Public Investment in Latin America:Challenges and Options for better Management

Brasilia, 16 June 2011

Jonas FrankSr. Public Sector Specialist

The World Bank

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

Latin American countries invest below the world average…

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

5

There is significant variation across countries in the level of investment spending…

Source: CEPAL (2011)

GDP

… and overall the quality of services is often still below the world average

Electric d

istrib

ution losse

s

Quality of p

ort infra

structu

re

Paved Roads

Cell-Phone Subscr

iptions

Landlin

e Suscriptions

Broadband In

ternet S

ubscriptions

Access

to Impro

ved Water

0%20%40%60%80%

100%120%140%160%180%200%

Average Provision of Services inLAC, 1989-2010 (World Average = 100)

World Aver-age

Source: World Development Indicators

Phases

1960s 1970s 1980s-1990s 2000s

Economic and Fiscal Context

• Vicious circle• Structures

• Oil crisis• Debt push

• Adjustment• External shocks• Washington

consensus

• Growth

Public Management Models and Public Investment

• Public Investment Plan (4-6 years, donor driven)

• Planning• Projects• Exante control

• Project Bank• Situational

planning• Exante control

• SNIP: Public Investment Systems

• Strategic planning

• Integrated financial management

• Single Treasury Account

• Multi-year planning

• Results-based management

• Monitoring and Evaluation

• Web-based modules

• E-Government

Public investment management has evolvedover time…

… 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

Planning Entity

Finance Ministry

Ex Ante Evaluation

Budget

Formulatio

n

Budget

Execution

Ex Post Evaluation

“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

… 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

Country Interface IFMIS vs SNIP Single project code in IFMIS Brazil yes yesColombia yes yesChile yes yesCosta Rica no noGuatemala no noHonduras yes yes (social investments)Paraguay no yes (in execution stage but not

at pre-investment level)Perú no yesBolivia no yesUruguay no yes

… and so is the integration with Financial Management Systems

Source: IDB Survey 2009-2010 and World Bank

Case of Bolivia: system overlaps and gaps

Nivel de Gobierno

Sistema de Info.CICLO DE LA INVERSIÓN PÚBLICA

Formulación Presupuestación Ejecución Seguimiento Evaluación

Central

SISIN web          

SIGMA          

SPI -MOP          

Aplicativo MMyA          

SAP - FPS/FNDR       CMC  

Aplicativo - VT          

Departamental

SISIN web          

SIGMA          

SGP          

SIGMA local          

Municipal

SISIN web (GM)          

SIGMA (GM)          

SGP        

SIGMA local          

Source: World Bank

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

Decentralization without planning and coordination can lead to fragmentation of projects…

2004 2005 2006 2007 2008 20091,183 2,142 1,885 2,319 2,321 2,4091,505

2,035 2,8163,190 2,837 3,072

1,022

1,332

7,186

13,299

19,798 18,891

Gobierno Nacional

Gobiernos Regionales

Gobiernos Locales

Fuente: SNIP

Example of Peru

Proceso de Elaboración del Plan Nacional de Inversiones Públicas

Dirección Nacional de Inversión Pública

Organismos Presupuestarios

Oficina Nacional de Presupuesto Provincias

Relevamiento de la Demanda de Inversiones

Priorización de los proyectos

Consultas a Provincias

Selección Definitiva de

Proyectos

Definición de Techos

Presupuestarios

Presupuesto de Inversiones

Plan Nacional de Inversiones Públicas

Dictamen

Remisión de documentación

Criterios de priorización

Mayo

Julio

Mayo

Septiembre

Agosto

Octubre

Abril

Mayo

Plan Nacional de Inversiones

Públicas

Relevamiento de la Demanda de Inversiones

Abril

Octubre

Argentina: bottom-up process and fiscal decisions on project selections

…and sometimes strong subnational autonomy can create additional pressures to spend... creating risk of

stop-and-go financing and incomplete projects

Source: Ministry of Economy, Argentina

Source: Dirección General de Inversión y Crédito Público, Ministerio de Hacienda, El Salvador

2.5

%

PIB

2.6

%

PIB

2.5

%

PIB

2.3

%

PIB2.9

%

PIB

El Salvador: Planned and executed public investment,

2006-2010 (in million US$)

Recent growth episode has led to resource abundance and challenged execution rates…

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2005 2006 2007 2008 2009

Millone

s

PIM Gobiernos Regionales Ejecutado

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2005 2006 2007 2008 2009

Millone

s

PIM Gobiernos Locales EjecutadoLocal Governments Regional Governments

Blue: planned budgetsRed: executed budgets

Peru case

Source: SNIP, Peru

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

-

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00 B

aja

Vera

paz

Reta

lhule

u

FO

NPETR

OL

Toto

nic

apán

Santa

Rosa

Jala

pa

Sacate

péquez

Zacapa

Suchitepéquez

Jutiapa

Izabal

Chiq

uim

ula

Chim

altenango

Quetz

altenango

Solo

lá

Huehuete

nango

Peté

n

Quic

hé

El Pro

gre

so

San M

arc

os

Guate

mala

Multir

egio

nal

PorcentajePobreza

Millo

ne

s d

e Q

ue

tza

les

Departamentos

Relación Inversión Pública 2011 vrs. Porcentaje de Pobreza

Nacional por Departamento

Total Inversión en el Departamento

… while expenditures are often still inequitable

Case of Guatemala

Electoral campaigns promise more infrastructure works

Incentive problems can be overcome if political pressures are channeled and used adequately…

19

… and attention is also paid to improving implementation and ex-post evaluation

Project evaluation Project

implementation

Ex-post evaluation

A balancing act

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

Chile is putting SIGFE at the core…

Source: Proyecto SIGFE (Sistema de información para la gestión financiera del estado) Gobierno de Chile.

Programming

BPIN

Budget

Execution

SIIF

Monitoring

SPI

EvaluationSIGOB

Formulation

…and in Colombia systems cover all steps of theinvestment cycle

Source: SUIFP - DNP

Other countries are trying other solutions:• Interfaces: Honduras (SIAFI/SIGADE/SISPU/DEI/BANCO CENTRAL)• System Integration: Costa Rica (ERP)• Reducing parallelism: Discussions in Bolivia (SISIN-SIGMA)

Current efforts at improving ex-ante controls

• Independent evaluations in only a few countries– Argentina (starting)– Mexico: energy, water, and transport

• Chile: simplifying evaluation methodologies– Focus on value added and time reduction– Policy:

• “social and economic evaluation should not hold up efficient projects”• Maximize Net Present Value

– Multi-sector benefits– Risk analysis, interdependence, externalities– Base line for ex post evaluation– Expert group for technical advice

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

Nicaragua: Procurement Module is critical for monitoring physical and financial execution

• Monitors execution in two moments: at the award stage and during execution of contracts

• Execution is monitored based on contract programming and milestones

Banco de Proyectos

Sistema de

Preinver-sión

Sistema de

Programación

Sistema de

Seguimient

o

Source: SNIP Nicaragua

GERENTE DE META

Registro semanal Restricciones,

Alertas y Oportunidades

Registro Mensual: Logros del último mes e Indicadores

COORDINADOR INSTITUCIONAL

Semanalmente atiendeAlertas - Restricciones

y valida oportunidades

Mensualmente validaReporte de Avance e

Indicadores

PRESIDENCIA

GRUPO DE ESTRATEGIA

Semanalmente atiende Alertas, Restricciones y Oportunidades

TransectorialesMensualmente

Toma conocimiento del Avance , Identifica sinergias y toma

decisiones

PRESIDENTERecibe propuestas de acción presidencial: normativas, técnico-

administrativas, político directas y de acción

comunicacional

MINISTRA/ O

Semanalmente atiende Alertas, Restricciones y

Oportunidades

MensualmenteToma conocimiento del Avance , Indicadores e

indica reprogramaciones

CIUDADANIA

El Salvador: improved monitoring with a results-focus

Source: SNIP El Salvador

Interactive system in Chile…

Source: MIDEPLAN, Chile

29Gobierno de Chile | Ministerio de

Planificación

… with geo-referencing

Source: MIDEPLAN, Chile

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

31

”Pareto-Strategy” in Mexico: focus on high expenditure areas

Fuente: Subsecretaría de Egresos de la SHCP/ Tomo VII PEF 2009 / Análisis Deloitte

Distribución de la cartera total por sector (monto y tipo de proyectos)

360

400Hidrocarburos

($228/537)

SCT($64/1,683)

Electricidad($40/450)

Medio Ambiente ($11/176)

Salud($10/175)

Impartición de Justicia($7/52)

Fomento($6/146)

Educación($5/190)

Seguridad Nacional($4/76)

Ejecutivo Federal($3/161)

320

280

240

200

160

120

80

40

4,0000 3,0002,0001,000

Mon

to A

sign

ado

en 2

009

(376

milm

illon

es d

e pe

sos)

Número de Proyectos(3,652 proyectos)

61%

15%

17%

46%

12%

11%

About 90% of investment is concentrated in three sectors: hidrocarbon, communications/transport and electricity

It is critical to being strategic about the way forward

32

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