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 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 Source: World Development Indicators

Phases 1960s1970s1980s-1990s2000s 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 evolved over 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

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

CountryInterface IFMIS vs SNIPSingle project code in IFMIS Brazilyes Colombiayes Chileyes Costa Ricano Guatemalano Hondurasyesyes (social investments) Paraguayno yes (in execution stage but not at pre-investment level) Perúnoyes Bolivianoyes Uruguaynoyes … and so is the integration with Financial Management Systems Source: IDB Survey and World Bank

Case of Bolivia: system overlaps and gaps Nivel de Gobierno Sistema de Info. CICLO DE LA INVERSIÓN PÚBLICA FormulaciónPresupuestaciónEjecuciónSeguimientoEvaluación 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… Fuente: SNIP Example of Peru

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% PIB2.5% PIB 2.3% PIB 2.9% PIB El Salvador: Planned and executed public investment, (in million US$) Recent growth episode has led to resource abundance and challenged execution rates… Local Governments Regional Governments Blue: planned budgets Red: executed budgets Peru case Source: SNIP, Peru

… 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…

… and attention is also paid to improving implementation and ex-post evaluation Project evaluation Project implementation 19 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 Evaluation SIGOB Formulation …and in Colombia systems cover all steps of the investment 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

Differentiation of appraisals: can lead to undesirable consequences if not applied on whole spectrum of projects Peru Evaluation according to project size some evidence on fragmentation to take advantage of lighter evaluations in small scale projects Chile No monetary threshold Specialized methodologies in some projects – Airports; Urban road maintenance: for municipalities with less capacities; Telecenters: calculation of benefits are simplified Mexico Evaluation according to project size Methodologies for small and medium-sized projects: – Urban solid waste, Water, Rural roads, Health centers, school building

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 Source: SNIP Nicaragua

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 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 El Salvador: improved monitoring with a results-focus Source: SNIP El Salvador

Interactive system in Chile… Source: MIDEPLAN, Chile

29 Gobierno 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) About 90% of investment is concentrated in three sectors: hidrocarbon, communications/trans port and electricity It is critical to being strategic about the way forward

A Network of LAC Directors of Public Investment was founded in October 2010 in Panama 32 Annual meetings, exchange of information, consultations Support from CEPAL, IADB, and World Bank