Public investment supports the delivery of key public services, connects citizens and firms to economic opportunities, and can serve as an important catalyst for economic growth. After three decades of decline, public investment has begun to recover as a share of GDP in emerging markets (EMs) and low income developing countries (LIDCs), but remains at historic lows in advanced economies (AEs). The increase in public investment in EMs and LIDCs has led to some convergence between richer and poorer countries in the quality of and access to social infrastructure (e.g., schools and hospitals), and, to a lesser extent, economic infrastructure (e.g., roads and electricity).
However, the economic and social impact of public investment critically depends on its efficiency. Comparing the value of public capital (input) and measures of infrastructure coverage and quality (output) across countries reveals average inefficiencies in public investment processes of around 30 percent. The economic dividends from closing this efficiency gap are substantial: the most efficient public investors get twice the growth “bang” for their public investment “buck” than the least efficient.
Improvements in public investment management (PIM) could significantly enhance the efficiency and productivity of public investment. Based on a sample of 25 countries, the IMF’s new Public Investment Management Assessment (PIMA) finds significant scope to strengthen the 15 key institutions which shape the planning, allocation, and implementation of public investments. Countries with stronger PIM institutions have more predictable, credible, efficient, and productive investments. Strengthening these institutions could close up to two-thirds of the public investment efficiency gap.
Priorities for strengthening PIM institutions vary across country groups. AEs should ensure that their fiscal and budgetary framework provide stable and sustainable bases for investment planning across levels of government. EMs should adopt more rigorous and transparent arrangements for the appraisal, selection, and approval of investment projects. LIDCs should focus on strengthening the institutions related to the funding, management, and monitoring of project implantation. All countries would benefit from stricter oversight of public-private partnerships (PPPs) and better integration between national strategic planning with capital budgeting.
The Fund has a key role to play in helping countries to become more efficient public investors. In this context, the Fund plans to develop the PIMA into a comprehensive assessment of PIM practices, and launch a new PPP Fiscal Risk Assessment Model (P-FRAM) to complement its various other fiscal assessment tools.