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Public Investment in Latin America: Challenges and Options for better Management Brasilia, 16 June 2011

Public Investment in Latin America: Challenges and Options for better Management Brasilia, 16 June 2011. Jonas Frank Sr. Public Sector Specialist The World Bank. Main messages. Latin American countries have ample opportunities to improve public investment

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Public Investment in Latin America: Challenges and Options for better Management Brasilia, 16 June 2011

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  1. Public Investment in Latin America:Challenges and Options for better ManagementBrasilia, 16 June 2011 Jonas Frank Sr. Public Sector Specialist The World Bank

  2. Main messages • Latin American countries have ample opportunities to improve public investment • It is critical to balance efforts: improved appraisal, implementation monitoring and ex-post evaluation • It is key to being up-front about political economy factors

  3. Latin American countries invest below the world average…

  4. … but much less compared to fast-growing economies like China and India

  5. Thereissignificantvariationacrosscountries in thelevel of investmentspending… GDP Source: CEPAL (2011)

  6. … and overall the quality of services is often still below the world average Source: World Development Indicators

  7. Public investment management has evolved over time…

  8. … and led to different institutional arrangements • Ministries of Finance (managing all cycle) • Peru, Argentina, El Salvador, Honduras, Panama, Mexico • Planning entities • Colombia, Bolivia, Ecuador, Brazil, Costa Rica, Venezuela • Role of Presidencies: Nicaragua, Guatemala • Variations: • Role of sector entities • Subnational governments PlanningEntity FinanceMinistry

  9. “SNIPs” (Public Investment Systems) have been created but often stand in isolation… • Capture information for the whole project cycle • Information for investment budget • Supports monitoring • Project culture • But often SNIP remained an isolated system: • Financial management • Procurement

  10. … and the coverage of SNIPs is still uneven… • Colombia • 100% of central government investment • Less for subnationals (no full data) • Dominican Republic: • 90% of central government investment; • Subnationals part of the system only as of 2009 • Peru: • Central level: 80% (2009) • Regions: 97% • Municipalities: 76% • Mexico: • 76% of federal investments (2009) • Guatemala: • 48% of central government

  11. … and so istheintegrationwithFinancial Management Systems Source: IDB Survey 2009-2010 and World Bank

  12. Case of Bolivia: system overlaps and gaps Source: World Bank

  13. Incentive problems • Under-estimation of costs, overestimation of benefits • Cumbersome processes • Because of administrative bottle-necks in SNIPs • Because of improved evaluation • Peru: refinement of appraisal methodologies • Nicaragua: 26 appraisal methodologies • Consequences: • Weak gate-keeping • Unproductive investments

  14. Decentralizationwithoutplanning and coordination can lead tofragmentation of projects… Example of Peru Fuente: SNIP

  15. …and sometimesstrongsubnationalautonomy can createadditionalpressurestospend... creatingrisk of stop-and-gofinancing and incompleteprojects Argentina: bottom-up process and fiscal decisions on project selections Source: Ministry of Economy, Argentina

  16. Recentgrowthepisode hasledtoresourceabundance and challengedexecutionrates… El Salvador: Planned and executedpublicinvestment, 2006-2010 (in millionUS$) Peru case Blue: planned budgets Red: executed budgets 2.5% PIB 2.9% PIB 2.5% PIB 2.6% PIB 2.3% PIB Source: Dirección General de Inversión y Crédito Público, Ministerio de Hacienda, El Salvador Local Governments Regional Governments Source: SNIP, Peru

  17. … while expenditures are often still inequitable Case of Guatemala

  18. Incentive problems can be overcome if political pressures are channeled and used adequately… Electoral campaigns promise more infrastructure works

  19. … and attention is also paid to improving implementation and ex-post evaluation A balancing act • Ex-post evaluation • Project evaluation • Project implementation

  20. It is critical to create incentives for cooperation and information exchange • System integration • Procurement module critical • Platforms for coordinated subnational planning and budgeting • Chile: “Convenios de Programación” (but deconcentrated regional level) • OECD countries • France: Contrats de Plan Etat-Région • Germany: joint tasks • Spain: agreements (“convenios”) • Coordination within central government: • Mexico: “Infrastructure Cabinet” led by Presidency • Emerging discussion: defining and benchmarking standards of capacity

  21. Chile is putting SIGFE at the core… Source: Proyecto SIGFE (Sistema de información para la gestión financiera del estado) Gobierno de Chile.

  22. …and in Colombia systemscoverallsteps of the investmentcycle Formulation BPIN SIGOB Budget Evaluation Programming Source: SUIFP - DNP Monitoring Execution • Othercountries are tryingothersolutions: • Interfaces: Honduras (SIAFI/SIGADE/SISPU/DEI/BANCO CENTRAL) • SystemIntegration: Costa Rica (ERP) • Reducingparallelism: Discussions in Bolivia (SISIN-SIGMA) SPI SIIF

  23. Current efforts at improving ex-ante controls • Independentevaluations in only a fewcountries • Argentina (starting) • Mexico: energy, water, and transport • Chile: simplifyingevaluationmethodologies • Focusonvalueadded and time reduction • Policy: • “social and economicevaluationshouldnothold up efficientprojects” • Maximize Net PresentValue • Multi-sector benefits • Riskanalysis, interdependence, externalities • Base line for ex post evaluation • Expertgroupfortechnicaladvice

  24. Chile: risk approach (example airports), demand analysis, and possibilities to delay financing

  25. Nicaragua: Procurement Module iscriticalformonitoringphysical and financialexecution • Monitorsexecution in twomoments: at theawardstage and duringexecution of contracts • Execution is monitored based on contract programming and milestones Source: SNIP Nicaragua

  26. El Salvador: improvedmonitoringwith a results-focus PRESIDENCIA GRUPO DE ESTRATEGIA Semanalmente atiende Alertas, Restricciones y Oportunidades Transectoriales Mensualmente Toma conocimiento del Avance , Identifica sinergias y toma decisiones PRESIDENTE Recibe propuestas de acción presidencial: normativas, técnico-administrativas, político directas y de acción comunicacional MINISTRA/ O Semanalmente atiende Alertas, Restricciones y Oportunidades Mensualmente Toma conocimiento del Avance , Indicadores e indica reprogramaciones CIUDADANIA GERENTE DE META Registro semanal Restricciones, Alertas y Oportunidades Registro Mensual: Logros del último mes e Indicadores COORDINADOR INSTITUCIONAL Semanalmente atiende Alertas - Restricciones y valida oportunidades Mensualmente valida Reporte de Avance e Indicadores Source: SNIP El Salvador

  27. Interactivesystem in Chile… Source: MIDEPLAN, Chile

  28. … withgeo-referencing Gobierno de Chile | Ministerio de Planificación Source: MIDEPLAN, Chile

  29. Efforts at ex-post monitoring are limited • Chile: Reporting on programs to Congress; baselines • Peru: creating and refining methodologies (four levels of results and impacts) • Creating more demand is critical • Users of services • Within the administration

  30. It is critical to being strategic about the way forward ”Pareto-Strategy” in Mexico: focusonhighexpenditureareas About 90% of investmentisconcentrated in threesectors: hidrocarbon, communications/transport and electricity Distribución de la cartera total por sector (monto y tipo de proyectos) Fuente: Subsecretaría de Egresos de la SHCP/ Tomo VII PEF 2009 / Análisis Deloitte

  31. A Network of LAC Directors of Public Investment was founded in October 2010 in Panama • Annual meetings, exchange of information, consultations • Support from CEPAL, IADB, and World Bank

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