocation of investment spending between sectors, reflecting the benefits of strong multiyear planning and budgeting arrangements; Less underspending due to more credible capital budgets; Lower levels of rent-seeking and corruption

14 What has been done so far? 33+ PIMAs around the world 5 EUR: Albania; Ireland; Kosovo, Serbia; Ukraine Income level: ADV: 1 EMEs: 17 LIDCs:15 WHD: Brazil, Honduras, Bolivia, Peru, Guyana 5 13 Botswana; Benin; Burkina Faso; Cameroon; Côte d'ivoire; Ghana; Liberia; Madagascar; Mali; Mauritius; Morocco; Mozambique; Zambia 3 MCD: Jordan, Kyrgyz Republic, Mongolia 7 APD: Malaysia, Maldives, Philippines,Sri Lanka, Thailand, Togo, Vietnam Cooperation: World Bank 26 IADB 2 ADB 1 14

15 What have we learned? Significant weaknesses in institutional framework Weakest institutions project appraisal, selection, and management Scale 0-10 Strongest institutions budget unity and comprehensiveness, and national and sectoral planning 15

16 PIMA scores vary across institutions and country groups Overall based PIMA on scores 25 sample by income countries and region PIM is characterized by considerable variation in the Asia-Pacific region. 16

17 Questions?