Four IMF economists find that countries waste 30% to 50% of spending on infrastructure. Better governance is essential while the needs are essential, especially in sub-Saharan Africa.
A voluminous study published by the IMF brings the issue of infrastructure investment back to the fore. Not to question them: Sub-Saharan Africa is the region of the world that is most in need of infrastructure, the authors acknowledge.
It must devote around 2% of its GDP to energy needs, around 5.5% of its GDP to roads and 2.6% to health and water. In North Africa, the estimated infrastructure needs represent around 4% of GDP.
However, it is necessary to draw new contours of their governance, while too much investment has led to waste.
In this time of global crisis, it is clear that public investment in infrastructure will play a critical role in economic recovery, economists agree. However, resources are scarce; therefore, states must spend public money wisely by funding worthwhile projects.
To do this, countries must be provided with strong infrastructure governance regimes, that is, robust institutions and arrangements that frame the planning, allocation and construction of quality public infrastructure. In fact, the IMF will issue new recommendations on this topic in its October 2020 public procurement review.
Too much waste!
According to the IMF, each country has the opportunity to develop strong infrastructure governance regimes. Yet public investments too often lead to costly, poor quality projects of little use to populations and economic activity. These are often long-term, complex and large-scale works, which provide fertile ground for corruption, delays and cost overruns, the study notes.
According to the work of IMF economists – who do not venture to cite too specific examples – certain dysfunctions lead countries to waste on average a third of their infrastructure spending. In some low-income countries, this proportion is “skyrocketing”, up to 53%.
These misused resources represent a considerable potential that countries must harness to recover their economies stricken by the pandemic. Fortunately, mismanagement and unnecessary spending on infrastructure projects is not inevitable, experts say. According to whom the consolidation of infrastructure governance regimes could prevent more than half of these losses.
From aspirations to action!
The economic recovery that must follow the Covid-19 crisis is for countries the opportunity or never to build a bridge to the future by designing and building quality public infrastructure. Done well, boosting aggregate demand through public investment can foster more inclusive growth, reduce inequalities and empower people for economic success.
However, every dollar must be spent wisely: if countries decide to invest more in infrastructure, they must also think about the wisest way to spend public money so that the investments in question contribute as much as possible. to the common good.
The report is based on both IMF data and public investment management assessments conducted in some 60 countries. The report proposes a roadmap to help countries “turn aspirations into action” by carrying out useful infrastructure projects and ensuring that the economy and society benefit fully from public investment.
The authors advocate protocols that help fight corruption in infrastructure projects, control fiscal risks, integrate planning and budgeting, and adopt good practices.
This, both upstream of the public investment cycle, as well as during the project evaluation and selection phase. In this area, many countries are not achieving satisfactory results. The IMF cites Chile, whose comprehensive infrastructure governance regime has reduced costs.
In Korea, the opening of a one-stop shop for government procurement has improved the transparency and integrity of government procurement. In Africa, the authors observe that Mali had a rather rigorous system of infrastructure projects. It remains to implement them, of course.
The authors stress the need to ensure the proper management and regular maintenance of existing infrastructure and to adapt to the effects of climate change. South Africa has adopted guidelines and standards for the maintenance of public infrastructure to prevent deterioration of public assets such as roads and bridges.
The authors are not fooled: they regret that sometimes, infrastructure governance arrangements are often attractive in theory, but not very effective in practice. It is therefore not enough to have a good governance architecture: it is also necessary to ensure that it works correctly in practice.
Uemoa on the right track!
The big lesson learned from all of these examples is clear: countries can avoid wasteful public investments and build quality infrastructure by taking concrete steps to improve governance in this area.
In WAEMU, all countries have agreed to abide by a set of convergence criteria since 2001 (revised in 2014), including a debt rule and a deficit rule. To support implementation, the Union adopted six directives in 2009, aimed at establishing a harmonized budgetary framework between member countries. This includes advanced public financial management practices such as budget planning, program budgeting and transparency requirements.
Despite delays, “all the directives are now transposed into national legislation“, welcomes the IMF. The harmonized budgetary framework provides for annual directives as well as multi-annual commitment authorizations.
Both types of credits are voted by parliaments each year. Projected savings are needed to enable the government to sign a multi-year contract or commit public funds for several years. Therefore, to be executed, each item of expenditure requires both types of appropriation.
This dual appropriation system (which has also been implemented in France since 2006) is “particularly useful for protecting expenditure investments, which often require multi-year commitments”. When fully operational, the system facilitates the tracking of future expenditure needs associated with projects, and therefore complements traditional cash accounting and supports the implementation of budget rules.
Implementation of the framework has started in all countries but is not yet fully effective, acknowledge the authors of the report. Such a reform requires significant capacity building (both within finance ministries and in line ministries) and requires the development of information technology systems to monitor commitments. However, thanks to the reform, WAEMU is moving closer to the average practices of emerging markets and outstripping low-income countries in protecting capital expenditure.
