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November 14, 2017

Making Ireland’s Public Investment More Efficient

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Posted by Carolina Renteria and Richard Allen[1]

In July 2007, the Department of Public Expenditure and Reform (DPER) in Ireland invited the IMF’s Fiscal Affairs Department to carry out a review of the country’s public investment management policies and practices. The report—which was welcomed by the Minister of Finance and Public Expenditure and Reform—has now been published by the IMF and released on the DPER’s website. In a press release on November 10, 2017, the Minister noted that the PIMA was specifically tailored to Ireland’s needs, and “will play an important role in identifying how institutions and public governance systems in Ireland who are responsible for planning, allocating and delivering public capital infrastructure might be further strengthened.”

The assessment uses the PIMA framework [2] which has been employed in 30 countries around the world, but Ireland is the first advanced country to have applied it. This framework is based on an IMF policy paper that provides evidence of a positive relationship between public investment, aggregate demand, and potential growth.

 A fast-growing population is placing substantial demands on Ireland’s existing infrastructure.  Six years of low spending have resulted in a backlog of maintenance and rehabilitation needs. To support Ireland’s economic and social development to 2040, the government is preparing a new spatial planning strategy (the National Planning Framework, NPF).[3] In August, the DPER published a mid-term review of its Capital Plan for 2016-2021[4], which referred to the recommendations in the PIMA report. Much like the broader Irish economy, public investment boomed in the mid-2000s, followed by a sharp reversal due to the financial and economic crisis. More recently, the recovery in public finances and economic performance has allowed the government to allocate a further €4.1 billion for investment projects over the remaining period of the Capital Plan.

The NPF—and an associated ten-year capital plan which is being prepared by the DPER—will support the government’s efforts to redirect infrastructure investment into areas that cut across traditional departmental and sector boundaries, and promote the development of urban areas outside Dublin. Ensuring that the various national, sectoral, regional, and local plans are aligned, integrated and realistic will be essential in delivering these ambitious expectations.

Comparing the quality and quantity of infrastructure to the size of the capital stock in Ireland reveals shortcomings in the effectiveness of past investment spending. The PIMA report draws on data from opinion surveys and quantitative indicators of infrastructure in key sectors such as education, health, electricity, roads and water and the amount spent, to assess the efficiency of investment in Ireland. It estimates an efficiency gap of 23 percent compared to the rest of the world. Improving public investment management would enable Ireland to bring the efficiency of its infrastructure closer to the frontier of best practice in advanced countries.

The PIMA report finds that, overall, Ireland manages its public infrastructure well, with strengths and weaknesses across each of the three phases of the public investment management cycle:

  • Planning phase: Ireland’s fiscal rules (which are in line with EU requirements) support public capital formation, and public corporations are well regulated and have relatively good public investment management practices. However, there is a proliferation of sector strategies, with weak results frameworks, and limited information on cost estimates.
  • Allocation phase: Implementation of multi-year budgeting has improved the allocation of resources for projects, but the planning process is still inadequately linked to decisions on funding. There is room to improve the methodological rigor, sequencing, and effectiveness of the project appraisal and selection processes, and for tightening up the rules for managing PPPs.
  • Implementation phase: Funding for ongoing projects is adequate, even under the ongoing fiscal consolidation process, and generally good project management practices are in place. However, more attention needs to be given to prioritizing spending on the maintenance of infrastructure assets.

The PIMA makes several recommendations for improving Ireland’s investment performance, which the government is in the process of addressing. These include to better integrate the spatial, sectoral and 10-year capital funding plans; establish a common analytical framework for estimating demand pressures and infrastructure gaps; tighten the fiscal cap and regulations on PPPs; increase the share of the budget devoted to maintenance and rehabilitation spending; review the thresholds for cost-benefit analysis; strengthen DPERs’ role as the coordinator and gatekeeper of the project appraisal and selection process; publish more project assessments, ex post reviews, and audit reports; and establish a central register of infrastructure assets.

Another key recommendation—on which FAD has provided follow-up advice to the DPER—is to develop a “project tracker” database as a tool for forecasting investment requirements and monitoring the implementation of projects.

[1] Carolina Renteria is Chief of the PFM I Division in the Fiscal Affairs Department of the IMF; Richard Allen is a Visiting Scholar in the same department.

[2] http://www.imf.org/external/np/fad/publicinvestment/ and Making Public Investment More Efficient (IMF, 2015).

[3] Ireland is one of several advanced countries (others include Denmark, New Zealand, and Scotland) that are developing modern planning frameworks closely linked to infrastructure needs.

[4] http://www.per.gov.ie/en/minister-donohoe-publishes-mid-term-review-of-the-capital-plan-2016-2021/

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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