Investing to Invest Adrian Fozzard Lead Public Sector Specialist PREM Public Sector & Governance ICGFM Winter Conference Washington DC December 2011

Policy Considerations Appropriate Quantity of Investment – Creation of economically and socially productive fixed capital assets – Public Infrastructure Gaps for Development – Stimulus & Adjustment Appropriate Quality of Investment – Value for Money – Spending/flows versus net changes in productive stocks – Investment modality

The World Bank Page 3 Public Sector & Governance Multiple Modalities Engaged General Government Sector (Central State, Local) Public Corporations (Nonfinancial) Private Sector Fiscal financing Fiscal, quasi fiscal & corporate financing Business Environment Private Investment Private Investment 3 Public Investment Management Public Investment Management PPPs Mainly fiscal Mainly regulatory External financing / grants Corporate financing, leasing, resource for infrastructure

The World Bank Page 4 Public Sector & Governance Indonesia Trends Source: World Bank, Sub-National PER (forthcoming)

The World Bank Page 5 Public Sector & Governance Value for Money?

The World Bank Page 6 Public Sector & Governance Weakest Links & Failures Guidance & Appraisal SelectionImplementationOperation Lack of strategic prioritization for development Failure of central finance agencies as gate keepers Inappropriate selection of implementation modality Donor-led selection Non-transparent, non-competitive procurement Emphasis on lowest bid may compromise quality Cost and time overruns Annual budget control rather than on total cost control Donor-monitored Unfinished projects Incomplete projects, leading to loss of service value Failure of upkeep, operations & maintenance

The World Bank Page 7 Public Sector & Governance Investing to Invest 7 EI Sourcebook Global Knowledge Consortium Cross-Country Index on 17 Sub-Elements Framework for Assessing “Should Have” Features Political Economy PEFA Drill Down Hot Topics Thematic Analysis & Country Cases Identifying Needs, Validation, Peer to Peer Learning (e.g., Korea ‘09, Hanoi ‘10, Brazil, DC Bangladesh ‘2011) Diagnostic Framework Country PEFA Application Operational Assistance Diagnostic, Exchange, Operations PIMIGlobal Synthesis Regional Dialogues CoST

PIMI Indicators

The Eight “Must-Have” Core PIM Features - 1 Guidance & Screening 2 Formal Project Appraisal 3 Review 4 Project Selection & Budgeting 7 Service Delivery 6 Project Changes 5 Implement ation 8 Project Evaluation Pre-feasibility Feasibility CE CBA Regulatory requirements Project development Detailed project design Basic completion review Evaluation 9

The World Bank Page 10 Public Sector & Governance Country Needs Vary

The World Bank Page 11 Public Sector & Governance Strengthening “Good Enough” PIM prioritization Well executed Poorly executed Good projects AC Poor projects BD

The World Bank Page 12 Public Sector & Governance Designing PIM Reforms Common challenges: – Public investment likely highly politicized – High corruption risk – PIM is technically demanding – Requires collaboration across institutions Feasibility factors – Good diagnostic of technical problem – Based on and tailored to fit political economy context – Clarity of roles and responsibilities – Technically feasible, relying on “good enough” practice – Carefully sequenced as part of broader PFM reforms – Monitoring of progress 12