PUBLIC INVESTMENT MANAGEMENT ASSESSMENT (PIMA)

FISCAL AFFAIRS DEPARTMENT

INTERNATIONAL MONETARY FUND

Public investment can serve as an important catalyst for economic growth, for example by supporting or enabling the delivery of key public services, and connecting citizens and firms to economic opportunities.

Vitor Gaspar Director of the IMF’s Fiscal Affairs Department

The efficiency of public investment management is crucial to derive the growth benefits from additional infrastructure investment.

Christine Lagarde Managing Director of the IMF

WHY PUBLIC INVESTMENT MATTERSPublic investment can be an important catalyst for economic growth, but the benefits of additional investment depend crucially on how it is managed. An IMF study1 found that the average country loses about 30 percent of the returns on its investment to inefficiencies in its public investment management processes (Figure 1). There is substantial scope for improving public investment efficiency across income groups (Figure 2). Improvements in public investment management can help countries close up to two-thirds of the efficiency gap. The growth dividend from doing so is substantial—the most efficient investors get twice the growth bang for their investment buck than the least efficient investors.

Figure 1 Public Investment Efficiency Gap

1 IMF Board Paper “Making Public Investment More Efficient”, June 2015.

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Public Investment E�ciency Gap

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PUBLIC INVESTMENT MANAGEMENT ASSESSMENT (PIMA)

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Since its introduction in 2015, the PIMA framework has become a key tool for helping IMF member countries strengthen the efficiency and effectiveness of public investment, with more than 30 assessments conducted to date. PIMAs are an integral part of the IMF’s Infrastructure Policy Support Initiative (IPSI) that promotes the implementation of the 2015 Addis Ababa Action Agenda for financing sustainable development and the infrastructure-related Sustainable Development Goals (SDG).

Figure 2 Public Investment Efficiency

WHAT IS A PIMA?A PIMA helps countries evaluate the strength of their public in-vestment management practices. The PIMA evaluates the design and effectiveness of 15 institutions that shape decision-making at three key stages of the public investment cycle (Figure 3):

• Planning investment. Efficient investment planning requires institutions that ensure public investment is fiscally sustainable and effectively coordinated across sectors and levels of government.

Public Investment E�ciency Gap

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Average ef�ciency

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Average ef�ciency

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Advanced Economies{n=28}

Emerging Market Economies

{n=57}

Low-IncomeDeveloping Countries

{n=34}

All Countries{n=119}

PUBLIC INVESTMENT MANAGEMENT ASSESSMENT PIMA

• Allocating investment to the right sectors. Allocating public investment to the most productive sectors and projects requires comprehensive, unified, and medium- term planning as well as objective criteria for appraising and selecting specific projects.

• Implementing investment. Timely and cost-effective implementation of public investment projects requires institutions that ensure projects are fully funded, effectively managed, and transparently monitored throughout their implementation.

Figure 3 The PIMA Framework

WHAT ARE THE BENEFITS OF A PIMA?The PIMA provides a comprehensive diagnostic of the strengths and weaknesses of a country’s public investment management system, allowing comparisons with similar groupings, and country-tailored recommendations.

• For country authorities, it provides a basis to produce a prioritized reform plan, tailored to their specific needs and aligned with the country’s resources and capacities;

PIMA Framework

Planning

1. Fiscal Rules2. National & Sectoral Planning3. Central-Local Coordination4. Management of PPPs5. Company Regulation

Implementing

11. Protection of Investment12. Availability of Funding13. Transparency of Execution14. Project Management15. Monitoring of Assets

Allocating

6. Multi-year Budgeting 7. Budget Comprehensiveness 8. Budget Unity 9. Project Appraisal10. Project Selection

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• For the Fund, it supports the policy dialogue with countries, including surveillance and Fund-supported program design, resulting in better reflection of public investment management issues in Fund’s work agenda; and

• For donors, it helps assess needs, mobilize funding and improve coordination among capacity development providers.

THE PIMA REPORTThe findings and recommendations of the PIMA are summa-rized in a concise report. The report provides an analysis of the trends and composition of public investment (Figure 4 and 5), estimates the impact and efficiency of the country’s public invest-ment (Figure 6 and 7) and summarizes the country’s institutional strengths and weaknesses compared to peers (Figure 8).

Figure 4 Botswana: Composition of Public Investment by Function

Economic Affairs

Housing

Health

Recreation & Culture

Education

Social Protection

4.0% 2.0% 3.1%

2.3%

4.8%60.8%

Defense

General Services

Public Order

Environment Protection

0.4%

7.8%

7.0%

7.7%

PUBLIC INVESTMENT MANAGEMENT ASSESSMENT PIMA

Figure 5 Kosovo: Public Capital Stock

Figure 6 Mali: Public Infrastructure Access and Service Delivery

0 20 40 60 80 100 120 140Serbia

PolandAzerbaijan

KazakhstanCzech Republic

GeorgiaMontenegro, Rep. of

KosovoCroatia

TajikistanBosnia and Herzegovina

Romania

Percent of GDP

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

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■ Mali ■ Other WAEMU countries■ Low-income Developing Countries ■ Sub-Saharan Africa

Public Educationinfrastructure

ElectricityProductionper capita

Roadsper capita

Public healthinfrastructure

Access totreated water

(RHS)

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Figure 7 Ireland: Efficiency of Public Investment

Figure 8 Jordan: Strength of PIMA Institutions

Ireland

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All Other CountriesAdvanced Economies Frontier

Ireland

1. Fiscal Rules2. National & Sectoral Planning

3. Central-Local Coordination

4. Management of PPPs

5. Company Regulation

6. Multiyear Budgeting

7. Budget Comprehensiveness

8. Budget Unity9. Project Appraisal

10. Project Selection

11. Protection of Investment

12. Availability of Funding

13.Transparency of Execution

14.Project Management

15. Monitoring of Assets

JDR EMs World

PUBLIC INVESTMENT MANAGEMENT ASSESSMENT PIMA

SUMMARY HEATMAPThe summary heatmap gives a comprehensive picture of the institu-tional strength and effectiveness of a country’s public investment man-agement institutions (Table 1) and provides the basis for a prioritized set of recommendations and a sequenced action plan.

TABLE 1. KOSOVO: PIMA SUMMARY HEATMAP

Phase/Institution Institutional Strength Effectiveness

A. P

lann

ing

1 Fiscal rules

Strong: Debt rule since 2009, deficit rule in effect since 2014, with an investment clause and automatic adjustment mechanism.

Medium: In 2014, the deficit exceeded the ceiling by 0.4 percent of GDP within the margin, despite under execution of capital spending.

2National and sectoral planning

Good: National development under preparation; multiplicity of sectoral strategies with some performance measures.

Low: Around 80 sectoral strategies are in place, withoutclear coordination and incomplete costing.

3Central-local coordination

Medium: Debt limits constrain debt for municipalities; information for municipalities timely; no rule-based allocation of capital transfers.

Medium: In 2014, optimistic projections of own revenues of 6 million result in corresponding under execution of capital spending for municipalities.

4Public-private partnerships

Good: PPPs guided by strategy within strong institutional and legal framework, but not included in MTBF or budget documentation.

High: Existing PPPs capital stock account for 1.2 percent of GDP, but several projects planned. Fiscal risks currently low.

5

Regulation of infra-structure companies

Good: Regulatory framework supports competition; prices set by independent regulators; weak financial oversight assessment of fiscal risks of POEs.

Medium: Challenges to regulators’ independence. Public investment of POEs account for 0.1 percent of GDP, but fiscal risks not assessed.

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Phase/Institution Institutional Strength EffectivenessB

. Allo

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6Multi-year budgeting

Good: Multi-year ceilings of capital spending are published based on not published projections of full cost of capital projects, but not binding.

Low: There are large discrepancies between MTBF ceilings and budget allocations (22 percent for n+2).

7Budget comprehen- siveness

Medium: Budget incorpo-rates loans and co-financed donor funding, but not externally financed grants and PPPs.

High: Externally financed projects not in the budget less than 3% of total capital spending; extra-budgetary capital spending is insignificant.

8 Budget unity

Good: Budgets disclose capital and current appropri-ations in a single document in line with GFS, but project specific information is not disclosed.

Low: Auditor General qualified the 2014 financial statements because of 5 percent misclassifications of current as capital spending.

9Project appraisal

Medium: The methodology is comprehensive; but results not published and limited risk analysis.

Medium: MoF and BOs lack resources to undertake the required analysis.

10Project selection

Medium: Most project selection carried out by BOs, broadly in line with criteria in PIP Manual; but role of MoF weak and no legal basis.

Low: Weak and fragmented decision making on project prioritization and selection contributes to the 45 percent efficiency gap.

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11Protection of investment

Low: Projects appropriated on annual basis only, no restrictions on virements, and restricted carryovers.

Medium: Average under execution of the annual budget was 10 percent, in line with regional average.

12Availability of funding

Good: Cash flows planed quarterly and generally released in time, but some grants outside TSA.

Medium: 1.1 percent of capital spending is in arrears, but total arrears are 2 percent of GDP in 2014.

13Transparency of execution

Medium: Procurement law in line with internet standards; quarterly monitoring; limited ex-post audit of projects.

Low: Court proceedings limit ex-post audits of projects to donor-funded projects.

14Project management

Medium: Major projects have project managers; adjust-ment rules generally in place; no ex-post reviews.

Medium: In 2012 and 2013, around one fourth of the projects had delays.

15Assets accounting

Good: Non-financial assets regularly surveyed, depreci- ated and reported annually.

Medium: Poor data quality, e.g., mismatch of between capital spending and stocks of 33 percent.

PUBLIC INVESTMENT MANAGEMENT ASSESSMENT PIMA

REVISION OF THE PIMA FRAMEWORKBeginning May 1, 2018, revisions to the PIMA framework will take effect. These were made in consultation with assessment teams and other stakeholders. Revisions have been accommodated within the existing structure, without increasing the total number of insti-tutions, by adjusting their composition.

Figure 9 Updated PIMA Framework PIMA Framework

Planning

1. Fiscal principles or rules2. National & Sectoral Plans3. Coordination between Entities4. Project Appraisal5. Alternative Infrastructure Financing

Implementing

11. Procurement12. Availability of Funding13. Portfolio Management & Oversight14. Management of Project Implementation15. Monitoring of Public Assets

Allocating

6. Multi-year Budgeting 7. Budget Comprehensiveness & Unity 8. Maintenance Funding 9. Budgeting for Investment10. Project Selection

The revised PIMA framework increases attention to important public investment management practices, notably procurement, maintenance, and three cross-cutting enabling factors (legal framework, capacity, and IT systems).

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Find out more about the IMF’s work on public investment at www.imf.org/publicinvestment

For inquiries, please contact IMFPUBINV@imf.org

Fiscal Affairs DepartmentINTERNATIONAL MONETARY FUND