October 2016|bsi|

July saw the public launch of the IMF’s new Public Investment Management Assessment (PIMA) at the Third Financing for Development conference in Addis Ababa.

The IMF’s attention to the importance of public investment is welcome. Countries across the developing world are putting in place aspirational infrastructure plans. This is also reflected in thegreater focus in the SDGs on infrastructure with specific goals on energy access, availability of water and resilient infrastructure. The World Bank’s lending for infrastructure has for example rebounded from just 19% in 1999 to 30 – 40% now .

There is a danger, however, that the PIMA will be abused and lead to support for misguided reform plans. Evidence of how the closely-related PEFA (Public Expenditure and Financial Accountability) assessments have been misused can be seen in the IMF’s research paper Making Public Investment More Efficient.

My favourite image comes on page 23, which compares the results of PIMA assessments in 25 pilot countries at different levels of income. After years of donor support for development of plans and medium-term expenditure frameworks, it seems low income countries and emerging markets are doing a better job of preparing plans and multi-year budgeting than advanced economies. Yet low income countries lag significantly behind advanced economies when it comes to actually making funds available and managing the implementation of projects.

These results reinforce concerns that have been raised on ‘isomorphism’ (see for example Matt Andrews’ study of public financial management reform in Africa based on PEFA assessments). Countries are doing well on the de jure upstream planning and allocation metrics where they can mimic the behaviours of ‘best practises’; but performing less well on the de facto delivery of projects.

Managed crudely, PEFA assessments have been criticised as one of the key contributors to this kind of behaviour. Many of the indicators measure institutional forms (e.g. the presence of a medium-term fiscal framework) rather than the function (e.g. making prudent fiscal decisions). Countries look to climb the rankings to gain legitimacy, but do not necessarily alter the functionality of the system.

There is a risk that countries undertaking PIMAs will fall into the same trap. Given the rankings to be climbed by undertaking costs-benefit analysis, it is all too easy to imagine a rush to put in place seemingly more sophisticated appraisal systems. Yet a system of appraisal is a decision-making framework: it is only useful in as far as it helps to inform decisions. In many contexts, a gate-keeping function that checks the ‘readiness’ of projects may be more appropriate than one where cost-benefit ratios are fudged at great administrative cost.

There is also an implicit assumption in the PIMA that the institutions most critical for improving the efficiency of public investment relate predominantly to the systems managed by central finance agencies. Yet a number of the indicators of the PIMA (e.g. the unity of the budget) seem more incidental to management of investment than say the procedures for acquiring land (see for example World Bank study in Indonesia on constraints to budget execution in infrastructure sector). Given the costs involved in governance reform, one might question whether some of these indicators represent good bang for your reform buck.

How much hope then should countries place in responding to these diagnostics as a way to improve the quality and quantity of investments?

The answer ultimately will lie in how they are undertaken. Many low-income countries are looking for solutions to the following kinds of specific problems:

  •          What is the most appropriate system for project selection given political context?
  •          Why is there a lack of shovel-ready projects in my country despite world-class plans?
  •          What is the reason for project implementation delays?
  •          What are the drivers for poor value for money in the procurement system?

Used badly, there is a risk that these assessments will encourage countries to push reforms in the wrong places to rise up league tables, but leave the most pinching challenges unresolved.

Given the way that the PEFA assessments has been used and abused as a tool in many countries, it is difficult to feel optimistic that PIMA assessments will not fall into the same trap.

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