Posted by Richard Allen and Eivind Tandberg
A recently published IMF Note discusses the role public investment management can play in the fiscal response to the COVID-19 crisis. Public investment has several characteristics that makes it attractive for both spending cuts in the initial phase of the crisis and boosts to support economic recovery later. It is largely discretionary, lumpy with most spending concentrated over a few years, and it makes a substantial contribution to economic activity, especially in low-income countries.
Phase 1: Cutting or postponing projects
A concrete set of selection criteria should be used as a guide for adjusting a government’s public investment portfolio. Table 1 provides a simplified example of possible criteria. These should include specific thresholds for the decisions and the selection framework should be calibrated to produce the required magnitude and timing of fiscal adjustment. Options include: (i) identifying ongoing projects that are under implementation stress; (ii) applying a temporary freeze on approving new project commitments; (iii) putting all stalled projects on hold until further notice; and (iv) designating all COVID-19 related projects as a strategic priority
Table 1. Illustrative Criteria for Postponing or Cancelling Projects
Basic decision matrix
Project approved, not initiated
Project initiated, less than 10 % of cost incurred
Project under implementation, B/C of completion >1.5
Project under implementation, B/C of completion <1.5
Project under implementation, B/C of completion <1.0
High employment creation
Significant synergies with other projects
High cost of project cancellation (beyond B/C)
Note: Thresholds are indicative.
In making these decisions, governments should be guided by the following factors:
Phase 2: Managing public investment for fiscal recovery
As the Great Lockdown ends, many countries will want to use infrastructure investment, to help restart the economy during the second half of 2020 or early in 2021, as happened after the global financial crisis of 2008. Such measures should be timely, targeted and temporary (TTT). The post-crisis phase may also provide important opportunities for the “greening” of public investment.
Countries could consider the following measures:
Table 2. TTT Criteria for Projects in a Fiscal Stimulus Package
Possible to implement the projects in the required timeframe
A significant share of projects should be available for immediate implementation
High benefit/cost ratio (B/C >1.5)
Additional positive impacts (beyond B/C estimate):
High employment creation potential
Significant synergies with other projects, including SNGs and private sector
Leverage concessional financing
The projects should have a strong long-term growth impact but limited long-term fiscal impact
They should not require significant funding beyond the fiscal stimulus period
This article is part of a series related to the Coronavirus Crisis. All of our articles covering the topic can be found on our PFM Blog Coronavirus Articles page.
 Fiscal Affairs Department, IMF.
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.