Public Investment in Latin America:Five Lessons

ICGFM ConferenceDecember 2011

Jonas FrankSr. Public Sector Specialist

The World Bank

Latin American countries invest below the world average…

… and much less compared to fast-growing economies like China and India …

4

… and there is significant variation across countries in the level of investment spending

Source: CEPAL (2011)

GDP

Country Interface IFMIS vs SNIP Single project code in IFMIS Brazil yes yesColombia yes yesChile yes yesCosta Rica no noGuatemala no noHonduras yes yes (social investments)Paraguay no yes (in execution stage but not

at pre-investment level)Perú no yesBolivia no yesUruguay no yes

Lesson 1: Need to overcome isolation of management systems (financial management and public investment)

Source: IDB Survey 2009-2010 and World Bank

Coverage of information systems is 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

Case of Bolivia: system overlaps and gaps

Level of government

Information System

Public Investment Cycle

Formulation Budgeting Execution Monitoring Evaluation

Central

SISIN web          

SIGMA          

SPI -MOP          

Aplicativo MMyA          

SAP - FPS/FNDR        

Aplicativo - VT          

Departa-mental

SISIN web          

SIGMA          

SGP          

SIGMA local          

Municipal

SISIN web (GM)          

SIGMA (GM)          

SGP        

SIGMA local          

Source: World Bank

Programming

BPIN

Budget

Execution

SIIF

Monitoring

SPI

EvaluationSIGOB

Formulation

Improved information flow 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)

• LAC is the most decentralized region in the developing world• Expenditure decentralization is particularly deep in public investment

Lesson 2: Decentralization without planning and coordination can lead to fragmentation

Level of decentralization in public investment(Country samples)

Brazil (2008)

Uruguay (2011)

Bolivia (2010)

Central level 17% 47% 40%

Subnational Governments 30% 18% 31%

Public Enterprises 53% 35% 29%

Total (in percent) 100% 100% 100%

Responsibilities are often unclear in the take-off period of decentralization

• Complex concurrent assignment of expenditures in the social sectors. Example:

• Human resources: national• Planning: regional• Infrastructure: municipal

• Network responsibilities often in flux: – Roads: reassignments– Water: fragmentation

• Regulatory uncertainty in the network sectors:– Incentives for cost-shifting– Obstacles for private investment (Brazil: water)

Trend of project fragmentation in the absence of planning and coordination

2004 2005 2006 2007 2008 20091,183 2,142 1,885 2,319 2,321 2,4091,505

2,035 2,8163,190 2,837 3,072

1,022

1,332

7,186

13,299

19,798 18,891

National Government

Regional Government

Municipal Government

Source: SNIP

Example of Peru

Few countries have effective coordination mechanisms among levels of government

• Latin America’s backlash to planning

• Does planning occur through public investment?

• Platforms for coordinated subnational planning and budgeting– Chile: “Programming Agreements” (“Convenios de Programación”) at

the 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

Lesson 3: Differentiated approaches to cater to heterogeneous needs and levels of capacity

Number of local governments has increased significantly: weaker capacities

Often cumbersome national systems:• Procurement• HR• Financial management

Source: Dirección General de Inversión y Crédito Público, Ministerio de Hacienda, El Salvador

2.5

%

PIB

2.6

%

PIB

2.5

%

PIB

2.3

%

PIB2.9

%

PIB

El Salvador: Planned and executed public investment,

2006-2010 (in million US$)

Resource abundance has challenged execution rates: uncovers institutional shortcomings

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2005 2006 2007 2008 2009

Millone

s

PIM Gobiernos Regionales Ejecutado

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2005 2006 2007 2008 2009

Millone

s

PIM Gobiernos Locales EjecutadoLocal Governments Regional Governments

Blue: planned budgetsRed: executed budgets

Peru case

Source: SNIP, Peru

Catering to different capacities: emerging approaches

• Pre-investment• Differentiated by sectors

• Subnational government• Co-financing as means of institutional strengthening

without micro-management• Special arrangements for poverty-stricken areas

• FONIPREL mechanism in Peru

Lesson 4: Quick-gain strategy can prove effective. Focus on the low-hanging fruit but with a strategic view. Procurement can provide high returns on efficiency.

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Quick-gains strategy in Mexico: focus on high expenditure areas

Fuente: Subsecretaría de Egresos de la SHCP/ Tomo VII PEF 2009 / Análisis Deloitte

360

400Hidrocarburos

($228/537)

SCT($64/1,683)

Electricidad($40/450)

Medio Ambiente ($11/176)

Salud($10/175)

Impartición de Justicia($7/52)

Fomento($6/146)

Educación($5/190)

Seguridad Nacional($4/76)

Ejecutivo Federal($3/161)

320

280

240

200

160

120

80

40

4,0000 3,0002,0001,000

Mo

nto

Asi

gn

ad

o e

n 2

00

9

(37

6 m

ilmil

lon

es

de

pe

sos)

Número de Proyectos(3,652 proyectos)

61%

15%

17%

46%

12%

11%

About 90% of investment is concentrated in three sectors: hidrocarbon, communications/transport and electricity

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

“Project Bank”

Pre-investment system

Pro-grammingMonitoring System

Source: SNIP Nicaragua

Lesson 5: Strengthen the demand side…

Source: MIDEPLAN, Chile

• Interactive tools open to citizens and users • Geo-referencing• Expenditure tracking• Benchmarking

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…and in parallel also strengthen “gate-keeping” functions