This presentation was made by Marco Cangiano, IMF, at the 36th Annual Meeting of OECD Senior Budget Officials held in Rome on 11-12 June 2015.

1. Making Public Investment More
Efficient
36th OECD SBO Meeting
Marco Cangiano
Fiscal Affairs Department
Rome, June 11-12, 2015

2. Key findings of the paper
 Public investment levels have begun to recover from historic lows in mid-2000s, with
some convergence in infrastructure between rich and poor countries.
 But about one-third of the potential impact of that investment is being lost due to
inefficiencies in public investment processes.
 Strengthening public investment management (PIM) can promote more predictable,
credible, efficient, and productive investment and reduce the “efficiency gap” by two-
thirds.
 Improving public investment efficiency could also double the impact of that
investment on economic output.
 Newly developed IMF diagnostic tool, PIMA and P-FRAM, can help countries
evaluate their public investment management institutions and identify priorities for
reform and technical assistance.
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3. Public investment has not fully recovered from decades
of steady decline …
Public investment falling in advanced
economies, but recovering elsewhere…
…with stagnation in quality and remaining
disparities between rich and poor countries
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0
1
2
3
4
5
6
7
8
9
10
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
PercentofGDP
Advanced Emerging Developing
Public Investment
(% of GDP)
0
1
2
3
4
5
6
2006
2007
2008
2009
2010
2011
2012
2013
2014
Advanced
Emerging
Developing
Perceptions of Infrastructure Quality
(2006-14)

4. …and public investment efficiency gaps are sizeable.
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Large public investment efficiency gaps both
across and within different income groups
Average country is 27% below efficiency frontier
with largest efficiency gaps among low-income
countries.
Public Capital Stock and Infrastructure Performance Public Investment Efficiency Index (PIE-X)
5
25
45
65
85
105
125
145
0 10000 20000 30000 40000 50000
Infrastructureindex-Hybridindicator
(100=AEaverage)(Output)
Real Public Capital Stock per Capita
(2005 international dollars)
AE EM LIDC Frontier
0.0
0.2
0.4
0.6
0.8
1.0
AEs
{n=28}
EMs
{n=57}
LIDCs
{n=34}
All Countries
{n=119}
PublicInvestmentEfficiencyIndex(PIE-X)
Average
efficiency
gap of
27%

5. Closing this gap could significantly increase output
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Public Investment and Economic Output
Most efficient public investors get twice the economic dividend from their
investment compared to least efficient public investors
Impact on output after 4 years
of a 1% of GDP increase in investment
Profile of output impact of a 1% of
GDP increase in public investment by
efficiency group
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Lowest Second Third Highest
Outputimpact(percent)
Efficiency Quartile
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
t-1 t t+1 t+2 t+3 t+4
Outputimpact(percent)
Lowest quartile
2nd quartile
3rd quartile
Highest quartile

6. 15 PIM Institutions were identified as critical for
public investment performance….
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The PIMA Framework, a new diagnostic tool, evaluates 15 key
institutions in 3 phases of the PIM process
Planning
1. Fiscal rules
2. National & Sectoral Plans
3. Central-Local Coordination
4. Managementof PPPs
5. Regulationof Infra. Corps.
Allocating
6. Multi-yearbudgeting
7. BudgetComprehensiveness
8. BudgetUnity
9. ProjectAppraisal
10. Project Selection
Implementing
11. Protectionof Investment
12. Availabilityof Funding
13. Transparency of Execution
14. Project Management
15. Monitoringof Assets

7. PIMA scores vary across institutions and country
groups based on 25 sample countries
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Overall: institutional strength linked to development level and
investment phase, but significant exceptions

8. PI Performance: Strong Institutions are linked to
higher efficiency and more stable investment
Higher PIMA scores associated with
more efficient investment…
… and stronger PIM institutions associated
with more stable levels of investment
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PIMA Score vs. PI Efficiency PIMA Score vs. Overall PI Volatility
R² = 0.3785
0
5
10
15
20
25
30
35
40
45
50
0 2 4 6 8 10
Volatility,1990-2012
(standarddeviationofPIgrowth)
Institutional Strength

9. General priorities for strengthening PIM institutions
 Advanced economies: focus on introducing more investment-friendly
fiscal frameworks, strengthen central-local coordination, and adopt
more binding MTBFs.
 Emerging economies: unify current and capital budgets and adopt
more rigorous and transparent mechanisms for investment project
appraisal, selection, and management.
 Developing countries: focus on strengthening institutions related to
project implementation.
 Most countries would benefit from better monitoring and control over
PPPs and closer integration between strategic planning and capital
budgeting.
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