## PREFACE and EXECUTIVE SUMMARY (cr17188) ## Source details **Canonical URL:** [PREFACE and EXECUTIVE SUMMARY (cr17188)](https://www.imf.org/-/media/files/publications/cr/2017/cr17188.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr17188.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr17188.pdf.json) --- ### Mission background and scope - A joint IMF Fiscal Affairs Department (FAD) and AFRITAC South mission visited Gaborone during January 23–February 3, 2017 to conduct a Public Investment Management Assessment (PIMA) and advise on improving management practices for public investment. - Mission leadership and participants: - Led by Ms. Lesley Fisher (FAD). - Team included Mr. David Gentry, Ms. Isabel Rial, Mr. Imran Aziz, and Mr. Willie Du Preez (FAD experts). - Key government counterparts and agencies consulted: - Ministry of Finance and Economic Development (MFED) — Development and Budget Division, Economic and Financial Policy Division, Office of Accountant General, PPP Unit; National Strategy Office (NSO); Government Implementation Coordination Office (GICO); Ministry of Infrastructure, Housing, and Development (MIH); Botswana Housing Corporation (BHC); Ministry of Land Management, Water, and Sanitation Services (MLWS); Water Utilities Corporation (WUC); Ministry of Local Government and Rural Development (MLG & RD); Ministry of Mineral Resources, Green Technology, and Energy Security; Botswana Power Corporation (BPC); Ministry of Transport and Communications (MTC); Air Botswana; Botswana Railways; Civil Aviation Authority; Botswana Post; Botswana Fibre Networks; Public Enterprises Evaluation and Privatization Agency (PEEPA); Public Procurement and Asset Disposal Board (PPADB). - Development partners consulted: World Bank country office and regional representatives; European Union country delegation. - Mission financing: Regional Technical Assistance Center (AFRITAC South). ### Principal findings — overview - Public investment level and fiscal stance: - Public investment has been consistently high for the past 25 years, at levels of around 11 percent of GDP. - Prudent fiscal policy and moderate debt (around 10 percent of GDP cited in Executive Summary; Table 1 notes "Public debt 15.6 percent of GDP" in institutional assessment) have provided fiscal space for investment. - Capital spending is primarily funded domestically — more than 90 percent of the total investment budget. - Capital spending is somewhat volatile year-to-year; execution of the capital budget ranges between 73 and 97 percent and has been improving recently. - Composition and capital stock: - Accumulated capital stock is almost three times more per capita than peers and emerging market averages. - Spending composition: more than 60 percent on economic affairs; about 25 percent on social infrastructure; remaining 15 percent on general services. - Central government accounts for the bulk of investment; state-owned enterprises (SOEs) contribute a quarter of spending; local government accounts for less than 10 percent. - Infrastructure outcomes and efficiency: - Despite high spending, infrastructure quality has fallen sharply in recent years; Botswana outperformed peers up to 2010 but has declined since. - Significant bottlenecks are evident in access to electricity supply and railways. - Around one third of investment spending does not achieve the infrastructure level/quality of countries that manage resources efficiently. - Staff estimate: Botswana’s efficiency gap is 37 percent — higher than emerging economies and the average for all countries. - Institutional strengths and weaknesses: - Strengths: strong planning institutions (NDP 11), predictable investment funding, fiscal rule with separate caps on domestic and external borrowing (each at 20 percent of GDP), guideline for total expenditure at 30 percent of GDP, development-to-recurrent ratio guideline 30/70, timely cash releases, Pula Fund provides savings for funding. - Weaknesses: project appraisal, selection, and monitoring need improvement; PPP oversight and legal clarity weak; limited competition in energy and water sectors; recurrent costs and maintenance underfunded due to economic classification and rule-of-thumb practice; inadequate project management capacity and monitoring; incomplete asset register and transition toward accrual accounting underway. ### Key quantitative indicators and institutional rules (as reported) - Public investment level: around 11 percent of GDP. - Capital budget execution: ranges between 73 and 97 percent. - Domestic funding share of investment: more than 90 percent. - Composition of investment: >60 percent economic affairs; ~25 percent social infrastructure; ~15 percent general services. - SOE contribution to investment: a quarter of spending. - Local government share of investment: less than 10 percent. - Efficiency gap (staff estimate): 37 percent. - Fiscal/debt rules and guidelines: - Debt caps: 20 percent domestic, 20 percent external (Table 1 also notes "40% of GDP" appearing in a combined formulation). - Expenditure guideline: 30 percent of GDP. - Capex to recurrent ratio guideline: 30/70. - Example of problematic project costing: Pula 1.4 billion Mohembo bridge construction (appraisal shortcomings cited). - PPP capital stock: 0.5 percent of GDP in 2015 (Table 1). - Public debt (Table 1 institutional note): 15.6 percent of GDP. ### Diagnosis by PIMA stage - Planning - Strong national and sectoral planning through NDP 11 (six-year validity, linked to the 2036 strategic vision, includes six-year estimates per ministry and per project). - Local government: allowed overdrafts up to 1/3 of previous year’s revenue (excluding grants) and may borrow for capital spending with approvals; local government investment is insignificant (<10%). - PPP policy (2009) comprehensive but does not explicitly apply to SOEs/parastatals; PPAD Act does not reference PPPs or provide adequate guidelines on fiscal implications; MFED PPP unit not fully involved in some PPP procurements. - Infrastructure regulation: telecoms deregulated; energy and water sectors not competitive; government approves tariffs often below operating cost requiring subsidies. - Allocation - Multi-year project costs (TEC) used internally but indicative forward projections are not published in budget documents. - External donor funding (<10% of investment) is included in NDP 11 and budget estimates; PPP fiscal commitments are not transparently disclosed. - Economic classification does not apply to development budget — hampers accurate quantification of capital stock; recurrent costs related to capital projects estimated by rule of thumb and often underfund maintenance. - Planning Officers’ Manual provides appraisal guidance but lacks project selection criteria; guidelines not uniformly followed; some large projects lack rigorous cost-benefit analysis. - Implementation - Development budgets are ring-fenced but virements between recurrent and capital within development budgets can squeeze ongoing projects and cause delays. - Cash management effective; Pula Fund provides financing buffer; external funding passes through the TSA. - Public Procurement and Disposal Act provides transparent procurement framework aligned with good practice; World Bank supports procurement reforms. - Project management weak: project development management system not functional; reports generated manually and delayed; project managers for mega projects not identified at design stage; inexperienced engineers sometimes manage large projects. - Multiple monitoring agencies (NSO for mega projects; GICO for priority projects) with undefined or overlapping roles; MFED’s role in monitoring financial aspects of large/mega projects unclear. - Asset accounting: integrated fixed assets registry (IFAR) being rolled out to prepare for accrual accounting; non-financial assets and depreciation not yet reported. ### Aggregate governance assessment (selected points from Table 1) - Fiscal rules: - Debt principle observed; expenditure principle breached three times during crisis; 30/70 ratio not generally observed; institutional strength rated Low. - National and sectoral planning: - Detailed NDP planning with 3-year PIP estimates; limited monitoring of outputs/outcomes; institutional strength rated Low. - PPPs: - Strategy complies with good practice but limited legal framework and monitoring; PPP unit capacity constraints; institutional strength rated High (meaning high priority for reform given risks). - Project appraisal and selection: - Guidelines exist but not consistently applied; high institutional concern due to unreliable cost estimates and significant aggregate cost increases (noted as 60% higher than plan estimates in table commentary). - Project management and protection of investment: - Funding protection exists but virements undermine implementation; project amendment rules not consistently followed; accountability low in practice; institutional concerns rated High. ### Priority recommendations - For all projects - Distinguish between capital and recurrent spending in the development budget. - For development projects, improve the quality of recurrent cost estimates by assigning responsibility for such estimates to the recurrent budget unit. - Publish indicative multiyear estimates by ministry and project in budget documents. - Establish a preliminary selection process associated with the MTFF, and prepare project memoranda for those projects in the MTFF. - For large projects and mega projects - Define thresholds for large and mega projects. - Clarify roles and responsibilities of all public entities involved in large and mega projects, including strengthening the role of the MFED in evaluating budget affordability for large projects—regardless of procurement mode. - Improve costing and project preparation: - Allow for a three-phase appraisal process including pre-feasibility, feasibility and independent review. - Use international unit costs by type of project to guide cost estimates. - Involve project managers from the beginning of the project, not only at implementation, and appoint consultants for the medium term. - For PPPs - Strengthen MFED oversight: (i) monitoring and assessing PPP projects; (ii) reporting data on PPPs in a budget annex; (iii) increasing and training staff in the PPP unit. - Clarify the legal and regulatory framework for PPPs either by amending the PPAD Act or by enacting a dedicated PPP legal framework. ### Capacity building and next steps - The report includes a proposed capacity building plan identifying support from AFRITAC South (Appendix III). - Appendix materials referenced: Project Management Tool for Monitoring Project Execution; Gatekeeping Role of the Ministry of Finance and Economic Development; Public Investment Management Capacity Building Plan. --- ### Public investment has been a key element of Botswana’s fiscal policy for the last three decades — key data and findings - Trends and macro-fiscal context: - From 1990 to 2006, public investment averaged 11.4 percent of GDP; average real GDP growth during those years was 4.6 percent. - Public investment peaked in 2009 at 17 percent of GDP and declined to 8.4 percent of GDP by 2014. - A new economic stimulus program in the second half of 2015 included a significant scale-up of public investment. - Mineral revenues account for 35 percent of government revenues. - Between 1990 and 2006 the government fiscal surplus averaged 4.8 percent of GDP, with public debt ratios at 10 percent of GDP on average. - Since 2007, the fiscal position deteriorated, reaching a fiscal deficit of -14.3 percent of GDP by 2009. - Public debt peaked at 20.3 percent of GDP in 2012 and declined to 15.6 percent of GDP by end-2016. - Since 2006, the government introduced formal debt limits on domestic and external debt equivalent to 20 percent of GDP each. - Public spending composition and capital stock: - By 2015, public spending ratios (current and capital) were significantly high relative to emerging market economies. - The share of current spending has risen consistently since 1990 except during large economic stimulus plans (ESP). - Up to 2010, Botswana spent on average about twice as much on public investment compared to the average of emerging market economies (EMEs) and peer countries; this differential has subsequently narrowed. - Botswana’s public capital stock is estimated at 125 percent of GDP by end-2015. - Botswana has almost doubled its public capital stock per capita since 1990. - Volatility, execution, and funding of public investment: - Public investment volatility is high relative to peers. - Since 2006, the execution rate of the capital budget ranged between 73 to 97 percent of the revised budget. - In 2014, domestic financing of public investment represented 95 percent of the total. - External financing: foreign loans comprised the bulk; external grants accounted for 20 percent of total external funding sources for public investment, on average. - Composition by function and implementing entity (2010–15): - Almost two thirds devoted to economic infrastructure. - Social infrastructure represented approximately one fourth of total capital expenditure. - Central government provided about 65 percent of public sector investment; SOEs/parastatals about one-fourth; subnational governments about 10 percent. - SOEs and parastatals provide much of the public investment in transport, energy, communication, water, and waste management sectors. - PPPs: - Policy intentions announced in 2002/03; first PPPs implemented in 2011. - By end-2015 the estimated stock of PPPs represented 0.5 percent of GDP. - Infrastructure quality and access: - Overall infrastructure quality fell sharply in recent years; electricity and railroads key drivers of deterioration. - Access to electricity (end-2015): 66 percent of total population; 54 percent in rural areas. - Electricity imports: 93 percent in 2012, decreasing to 39 percent by 2015. - Roads delivery scores better than peers and EMEs. - Railways: de facto monopoly; lack of maintenance, rigid tariffs, accelerated depreciation, hampered financial performance. - Water: coverage and pricing challenges; access to irrigation limited; high connection charges; dam volume reductions noted. - Public investment efficiency: - Efficiency gap calculated at 37 percent compared to an average of 27 percent for the world and EMEs. - Implies about one third of public capital stock did not achieve maximum level/quality of infrastructure assets or service delivery. - Improving efficiency could create fiscal space without jeopardizing debt sustainability. - Public investment management institutions: - Strengths relative to EMEs: national and sectoral planning and fiscal rules. - Weaknesses: PPPs, company regulation, subnational government investment. - Development budget comprehensive and includes donor-funds, but not PPP transactions. - Project appraisal, project selection, integration of capital and recurrent budgets require further work. - Project management weaker than comparators despite strong availability of funds and protection of investment. - Fiscal rules and expenditure principles: - Debt rule caps total domestic and foreign debt each at 20 percent of GDP. - No legal provision for suspension or readjustment mechanisms if rules are exceeded. - Expenditure principle includes a 40 percent of GDP government spending cap introduced in NDP 9 and a target reduction of government spending to 30 percent of GDP by 2016 stated in NDP 10. - Within total expenditure limit guideline: 30 percent of expenditure targeted for capital (30/70 guideline). ### Debt rule and expenditure principles — selected facts - The debt rule has been adhered to since enactment in 2005. - Total debt peaked at 20.3 percent of GDP in FY2012/13; external borrowing accounted for 19.3percent. - The 40 percent expenditure principle was breached over 2008–10 due to a stimulus package. - The target to reduce total spending to 30 percent of GDP was not met by end of NDP 10. - The capital/recurrent spending ratio of 30:70 has only been met twice since implementation of NDP 9. ### National and sectoral planning, PPPs, regulation, and SOEs — key points - NDP includes six year projections and links to MTFF; includes project codes, names, and TEC. - Credibility of cost estimates could be improved; estimated that 40 percent of the PIP is recurrent in nature and should not form part of the project pipeline. - PPP framework: 2009 PPP Policy exists but no dedicated PPP law; PPAD Act does not explicitly reference PPPs. - PPP unit staffing: At present, the PPP unit has only 2 ½ staff, without no dedicated lawyer assisting them. - MFED PPP oversight limited in practice; PPP capital stock 0.5 percent of GDP at end-2015. - Example: BPC signed in September 2016 a power purchase agreement of USD800 million (P8.7 billion). - Regulation: - Energy: Botswana Power Corporation; Botswana Energy Regulatory Authority (BERA) enacted but not operational. - Transport: Botswana Railways monopoly; roads — None. - Water: Water Utilities; bill in Parliament to introduce a regulator. - Telecommunications: liberalized; Botswana Communications Regulatory Authority operational. - SOE investment: - SOEs’ investment financed through capital grants estimated at 1.5 percent of GDP (average 2010–2015). - Consolidated SOE report lacks investment plans and operational targets. ### Budgeting, appraisal, selection, execution, and management — targeted findings - Multiyear budgeting: - TEC provides global ceiling derived from six-year NDP projections; full project cost details not published in development budget estimates. - Three-year projections are communicated at ministry level through budget call circular. - Budget comprehensiveness and unity: - All development spending appropriated; donor-funded projects comprise about three percent of overall development funding. - PPP transactions not accurately quantified in budget documents. - Economic classification applies only to the recurrent budget; development budget lacks economic classification, complicating capital vs. recurrent measurement. - Development budget typically 40 percent recurrent and 60 percent capital; guideline target is 30/70. - Project appraisal and selection: - Project memorandum (PM) guided by Planning Officers Manual (POM) last updated in 1996. - Appraisals are often conducted late, when projects are ready for budget funding, limiting pre-selection scrutiny. - Poor costing: many project addenda increased TEC; Updated TEC increased nearly 70 percent as of 2016. - Table 3 — Change in the Total Estimated Cost of Projects: - Original NDP 10 TEC for all projects: P 61.1 billion - Revised TEC for all projects P 103.6 billion - Increase P 42.5 billion 69.5% increase - Of which: - New projects added - Value P 4.6 billion 7.6% increase - Number 17 4.3% increase - Cost increases P 37.8 billion 61.9% increase - Protection of investment: - Ministries may reallocate TEC among projects within ministry totals with MFED approval despite PFMA provisions; no carry-forward of unused appropriations. - Tranches and warrants used to commit multiyear funds. - Availability of funding: - Remittance Account (TSA) balance maintained between 300 million and 700 million Pula. - Liquidity Account holds enough to cover 3 to 9 months of imports. - Pula Account is the long-term national savings account. - Cash management reforms since 2015 include a six-person cash management unit and cash forecasting (weekly, monthly, quarterly). - Unauthorized expenditures approx. 3 percent of budgeted expenditures from the Consolidated Fund in FY 2014–15. - Transparency of execution and procurement: - PPAD Act of 2001 provides open, competitive, transparent procurement framework. - PPADB publishes annual report; MFED appoints members of Independent Complaints Review Committee. - DPMS non-functional; financial monitoring via GABS more limited. - Ex-post audits by OAG and internal auditors occur; procurement system feedback audits not published. - Project management: - Re-establish DPMS recommended. - Project managers often not identified prior to budget approval; implementing agency managers often leave government service once experienced. - PPAD Regulation 95 limits individual amendments to 15% and total amendments to 25% of original contract price though limits not strictly adhered to. - Ex-post reviews recommended in two stages: compliance assessment and quality/outcomes assessment (example: Chile box). *Source: IMF mission PIMA report for Botswana — PREFACE and EXECUTIVE SUMMARY (cr17188).* ### PREFACE _________________________________________________________________________________________ 5 ### PREFACE ### Mission background and scope - A joint IMF Fiscal Affairs Department (FAD) and AFRITAC South mission visited Gaborone during January 23–February 3, 2017 to conduct a Public Investment Management Assessment (PIMA) and advise on improving management practices for public investment. - Mission leadership and participants: led by Ms. Lesley Fisher (FAD); team included Mr. David Gentry, Ms. Isabel Rial, Mr. Imran Aziz, and Mr. Willie Du Preez (FAD experts). - Key government counterparts and agencies consulted: Ministry of Finance and Economic Development (MFED) — Development and Budget Division, Economic and Financial Policy Division, Office of Accountant General, PPP Unit; National Strategy Office (NSO); Government Implementation Coordination Office (GICO); Ministry of Infrastructure, Housing, and Development (MIH); Botswana Housing Corporation (BHC); Ministry of Land Management, Water, and Sanitation Services (MLWS); Water Utilities Corporation (WUC); Ministry of Local Government and Rural Development (MLG & RD); Ministry of Mineral Resources, Green Technology, and Energy Security; Botswana Power Corporation (BPC); Ministry of Transport and Communications (MTC); Air Botswana; Botswana Railways; Civil Aviation Authority; Botswana Post; Botswana Fibre Networks; Public Enterprises Evaluation and Privatization Agency (PEEPA); Public Procurement and Asset Disposal Board (PPADB). - Development partners consulted: World Bank country office and regional representatives; European Union country delegation. - Mission financing: Regional Technical Assistance Center (AFRITAC South). ### Principal findings — overview - Public investment level and fiscal stance: - Public investment has been consistently high for the past 25 years, at levels of around 11 percent of GDP. - Prudent fiscal policy and moderate debt (around 10 percent of GDP cited in Executive Summary; Table 1 notes "Public debt 15.6 percent of GDP" in institutional assessment) have provided fiscal space for investment. - Capital spending is primarily funded domestically — more than 90 percent of the total investment budget. - Capital spending is somewhat volatile year-to-year; execution of the capital budget ranges between 73 and 97 percent and has been improving recently. - Composition and capital stock: - Accumulated capital stock is almost three times more per capita than peers and emerging market averages. - Spending composition: more than 60 percent on economic affairs; about 25 percent on social infrastructure; remaining 15 percent on general services. - Central government accounts for the bulk of investment; state-owned enterprises (SOEs) contribute a quarter of spending; local government accounts for less than 10 percent. - Infrastructure outcomes and efficiency: - Despite high spending, infrastructure quality has fallen sharply in recent years; Botswana outperformed peers up to 2010 but has declined since. - Significant bottlenecks are evident in access to electricity supply and railways. - Around one third of investment spending does not achieve the infrastructure level/quality of countries that manage resources efficiently. - Staff estimate: Botswana’s efficiency gap is 37 percent — higher than emerging economies and the average for all countries. - Institutional strengths and weaknesses: - Strengths: strong planning institutions (NDP 11), predictable investment funding, fiscal rule with separate caps on domestic and external borrowing (each at 20 percent of GDP), guideline for total expenditure at 30 percent of GDP, development-to-recurrent ratio guideline 30/70, timely cash releases, Pula Fund provides savings for funding. - Weaknesses: project appraisal, selection, and monitoring need improvement; PPP oversight and legal clarity weak; limited competition in energy and water sectors; recurrent costs and maintenance underfunded due to economic classification and rule-of-thumb practice; inadequate project management capacity and monitoring; incomplete asset register and transition toward accrual accounting underway. ### Key quantitative indicators and institutional rules (as reported) - Public investment level: around 11 percent of GDP. - Capital budget execution: ranges between 73 and 97 percent. - Domestic funding share of investment: more than 90 percent. - Composition of investment: >60 percent economic affairs; ~25 percent social infrastructure; ~15 percent general services. - SOE contribution to investment: a quarter of spending. - Local government share of investment: less than 10 percent. - Efficiency gap (staff estimate): 37 percent. - Fiscal/debt rules and guidelines: - Debt caps: 20 percent domestic, 20 percent external (Table 1 also notes "40% of GDP" appearing in a combined formulation). - Expenditure guideline: 30 percent of GDP. - Capex to recurrent ratio guideline: 30/70. - Example of problematic project costing: Pula 1.4 billion Mohembo bridge construction (appraisal shortcomings cited). - PPP capital stock: 0.5 percent of GDP in 2015 (Table 1). - Public debt (Table 1 institutional note): 15.6 percent of GDP. ### Diagnosis by PIMA stage - Planning - Strong national and sectoral planning through NDP 11 (six-year validity, linked to the 2036 strategic vision, includes six-year estimates per ministry and per project). - Local government: allowed overdrafts up to 1/3 of previous year’s revenue (excluding grants) and may borrow for capital spending with approvals; local government investment is insignificant (<10%). - PPP policy (2009) comprehensive but does not explicitly apply to SOEs/parastatals; PPAD Act does not reference PPPs or provide adequate guidelines on fiscal implications; MFED PPP unit not fully involved in some PPP procurements. - Infrastructure regulation: telecoms deregulated; energy and water sectors not competitive; government approves tariffs often below operating cost requiring subsidies. - Allocation - Multi-year project costs (TEC) used internally but indicative forward projections are not published in budget documents. - External donor funding (<10% of investment) is included in NDP 11 and budget estimates; PPP fiscal commitments are not transparently disclosed. - Economic classification does not apply to development budget — hampers accurate quantification of capital stock; recurrent costs related to capital projects estimated by rule of thumb and often underfund maintenance. - Planning Officers’ Manual provides appraisal guidance but lacks project selection criteria; guidelines not uniformly followed; some large projects lack rigorous cost-benefit analysis. - Implementation - Development budgets are ring-fenced but virements between recurrent and capital within development budgets can squeeze ongoing projects and cause delays. - Cash management effective; Pula Fund provides financing buffer; external funding passes through the TSA. - Public Procurement and Disposal Act provides transparent procurement framework aligned with good practice; World Bank supports procurement reforms. - Project management weak: project development management system not functional; reports generated manually and delayed; project managers for mega projects not identified at design stage; inexperienced engineers sometimes manage large projects. - Multiple monitoring agencies (NSO for mega projects; GICO for priority projects) with undefined or overlapping roles; MFED’s role in monitoring financial aspects of large/mega projects unclear. - Asset accounting: integrated fixed assets registry (IFAR) being rolled out to prepare for accrual accounting; non-financial assets and depreciation not yet reported. ### Aggregate governance assessment (selected points from Table 1) - Fiscal rules: debt principle observed; expenditure principle breached three times during crisis; 30/70 ratio not generally observed; institutional strength rated Low. - National and sectoral planning: detailed NDP planning with 3-year PIP estimates; limited monitoring of outputs/outcomes; institutional strength rated Low. - PPPs: strategy complies with good practice but limited legal framework and monitoring; PPP unit capacity constraints; institutional strength rated High (meaning high priority for reform given risks). - Project appraisal and selection: guidelines exist but not consistently applied; high institutional concern due to unreliable cost estimates and significant aggregate cost increases (noted as 60% higher than plan estimates in table commentary). - Project management and protection of investment: funding protection exists but virements undermine implementation; project amendment rules not consistently followed; accountability low in practice; institutional concerns rated High. ### Priority recommendations - For all projects - Distinguish between capital and recurrent spending in the development budget. - For development projects, improve the quality of recurrent cost estimates by assigning responsibility for such estimates to the recurrent budget unit. - Publish indicative multiyear estimates by ministry and project in budget documents. - Establish a preliminary selection process associated with the MTFF, and prepare project memoranda for those projects in the MTFF. - For large projects and mega projects - Define thresholds for large and mega projects. - Clarify roles and responsibilities of all public entities involved in large and mega projects, including strengthening the role of the MFED in evaluating budget affordability for large projects—regardless of procurement mode. - Improve costing and project preparation: - Allow for a three-phase appraisal process including pre-feasibility, feasibility and independent review. - Use international unit costs by type of project to guide cost estimates. - Involve project managers from the beginning of the project, not only at implementation, and appoint consultants for the medium term. - For PPPs - Strengthen MFED oversight: (i) monitoring and assessing PPP projects; (ii) reporting data on PPPs in a budget annex; (iii) increasing and training staff in the PPP unit. - Clarify the legal and regulatory framework for PPPs either by amending the PPAD Act or by enacting a dedicated PPP legal framework. ### Capacity building and next steps - The report includes a proposed capacity building plan identifying support from AFRITAC South (Appendix III). - Appendix materials referenced: Project Management Tool for Monitoring Project Execution; Gatekeeping Role of the Ministry of Finance and Economic Development; Public Investment Management Capacity Building Plan. *Source: IMF mission PIMA report for Botswana — PREFACE and EXECUTIVE SUMMARY (cr17188).* ### 1. Public investment has been a key element of Botswana’s fiscal policy for the last ### Public investment has been a key element of Botswana’s fiscal policy for the last three decades ### Public investment trends and macro-fiscal context - From 1990 to 2006, public investment averaged 11.4 percent of GDP; average real GDP growth during those years was 4.6 percent. - Public investment peaked in 2009 at 17 percent of GDP and declined to 8.4 percent of GDP by 2014. - A new economic stimulus program in the second half of 2015 included a significant scale-up of public investment to counteract the slowdown from lower mineral revenues. - Mineral revenues account for 35 percent of government revenues. - Between 1990 and 2006 the government fiscal surplus averaged 4.8 percent of GDP, with public debt ratios at 10 percent of GDP on average. - Since 2007, the fiscal position deteriorated, reaching a fiscal deficit of -14.3 percent of GDP by 2009. - Public debt peaked at 20.3 percent of GDP in 2012 and declined to 15.6 percent of GDP by end-2016. - Since 2006, the government introduced formal debt limits on domestic and external debt equivalent to 20 percent of GDP each. ### Public spending composition and capital stock - By 2015, public spending ratios (current and capital) were significantly high relative to emerging market economies. - The share of current spending has risen consistently since 1990 except during large economic stimulus plans (ESP). - Up to 2010, Botswana spent on average about twice as much on public investment compared to the average of emerging market economies (EMEs) and peer countries; this differential has subsequently narrowed. - Botswana’s public capital stock is estimated at 125 percent of GDP by end-2015, above the average of its peers. - Botswana has almost doubled its public capital stock per capita since 1990. ### Volatility, execution, and funding of public investment - Botswana’s public investment is quite volatile compared to peers; volatility measured as the standard deviation of year-on-year growth of investment to GDP ratios (real, deflated, and ppp-adjusted). - Since 2006, the execution rate of the capital budget ranged between 73 to 97 percent of the revised budget. - In 2014, domestic financing of public investment represented 95 percent of the total. - External financing composition: foreign loans (concessional and non-concessional) comprised the bulk of external financing; external grants accounted for 20 percent of total external funding sources for public investment, on average. ### Composition by function and implementing entity - Between 2010–15 almost two thirds of public investment was devoted to economic infrastructure (e.g., roads, ports, airports, electricity), compared to broadly half in EMEs. - Social infrastructure (e.g., housing, hospitals, schools, recreation, social protection) represented approximately one fourth of total capital expenditure. - Between 2010–15 central government provided about 65 percent of public sector investment; SOEs and parastatals contributed about one-fourth; subnational governments (SNGs) played a limited role at 10 percent. - SOEs and parastatals provide much of the public investment in transport, energy, communication, water, and waste management sectors. ### Public-Private Partnerships (PPPs) - Policy intentions to use PPPs were announced in the 2002/03 Budget Speech and NDP 9. - First PPPs were implemented in 2011. - By end-2015 the estimated stock of PPPs represented 0.5 percent of GDP, much lower than most comparator countries. - Existing PPP projects in Botswana include a public office and power purchase agreements in the electricity sector; more projects are in the pipeline. ### Infrastructure quality, access, and sectoral bottlenecks - Survey-based indicators show Botswana’s overall quality of infrastructure fell sharply in recent years; structural bottlenecks in electricity and railroads drove the deterioration in the last five years. - Access and service delivery (end-2015): - Botswana performs better than peers in access to social infrastructure (schools, water, and to a lesser extent hospitals). - Service delivery of economic infrastructure in the electricity sector is quite poor; by 2015 only 66 percent of the total population had access to electricity, dropping to 54 percent in rural areas. - Botswana remains energy import dependent: electricity imports were 93 percent in 2012, decreasing to 39 percent by 2015. - Electricity production capacity remains below peer countries. - Roads delivery scores much better than peers and even EMEs. - Railways: Botswana Railways operates a de facto monopoly under the Ministry of Transport; lack of proper maintenance has caused accelerated depreciation of fixed assets and hampered financial performance; the tariff system is rigid, raising risks of underinvestment and inadequate maintenance. - Water: the investment-efficiency indicator does not suggest bottlenecks, but significant challenges exist in coverage and pricing; access to irrigation water in rural areas is limited; connection charges are considered too high; recent significant reductions in dam volumes partly due to climate changes. ### Public investment efficiency and implications - Botswana’s public investment efficiency gap is calculated at 37 percent compared to an average of 27 percent for the world and EMEs. - Botswana scores below the most efficient countries with comparable public capital stock per capita; public investment efficiency is lower than the average in EMEs and the world. - The efficiency gap implies about one third of Botswana’s public capital stock did not result in the maximum level or quality of infrastructure assets or service delivery (i.e., efficiency loss). - Improving public investment efficiency could create additional fiscal space without jeopardizing debt sustainability and would reduce pressures on the government balance. - Addressing infrastructure bottlenecks will require developing a robust public investment framework and strengthening institutions. ### Public investment management institutions and planning - Botswana’s institutions for managing public investment compare reasonably well to other EMEs: national and sectoral planning and fiscal rules are stronger than comparators. - Weaknesses relative to comparators include PPPs, company regulation, and— to a lesser extent—investment by subnational governments. - The development budget is reasonably comprehensive and includes all donor-funds, but not PPP transactions. - Project appraisal, project selection, and integration of capital and recurrent budgets require further work. - Project management is weaker than in comparator countries, despite strong scores for availability of funds and protection of investment. - Fiscal rules and expenditure principles: - Debt rule caps total domestic and foreign debt each at 20 percent of GDP. - No legal provision for suspension or readjustment mechanisms if rules are exceeded. - Expenditure principle includes a 40 percent of GDP government spending cap introduced in NDP 9 and a target reduction of government spending to 30 percent of GDP by 2016 stated in NDP 10. - As a guideline, within the total expenditure limit 30 percent of expenditure is targeted for capital to prioritize capital investments. - These principles frame budget discussions but are not intended to be binding; spending needs ultimately dictate decisions. *Source: IMF staff estimates and official data as presented in the chapter "Public investment has been a key element of Botswana’s fiscal policy for the last three decades."* ### 17. The debt rule and expenditure principles have served their purpose although the ### 17. The debt rule and expenditure principles have served their purpose although the ### Debt rule and expenditure principles - The debt rule has been adhered to since enactment in 2005. - Total debt peaked at 20.3 percent of GDP in FY2012/13 driven predominantly by external borrowing, which accounted for 19.3percent. - The 40 percent expenditure principle was breached over a three-year period from 2008–10 due to the implementation of a stimulus package. - The target to reduce total spending to 30 percent of GDP was not met by the end of NDP 10. - The capital/recurrent spending ratio of 30:70 has only been met twice since implementation of NDP 9. *Source: Botswana Statistics and Ministry of Finance and Economic Development.* ### National and sectoral planning (Strength – Good; Effectiveness – High) - A comprehensive NDP is published along with the Public Investment Plan (PIP), which provides six year projections for the estimated Total Economic Cost (TEC) by project. - Sector and subsector strategies are integrated within the NDP and linked to thematic policy areas with outcome targets for the duration of the NDP. - The NDP includes project codes, names and their estimated TEC, providing a bridge to annual and multi-year budget and execution processes—an integration not common among regional peers. - The NDP’s inclusion of multi-year projections supports investment funding and implementation. - Credibility of cost estimates could be improved via better project screening and costing: - It was estimated that 40 percent of the PIP is recurrent in nature and should not form part of the project pipeline. - Assessment of six of the largest infrastructure projects in NDP 10 showed variations between projected TEC for the first three years and actual spending. ### Central-local coordination (Strength – Medium; Effectiveness – Medium) - Local government development spending is coordinated by the Ministry for Local Government and Rural Development and comprises less than 10 percent of total government spending. - Development spending priorities: primary school facilities, teachers colleges, customary courts, rural administrative centers, recreational parks. - Operational costs and maintenance are financed through the revenue support grant, which finances about 75 percent of priorities—own revenue amounts to 25 percent on average. - Local governments may incur overdrafts not exceeding one third of previous year’s revenue (excluding grants) with Ministerial approval after consultation with the MFED. - Outstanding loans for local urban councils amount to P 18.311 million as at end-2016 fiscal year. - MLGRD does not monitor loan performance, posing potential future fiscal risks. - Transfers to local authorities are published before the start of the fiscal year based on NDP priorities; district plans are aligned to the NDP and discussed in Technical Working Groups (TWGs). ### Public-private partnerships (PPP) (Strength – Medium; Effectiveness – Low) - The 2009 PPP Policy and Implementation Framework provides guidelines for identifying, appraising, and selecting PPP projects, requiring value for money and budget affordability analysis by the PPP unit under MFED and competitive tendering through PPADB. - The PPP policy requires the MFED to recognize financial commitments to pay unitary charges for the PPP project life cycle but does not prescribe reporting formats. - Lack of a dedicated PPP legal framework gives rise to regulatory uncertainty and may expose the government to excessive risks. - Botswana has no dedicated PPP act or regulations; a few PPPs have been procured under the existing PPAD Act which makes no explicit reference to PPP projects. - Compliance with the PPP policy is mandatory for central and subnational governments, while SOEs are only encouraged to follow the policy and not required to consult the PPP unit. - In practice: - Recent PPPs have been contracted without involvement of the MFED’s PPP unit, even when they required government guarantees. - The PPP unit is inadequately staffed (At present, the PPP unit has only 2 ½ staff, without no dedicated lawyer assisting them). - Fiscal risks of PPPs are neither systematically assessed nor reported by the MFED despite policy requirements. - PPPs are reflected in the budget or MTFF only to the extent they require government payments; additional PPP information is not included in budget documentation. - No ceilings exist for accumulation of explicit or contingent liabilities from PPPs. - PPP capital stock accounted for 0.5 percent of GDP at the end of 2015. - Examples: - Two small government-funded PPPs executed: a 10 year PPP for an office complex (Plot 21) and a 17 year PPP for the SADC headquarters. - IPP activity: APR Energy operates a 70 MW diesel emergency power plant at Matshelagabeli (capital stock 0.5 percent of GDP at end 2015). - BPC signed in September 2016 a power purchase agreement (PPA) of USD800 million (P8.7 billion) for expansion of the Morupule B Power Station to a consortium from Asia; one IPP recently signed will become operational by 2020. - The government plans to amend the PPAD Act, instead of enacting a separate PPP law, to improve the legal and regulatory framework. ### Regulation of infrastructure companies (Strength – Medium; Effectiveness – Low) - Domestic monopolies dominate energy, transport, and water sectors despite potential contestability; telecommunications is the only fully liberalized sector with an autonomous regulator. - Table summary (sector, monopoly, regulator/comments): - Energy: Botswana Power Corporation; Botswana Energy Regulatory Authority (BERA)––enacted by law but not operational. - Transport: Botswana Railways; Roads—None. - Water: Water Utilities; there is a bill in Parliament to introduce a regulatory body (plans to introduce a joint regulatory authority with energy were dropped). - Telecommunications: competition introduced in 1998—now almost fully liberalized across all sub sectors; Botswana Communications Regulatory Authority––complete autonomy under the Communications Regulatory Authority Act (2012). - SOEs: - SOEs play a large strategic role; reporting on SOE investment plans and operational targets is limited. - SOE investments financed through capital grants alone are estimated at 1.5 percent of GDP based on average spending between 2010 and 2015. - The consolidated financial SOE report for 15 SOEs does not cover investment plans or operational targets and provides only three paragraphs on operational performance. ### Investment allocation I.6. Multiyear budgeting (Strength – Good; Effectiveness – Medium) - Estimates of the development budget by ministry and project are published only for the budget year, but TEC provides a global ceiling for multi-year commitments. - TEC is derived from six-year NDP projections; three-year projections are communicated at ministry level through the budget call circular. - Full project cost details do not appear in development budget estimates but are used internally at Cabinet level and to derive the MTFF. - Ceilings are indicative and flexible, allowing ministries to reallocate based on updated information, but can “squeeze” funding for other projects. - Evidence of weak upfront costing and provisional gatekeeping in NDP project selection underscores the value and risk trade-offs of indicative ceilings. - Publishing indicative medium-term projections by ministry and project would enhance transparency and support budget negotiations. I.7. Budget Comprehensiveness (Strength – Medium; Effectiveness – Medium) - All development spending is appropriated in the budget. - Special funds exist, but only the Domestic Development Fund (DDF) and Tertiary Education Development Funds are used for development spending—all funds are appropriated. - Parastatals are responsible for about 20 percent of development spending; their estimates are provided in separate PEEPA reports; budget estimates include transfers to parastatals on development spending. - Externally funded projects are negligible: donor-funded projects comprise about three percent of overall development funding and donor-financed loans are included in the NDP. - PPP transactions for Plot 21 and power purchase agreements are not accurately quantified in budget documents. I.8. Budget Unity (Strength – Medium; Effectiveness – Low) - MFED acknowledged inadequate coordination of development and recurrent budget preparation and has begun combining key meetings: - Technical Assessment of Ongoing Projects and Baseline Budget Review meetings combined in June/July 2016. - Project Review and Expenditure Review meetings combined beginning in 2016. - The government aims for a ministry budget approximately 30 percent development and 70 percent recurrent. - Economic classification applies only to the recurrent budget; some capital items appear in the recurrent portion and vice versa; the budget classification does not include a program segment. - Coordination challenges: - Development budget includes expenditures with clear beginning and ending that may be recurrent or capital; overall, the development budget is typically 40 percent recurrent and 60 percent capital. - Because the development budget lacks an economic classification, measuring planned capital and recurrent expenditures is difficult and impedes capital stock monitoring. - Estimates of recurrent costs are required in the NDP and project memoranda but are commonly prepared by Development Programs staff using formulas (e.g., a fixed percent of initial facility cost); Budget Administration is not directly involved in estimating future recurrent costs. *Italic: IMF country report content excerpt.* ### 38. The separation of the development and recurrent budgets appears to be masking ### The separation of the development and recurrent budgets appears to be masking important underlying mismatches of resources ### Project appraisal (I.9) — Strength: Good; Effectiveness: Low - Project appraisal occurs through the project memorandum (PM), prepared after project approval in the NDP and guided by the Planning Officers Manual (POM), last updated in 1996. - Appraisals are prepared by implementing agencies when the project is ready for budget funding; Chapter 6 of the PO Manual provides guidelines for cost-benefit analysis but these are not always undertaken rigorously. - Examples and concerns: - The P 1.4 billion Mohembo Bridget Construction project does not appear to have been subjected to rigorous cost-benefit analysis as described in the PO Manual. - Some appraisals have been conducted by consultants. - Project memoranda are reviewed by Development Programs staff in the MFED, but staff do not commonly provide central support to line ministries during preparation. - Neither project memoranda nor cost-benefit analyses are published. - POM coverage and gaps: - The PO Manual addresses risk but generally focuses on financial risk (e.g., exchange rate risk) and does not address non-financial risks extensively (e.g., engineering complexity, benefits below expectations). - The PO Manual does not define a project. ### Project appraisal timing and costing problems - Projects included in the NDP are commonly viewed as approved, undermining critical appraisal—especially for relatively small projects where PMs are prepared by implementing agency staff. - Rigorous appraisals are more likely for large projects when consultancies are used prior to budget submission. - Appraisals are typically conducted when projects are ready for budget funding, resulting in: - No pipeline of appraised but unselected projects. - Short preparation periods for PMs before budget preparation begins. - Short preparation particularly problematic for costing; actual costs consistently exceed estimates, evidenced by many project addenda increasing TEC. - Poor costing consequences: - Distorted cost-benefit conclusions leading to inefficient project selection. - Contingencies typically not included. - Need for supplementary budgets if funds are insufficient. - Inadequate costing of capital and recurrent costs of large projects can have significant fiscal consequences during construction and after operations begin. - Reference guidance: - The “African Property Construction Cost Guide 2016” issued annually by AECOM provides some guidance on standard infrastructure cost. ### Project selection (I.10) — Strength: Medium; Effectiveness: Low - Selection process characteristics: - Projects are typically selected in the planning process, not the budget process. - Inclusion in the NDP is based primarily on project concepts, adherence to policy, and anticipated contribution to development strategies, not on refined scope, risks, and costs from rigorous appraisal. - No pipeline of projects for budget selection other than NDP-approved projects and sub-projects. - Implementing agencies propose which NDP projects/sub-projects should proceed each fiscal year; MFED Development Programs staff review and approve in the budget process. - Proposed projects are rarely scrutinized by external experts prior to budget inclusion. - The PO Manual does not provide selection criteria separate from appraisal; MFED has issued project selection guidelines which have not been followed. - Budget additions and appraisal time constraints: - Some projects not in the NDP are added during budget preparation for political or technical reasons (a relatively small proportion). - For such projects, insufficient time is available to prepare an appraisal prior to budget decisions. - Gatekeeping and prerequisites: - Difficulty in denying budget funding for a project in the NDP. - Projects may lack prerequisites (final feasibility study, land approvals, verification of access roads, water, electricity). - High-priority projects sometimes added without formal appraisal, contributing to cost overruns and implementation delays. - PMs often omit project expected program for construction work, monthly cash flows, and risk assessments. - Conditions may change since NDP preparation, reducing project need or benefits. - Strengthening gatekeeping in the budget process could improve public investment efficiency. ### Protection of investment (I.11) — Strength: Good; Effectiveness: Medium - Protection mechanisms and limitations: - Procedures protect a ministry’s total development budget but do not ensure individual projects are fully implemented. - NDPs include TEC for each project over the plan period. - Tranches commit funds on a multiyear basis to support contract signing. - Ministries, with MFED approval, may shift TEC among projects (and thus tranches) so long as ministry totals are not exceeded. - Ministries may establish warrants at amounts different from project amounts shown in the budget with MFED approval, provided total warrants do not exceed the ministry’s development budget. - PFMA Section 36 (3) does not allow transfers between approved development and recurrent budgets without Parliament consent and prohibits funding shifts between projects in the development budget without Parliament consent; this provision is not enforced and reallocations occur within single ministries with MFED approval. - Appropriations are made annually; no provisions for carry-forward of unused appropriation balances to the next fiscal year. - Impact of cost increases on other projects: - Updated TEC of development projects started is substantially higher than planned in NDP 10, with an overall increase of nearly 70 percent as of 2016. - Poor costing in NDP is the principal reason for the increase, meaning projects that do not increase effectively receive a cut. - Cost of projects added in the annual budget process and not in the NDP is relatively small. - Uncertainty about how many smaller projects within pooled NDP project categories (e.g., Second Roads Construction) have been dropped. - Table 3 — Change in the Total Estimated Cost of Projects - Original NDP 10 TEC for all projects: P 61.1 billion - Revised TEC for all projects P 103.6 billion - Increase P 42.5 billion 69.5% increase - Of which: - New projects added - Value P 4.6 billion 7.6% increase - Number 17 4.3% increase - Cost increases P 37.8 billion 61.9% increase - Note: i) percent changes are based on original NDP 10 data; ii) the Revised TEC is as shown in the 2016–17 Development Budget. - Source: staff estimates. ### Availability of funding (I.12) — Strength: Good; Effectiveness: High - Cash buffer system and account hierarchy: - Funding reliably available primarily through cash buffers, tranches for multiyear commitment control, and warrants for payment control. - Most payments draw from the Remittance Account, which acts as a Treasury Single Account (TSA). - The Remittance Account balance is maintained between 300 million and 700 million Pula. - If needed, the Remittance Account is topped-up from the Liquidity Account, which holds enough money to cover 3 to 9 months of imports. - If needed, the Liquidity Account is topped up from the Pula Account (long-term national savings account). - These accounts are held at the Bank of Botswana (BoB). - Recent reforms and cash forecasting: - Commodity-related revenue, primarily diamonds, has declined in recent years; savings have accumulated previously. - MFED introduced cash management reforms beginning in 2015, including creation of a six-person cash management unit and drafting cash management procedures. - Cash forecasts are prepared covering weekly, monthly, and quarterly cash flows. - External donor financing is channeled through the Remittance Account and tracked by Deposit Accounts within the accounting system. - Expenditure control issues: - No instances in recent decades of cash not being available when needed. - Expenditure control is incomplete; unauthorized expenditures noted in the Auditor General’s report, totaling approximately 3 percent of budgeted expenditures from the Consolidated Fund in FY 2014–15. - Much over-expenditure arises from faulty integration of the Government Payroll, Pensions, and Passages System, and Government Accounting and Budgeting System (GABS), affecting the recurrent budget. - The source of the problem is understood; potential for substantial increase in unauthorized spending is low. - Relevance to reform proposals: - The existing cash management system is robust and capital project implementation is not impeded by lack of cash. - The Accountant General’s office cash management reform program focuses primarily on lowering idle cash amounts rather than improving cash availability. - Over-expenditures are not of a magnitude to threaten availability of cash to implement development or recurrent budgets. ### Transparency of execution (I.13) — Strength: Medium; Effectiveness: Medium - Procurement framework: - The PPAD Act of 2001 and regulations provide an open, competitive, and transparent legal framework for procurement and require open, competitive bidding procedures for ministries, local authorities, and some parastatals. - The PPADB is organized as a parastatal to support independence, adjudicates and awards tenders for central government, and devolves authority to Tender Committees at ministry and district level depending on approved financial thresholds. - PPADB handles vetting of tender documents and adjudication/award of high value tenders beyond devolved amounts but does not evaluate tenders (procuring entities do). - Under exceptional circumstances, the Board can appoint an Independent Evaluation Committee to evaluate tenders. - Many state-owned enterprises use their own procurement procedures but are expected to align with PPAD Act principles. - PPADB publishes an annual report on operations. - MFED appoints members of the Independent Complaints Review Committee to handle procurement complaints and the Committee can stop ongoing projects where public interest is prejudiced. - Monitoring and reporting gaps: - Projects are monitored during execution for financial and physical progress by procuring entities; financial monitoring was previously supported by the Development Project Management System (DPMS), which has not been operational since transition from NDP 9 to NDP 10. - In absence of DPMS, financial monitoring occurs through GABS in a more limited fashion. - Physical progress monitored by procuring entity, GICO with support from Community-Based Monitoring (CBM), and implementing agencies. - Formal monitoring reports are not compiled to substantiate monitoring observations, though site meetings are conducted for works projects; such reports would typically identify risks, mitigation actions, time constraints, and sources of cost overruns. - Appendix I contains a typical Project Management tool designed for monitoring project execution. - Ex-post audits: - Three types of ex-post audits are conducted: - Procurement system feedback audits evaluating contractors’ results are not published. - Ex-post audits by the OAG; projects selected on a risk basis. Entity audits by OAG are published but individual project audits are not published standalone. - Ex-post audits by internal auditors of implementing agencies intended to document lessons learned and identify shortfalls in planning, budgeting, scoping, and execution stages. - More systematic audits would help ascertain value for money from capital spending and check project justification accuracy. ### Project management (I.14) — Strength: Medium; Effectiveness: Low - Key areas for improvement: - Re-establish the DPMS (project management information system) covering project identification, procurement, to project closure; efforts underway to re-establish the dysfunctional system. - Implementing agencies do not systematically identify senior responsible officers for major projects prior to budget approval; ideally the project manager would be assigned during PM preparation and involved in writing it. - Project management is critical from inception through ex-post completion to ensure adequate design and specifications. - Implementing agency project managers often leave government service as they gain experience, reducing senior staff availability and contributing to cost/time overruns, inefficient spending, and poor-quality projects. - The NSO and GICO have been created to provide project management support; working and reporting relations among these organizations, MFED, and implementing agencies remain to be clarified. - Project adjustments and limits: - Project adjustments are guided by PPAD Regulation 95, which standardizes rules and procedures for adjustments but does not include the alternative of fundamental review and reappraisal of project rationale, costs, and expected output under certain circumstances. - Articles 6 and 7 stipulate individual amendments should not exceed 15% of original contract price and no contract should be amended by more than 25% of original contract price. - These limits appear not to be strictly adhered to, particularly for works-related projects; more attention is required during scoping to reduce need for significant adjustments. - Ex-post reviews: - Ex-post reviews focusing on cost, deliverables, and outputs are sometimes conducted. - The End of Activity Report required by the PPADB is used primarily for disciplining underperforming contractors and does not cover the full range of project management issues that ex-post reviews should address. - Recommended ex-post review approach: - Stage 1: Assess compliance with rules and procedures in legislation. - Stage 2: Assess quality of services and facilities delivered. - Ex-post reviews provide lessons learned and highlight deficiencies to avoid in planning, budgeting, and executing future projects. - Box 1 provides an example from Chile’s experience. *Source: cr17188 - 38. The separation of the development and recurrent budgets appears to be masking (PDF chapter).* ### Box 1. Chile: Ex-Post Reviews ### Box 1. Chile: Ex-Post Reviews ### Ex-post evaluation procedures (overview) - The ex-post evaluation procedures of the National Investment System (SNI) comprises two stages: evaluation of implementation and in-depth ex-post evaluation on the outcomes. ### First stage: implementation evaluation - A representative sample of investment initiatives (including pre-investment studies, projects, and investment programs) completed during the past two years are analyzed. - The sample consists of 8–10% of all projects. - Compliance with or divergence of project implementation from the ex-ante project specifications is analyzed concerning: - total cost, - outputs, and - procedures and schedules. - The evaluation covers the role of all stakeholders, owners and sponsors of investment projects, the Ministry of Social Development (MDS), related agencies at sub-national levels, and sectoral ministries. - The evaluation is then sent to the National Congress. ### Second stage: in-depth ex-post outcomes evaluation - In-depth ex-post evaluations of specific projects are undertaken after the project has been operating for at least five years. - The evaluation determines whether the anticipated benefits have been realized; if not, an investigation of how and why the projections failed is undertaken. - In these cases, all internal and external aspects are analyzed relating to the operations of the project. ### Coverage and publication - These ex-post evaluations were initially applied to projects financed by the Regional Development Fund (FNDR) and executed by sub-national governments, and have gradually expanded to projects financed by sectoral ministries. - These reports are published on the MDS website: http://sni.ministeriodesarrollosocial.gob.cl/. ### Role of the Ministry of Finance and executing arrangements - Ministry of Finance is in charge of developing the framework for evaluating and monitoring public investment. - MDS, the successor of the Ministry of Planning, is responsible for conducting the evaluations of public investment. - External experts as well as staff are used for conducting the evaluations. *Source: Ministry of Social Development, Chile; IMF staff.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17188.pdf_