From PIP to PIM

[Napodano]

Public Investment Programmes (PIPs) have been a cornerstone of national policies of Governments which consider the improvement of their infrastructure as a springboard for economic growth.

Governments in developing and transition countries in normal times devote more public resources to infrastructure initiatives than Governments in developed countries. On the contrary, in time of crisis those same Governments are forced to impose drastic cuts to capital expenditures, often forcing the cancellation or postponement of planned infrastructure projects.

In both situations it is imperative to have an effective Public Investment Management (PIM) system in place to maximise value for money.

The shift from PIP to PIM intends to signal the need:

• to avoid 'dual budgeting system', which considers capital expenditure planning as separate from the recurrent expenditure budget; and more over
• to establish an oversight system in MoF whereby an iterative process of quality control and management is in place, i.e. systematic analysis of project start‐up and implementation options based on harmonized practices, stage‐wise process and management solutions

Attached is a paper Professor Scandizzo and I prepared for the Ministry of Finance in Brazil presenting the PIM practice in three countries:

• Creation of a new PIM institution, to ensure that investment management functions are centralised and delivered with clear leadership and accountability - the case of Canada;
• Creation of a new PIM function, empowering an existing entity with extended responsibilities on investment management - the case of UK;
• Creation of a new PIM institution to guide the strategic directions of investment management, while reinforcing the coordination mechanisms of existing agencies responsible for investment management - the case of Ireland.

Any direct experience in other countries, PFM Boarders?

[petagny]

The UK may be moving closer to the Canadian model with the creation of Infrastructure UK announced in the December 2009 Pre-Budget Report. Infrastructure UK would be created out of the merger of three existing independent agencies: the Infrastructure Finance Unit, the Treasury’s PPP policy team, and parts of Partnerships UK.

It's functions are described as:


'Infrastructure UK (IUK) advises government on the long-term infrastructure needs of the UK and provides commercial expertise to support major projects and programmes.

It looks across all key infrastructure networks and both the public and the private sectors to identify and address key cross-cutting issues.  It is also responsible for: identifying and attracting new sources of private sector investment in infrastructure; supporting HM Treasury in prioritising the Government's investment in infrastructure; and helping to build stronger infrastructure delivery capability across government.'

It remains to be seen whether the new government sticks with this approach.

[Albani]

I will start with a Kosovo PEFA 2009 finding saying that PIP is not integrated in Medium Term Expenditure Framework and MTEF is a centrally driven list of projects.

The Kosovo’s PIP has been subject to many studies, most notably the Andrew Bird’s  Policy Note on Public Investment Management, dated 2007, which provides a comprehensive view of Public Investment planning and management, and a brief overview of PIP history in Kosovo.
With regards to Kosovo’s Public Investment Programme (PIP), the discussion for me is quite difficult in the light of developments in countries such as Canada, UK, Ireland.    This is because Kosovo still has to meet preconditions in order to be eligible to comparison with those countries and to consider any movement from PIP toward PIM. One of the preconditions would be the establishment of a proper integrated planning system within the ministries and government that would eliminate the need for MEF’s over-focus in individual projects of ministries whose value is from €10 thousand to €700 millions. Movement from input to output based budgeting that would lay the foundation for performance evaluation, would be another important condition. And finally, establishment and maintenance of the link between policies, planning and budgeting.

If the above is achieved, the movement from PIP to PIM would be easy for Kosovo.  However, for the establishment of a PIM institution, program-based budgeting is also required in order to capture cross-sectoral and inter-ministerial investment management arrangement needs.

Development of PIP procedures and processes did not occur as part or in parallel with the development of overall planning processes. It introduced a PIP computer assisted system in addition to the existing budget planning system, and considering the poor link of policies, planning and budgeting, these procedures, which were never fully enforced, now are used to check the administrative compliance of investment project proposals resulting with poor project performance and quality of outputs. Therefore, the situation is as in following:
(1)   No integrated proper planning processes within ministries and government;
(2)   PIP focused in technical, administrative, and controlling aspects, rather than planning (which may have resulted from (1))
(3)   Wrong assumption on the role of Ministry of Economy and Finance (being too weak as opposed to other line ministries)

Recently, a Public Investment Committee has been established, and the monitoring module was introduced.

And finally, it remains with the government to choose which direction it wants to take.

[petagny]

Albani's assessment of the Kosovo PIP is very interesting. My own perspective on PIPs in the Western Balkans region as a whole is not very positive. In fact, in response to learnng of renewed interest in PIPs in general, I have recently been motivated to write the following - under the heading 'Public Investment Programs - A Dead End?':

'A number of countries in the region have (or have had) PIPs, but the motivation for their existence is not always self-evident: given the usual involvement of donors, at least at the beginning, donor coordination would often seem to be the dominant motivation. Whatever the case, the level of strategic guidance they offer seems to be limited and the region’s PIPs have more often than not tended to be unconstrained wish lists of poorly screened projects searching for funding.

Macedonia, for example has had a PIP of some sort since 1998, and steps have only recently been taken to integrate it into mainstream budgetary processes, and then only with partial success (ambitions in outer years are still unrealistic).

Bosnia has had PIPs for nearly as long, with the same dissociation from budgeting and, hence, equally limited impact, although it is now trying to reinvigorate the process (with donor assistance – again!). 

Albania sustained a largely ineffective PIP for many years with responsibility passing between several ministries before it ended up in the finance ministry, where it was finally laid to rest in favor of a, theoretically, more integrated approach to strategic planning, budgeting and donor coordination... In practice though, recurrent and investment budgeting are still not fully integrated in spite of the demise of the PIP.

Kosovo and Montenegro are putting substantial efforts into developing their PIPs, with the latter currently benefiting from substantial EU assistance in this area. The design of these PIPs appears to have benefited to an extent from the lessons learned elsewhere and there is a strong emphasis on systems for ‘quality controlling’ projects. Issues remain concerning integration with budgeting and compatibility with potentially competing MTEF initiatives though. Disciplined application of PIP procedures is also a problem and they are often bypassed in Kosovo.

Included in the recent (2009) revision of Serbia’s Budget Systems Law is a requirement for a ‘medium-term public investment plan’ expressing public investment priorities. In many respects this seems like a PIP, but with the advantage that explicit linkages have been made with the budget process. It remains to be seen whether these new PIPs bear fruit but, based on regional experience to date, the omens for success are not too promising.'

Maybe there are those in the region who disagree with this assessment or others who have more positive PIP experiences from other regions. It would be good to share experiences.

[Napodano]

Allow to make a promotional stunt.

PSCANDIZZO and I have just published the book 'Public Investment Management: Linking Global Trends to National Experiences'
(see details at http://pfmboard.com/index.php?topic=387.0 plus the tow PP presentation attached)

Excerpts from the Forward section:

' This book originates from a study performed for the Ministry of Finance of the government of Brazil, on behalf of the International Bank for Reconstruction and Development. The study, which was conducted both for Brazil and for a sample of advanced countries, had the objective to identify, analyze and discuss general methodologies and best practices in the growing field of Public Investment Management (PIM) both at the macro and the project level. The study, which lasted two years, was considerably enhanced by the interaction with the Brazilian counterparts, through a mid-term workshop, and a final training session, two valuable tools for confronting the review of methods conducted by the authors with real life problems and difficulties of implementation.

......

The  main underlying theme of the study is  the attempt of most countries to “put the management in charge” in order  to pursue efficiency by rendering as flexible as possible public  investment responses to the unforeseen changes in the environment, in a world where uncertainty and irreversibility dominate. The study looks at this attempt, by focusing on the following intermediate goals:
• Empower managers by moving away from ex-ante controls, while increasing accountability through continuous monitoring and evaluation of performance.
• Make project design more flexible through modularity and sequencing
• Assess projects not as a product but as a process of value creation, and as a part of an overall national policy strategy,  and
• Introduce a medium term expenditure framework to lengthen the public financial commitments and ensure financial predictability  in the budget process.

.....

This book is structured in three sections. 
Section A presents an essay on the global trends on public investment management. It includes a review of past and present evaluation techniques and the evolution of the legal framework in public-private partnership as alternative to public capital expenditures. Public investment management in the European Union and five countries is also analyzed.
Section B compares the different approaches adopted by a few countries to implement the indications of PIM global trends in their national context. It suggests that upgrading PIM functions towards improved performance management should be a priority for those countries which  either can claim or want to pursue a sound planning system.
Section C presents a checklist of issues that Government in upper middle-income emerging countries could consider in their reform process to strengthen the management of public investment both at the macro and the micro level. The issues discussed in this section are based on international best practices, which in turn are reviewed on the basis of the analysis of the Brazilian PIM system and its perceived strengthening needs.'

[petagny]

Congratulations! This looks like being an excellent reference for all of us involved in PIM.

And you beat the World Bank to the publishers!

[emagfreek]

I think PIPs or Public Investment Programs are not always as public-friendly as they are presented. Those are showed like some mental-pieces inside a showroom but hence, they are not. Example of World Bank's latest policies can be looked upon. However, there are many factors of political influences can be observed.

[John Short]

My interest in the subject matter of this publication stretches back to the mid 1980s when I was running a training programme on investment planning for the BKPM (The Investment Promotion Agency) of the Government of Indonesia.  The training covered the identification and appraisal of projects for selection for promotion by BKPM.  The UNIDO Investment Appraisal Manual, Little and Mirrlees, Squire and van der Tak were the standard Cost Benefit manuscripts.  The appraisal context in many countries at that time was high import tariffs, or imports quotas or bans and imperfect and immature markets and government owned commercial companies.  Shadow pricing was the main means used to distinguish financial and economic appraisal of projects as well as consideration of externalities.  Domestic Resource Cost and Effective Protection Rate analyses were often used to screen sectors as to their comparative advantage and CBA was use to develop representative projects to promote the “winning” sector by the Investment Promotion Agency.  Investment Codes directing private sector investment were prolific and tax holidays and import duty suspension provided fiscal incentives.  One of my tasks was to produce a training manual related to this broad topic as well as deliver it.  Fortunately I was able to commandeer the services of Professor David Pearce with whom I had worked with in Egypt a few years earlier and both of us had been in the Department of Political Economy at Aberdeen.  David had written extensively in the field of CBA and extended this into the economics of environment where he was an acknowledged leader.  Sadly, David is no longer with us.  Following on from this I was involved in investment policy in some countries in Africa as well as trying to attempt to separate out a capital budget from the development budget; and PIP was beginning to rear its ugly head. 

Little has changed in the intervening 25 years and this has been the prime motive in reading and reviewing 'Public Investment Management: Linking Global Trends to National Experiences by Professor Pasquale Scandizzo and Mauro Napodano.
The two authors have different experiences as economists.  Professor Pasquale Scandizzo was employed by the World Bank in 1972 and was Senior Economist there between 1975 and 1987.  He returned to the Bank in 2003- 2004 as Chief Researcher but in between served as a consultant to the Bank.  Since 1987, he has also been Professor of Economics at the Universities of Rome and Cagliari and has consulted in many counties for many organisations.  The list of his publications is as long as my arms and I have long arms!  Mauro Napodano has honed his economic skills working in the rough and tumble of consultancy with the World Bank Group, the EC, DFID and UN agencies.  The PFM Board is testament to his breath of understanding of PFM issues and Public Investment in particular as the Board is his baby, which he nourishes and develops much to all of our benefit.  Given the background of the two authors, I anticipate a book with strong academic underpinnings but supported with practical examples of the theory in practise.

The “sales pitch” on the Board indicates that the book reviews the attempts from several countries to:
(i)   Empower managers to move away from ex-ante controls, while increasing accountability through continuous monitoring and evaluation of performance;
(ii)   Make project design more flexible through modularity and sequencing;
(iii)   Assess projects not as a product but as a process of value creation, and as a part of an overall national policy strategy;
(iv)   Introduce a medium term expenditure framework to lengthen the public financial commitments and ensure financial predictability in the budget process.
In terms of the structure of the PFM Board, PIs-11 & 12 are the relevant PEFA indicators.

This book originates from a study performed for the Ministry of Finance of the Government of Brazil, on behalf of the International Bank for Reconstruction and Development.   The book is some 257 pages long.  Chapter 1 looks at Global Trends and addresses diverse issues as a Government accounting and the emerging methodologies for investment appraisal.  With respect to the former, the point is made that analysis of public expenditure is difficult due to the lumpiness of capital expenditure and the development and use of accrual accounting has had an important impact in resolving this issue.  I know from my own experience having examined the distribution of public expenditure in the UK – in the then eight regions of England, and Scotland, Wales and Northern Ireland in the 1970s – and comparison over time and between the constituent parts of the UK was hampered by the nature of the accounts.  The use of Extended CBA, which in its simplest form is full and proper specification of all costs and benefits (priced correctly) and consideration of the alternatives is examined and advocated for us in appraising projects.  It is also clear from the discussion here (and throughout the rest of the book) that the focus of the methodologies is infrastructure which is a move away from the scope experienced in the 1980s.  Vindication of the ECBA approach can be found in a recent report of the UK House of Commons Public Accounts Committee on the widening of the M25 motorway and its PPI financing;  and http://www.politicshome.com/uk/article/21937/margaret_hodge_appallingly_bad_estimates_on_m25_project_.html  and http://news.bbc.co.uk/today/hi/today/newsid_9390000/9390525.stm provide a useful summary of the issue.

Public Private Partnerships are also examined extensively in Chapter 2 The Evolution of the Legal Framework which is a tour de force.  Anyone, who wishes to understand the legal underpinning of finance and contracts and indeed of economics, need look no further than this chapter.  Chapter 3 The Evolution of Best Practices examines the complete aspects of the investment process in The European Union, Italy, Ireland, Sweden, Canada and Australia.  These case studies are excellent and provide much valuable reference information in one place.  They provide times lines against: Macroeconomic Policy & Development Strategy; Institutional Framework & Budgeting and Public Investment Management in each of the case study countries (taking the EU as a country!).
Section B covers the finding of direct links between PIM theories and applied national experiences and Section C examines how Brazil measures up against the emerging best practice derived from the case studies.  This Section ends with a checklist of 10 issues for upper middle-income and emerging countries in developing the process of prioritizing infrastructure investment to generalise the discussion on Brazil.

While Sections B and C deliver their objectives in terms of the study relating to Brazil, I am not convinced if they satisfy the “sale pitch” claim outlined above.  I think the reason for this is an underlying assumption that an MTEF is a well-understood concept that is also well-applied.  The reality of MTEF may well be different than that assumed and thus the discussion does not adequately relate PIM to the MTEF process to my mind.   Certainly all of the PEFAs that I have worked on or reviewed have shown a singular weakness in PI-12 dimensions (i), (ii) and (iv) and PI 11 dimension (ii) and often (i), all of which together underpin the MTEF process.  This may not, of course, be the case in Brazil, but a wider application and generalisation of PIM into the MTEF process merits exploring this consideration.  Certainly, Mauro Napodano knows from his experience in Albania how the PIM process has been incorporated into the MTEF (or MTBP) and how the MTBP has developed over time along with the Integrated Planning Process.  Perhaps a case study of the Albanian experience may have enhanced the case studies in this book.
At £67 this book is likely to end up on the shelves of university and Aid Agencies libraries as well as that of the specialist consultant, and it should.  It will be a valuable reference book, but somehow I feel that a shorter and more-focused book using this material and linking it more explicitly to the MTEF process would reach a much wider audience.

Little, I.M.D. & J. Mirrlees, Manual of Industrial  Project analysis in developing countries, Vol. II,  OECD, 1968.
UNIDO, Guidelines For Project Evaluation, 1981.
Pearce DW. Cost-benefit analysis. 2nd ed. London: Macmillan, 1983.
 Pearce, D.W. and C.A. Nash  The Social Appraisal of Projects: A Text in Cost-Benefit Analysis. Basingstoke: MacMillan 1981
Pearce, D.W., A. Markardya and E. Barbier, Blueprint for a Green Economy. London: Earthscan 1989
Short J Public Expenditure and Taxation in the UK Regions, Aldershot, Gower, 1981
Squire, L. and van der Tak, H. Economic Analysis of Projects. Baltimore: Published for the World Bank  Johns Hopkins University Press. 1975
UNIDO Guide to Practical Project Appraisal in 1978.

[PSCANDIZZO]

I don’t have any quarrels with John Short ‘s very good, and generous review of my book with Mauro Napodano. 

However, I must  beg to differ on the thesis that we have implicitly assumed that MTEF is a well-understood concept that is also well-applied. Rather, it is my conviction that, important as it might be the integration of PIM in the MTEF process, the two are rather different animals, which may cooperate if needed, but in general operate in quite different habitats. As I see it, PIM originates from the earlier attempts at planning by project (subsequently evolved into so called public investment planning or PIP), using decentralized decision making and professional standards to achieve efficiency and quality control in the public sector. MTEF, on the other hand, is essentially a method to organize, monitor and control public expenditure , along a hierarchical decision line and according to  reliable and transparent accounting procedures. Because it starts from cabinet level, furthermore, MTEF is inevitably dependent on the characteristics of the cabinet, whether it is short or long term oriented, whether it has a stable majority and in general to what extent can its time horizon be defined in terms of length , scope and  political uncertainties.

The evolution of PIM, on the other hand, is much less dependent on the political cycle and has followed as partly an endogenous reaction to the proven ineffectiveness of PIP beyond the mere phase of project selection and improvement of project design. In spite of the adoption of the logical framework  and the project cycle models, in fact, public investment planning in most countries has repeatedly failed to construct a reliable process of resource allocation, which is , at the same time, responsive to inter-sector and inter-project  choices and to changes of circumstances, incentives and economic basics over time. The opacity of the process of allocation and adjustment, furthermore, has contributed to the loss of credit of public investment as a social endeavor. Both this implementation failure and the insights brought about by real option theory have thus decisively shifted the attention of scholars and policy makers from  public investment planning to planning investment management. Management flexibility, in particular, and higher project  responsiveness to  environmental change are the key concepts that PIM attempts are trying to promote and implement in the process of public resource allocation.

All this does not deny that  a crucial amount of underinvestment in the earlier phases of  the project cycle may be responsible of many of the problems affecting public investment failure, including lack of transparency in the choice of plans and projects, unclear correspondence between origin and destination of funds, and, down the line, cost and time overruns, lack of feedback from the project to the budget and vice versa. MTEF attempts at linking more firmly the budget and project choices in a medium term framework have to be linked, in my opinion, to these problems, which are concurring motives of concern and possibly failure of PIP. However, both MTEF and PIMs are parallel attempts at amending PIP generated project cycle, respectively at the upstream, budget level and at the downstream management level. Both activities are important and, indeed, highly complementary, but they can , and to some extent, must be carried on independently.
 

[Napodano]

An effective representation of how the PIM and MTEF processes are parallel, yet inter-linked is in the attached flow chart, reproduced from ‘Framework for Reviewing Public Investment Efficiency’ A. Rajaram, Tuan Minh Le & Nataliya Biletska, World Bank, 2007

[John Short]

And this exactly illustrates my point - the MTEF side of this process is rarely implemented properly.  Saying that the PIM process should be seen in the context of an MTEF, when the MTEF is mostly an illusion, needs precisely this type of explanation, which is missing in the book.  Hence my reference to Albania where is it is largely in place.  Indeed if you titled this diagram the MTEF/MTBP process, it represents, albeit not fully, what PI-11 and PI-12 of PEFA measures.  An MTEF is not just a fiscal forecast; it also requires the first stage screening for both capital and recurrent expenditure - which is missing in the diagram for recurrent expenditure.  How discretionary surplus is treated in terms of policy objectives to fund both capital and recurrent and recurrent commitments are revalidated are part of the process.  Treating PIM as a separate process independent of recurrent expenditure, particularly when the recurrent implication of capital expenditure is relevant, seems to be missing from this diagram.

[petagny]

I think the figure posted by Napodano needs to be looked at in the context of the document from which it came. It's trying to make a distinction between project screening processes (or quality control) and project selection processes (budgeting). The idea is that projects must pass through the quality control filter before being eligible to be proposed for budget funding (which is not automatic - there will always be more good projects than available funding, except in theoretician's world). And there needs to be some form of independent control - 'gatekeeping' - to ensure that projects have been through such a process and that ill-prepared projects are not 'parachuted' into the budget process for short-term political motives. Like all diagrams it is a simplification, but I don't think the intention is to suggest that an integrated approach to budgeting capital and recurrent expenditure is not required.

[petagny]

I think John Short and I share the same concerns about PSCANDIZZO's interpretation of the PIM-MTEF interface. In particular, I am concerned by the apparent acceptance that the inter-relationship between the two is only a potentially useful add-on rather than an important feature ('...it is my conviction that, important as it might be the integration of PIM in the MTEF process, the two are rather different animals, which may cooperate if needed, but in general operate in quite different habitats.')

For me, Public Investment Management is all about managing the interface between the project cycle, the budget cycle (preferably in a medium-term perspective) and the strategic planning cycle: in this context, it is difficult to talk about public investment management without talking about a medium-term expenditure framework (or its equivalent, depending on the nomenclature of the country in question).

This is how I've summed it up elsewhere:

'Public investment management is more efficient in the context of a multi-year framework for budgeting. The public investment management process links the project cycle with the budget-MTEF cycle. In an effective public investment management process, there are two important points where the project cycle and the budget-MTEF cycle should coincide: the first is at project identification when project concepts entering the project pipeline are initially identified and a decision is taken on whether to develop the concept further; the second is when the decision is made to fund implementation. At the first point of coincidence, projects that successfully pass the identification stage can be considered for inclusion in the pipeline of potential projects for funding in the outer years of the MTEF and funding is approved for preparation in the preceding years. At the second point of coincidence, fully prepared projects with a positive appraisal can be selected (or rejected) for funding in the budget (the first year of the MTEF). In the next year’s roll-over of the MTEF, previously identified project concepts will move closer to implementation, other new concepts will enter the third year, and projects that are ready to be implemented, i.e., priority projects with positive appraisals and all necessary documentation, will be proposed for funding in the forthcoming budget year. And so on…
The above all takes place against the background of firm medium-term expenditure ceilings within which public investment must be programmed by sector ministries. There needs to be interaction between ceiling setting and investment programming though: MTEF capital expenditure ceilings cannot be set independently of previous commitments to ongoing projects or of the pipeline of forthcoming project because of the serious disadvantages of slowing down implementation and because of the lumpiness (indivisibility) of most capital projects. As described above, information from different stages of the project cycle must therefore feed into the MTEF process and inform the final decisions on sector ceilings made by the finance ministry. An effective capital budgeting system will facilitate this flow of information and decision-making.  A good starting point is to require sector ministries to prepare baseline capital expenditure programmes showing estimates of the forward funding implications of ongoing and already committed projects, based on the latest monitoring information and the project financial implementation plans. Baseline expenditure estimates then form the basis for estimating the availability of additional resources for new capital spending initiatives, which must be allocated between sectors according to Government priorities and the pipelines of projects under development. The room for new initiative spending can be expected to increase towards the outer years of the MTEF as more ongoing projects are completed. Realistic assessments of project completion rates are important though to prevent either an over- or under-programming of investment activities.
A good capital budgeting system (in the wider sense), combined with the greater predictability of an MTEF, as described above, should therefore cause spending agencies to plan in more detail beyond the budget year and to think in terms of developing a project pipeline consistent with MTEF capital expenditure ceilings. Information on the pipeline should also then be available to inform the MTEF ceiling setting process.'

And, of course, the MTEF is a means for ensuring that the recurrent expenditure implications of capital spending are planned for.

I realise that the description above is of a somewhat idealised world, and that one couldn't suspend expenditure on public investment just because there is no meaningful MTEF, but it does seem reasonably obvious that public investment management is always going to be more meaningful when it complements an integrated medium-term budgetary perspective.

[Napodano]

Interesting debate and different perspectives.

If I can intepret the point made by Lucio Scandizzo (based on the always insightful conversations we had over the time we developed the book together), the issue is on the nature of the analysis and not the process. The process must be integrated, the analysis is specific.

Appraising an investment project, whatever technique is used, requires an analysis of real options and capabilities, present and expected, that goes beyond the fiscal requirements of the budget analysis.

In the few cases in which the MTEF is performance-based, the inclusion of a capital project's outcomes and outputs in the budget documents is a summary of a more extended analysis which needs to be carried out to validate the standing of the project from the point of views of multiple stakeholders.

[John Short]

Nevertheless the point made in the review is that the MTEF process was assumed as almost as a given – there was no quarrel about the analysis required to make a decision on the validity of an investment outside of the funding requirements.  To understand how the mangers can be put in charge as advocated requires a better description of the process than that presented - particularly the financing and other linkages that a functioning MTEF provides.  I cannot disagree with the points that petagny has made.

[Martin Johnson]

First of all, congratulations to Professor Pasquale Scandizzo and Mauro Napodano on the publication of their book.

In the very interesting discussion that follows, Petagny (as ever) proceeds with copious common sense and explains clearly how and why the project cycle can and should integrate with and be part of medium term planning and budgeting.

I would be interested to hear from Petagny, the Prof, Napodano or others where they have seen this level of common sense attempted in process and procedure. And what the outcome has been in practice.

From my own experience (shared with contributors on this topic - Napodano, Petagny, Short – as well as others, notably Stone and Guga), I have seen an attempt to include these common sense features of PIM in Albania’s Integrated Planning System (indeed, if I recall correctly, we attempted to give them a helping hand). I think what is really interesting about the Albanian experience is what happens when the recommended procedure is not followed. The fact is, as with many (if not most) governments, the political considerations of PIM usually override good procedure and common sense. The impact of two very big public investments (“The Road” and the National Identity Cards) on the rest of the budget (and on the macro numbers with regard to the former) from being ‘parachuted’ in at the last moment, without prior screening, scheduling or proper budgeting, was chaotic to say the least.

In both cases (“The Road” in particular), advance warning through a project screening and inclusion in an outer year of MTEF planning would have facilitating resource planning and would have greatly eased the impact (and productivity) of resources in other areas of public investment - that had to be substantially cutback or curtailed with little or no notice to cater for the investments that were parachuted in.

I understand it’s a good road by the way.

[petagny]

When it's open!

[John Short]

90 per cent was open last year - been up and down it to Kosovo a few times.  It is impressive!

[petagny]

In reply to Martin, I would say that my description of the process is somewhat stylised, but at least on paper the Albanian example is a good one. In practice though, Albania still suffers from 'political' projects being parachuted into the budget without sufficient prior assessment: the mentioned road to Kosovo is the most prominent example, but my recent work on public investment management in that country indicates that the problem is not only restricted to this high profile project. It will take time for the process to 'bed down': the necessary skills still need to be built up and public servants remain wary of raising questions and enforcing the system when appointments are still politically influenced.

South Africa and Botswana are examples of countries where this kind of process seems to work reasonably well.

Let's not pretend that problems are confined to the less-advanced countries either. 'Strategically important' projects of dubious economic value pop up everywhere: the aim is to control the number. And while the advanced countries usually have good linkages between public investment planning and medium-term expenditure planning, these can sometimes breakdown. See for example the recent case of the UK's investment programme in further education colleges. This seems to be a classic example of what happens when there is a dislocation between investment planning and medium-term budgeting: the projects were of good quality; they just could not be afforded within any realistic assessment of medium-term resource availability. This is what the House of Commons Public Accounts Committee said:

'There has been a very serious failure in the management of the programme, with the Learning and Skills Council over-stimulating the demand for funding and mismanaging the approval process. The Council was reckless in allowing colleges’ expectations of financial support to build to levels far in excess of what the Council could afford. From April to December 2008, it approved projects that anticipated Council funding totalling £2.4 billion (including £0.8 billion in approvals ‘in detail’). This total was £0.7 billion more than the total grant funding that it had approved ‘in detail’ in seven years to March 2008. In March 2009, the Secretary of State announced that the Council had at that point built up approvals ‘in principle’ for 79 projects anticipating £2.7 billion of funding that it could not afford. In the meantime another 65 colleges had also submitted proposals for projects that, if they were approved, would require grant funding of around £3 billion.'

Oh yes, and that's another thing a good PIM system needs - ex post scrutiny of the investment decisions and their implementation!

[John Short]

Interesting article on CBA of investment in high speed rail in England

http://www.independent.co.uk/opinion/leading-articles/leading-article-highspeed-is-still-the-right-track-for-britain-2228575.html

[petagny]

But see this article in the FT suggesting that the commuter network around major cities might be a better use of public resources and that 'Since there is no serious culture of cost/benefit analysis in the Treasury, the result is that useful, dull projects are doomed to lose out to less worthy, but more exciting prestige projects.'

http://www.ft.com/cms/s/0/ae849b8e-414b-11dd-9661-0000779fd2ac.html#axzz1FSp6uFzF

[Napodano]

A new video on PIM is available at the PFM Board Video Sessions http://www.youtube.com/user/napodano?feature=mhee#p/c/51C9BA2BAB0F6227/4/JwaS6fBeftM

It presents national experiences in implementing a Public Investment Management system. The full PowerPoint presentation is attached below.

[petagny]

Napodano,

I think the title to the second slide on the presentation might be refined to avoid misconceptions. PIM and budgeting should not really be 'parallel' processes, indeed it's often problematic in countries where this is the case. The slide is intended to show synchronisation between the screening processes of a PIM system (which might be seen as a quality control step) and budgeting, where project selection takes place.

I have used the attached slide to try to show the critical linkages between the project cycle, the budget cycle and the strategic planning cycle.

[petagny]

It's interesting to note that the outcome of the UK's Gateway Review process mentioned in Napodano's presentation is largely confidential. See this advice from the Ministry of Justice on Freedom of Information issues:

http://www.justice.gov.uk/guidance/freedom-and-rights/freedom-of-information/foi-assumptions-gateway-reviews.htm

The fact that a review has taken place and the nature of the project in question can be revealed, but the following cannot:

'Conclusion and Summary of findings; Findings and Recommendations; Red Amber Green (RAG) Status; List of interviewees; Summary of recommendations'

The justification for this is that it is 'information the release of which would, or would be likely to, prejudice the exercise by any public authority of its audit functions'. The explanation is that 'significant disclosure of the detail of the processes could work against the strong public interest in the unrestrained and unprejudiced audit and examination of the major projects of public authorities.' At first sight, this doesn't sound too good from a transparency and accountability perspective, but there are reasons for it (and other oversight mechanisms for ensuring transparency and accountability): Gateway reviews are conceived as an internal management tool and are, I believe, also entirely voluntary.

[John Short]

There are earlier discussions on this chart on page 1 of the topic.

[petagny]

John,

Yes, indeed. You have a better memory than I. But thankfully I don't think that I have contradicted myself!

Is it time to close this long running and wide ranging topic in favour of more self contained ones?

[Napodano]

I think the title to the second slide on the presentation might be refined to avoid misconceptions. PIM and budgeting should not really be 'parallel' processes, indeed it's often problematic in countries where this is the case. The slide is intended to show synchronisation between the screening processes of a PIM system (which might be seen as a quality control step) and budgeting, where project selection takes place.

petagny,

You are right. Two parallel processes never cross  , so your word 'synchronization' is the appropriate one, allowing to focus on the bridging phase(s).