Coverage

CG.

Time period

Last completed fiscal year.

Measurement guidance

Public investments are a key prerequisite for achieving and sustaining economic growth, achieving strategic policy objectives, and addressing national service delivery needs. During periods of economic contraction, countries strive to protect fiscal resources for addressing investment needs. During periods of expansion, countries typically need to prioritize among many worthwhile investments. There is a variety of different national approaches to public investment management (PIM). However, there are common features in terms of the functions they carry out. This indicator attempts to distill the four most critical dimensions.

The indicator spans every type of PFM system, including those with separate recurrent and capital budget management processes and institutions. The term “major investment project” includes investments implemented through structured financing instruments such as PPPs. For the purpose of this indicator, “major investment projects” are defined as projects meeting the following criteria:

• The total investment cost of the project amounts to 1 percent or more of total annual budget expenditure; and
• The project is among the largest 10 projects (by total investment cost) for each of the 5 largest central government units, measured by the units’ investment project expenditure.

If the government has a different definition of major investment projects that would at least meet these criteria and that would simplify collection of information, the assessor may use the government’s definition to identify major investment projects, but scoring should still be done using the definition in this guide.

Dimension 11.1 assesses the extent to which robust appraisal methods, based on economic analysis, are used to conduct feasibility or prefeasibility studies for major investment projects and whether the results of analyses are published. There are different types of economic analysis with different coverage and areas of emphasis. These include analysis of economic externalities—sometimes referred to as social or economic costs and policy benefits—and health and environmental impacts. Economic analysis frequently involves the application of specific techniques such as cost–benefit analysis, cost-effectiveness analysis, and multicriteria analysis. For the analysis to have objectivity, it must be reviewed by an entity other than the sponsoring entity. The economic analysis used to make decisions should also be current enough to be meaningful. Very outdated analyses, such as those for which market conditions have shifted considerably, are not likely to be useful bases for decisions.

Dimension 11.2 assesses the extent to which the project-selection process prioritizes investment projects against clearly defined criteria. Rigorous and transparent arrangements for the selection of investment projects aim to strengthen the efficiency and productivity of public investments. The dimension requires that governments carry out a central review of major investment project appraisals before including projects in the budget submission to the legislature. It also requires that governments publish and adhere to standard criteria for project selection. “Standard criteria” refers to a set of formal procedures adopted by government that are used for every project or group of related projects with common characteristics within and across central governmental units.

Dimension 11.3 evaluates whether the budget documentation includes medium-term projections of investment projects on a full-cost basis and whether the budget process for capital and recurrent spending is fully integrated. Sound budget management requires the preparation of comprehensive and forward-looking project budget plans for capital and recurrent costs over the life of the investment. Projections of recurrent cost implications from projects are needed to plan and incorporate