PEAM Course 2006 Infrastructure Public Expenditure Reviews Drawing on Some Recent Experiences Cecilia Briceño Garmendia AFTPI

Roadmap  Why include Infrastructure in PERs?  What drives the issues in Infrastructure PERs (I-PER)?  How do we go about doing an I-PER?  What are the lessons?

Why include Infrastructure in PERs?  Some Facts Infrastructure and Growth Infrastructure and Income Inequality Infrastructure Characteristics and Fiscal Implications Infrastructure Spending and Fiscal Policy

Why include Infrastructure in PERs?  Some Concerns Traditional PERs mostly assess budgetary spending Infrastructure has been neglected in PERs  In AFR, out of 54 PERs budgeted bet.FY02 and FY07: 28 having Transport Components 25 having WSS Components 2 having Oil and Gas Components Solutions are country driven  How to use PERs to learn about the micro-macro linkages

What drives the issues in I-PERs?  4 general concepts (e.g. expenditures, financing, efficiency and management)…  … country specific issues TurkeyIndonesiaGhanaUganda Income LevelMiddleLow/Low-MiddleLow Country Specific Issues INF Quality Fiscal Sustainability Decentralized Financing Sources INF Access/Quality Absorptive Capacity Decentralization in progress Transparency/Gove rnance INF Access Absorptive Capacity Centralized Financing Sources Access and Quality Country Affordability On-going Decentralization Infrastructure Bottleneck for Growth Public Sector Macro- monitoring Coverage Comprehensive(Very) RestrictedRestricted

How do we go about doing an I-PER? Management Expenditure Financing Efficiency Mapping Institutions Mapping Institutions Mapping Data – Expenditure Side – Income Side Determining Efficiency Providing Diagnostics and Policy Recommendations

Mapping Institutions General Layout of Institutions and Flows involved in Providing Infrastructure Services Source: Public Expenditure Review for Infrastructure Sectors: Turkey (2005)

Mapping Institutions Jurisdictional Responsibilities in the Infrastructure Sectors

Providing Diagnostics Under-budgeting or Over-budgeting?

Providing Diagnostics Misclassification of Spending?

How do we go about doing an I-PER? Management Expenditure Financing Efficiency Mapping Institutions Mapping Data Mapping Data – Expenditure Side – Income Side Determining Efficiency Providing Diagnostics and Policy Recommendations

Government (Budget)Other Public Sector Entities (Off-Budget) FederalProvincialLocalNonCommercially-run Public Enterprises Commercially-run Public Enterprises Private Enterprises CapEx (Investment) -- Capital -- Subsidies OpEx (Recurrent) -- Wages -- Services -- Parts -- Subsidies Mapping Data: Expenditure Side Summary Template

An Example from the on-Going work in Uganda Source: Uganda, forthcoming CEM (2006) Mapping Data: Expenditure Side

An Example from the Turkey I-PER: Investment Composition Source: Turkey, Infrastructure PER (2004), Unpublished

What part of the story are we missing? Providing Diagnostics Source: Uganda, forthcoming CEM (2006)

Providing Diagnostics What part of the story are we missing? Source: Uganda, forthcoming CEM (2006)

Providing Diagnostics Can a country afford infrastructure?

How do we go about doing an I-PER? Management Expenditure Financing Efficiency Mapping Institutions Mapping Data Mapping Data – Expenditure Side – Income Side Determining Efficiency Providing Diagnostics and Policy Recommendations

Mapping Data: Income Side Summary Template Obligations (Cost Recovery Mechanisms) Sources Loans User Fees/ Earmarked Funds Gov. Taxes MDBBilateralsGrants Present User Future User Present Tax Payer Future Tax Payer

Mapping Data: Income Side Road Investment Financing Source: Turkey, Infrastructure PER (2004), Unpublished

Mapping Data: Income Side An Example Uganda: Donors as part of Infrastructure Budget Source: Uganda, forthcoming CEM (2006)

Is there an Absorptive Capacity Problem? Providing Diagnostics

Is there an ‘ Affordable ’ Financing Gap?

Providing Diagnostics Are Donors part of the problem? Source: Uganda, forthcoming CEM (2006)

How do we go about doing an I-PER? Management Expenditure Financing Efficiency Mapping Institutions Mapping Data – Expenditure Side – Income Side Determining Efficiency Determining Efficiency Providing Diagnostics and Policy Recommendations

Very Good Fair Poor Very Poor -Filling Cracks -Geotextile and Strengthening -Reconstruction of the Surface -Reconstruction of the partial base course -Complete Reconstruction Condition of Pavement (%) Lifetime of Pavement (years) Determining Efficiency The Maintenance Dilemma

Providing Diagnostics Inadequate Investment Decision Making? Turkey: Multi-year Projects in 2005-Investment Portfolio

Providing Diagnostics Optimistic (or Disguised) Cost-Recovery Assumptions? Uganda: Parastatals Cost-Recovery Ratios Annual implicit subsidies up to 2 percent of national budget Accumulated debt 10 %GDP

Providing Diagnostics Are Parastatals able to (at least) preserve the asset stock? Uganda: Parastatals Investment/Depreciation Ratios Source: Uganda, forthcoming CEM (2006)

What are the Methodological Lessons? Data Availability and Quality: A Problem – Records/Accounting, Misallocation of Expenses Infrastructure Sector Nuances – One size does not fit all, e.g. roads vs. energy vs. water Fragmentation of Infrastructure Provision – Institutional Setting Matters – Central Government, Local Governments, Public Enterprises Overlapping Sources and Use of Public Funds – Own Investments and O&M, Subsidies, PPP, Guarantees – Cheap Money? Role of Multilaterals increased focus on maintenance?

What are the Lessons? (Emerging) Policy Challenges Quantity of (Public) Spending Fiscal discipline and coverage of fiscal targets Quality of Public Spending Budget Rigidities and Integrity, Efficiency Country Institutional Capacity  Governance and Risk Management  Financial Market Capacity

Emerging Issues – Food for Thought Public Expenditure Management in Infrastructure: – The PEM system: institution, expenditure and income mapping – Diagnosis and Recommendations Public Spending in Infrastructure and Macro- economic Balances: – Country Affordability and Fiscal Space – Infrastructure for Growth – Distributional Impact of Infrastructure Spending