effective public investment at subnational level in times of fiscal constraints

Effective public investment at

subnational level in times of

fiscal constraints

Dorothée Allain-Dupré

Senior Policy Analyst

OECD

29/11/2016 Presentation for the Committee on Regional Development 1

Outline of the Presentation

1. More effective public investment: the

governance levers

2. The use of conditionalities as one

example of instrument to enhance

effectiveness of funding

Presentation for the Committee on Regional Development 2

The context

Prolonged decline in sub-national public investment in the OECD

3 Source: OECD national accounts

Trends in public and private investment in OECD countries since 1995

-15%

-10%

-5%

0%

5%

10%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% change private investment (GFCF) % change public investment (GFCF)

Presentation for the Committee on Regional Development

• OECD & IMF: the effect of public investment on growth is sizeable

• The effect of public investment depends on circumstances. It is the

highest in fields that are associated with large externalities, such as

research and development or health. (OECD, 2016).

• Good governance of public investment is directly to PI impact. Sound

institutional and governance frameworks enhance the efficiency of public

investment

Critical framework conditions at the national level

Subnational governance often under-estimated – but critically important

Policy complementarities across investment priorities are critical require

governance tools to manage them

4

Effective Public Investment:

Some key messages


Subnational governments are key actors for public

investment in OECD countries

5 Source: OECD national accounts

Share of public investment at subnational level (2014 data)

60% 59% 56% 55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Subnational government Central government and social security


6

Public investment at the sub-national level used as an adjustment variable (Base 100 = 2005)

EU sub-

national

The context: prolonged decline in sub-national public

investment in the OECD

The decline is particularly marked in the EU at the sub-national level

90

95

100

105

110

115

120

2006 2007 2008 2009 2010 2011 2012 2013 2014

Intermediary consumption Staff expenditures

Social expenditure Investment

Total public expenditures PIB

OECD-CoR survey results

Governance challenges appear prominent for SNGs

7 19%

21%

25%

24%

25%

25%

24%

26%

32%

35%

34%

36%

33%

33%

37%

42%

50%

53%

34%

35%

40%

42%

40%

42%

45%

44%

40%

40%

42%

41%

45%

46%

41%

42%

36%

37%

No relevant up-to-date data available at local level

Lack of adequate own expertise to design projects

Lack of long-term/strategic planning capacity

Ex-ante analyses/appraisals not consistently used in decision making

Insufficient involvement of civil society in the choice of projects

Monitoring not used as a tool for planning and decision making

Ex-ante analyses not adequately take into account the full life-cycle of…

Lack of (ex-post) impact evaluations

Multiple contact points (absence of a one-stop shop)

Lack of joint investment strategy with neighbouring SNGs

Lack of incentive to cooperate across jurisdictions

Lack of political will to work across different levels of government

Lack of coordination across sectors

Co-financing requirements for central government/EU are too high

Lack of long-term strategy at central level

Local needs are different from those given priority at central level

Lenghty procurement procedures

Excessive administrative procedures and red tape

Major challenge Somewhat of a challenge

Learning from good practices

Policies for more effective public investment across levels

of government:

Subnational governments should: Improve medium-term planning for infrastructure investment

Multi-year

Linked with budget

Credible enforcement mechanisms

Adopt investment strategies that cross existing jurisdictional boundaries

Mutualise functions [Procurement, capital funding to have access to finance]

National governments should: Adopt national strategies for infrastructure investment which help guide the strategic

priorities for the country – beyond policy silos

Develop some platforms of coordination with SNGs/instruments to foster joint

investment/co-financing with SNGs

Provide incentives for SNGs to cooperate on infrastructure development

Clarify the allocation of competencies in the field of infrastructure


• Invest using an integrated strategy tailored to different places

• Adopt effective co-ordination instruments across levels of government

• Co-ordinate across SNGs to invest at the relevant scale

Pillar 1

Co-ordinate across governments and policy

areas

• Assess upfront long term impacts and risks

• Encourage stakeholder involvement throughout investment cycle

• Mobilise private actors and financing institutions

• Reinforce the expertise of public officials & institutions

• Focus on results and promote learning

Pillar 2

Strengthen capacities and promote policy

learning across levels of government

• Develop a fiscal framework adapted to the objectives pursued

• Require sound, transparent financial management

• Promote transparency and strategic use of procurement

• Strive for quality and consistency in regulatory systems across levels of government

Pillar 3

Ensure sound framework conditions at all levels of

government

OECD instrument on MLG

Systemic approach on multi-level governance of public

investment

OECD Council Recommendation on Effective Public Investment

across Levels of Government:

1

0

Implementation Toolkit –

http://www.oecd.org/effective-public-investment-toolkit/

2. The use of conditionalities as one

example of instrument to enhance

effectiveness of funding

Presentation for the Committee on Regional Development 11

• Ex-ante conditionalities: conditions which must be fulfilled before

any contractual arrangement is agreed to.

• Ex-post conditionalities occur once a contractual relation is

established. With ex-post conditionality, funds are frequently

dispersed in tranches, which are not released if conditions are not

met (or if waivers for unmet conditions are not provided

12

A broad concept: an element of any financial

transfer that is not pure gift


Experience from IMF & World Bank: some lessons

• Until the early 1980s, IMF conditionality largely focused on macroeconomic policies.

• Significant increase in the use of conditionalities in the 1980s/1990s

• Traditional IFI conditionalities are frequently criticised as ineffective, particularly with

respect to promoting economic growth and social welfare

• Assessments of the efficacy of IMF and World Bank conditionality = where too many

detailed conditions apply, programmes become unwieldy, conflictive, time-consuming to

negotiate and administer, and ineffectual

Changes since the late 2000s:

• Objective of reduction in the number of conditionalities applied – principle of

“appropriation” promoted

• More flexibility from the IMF in the way it engages with countries on issues related to

structural reform of their economies.

• Conditionalities better tailored to individual country needs, more streamlined, less rigid,

greater flexibly to changing economic circumstances

• Greater focus on governance and institutional criteria, environmental and social issues

• Greater focus of the WB on ex-post conditionalities

13 Presentation for the Committee on Regional Development

14

Most OECD countries use some forms of conditionalities

for grants to subnational governments

0 2 4 6 8 10 12 14

Private sector involved in design of PI strategy

Private sector involved in financing PI strategy

Minimum involvment of other municipalities

Use of economic evaluation

Implementation of reforms/legislations/regulations

Additionality

Use of environmental assesment

Earmarking to specific priorities

Timeframe

Reporting

Matching

Examples of conditionalities used for public investment grants to subnational

governments (sample: 20 countries)

Some general lessons from international

experience:

Conditionalities alone are rarely sufficient to achieve lasting change

Conditionalities must not be overly prescriptive, given the need for

bottom-up input

They must also be accompanied by “strong domestic leadership and

political support

They should be evidence-based and be observable, allowing in

process and ex post verification.

Credibility is key (enforcement mechanisms, capacity to monitor the

implementation).

Rewards more likely to work than pure sanctions


Thank you!

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http://www.oecd.org/effective-public-

investment-toolkit/


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effective public investment at subnational level in times of fiscal constraints

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