Building Infrastructure through Better Public Investment Management

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1 Building Infrastructure through Better Public Investment Management John Roome Director, Sustainable Development Department East Asia and Pacific Region World Bank

2 Public Investment Management is a Challenge! Growing middle class aspires for better services The Poor look for Employment Public Financing not enough to meet Infrastructure Investment Needs

3 Much can be Learned from Global Best Practices Increase Accountability both within Public Organizations and to the Users of services; Involve Beneficiaries as much as Possible; Encourage flexibility in Project Design, so that lessons learned are continually fed back; Think of Projects not as Products, but as processes of value creation; Utilize Public Expenditure Reviews (PERs), and Medium Term Expenditure Frameworks (MTEF) to manage processes Source: Adapted from Public Finance Management Blog, World Bank

4 Public Investment Management in Infrastructure Setting Sector Goals * Criteria for Public Investments * Cost Benefit Analysis * Approved Projects must have financing Financing Framework * Approved Projects must have required financing * Private Finance enhance service quality + share risks * Manage Contingent Liabilities, set up Institutional, regulatory structures. Public Investment Management * Linking public investments to budgets * Ensuring Biggest bang for the buck * Building Capacity in oversight Institutions * Fostering Transparency * Public Expenditure Reviews 4

5 Leveraging Private Participation is Key Private participation is not just a resource gap filler Rigorous Value-for-Money Investment Framework Country Investments Needs span spectrum from Purely Public to Purely Private Brazil Water Utilities: Good Example with a hybrid from purely Public to Purely Private co-existing Decisions at the front-end, have the greatest influence on a project s likelihood of success. Common problems include: Underestimation of cost and risk, overestimation of expected benefits, Unexpected negative impacts (e.g. economic, social, and environmental), Selection of the wrong projects to address perceived problems Countries with welldeveloped public investment preparation systems emphasize assessment at the front-end (e.g. Korea s pre-feasibility studies of mega-projects) before final approval 5

6 Engage in Integrated Planning with Stakeholders Region or Province City Neighborhood Household

7 Planning Process requires Participation by Multiple Stakeholders What should be the National Support? Assess sector investment needs based on plans to increase coverage Establish priorities and a short/medium term expenditure profile based on health and environmental concerns Outline financing plan to support expenditure profile. Financing from public sources (taxes), tariffs, or debt Assign budget resources for public sector financing needs and ensure other non-public sources of financing are in place Monitor progress made in delivering the program or a particular project How can Accountability be ensured? Define the roles and responsibilities of: Households Neighborhoods Cities Provinces National Governments Block transfers/grants used as a mechanism to promote decision making at lowest appropriate level Decentralization empowers local decision makers to define local priorities Local Government Code in Philippines Decentralization in Indonesia

8 For Building Transparency through Public Participation: PNPM in Indonesia Complaint Handling Training modules 2. WEBSITE ( Contact Number of Facilitator UPP today (news) Dialogue forum Dissemination of learning and article on interesting experience, best practice Consultant s Contract Detailed Consultant Invoices Implementation progress : MIS and quick status Profile of urban ward Utilization of fund at ward, region, national level Address of UPP Information Center 2,500 visitors / day

9 PERs can Enhance Accountability: Example from Egypt s Water sector % Irrigation & WS&S Expenditures to GDP % % Irrigation Exp. to GDP % WS&S Exp. to GDP

10 By Benchmarking Public Investment Performance Irrigation: Low O&M Cost Recovery Ratio Ratios > 1 indicate user-repayment not only for O&M but also for capital/replacement costs Egypt Morocco India Philippines Mexico Australia

11 + Identifying Opportunity Costs through Benefit Incidence Analysis Million L.E./annum Additional annualized expenditures NEEDED in irrigation to improve water quality and public health Additional annualized expenditures NEEDED for WS&S to improve water quality and public health Total ACTUAL expenditures of the Egyptian water sector in 2004

12 Three Rules for Enhancing Effectiveness in Infrastructure Service Delivery Focus Public Investment on Asset Preservation MTEF would help address the tradeoffs between new construction and asset preservation Long Term Performance Based Contracts could introduce more efficiency and sustainability into asset preservation Establish a Sound Regulatory Framework with Clear and Transparent Implementing Regulations Government s Key role in the Planning and Regulatory Processes Delivery of many infrastructure services possible through the private sector. SOEs, when involved in service delivery, need to compete and operate on commercial principles

13 Lessons Learned can be Utilized for Wider Reforms Timing, Tailoring, Sequencing of reforms/operations Lending instruments Stakeholders & Institutions REFORM ARENA Economic interests (rent, asset, capture, etc.) Political interests (authority, clientelism, etc.) REFORM PROCESS Dialogue & Decision-making Champions & Opponents Development Partner influence Analysis Rigor, M&E, Transparency (Dissemination) Realign Accountability Demand & Supply-side Partnership strategy -Decision-makers -Allies Public debate & Communication Strategy - Design & implementation Source: World Bank 2008, the Political Economy of Policy reforms, issues and implications for Policy Dialogue and Development Operations, Washington DC, Social Development Department. World Bank p.10

14 Take-away messages Link Public Investment Strategies to Budgets Commit to Multi-year funding Commitments for Capital Projects Use Cost-Benefit Analysis to ensure Value for Money Lessons learned from Past are Important markers for Future Strategy Institute effective Auditing and Reporting Processes Build Capacity for Project Planning and Management

Overview of East Asia Infrastructure Trends and Challenges

Overview of East Asia Infrastructure Trends and Challenges Christian Delvoie. Director, Knowledge Strategy Group, The World Bank Until September 28: Director, Sustainable Development, East Asia and Pacific