## cr17366 ## Source details **Canonical URL:** [cr17366](https://www.imf.org/-/media/files/publications/cr/2017/cr17366.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr17366.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr17366.pdf.json) --- ### Preface and mission background - A Fiscal Affairs Department (FAD) technical assistance (TA) mission visited Amman, Jordan during April 25–May 9, 2017, to conduct a public investment management assessment (PIMA) and advise the government on improving public investment management (PIM). - Mission leadership and team: - Mission led by Yasemin Hürcan. - Team included Isabel Rial (FAD), Xavier Rame (PFM advisor at METAC), Sefa Pamuksuz and Eivind Tandberg (FAD experts). - Senior government officials engaged: - Dr. Omar Malhas, Minister of Finance - Mr. Imad Fakhoury, Minister of Planning and International Cooperation - Mr. Sami Halaseh, Minister of Public Works and Housing - Dr. Ezzeddin Kanakrieh, Secretary General, MoF - Dr. Saleh Kharabsheh, Secretary General, MoPIC - Institutions consulted included: MoF; MoPIC; Audit Bureau (AB); Project Monitoring Unit of the Prime Minister; MoH; MoMA; GBD; CVDB; NEPCO; WAJ; GAM; Energy and Minerals Regulatory Commission; Shareholding Management Company. - Development partners engaged: European Union Delegation; USAID. - Mission acknowledgements highlighted coordination support from MoPIC staff Ms. Feda Jaradat and Ms. Ebaa Eassa and interpreters Ms. Nadia Al Sharif and Mr. Nasser Kohof. ### Strengthening strategic planning — key institutional actions - Strengthen institutions and processes for PIM (responsibilities and actions flagged X): - Confirm MoPIC’s leadership to ensure technical and financial consistency of planning — Responsible: Cabinet. - Reaffirm priority of implementing PIM framework developed by the World Bank — Responsible: MoPIC and line ministries; Support: World Bank. - Include all initiatives and projects in the EDP — Responsible: PMDU, MoF, MoPIC, and line ministries; Support: World Bank. - Distinguish capital expenditure from current expenditure in the EDP — Responsible: MoPIC and PMDU; Support: World Bank. - Strengthen oversight of PPPs: - Reaffirm PPP unit oversight role in MoF as prescribed by 2014 PPP law and 2015 by-law — Responsible: Cabinet; Action flagged: X; Note: No (unclear implementation status). - Record and disclose data on existing PPP contracts in an annex to the budget — Responsible: PPP Unit, GBD; Action flagged: X; Implementation status: No. - Improve SOE oversight: - Assign a specific unit in MoF to monitor SOEs — Responsible: MoF; Action flagged: X; Implementation status: No. - Prepare a consolidated report on SOEs’ financial and operational performance — Responsible: MoF; Action flagged: X; Support: World Bank. - Classify Government Units in line with GFSM 2014 — Responsible: MoF; Action flagged: X; Support: IMF. - Strengthen project appraisal and selection: - Develop comprehensive guidelines for capital project preparation and documentation — Responsible: MoPIC; Action flagged: X; Support: World Bank; timing: The works starts in 2017 and is completed in 2018. - Give MoPIC formal responsibility to assess all public investment projects regardless of funding source — Responsible: Cabinet; Action flagged: X. - Provide training to MoPIC and line ministries’ staff in project appraisal — Responsible: MoPIC; Action flagged: X; Support: World Bank. - Apply new guidelines to 2019-21 EDP — Responsible: MoPIC; Action flagged: X; Implementation status: No. - Develop guidelines to ensure project proposals are fully prepared and compatible with realistic fiscal envelope — Responsible: MoPIC, GBD, MoF; Support: World Bank; Action flagged: X. - Establish and publish clear and transparent criteria for project selection for the EDP — Responsible: MoPIC; Support: World Bank; Action flagged: X. - Update budget guidelines to ensure budget funding decisions are consistent with EDP — Responsible: GBD; Action flagged: X; Implementation status: No. - Apply new guidelines for 2019 budget — Responsible: MoPIC, GBD; Action flagged: X; Implementation status: No. - Introduce a clearly defined carry-over mechanism: - Define criteria and quantitative restrictions for carry-over usage — Responsible: MoF, GBD; Support: METAC; Action flagged: X. - Set carry-over levels to restrain use to the initial object of the appropriation — Responsible: MoF, GBD; Support: METAC; Action flagged: X. - Strengthen implementation and oversight: - Update procurement legislation to require competitive, international tenders, full disclosure on GTD website, and independent tender appeals — Responsible: GTD; Support: World Bank; Action flagged: X. - Update EDP guidelines to require comprehensive project completion reports disclosing cost overruns and delays — Responsible: MoPIC; Support: World Bank; Action flagged: X. - Include at least 10 ex-post audits of major public investment projects each year in AB work plan and publish audit reports — Responsible: AB; Action flagged: X X; Support: European Union. - Register and valuate fixed assets: comply with “Roadmap for the Implementation of IPSAS” and Financial By-Law 2010 on asset registry — Responsible: MoF and line ministries; Action flagged: X X X; Support: USAID. ### Trends in public investment — levels, capital stock, and PPPs - General government investment: - 1995: 7.0 percent of GDP - 2004: 9.0 percent of GDP (maximum) - 2015: 4.2 percent of GDP - Over two decades, general government investment decreased by around 40 percent and became broadly procyclical. - Public capital stock: - 2015: 77 percent of GDP - About half the estimated level in 1995. - Fiscal context: - Revenues increased about 5 percentage points of GDP between 2000 and 2005 and declined about 10 percentage points of GDP after 2005. - Public gross debt: - 2001: 124 percent of GDP - 2008: 60 percent of GDP - Public debt reached its lowest level in 2008 at 60.2 percent of GDP and increased to 93.4 percent of GDP by 2015. - Government loan guarantees increased since 2010 from 5.5 to 12.3 as percentage of total gross debt. - PPPs: - Share of PPPs in public investment portfolio: - 2000–2005 average: 5 percent - 2010–2014 average: 25 percent - PPP capital stock: - 2015: estimated 12.3 percent of GDP - Accumulated PPP stock until 2016: 6.0 billion USD or about 16 percent of GDP. - Sector concentration: 70 percent of the 6.0 billion USD are PPP contracts in the electricity and water sectors. - Jordan’s PPP capital stock is three times higher than the emerging economies average and the highest among peer countries. - PPPs expansion: by 2015 more than one fourth of Jordan’s public sector investment portfolio was procured through PPPs, compared to 6 percent for the average of emerging countries. - Government support: - Since 2003 direct and indirect support (subsidies and guarantees) provided to many PPPs. - From 2012 onward, support mainly through guarantees (do not impact deficit nor are reported in stock of public guarantees). - Fiscal exposure example: - Total SOEs/GUs capital expenditure is 587 million JD (419 million JD financed by their own resources) which amounts to almost half of the General Budget capital expenditure (1,216.8 million JD) for 2017 Budget. - As of end-2016, CG guaranteed debts and advances to NEPCO and WAJ reached 16.7 percent and 5.1 percent of GDP, respectively. ### Composition of public investment and funding (by level and sector) - By level of government (2015): - Central Government: 57 percent of total public investment - SOEs: 30 percent of total public investment - Municipalities: 13 percent of total public investment - Overall: about two thirds of public investment provided by central government; SOEs contribute about one third. - By function and sectoral allocation (average 2009–14): - About one third allocated to economic infrastructure (roads, bridges, buildings) versus about half in emerging economies. - Almost twice as much allocated to social infrastructure (health, education, social protection) compared to emerging economies — partly due to refugee crisis needs. - Funding sources (estimated 2011–2016 / 2017 data): - On average 2011–2016: - 90 percent from domestic sources (Treasury funding, subsidies and loans) - External grants and loans: limited budget coverage; PEFA estimate: foreign grants account for less than 2 percent of CG capital expenditures. - Direct foreign financing of capital projects (e.g., USAID and Saudi Arabia grants) was off-budget and data not available at mission time. ### Efficiency and impact of public investment - Perceptions and physical access indicators: - Perceived quality of public infrastructure: significantly above the average of emerging and peer countries. - Infrastructure quality indicators have deteriorated by 15 percent since 2010. - Education access: better than emerging countries. - Access to treated water and sanitation: 98 percent of the population. - Health, electricity, and roads: service delivery below average. - Roads network length: - 2010: 7,100 km - 2013: 7,300 km - Road network increased on average by 3 percent during 2010–2013 while population grew three times faster. - Efficiency assessment (IMF technique): - Combined indicator (perception, physical access, service delivery) suggests public investment falls short of its potential efficiency level. - Efficiency gap between Jordan and most efficient countries with comparable public capital stock per capita averages 21 percent. - Efficiency gap for the average of emerging countries is 23 percent. - Conclusion: one fifth of Jordan’s public capital stock did not result in expected quality or access; significant scope to improve public investment efficiency. ### PIMA institutional assessment — planning, allocation, delivery (selected domain findings) - PIMA framework: - Assesses 15 institutional domains across planning, allocation, and delivery. - For each domain three indicators scored on institutional strength, effectiveness, and reform priority. - Selected institutional scores and findings: - Fiscal rules: Strength – Medium; Effectiveness – Low. No permanent fiscal rules; debt ceilings exist but lack enforcement. - National and sectoral planning: Strength – Medium; Effectiveness – Low. Jordan 2025: A National Vision and Strategy contains 200 priority initiatives; EDP 2016-2019 covers 26 development sectors and 2,000 projects but planning is fragmented and does not ensure project economic viability or prioritization. - Central-local coordination: Strength – Medium; Effectiveness – Low. Municipalities dependent on transfers; transfer formula unpublished; three largest municipalities excluded from the formula. - PPPs: Strength – Medium; Effectiveness – Low. PPP Law No. 31 (2014) and by-law No. 98 (2015) formalize PPP unit, but exemptions and lack of systematic registry/reporting weaken oversight. - Project appraisal: Strength – Low; Effectiveness – Low. No systematic government appraisal or standard methodologies; large projects subject to delays and cost overruns. - Project selection (Institution 10): Strength – Low; Effectiveness – Low. EDP not an effective gateway; Table 3 EDP vs budgets (million JD): - 2016: EDP needs estimate 2,415; General budget 1,217; Government institutions budget 587; Financing gap 611 - 2017: EDP needs estimate 3,683; General budget 1,478; Government institutions budget 647; Financing gap 1,558 - 2018: EDP needs estimate 3,480; General budget 1,658; Government institutions budget 602; Financing gap 1,220 - Protection of investment (Institution 11): Strength – Low; Effectiveness – Medium. Capital appropriations annual; unspent capital lapses at year-end but re-appropriation practice and trust funds create de facto carry-over. - Availability of funding (Institution 12): Strength – Medium; Effectiveness – Low. Cash forecasting and commitment ceilings in place; advances to SOEs create tensions; accounts outside TSA represented 3 percent of total expenditure in 2015 (2016 PEFA). - Transparency of execution (Institution 13): Strength – Medium; Effectiveness – Medium. Monitoring systems and PMDU exist; procurement limited international tendering (2016: GTD managed 132 tenders, seven international); no fully independent tender appeals; ex-post audits not published. - Management of implementation (Institution 14): Strength – Medium; Effectiveness – Low. MoPW implements government-funded construction; implementation plans prepared after budget approval; project portfolio under implementation about 1.2 billion JD. - Assets accounting (Institution 15): Strength – Low; Effectiveness – Low. Government financial statements do not recognize or report value of government assets; asset registries incomplete; Financial By-law 2010 requires asset registries but immoveable assets not inventoried. ### Recommendations summary (selected, verbatim responsibilities and timing preserved) - Strategic planning and institutions: - Improve strategic planning: clarify roles, enhance coordination, ensure all strategic projects go through EDP — MoPIC to lead; implement PIM framework by World Bank (MoPIC and line ministries, per PIM timetable). - Include mega projects, PPPs, externally financed projects in EDP — PMDU, MoF, MoPIC, and line ministries. - Distinguish capital from current expenditure in EDP — MoPIC and PMDU, end 2017. - PPP oversight and disclosure: - Preserve PPP Unit oversight role in MoF to review VfM, budget affordability, and fiscal risk analysis for all PPP projects regardless of sector or financing type — Cabinet, 2017. - Record and disclose in an annex to the budget data on existing PPP contracts (including those signed before 2014), including: - investment in physical assets by PPP companies; - long-term cash-flow forecasts of gross costs and revenues and associated PV; - estimates of government’s future payments to PPP companies and associated present value; - assessment of PPP risks (explicit guarantees, traffic risks, force majeure, etc.) — PPP Unit MOF, 2018. - SOE oversight: - Assign a unit in MoF to monitor SOEs’ financial and operational performance and produce a consolidated report; collaborate with Government Shareholdings' Management Company — MOF, 2017. - Reclassify Government Units in line with GFSM 2014 to assess real SOE sector performance — MOF, 2017. - Project appraisal and selection: - Develop comprehensive guidelines for capital project preparation — MoPIC with World Bank support, 2017. - Give MoPIC formal responsibility to assess all public investment projects prior to funding decisions — Cabinet, 2017. - Provide training to MoPIC and line ministry staff on project appraisal — MoPIC with World Bank support, 2017–19. - Apply new guidelines to EDP for 2019–2020 — MoPIC, 2018. - Develop EDP guidelines to ensure project proposals are fully prepared and compatible with realistic fiscal envelopes; publish clear selection criteria; update budget guidelines to align with EDP; apply new provisions for 2019 budget — MoPIC, GBD, MoF, 2017–2018. - Carry-over mechanism: - Define criteria and quantitative restrictions for carry-over; limit carry-over use to original appropriation object — MoF and GBD with METAC support, 2018. - Project implementation and oversight: - Update procurement legislation to ensure competitive international tenders, full disclosure on GTD website, and an independent tender appeals mechanism — GTD with World Bank support, 2018. - Update EDP guidelines to require comprehensive project completion reports disclosing cost overruns and delays — MoPIC, 2018. - Include at least 10 ex-post audits of major public investment projects annually and publish audit reports — AB, phase in 2018. - Assets and accounting: - Ensure timely implementation of the “Roadmap for the Implementation of IPSAS” and Financial By-Law 2010 on asset registry — MOF and line ministries. ### Budget comprehensiveness and PIM diagnostic indicators (selected) - Budget comprehensiveness issues: - Significant capital spending undertaken by extra-budgetary entities and some externally funded projects not included in budget documentation. - No information on PPP transactions included in budget documentation. - Budget unity and maintenance costing: - Capital and current budgets prepared by GBD and presented in a single document. - Budget discloses recurrent and capital maintenance costs but lacks government-wide methodology for maintenance needs; misclassification examples (2017 Budget: MoMA transfers to municipalities amounting to 171 million JD recorded as capital expenditure out of 1,216.8 million JD total capital expenditure). - Project appraisal and selection diagnostic: - Capital projects not systematically subject to cost-benefit analysis; no standard methodology or central support; risks not systematically assessed. - Project selection largely by line ministries; EDP pipeline not constrained by resource envelope; ministries may fund projects outside EDP. - Protection, availability, transparency diagnostics: - Outlays appropriated annually; unspent appropriations lapse though re-appropriation practices and trust funds create de facto carry-over. - Cash flow forecasts prepared and updated monthly; commitments released quarterly for recurring and monthly for capital; cash rationing leads to project delays. - Procurement for major projects often not fully competitive; monitoring exists for many projects; ex-post audits not routinely published. ### IPSAS implementation and asset data - Finding: Public asset data produced through full implementation of IPSAS for the whole government will improve public investment decision making, but full implementation requires time and effort. - Government intention: MoF intends to implement accrual basis IPSAS as part of public sector accounting reforms. - Phase IV focus: government agencies to establish accounting systems on full accrual basis adhering to IFRS. - Enabler: GFMIS will facilitate transition to accrual accounting. - Challenges: Consolidation and reporting of accounting information from agencies and SOEs requires significant legislative, business practice, and skill improvements. - Explicit recommendation: Ensure timely implementation of the “Roadmap for the Implementation of IPSAS” and Financial By-Law 2010 on asset registry — MOF and line ministries. *Source: cr17366 (IMF staff report content).* ### PREFACE _________________________________________________________________________________________ 6 ### PREFACE ### Mission background - A Fiscal Affairs Department (FAD) technical assistance (TA) mission visited Amman, Jordan during April 25–May 9, 2017, to conduct a public investment management assessment (PIMA) and advise the government on improving public investment management (PIM). - The mission was led by Yasemin Hürcan and included Isabel Rial (both FAD), Xavier Rame (Public Financial Management (PFM) advisor at the Middle East Regional Technical Assistance Center (METAC)), and Sefa Pamuksuz and Eivind Tandberg (FAD experts). ### Meetings and stakeholders engaged - Senior government officials met: - Dr. Omar Malhas, Minister of Finance - Mr. Imad Fakhoury, Minister of Planning and International Cooperation - Mr. Sami Halaseh, Minister of Public Works and Housing - Dr. Ezzeddin Kanakrieh, Secretary General, MoF - Dr. Saleh Kharabsheh, Secretary General, Ministry of Planning and International Cooperation (MoPIC) - Ministries, agencies, and institutions consulted included senior staff from: - Ministry of Finance (MoF) - Ministry of Planning and International Cooperation (MoPIC) - Audit Bureau (AB) - Project Monitoring Unit of the Prime Minister - Ministry of Health (MoH) - Ministry of Municipal Affairs (MoMA) - General Budget Directorate (GBD) - Cities and Villages Development Bank (CVDB) - National Electric Power Company (NEPCO) - Water Authority of Jordan (WAJ) - Greater Amman Municipality (GAM) - Energy and Minerals Regulatory Commission - Shareholding Management Company - Development partners and donors engaged: - European Union Delegation - United States Agency for International Development (USAID) ### Mission acknowledgements - The mission expressed gratitude for the excellent cooperation and courtesy extended by officials and institutions during the mission. - Special thanks were given to Secretary General Dr. Saleh Kharabsheh, the MoPIC, and his staff, Ms. Feda Jaradat and Ms. Ebaa Eassa, for coordinating the mission’s meetings. - The mission also expressed appreciation to the interpreters, Ms. Nadia Al Sharif and Mr. Nasser Kohof. *Preface: Fiscal Affairs Department technical assistance mission to Amman, Jordan, April 25–May 9, 2017.* ### 1. Strengthening strategic planning ### 1. Strengthening strategic planning ### Strengthening institutions and processes for public investment management - Confirm the MoPIC’s leadership to ensure the technical and financial consistency of the planning process — Responsible: Cabinet; Action flagged: X - Reaffirm the priority of the implementation of the PIM framework developed by the World Bank to build PIM capacities — Responsible: MoPIC and line ministries; Support: World Bank; Action flagged: X - Include all initiatives and projects in the EDP — Responsible: PMDU, MoF, MoPIC, and line ministries; Support: World Bank; Action flagged: X - Distinguish capital expenditure from current expenditure in the EDP — Responsible: MoPIC and PMDU; Support: World Bank; Action flagged: X ### Strengthening oversight of PPPs - Reaffirm the oversight role and responsibility of the PPP unit in the MoF as prescribed by the 2014 PPP law and 2015 by-law — Responsible: Cabinet; Action flagged: X; Note: No (unclear implementation status) - Record and disclose data on existing PPP contracts in an annex to the budget — Responsible: PPP Unit, GBD; Action flagged: X; Implementation status: No ### Improving SOEs oversight - Assign to a specific unit in the MoF the monitoring of SOEs — Responsible: MoF; Action flagged: X; Implementation status: No - Prepare a consolidated report on the financial and operational performance of SOEs — Responsible: MoF; Action flagged: X; Support: World Bank - Classify the Government Units in line with the Government Finance Statistics Manual (GFSM) 2014 — Responsible: MoF; Action flagged: X; Support: IMF; Allocation noted ### Strengthening project appraisal - Develop comprehensive guidelines for capital project preparation and documentation — Responsible: MoPIC; Action flagged: X; Support: World Bank; timing note: The works starts in 2017 and is completed in 2018. - Give MoPIC formal responsibility to assess all public investment projects, regardless of source of funding — Responsible: Cabinet; Action flagged: X - Provide training to MoPIC’s and line ministries’ staff in project appraisal and review — Responsible: MoPIC; Action flagged: X; Support: World Bank - Apply new guidelines to 2019-21 EDP — Responsible: MoPIC; Action flagged: X; Implementation status: No ### Strengthening project selection - Develop guidelines for the EDP process to ensure that project proposals are fully prepared and compatible with realistic fiscal envelope — Responsible: MoPIC, GBD, MoF; Support: World Bank; Action flagged: X; Footnote: The government is planning to establish a new unit, which could play an important role in these areas. - Establish and publish clear and transparent criteria for project selection for the EDP — Responsible: MoPIC; Support: World Bank; Action flagged: X - Update budget guidelines to ensure that budget funding decisions are consistent with EDP — Responsible: GBD; Action flagged: X; Implementation status: No - Apply new guidelines for 2019 budget — Responsible: MoPIC, GBD; Action flagged: X; Implementation status: No ### Introducing a clearly defined carry-over mechanism - Define the criteria allowing budget managers to retain unspent appropriations — Responsible: MoF, GBD; Support: METAC; Action flagged: X - Define quantitative restrictions to the usage of carry-over — Responsible: MoF, GBD; Support: METAC; Action flagged: X - Set the level of carry-over to restrain their use to the initial object of the appropriation (e.g., to a specific investment project) — Responsible: MoF, GBD; Support: METAC; Action flagged: X ### Strengthening project implementation and oversight - Update procurement legislation to ensure major public investment procurement is based on competitive, international tenders; that all tenders and awards, including tenders by special tender committees, are fully disclosed on the GTD website; and that there is an independent tender appeals mechanism — Responsible: GTD; Support: World Bank; Action flagged: X - Update EDP guidelines to include provisions for comprehensive project completion reports for all public investment projects, with disclosure of cost overruns and project delays, and identification of lessons learnt — Responsible: MoPIC; Support: World Bank; Action flagged: X - Include in the AB’s work plan at least 10 ex-post audits of major public investment projects each year, and publish the audit reports — Responsible: AB; Action flagged: X X; Support: European Union ### Register and valuate fixed assets - Comply with the “Roadmap for the Implementation of IPSAS” and Financial By-Law 2010 on asset registry — Responsible: MoF and line ministries; Action flagged: X X X; Support: USAID *Source: cr17366 - 1. Strengthening strategic planning* --- ### I. Trends in public investment ### Recent evolution and volatility - General government investment in Jordan: - 1995: 7.0 percent of GDP - 2004: 9.0 percent of GDP (maximum) - 2015: 4.2 percent of GDP - Over the last two decades, general government investment decreased by around 40 percent and became broadly procyclical. - Public investment changes are highly correlated with GDP growth (procyclical behavior). - Compared to emerging market economies (EMEs) and peer countries (peer countries include Algeria, Georgia, Lebanon, Morocco, and Tunisia), Jordan’s public investment was similar until 2000, increased significantly in 2000–2004, and has lagged since then. ### Public capital stock - Jordan’s estimated public capital stock: - 2015: 77 percent of GDP - About half the estimated level in 1995. - Jordan’s public capital stock per capita lags relative to peer countries. - Methodology: perpetual inventory method, accumulating capital spending 1960–2015 minus depreciation (depreciation rate varying with time and income group). ### Fiscal context and PPPs - Between 2000 and 2005, revenues increased about 5 percentage points of GDP; subsequent decline after 2005 about 10 percentage points of GDP. - Public gross debt: - 2001: 124 percent of GDP - 2008: 60 percent of GDP (cut by half) - The government reduced public investment to create fiscal space: share of public investment as percentage of total expenditures decreased on average from 7 to 4 percent between early-2000s and post-2008 period. - PPPs expanded rapidly: - Share of PPPs in overall public investment portfolio: - 2000–2005 average: 5 percent - 2010–2014 average: 25 percent - By 2015, more than one fourth of Jordan’s public sector investment portfolio was procured through PPPs, compared to 6 percent for the average of emerging countries. - PPP capital stock: - 2015: estimated 12.3 percent of GDP - Jordan’s PPP capital stock is three times higher than the emerging economies average and the highest among peer countries. ### II. Composition of public investment and funding ### By level of government (2015) - Central Government (CG): 57 percent of total public investment - SOEs: 30 percent of total public investment - Municipalities: 13 percent of total public investment - Overall, about two thirds of public investment is provided by the central government, with SOEs contributing about one third. ### By function and sectoral allocation (average 2009–14) - Jordan allocated about one third of public investment to economic infrastructure (roads, bridges, buildings), compared to about half in emerging economies. - Jordan allocated almost twice as much to social infrastructure (health, education, and social protection) compared to emerging economies — partly due to increased needs from the refugee crisis. ### Funding sources (estimated 2011–2016 / 2017 data) - On average for 2011 to 2016, public investment funding: - 90 percent from domestic sources (Treasury funding, subsidies and loans) - External sources include loans and grants; direct foreign financing of capital projects (e.g., USAID and Saudi Arabia grants) was off-budget and data not available at mission time. - PEFA report estimate: foreign grants account for less than 2 percent of CG capital expenditures. ### III. Efficiency and impact of public investment ### Perceptions and physical access indicators - Perceived quality of public infrastructure: - Significantly above the average of emerging and peer countries. - Indicators of infrastructure quality have deteriorated by 15 percent since 2010. - Physical access and service delivery: - Education access: better than emerging countries (consistent with larger share of investment in education). - Access to treated water and sanitation: 98 percent of the population (better than emerging countries), despite Jordan being the fourth most water-scarce country in the world. - Health, electricity, and roads: service delivery below average. - Roads sector: - Total road network length: - 2010: 7,100 km - 2013: 7,300 km - Road network increased on average by 3 percent during 2010–2013, while population grew three times faster (driven by refugee crisis), causing rising congestion and reduced infrastructure service quality. ### Efficiency assessment (IMF technique) - Method: Compare infrastructure outputs (quality/access) to public capital stock per capita; draw an efficiency “frontier” from best-performing countries. - Jordan’s performance: - Close to the frontier when using survey-based quality indicators. - Much weaker relative to the frontier when using physical access and service delivery indicators. - Note: Survey-based quality indicators do not cover social infrastructure (health, education, water), so quality and physical indicators are complementary for assessing overall efficiency. *Source: cr17366 - 1. Strengthening strategic planning* ### 15. On average, Jordan’s public investment efficiency is slightly higher that emerging ### 15. On average, Jordan’s public investment efficiency is slightly higher that emerging ### Public investment efficiency: key findings - A combined indicator of the perception of infrastructure quality, physical access and service delivery suggests that public investment falls short of its potential efficiency level. - The resulting efficiency gap between Jordan and the most efficient countries with comparable levels of public capital stock per capita averages 21 percent. - The efficiency gap for the average of emerging countries is 23 percent. - These results imply that one fifth of Jordan’s public capital stock did not result in the expected quality-of or access-to infrastructure assets or service delivery. - Conclusion: there is significant scope for improving public sector investment efficiency to enhance its impact on economic growth. ### Fiscal context and implications - Under the current fiscal policy framework, improving public investment efficiency should create fiscal space without jeopardizing debt sustainability. - The government is anchored by a three-year EFF, which creates a tight tradeoff between current spending and the required upgrading of public infrastructure. - Debt ceilings in Law No. 26 of 2001: total public sector debt should not exceed 60 percent of GDP; domestic and external components are capped at 40 percent of GDP each. - A Cabinet decision of April 2017 allowed postponement of the application of articles 22 and 23 of the public debt management law until the end of the year 2024. - Jordan’s national definition of public sector debt deviates from GFSM 2014; Article 2 defines public debt as the outstanding unpaid direct and indirect obligations of the government. - The public debt management law does not prescribe an automatic correction mechanism if ceilings are not met. - Public debt trajectory: reached its lowest level in 2008 at 60.2 percent of GDP; increased to 93.4 percent of GDP by 2015. - Government loan guarantees increased since 2010 from 5.5 to 12.3 as percentage of total gross debt. - Beneficiaries of government loan guarantees are mostly SOEs, such as WAJ and NEPCO. - The EFF includes as an indicative target a ceiling on the stock of gross public sector debt in national currency, but the EFF is temporary and not embedded in law. ### PIMA framework and institutional assessment - The IMF’s PIMA framework assesses public investment management (PIM) across 15 institutional domains involved in three stages: planning, allocation, and delivery. - For each of the 15 institutions, three indicators are scored (met in full, in part, or not met) on: institutional strength, effectiveness, and reform priority. - Institutional strength: objective facts that organizations, policies, rules and procedures are in place; averaged across three dimensions to yield a high/medium/low score. - Effectiveness: degree to which intended purpose is being achieved; averaged across three dimensions to yield a high/medium/low score. - Reform priority: whether issues within the institution are important to improve given Jordan’s conditions. ### Investment planning: strengths and weaknesses - Fiscal rules (Strength – Medium; Effectiveness – Low): - No permanent fiscal rules guiding policy; only public debt ceilings prescribed by law. - The public debt management law includes ceilings but lacks enforcement mechanisms and deviates from GFSM 2014 coverage. - In practice, the EFF has constrained fiscal policy de facto but is temporary. - National and sectoral planning (Strength – Medium; Effectiveness – Low): - “Jordan 2025: A National Vision and Strategy” is the key strategic document with 200 priority initiatives. - Sectoral strategies (water, energy, health) contain project details and indicative costing; MoPIC develops three-year rolling EDPs based on these. - The EDP 2016-2019 covers 26 development sectors, broken down into 2000 projects, with tentative annual project costing and measurable performance indicators at three levels. - Projects in the EDP are not exclusively investment projects; they often include a current spending component. - The EDP does not include investment projects to cope with infrastructure needs related to the refugee crisis; those are included in the Jordan Response Plan 2016-18. - Planning is fragmented: mega projects (53 projects monitored under this title) and some PPPs may be endorsed by the CoM without EDP inclusion; capital projects of public universities and donor-financed projects may be outside EDP coverage. - MoPIC checks conformity with national strategies but does not check project economic viability or prioritize projects using consistent guidelines or readiness criteria. - Resulting unrealistic plans: EDP financing needs for 2016-2018 are 9.6 billion JD, while the MTBF in the 2017 budget laws identifies only 5.9 billion JD of funding sources (35 percent compared to 21 percent of GDP in 2016). - For 2017, the EDP estimated financing needs are 3.7 billion JD versus budget allocation of 1.8 billion JD. ### Central-local coordination - Strength – Medium; Effectiveness – Low. - Municipalities can borrow from the CVDB and other domestic banks with approval of the Minister of Municipal Affairs (MoMA). - Municipal capital spending is reviewed and approved by MoMA but not presented alongside central government spending. - The Municipality Law defines duties and revenues; municipalities remain dependent on government transfers, which are used essentially for wages (half of their payments). - The transfer formula is not published and does not apply to the three largest municipalities: GAM, Petra Development and Tourism Region Authority, and the Aqaba Special Economic Zone; these are managed independently under the Prime Minister and receive annually determined transfers. - Current decentralization initiatives (Municipalities Law, Decentralization Law) provide for devolution of responsibilities and resources and establishment of elected governorate councils to decide on projects funded through allocated budgets. - CVDB details: established in 1979; CVDB loans for one municipality must not exceed 15 percent of the bank’s capital and reserves and the loan must not be greater than 2 percent of the bank’s capital for one loan. ### Public-private partnerships (PPPs) - Strength – Medium; Effectiveness – Low. - PPP Law No. 31 was ratified in 2014; corresponding by-law on PPP projects No. 98 was approved in 2015; PPP strategy published in 2015 formalized the PPP unit. - PPP law strengths: broad coverage (all levels of government and sectors) and a clear approval process; MoF assigned a strong role in managing fiscal risks. - The 2015 by-law requires feasibility analysis, value for money, budget affordability, and risk-sharing analysis by the PPP unit, but standard methodologies have not been developed. - PPPs are not fully embedded in the annual budget or MTBF; PPP transactions are recorded only if they involve budget support, with limited information in budget documentation. - Fiscal costs and fiscal risks from PPPs are not systematically accounted or reported; the PPP Law requires a registry of PPPs reaching financial closure after 2014 but lacks guidance on reporting or limits on government exposure. - The PPP unit lacks information on PPP contracts signed before 2014 and does not evaluate explicit or contingent liabilities related to those contracts. - The authorities plan to adopt IPSAS by 2021; the IPSAS standard applicable to PPPs is IPSAS 32: “Service Concession Arrangements-Grantor”, issued in November 2011. - Cabinet decision no. 840 dated 31/7/2016 granted exceptions from the PPP law to the water and energy sectors for two years, reducing MoF oversight for these sectors and weakening the oversight framework. - The limited oversight and lack of information on current PPP agreements leave Jordan exposed to potential fiscal costs and risks from long-term PPP contracts. - Up to 2016, accumulated expenditures in PPP physical assets amount to (data continuation not provided in excerpt). *Sources: Staff estimates.* ### 6.0 billion of USD or about 16 percent of GDP (Figure 29), with many new PPP projects already in ### cr17366 - 6.0 billion of USD or about 16 percent of GDP (Figure 29), with many new PPP projects already in ### Public-private partnerships (PPPs): scale, sectoral concentration, and government support - Accumulated PPP stock until 2016: 6.0 billion USD or about 16 percent of GDP. - Sector concentration: 70 percent of the 6.0 billion USD are PPP contracts in the electricity and water sectors. - Except for Queen Alia International Airport, most PPPs in Jordan are government-funded projects that: - Require direct payments from either the government or an SOE during the operation period. - Typically have significant fiscal risks to government (e.g., termination clauses, take-or-pay clauses). - Government support timeline: - Since 2003 the government has provided direct and indirect support (i.e., subsidies and guarantees) to many PPPs. - Government support in the early 2000s was through subsidies, impacting the government deficit. - From 2012 onward, government support—mostly in the energy sector—has been through guarantees, which neither impact the deficit nor are reported in the stock of public guarantees. - Example of external assistance: USAID, with a permanent long-term resident advisor, is supporting the PPP unit of the MoF and assisting in development of a dedicated PPP database. ### Regulation of infrastructure companies (Strength – Medium; Effectiveness – Low) - Market structure and regulators: - Railway companies retain a monopoly in railway transport. - Electricity market dominated by state-owned NEPCO as manager of the electricity system and single buyer for electricity generation. - Water sector regulated by the Ministry of Water and Irrigation; pricing decisions rest with the CoM. - Several independent regulators established: Energy and Minerals Regulatory Commission; Telecommunications Regulatory Commission; Maritime authority; Civil Aviation Regulatory Authority; Land Transport Regulatory Commission. - Competition and regulator resources: - Four mobile operators and six power generation companies exist, but competition is limited in most markets. - Regulators do not have full financial independence: all regulators get allocations for their current and capital budget and a permission for staffing from CG. ### SOE investments, oversight, and fiscal risks - Coordination and oversight: - SOE investments are coordinated with CG, but oversight of SOE investment is weak; reports focus primarily on financial performance and lack consolidated operational performance or fiscal risk assessment. - Government approves annual budgets, including investment plans, of SOEs; line ministries monitor core business and coordination of investment plans with sector strategies. - Financing of SOE capital expenditures: own resources, capital grants, and on-lending from the CG. - Fiscal exposure and cost-recovery issues: - Total SOEs/GUs capital expenditure is 587 million JD (419 million JD is financed by their own resources) which amounts to almost half of the General Budget capital expenditure (1216.8 million JD) for 2017 Budget. - Jordan faced cost recovery problems in electricity and water sectors that impacted financial sustainability. - As of end-2016, CG guaranteed debts and advances to NEPCO and WAJ reached 16.7 percent and 5.1 percent of GDP, respectively. - Initiatives: government aims at returning NEPCO to cost recovery by 2017 and WAJ by 2020. - Reporting and coordination gaps: - Limited coordination between MoF units in assessing overall fiscal risks from SOEs. - GBD publishes annual budgets of Own Budget Agencies (OBAs) but no specific procedures for coordination of financial oversight of SOEs. - MTBF or annual budget documents do not address fiscal risks related to SOEs. - Government Units Budget has 62 OBAs whereas the Bulletin has only 22 SOEs information. - Suggested institutional improvements: - A unit in the MoF should be specifically assigned to monitor SOEs’ financial and operational performance and produce a consolidated report on SOEs performance. - MoF should design and implement a roadmap for monitoring and oversight of SOEs in line with good practices. - GoJ should reclassify Government Units according to the GFSM definition of public corporations as SOEs. - OECD guidance highlights: - SOEs should report material financial and non-financial information, disclose material risk factors and state financial assistance, subject annual financial statements to independent external audit, and publish an aggregate annual report on SOEs. ### Investment allocation — Multi-year budgeting (Strength – Medium; Effectiveness – Medium) - Medium-term framework and disclosure: - Capital expenditure is forecast over a three-year rolling period, but projection of the full cost of major projects is not disclosed in budget documentation. - The Organic Budget Law requires tables showing current and capital expenditure estimations and indicative data for following years; all statements for years following the budget year are indicative and non-binding. - Disclosure of total project costs over full life cycle is not mandatory. - Performance against ceilings and outturns: - Ceilings set for out-years are not binding, but outturns have not exceeded indicative ceilings for capital expenditure since 2012. - On average, the budget outturn is 11 percent below the year budget and the previous year indicative forecast. - Recommendation: - Develop a full-cost approach of projects over their lifetime and set ceilings for capital expenditure based on projects’ full cost to strengthen financial sustainability assessment and control. ### Budget comprehensiveness (Strength – Medium; Effectiveness – Medium) - Coverage and omissions: - Budget documentation provides extensive information on general budget and government units’ capital spending (54 institutions/ministries and 61 Government Units). - Some externally-funded projects undertaken outside the country budget system may not be included in the budget documentation. - Universities are classified as public sector entities and not as government units. - No legal provision defines disclosure related to obligations under PPPs. - PPP disclosure gaps: - Budget does not include information on PPP transactions; fiscal risks from PPPs are not evaluated and disclosed. - Contingent liabilities and direct subsidies to PPPs should be documented in the budget and financial reports. - Budget documentation does not include information or ceilings related to cash advances to SOEs. - Recommendations: - Expand budget information to include PPPs and an annex on externally financed projects not included in either budget. - Document contingent liabilities and subsidies provided to PPPs to enable more accurate comparison with cost of direct government projects and improve investment decision-making. ### Budget unity and maintenance costing (Strength – Good; Effectiveness – Medium) - Presentation and classification: - Capital and current budget prepared by GBD and presented in a single document based on economic and sectoral classifications. - MoPIC involved in project selection but does not take part in consolidated budget preparation. - Budget includes appropriations for recurrent and capital costs in the budget year and indicative estimates for the MTEF period. - Recurrent and capital maintenance disclosure: - Budget discloses recurrent and capital maintenance costs associated with projects but lacks government-wide methodologies for determining maintenance needs. - Appropriation structure shows capital costs and associated recurrent and capital maintenance in separate lines, making it difficult to extract full cost of capital projects over the budget period. - Misclassification examples: in the 2017 Budget, MOMA transfers to municipalities (Developing and Improving Municipalities) amounting to 171 million JD are recorded as capital expenditure out of 1,216.8 million JD total capital expenditure (14 percent of total Capital expenditures). - Some agencies rely on technical reports to assess maintenance needs, but budget allocations do not necessarily reflect those needs, resulting in under-maintenance and reduction of public fixed assets in the medium term. - Recommendation: - Bring current-capital expenditure classification in line with GFSM2014 standards to improve budget and data analysis of current and capital expenditures. ### Project appraisal (Strength – Low; Effectiveness – Low) - Appraisal processes and standards: - No systematic government appraisal of investment project proposals; externally-funded projects assessed according to donor requirements. - Projects proposed for inclusion in the EDP are presented in a one-page summary focused on contribution to government objectives. - Sectoral committees review proposals; templates exist but there are no standard methodologies for project development and appraisal, no requirement for standardized cost/benefit analysis, and no systematic risk analysis. - Large projects (above 10 million JD) usually submitted for external funding consideration and may require more comprehensive appraisal, but no standardized methodology exists. - Consequences and implementation performance: - Lack of systematic appraisal undermines project quality and leads to uncertainties and delays in implementation. - Project design and appraisal are often done after funding decision for budget-funded projects. - Preliminary data from the newly established monitoring system indicate: - Approximately one third of projects under implementation encounter delays and other challenges. - Eight out of the nine largest projects are delayed, with delays ranging from one to four years and average delay of two years. - Seven out of the nine largest projects have cost overruns, ranging from 3 to 53 percent of cost increase and average increase 12 percent. - Recommendation: - Establish standardized methodologies for project appraisal, including cost/benefit and risk analysis, and strengthen central coordination and support for project development to reduce delays and cost overruns. *Source: IMF staff report content from cr17366 PDF.* ### 51. Adequate project appraisal is an absolute prerequisite for an efficient capital ### 51. Adequate project appraisal is an absolute prerequisite for an efficient capital ### Project appraisal and project selection (Institution 10: Project selection — Strength – Low; Effectiveness – Low) - Adequate project appraisal is an absolute prerequisite for an efficient capital investment process; improvements in this area are a high priority. - Absence of well-designed and thoroughly vetted project proposals undermines public investment planning and creates risks across the public investment process. - Many countries have comprehensive mechanisms for appraisal and selection; Appendix I provides a brief overview of the PIM appraisal and selection mechanism in Colombia. - The EDP serves as a pipeline of vetted projects for possible budget or external funding, but: - Inclusion in the EDP is only a first step toward possible selection for implementation. - Projects considered for the EDP are primarily assessed for their contribution to sector targets. - There are no published selection criteria, and in-depth analysis of costs benefits and project readiness is not mandatory. - The process is not constrained by a specified resource envelope; the volume of projects in the EDP is much higher than available funding, undermining EDP credibility. - Ministry of Health example: - MoH has 128 projects in the 2016–2018 EDP. - 101 are ongoing. - 27 are new. - None of the 27 new projects were funded in the budget, but the MoH hopes to mobilize external funding for seven or eight of the projects. - Ministries may propose projects not in the EDP at the time of budgeting, further undermining EDP credibility and relevance. - Table 3. EDP Allocations and Capital Budget Allocations 2016-2018 (million JD): - 2016: EDP needs estimate 2,415; General budget 1,217; Government institutions budget 587; Financing gap 611 - 2017: EDP needs estimate 3,683; General budget 1,478; Government institutions budget 647; Financing gap 1,558 - 2018: EDP needs estimate 3,480; General budget 1,658; Government institutions budget 602; Financing gap 1,220 - In practice, project prioritization and selection is largely done by line ministries: - GBD provides each ministry a budget envelope for capital spending; ministries determine which projects to include and annual allocations. - Most budget-submitted projects are in the EDP, but some projects have been funded without prior EDP review. - For 2017, GBD’s budget circular required projects submitted for budget consideration to have been subject to feasibility studies prior to submission, but GBD does not carry out in-depth project review or verification of project readiness and rarely challenges ministry priorities. - Major, externally funded projects are reviewed by MoPIC and approved by the Cabinet, but there are no specific selection criteria. - Key conclusion: Improving the project selection process requires first establishing an adequate, rigorous, and transparent project appraisal process. ### Investment implementation — Protection of investment (Institution 11: Protection of Investment — Strength – Low, Effectiveness – Medium) - Capital investments are appropriated on an annual basis; project costs presented as indicative information for the two years following the budget year and do not cover full project life-cycle. - Appropriations and transfers: - Transfers from current to capital under same chapter allowed with Minister of Finance approval. - Transfer from capital to current expenditures authorized only by law. - Unspent capital allocations should fully lapse at year-end; project-related expenditure should be reappropriated next year. - In practice: - Capital allocations are reasonably protected. - Multi-year contracts are allowed and incorporated into budget preparation. - Indicative allocations for the two years following provide reference ceilings for line ministries. - Year-reallocations remain limited: in 2016, reallocations from capital expenditure to recurring expenditure represented 4.9 percent of total capital expenditure. - Re-appropriation of unspent resources is prioritized and rarely leads to project interruption. - Use of trust funds to set aside resources for unpaid invoices provides a de facto carry-over mechanism. - Recommendation: Legal framework should include explicit provisions regarding usage of carry-over to strengthen protection and respect the intent of the budget law. ### Availability of funding (Institution 12: Availability of Funding — Strength – Medium, Effectiveness – Low) - Cash forecasts and commitment control systems are in place: - Line ministries provided with commitment ceilings for whole year at the beginning of the year. - Each ministry produces a cash flow forecast in January and updates monthly. - Commitments released quarterly for recurring expenditure and monthly for capital expenditure. - Challenges: - Capital outlays frequently not prioritized when cash allocations are constrained. - Advances to some critical SOEs create financial tensions that can limit cash availability for budgeted projects. - External grants and loans generally included in the budget as revenue or financing resources. - Project accounts receiving external funding may require separate bank accounts outside the TSA under loan/grant agreements; units included in the budget are recorded in GFMIS, ensuring Treasury awareness. - Cash rationing leads to project delays despite consolidation progress: - Consolidation within TSA and improved information on accounts outside TSA have improved cash availability. - Accounts receiving external funding in separate bank accounts represented 3 percent of total expenditure in 2015 (2016 PEFA). - Priority: Further strengthening cash management is a medium priority for PIM: - Improve cash forecasting and TSA integration with debt management. - Limit advances to SOEs to short-term financing needs and anticipate them in cash-flow forecasts. - Treat advances with no expectation of reimbursement as subsidies. ### Transparency of execution (Institution 13: Transparency of execution — Strength – Medium; Effectiveness – Medium) - Monitoring: - All budget-funded construction projects implemented by MoPW and monitored according to standardized rules. - All projects are monitored by external consultants appointed by MoPW (budget-funded) or MoPIC (externally funded). - MoPIC receives monthly monitoring reports for all projects in the EDP and provides a consolidated, quarterly monitoring report to the Prime Minister’s Delivery Unit (PMDU). - Line ministries receive monthly monitoring reports from MoPW and MoPIC; external donors receive progress reports from MoPIC per donor requirements. - PMDU monitors mega projects (defined by Cabinet as politically important) and can escalate implementation challenges. - PMDU has established a project management information system accessible to all ministries; MoPIC uses it to produce comprehensive monitoring reports. - Procurement and audit shortcomings: - Procurement governed by Government Works by-law (1986): open, competitive bidding is main method. - Tendering usually limited to Jordanian companies unless international tendering is required by donor or lack of capacity. - In 2016, GTD managed 132 tenders, of which only seven were subject to international tendering. - A government procurement website provides information on tenders; no fully independent tender appeals process exists. - MoPW has established an appeals mechanism where another directorate reviews appeals, but Minister endorsement requirement means it is not fully independent. - The Accountability Bureau (AB) authorized to audit all aspects of capital project implementation; emphasis on ex-ante and continuous auditing; ex-post audit not a high priority. - Practices undermining transparency: - Special tender committees, established by Cabinet for specific projects (notably energy and water), undermine transparency and competition. - There is no information about these tenders on the government procurement website. - Some sectors (military and security procurement, universities, municipalities) have general exemptions from procurement law. - Ex-post audit reports are not published; findings are summarized in AB annual report. - Recommendations: - Ensure all procurement is competitive and follows similar rules. - Avoid special tender committees and exceptional procurement rules. - Reduce political involvement in tendering. - Establish an independent procurement appeals mechanism. - Implement more systematic and better documented ex-post audit of major projects. - Facilitate international tendering for complex projects. ### Management of project implementation (Institution 14: Management of project implementation — Strength – Medium; Effectiveness – Low) - MoPW structure and responsibilities: - MoPW has three sector directorates for project implementation: roads, schools, and other buildings. - Accountability assigned to directors and section heads. - Annual budget law provisions require GBD (budget-funded) or donor approval (externally funded) for project cost increases before contract variation orders are signed. - Monitoring consultants prepare project completion reports for externally funded projects when donors require them; project completion reports are not required for budget-funded projects. - Weaknesses: - MoPW implements all government-funded construction projects, contributing to consistency, but: - Implementation plans prepared only after budget approval. - Cost increases lead to extended implementation times without reassessment of project rationale. - No systematic portfolio analysis of implementation; no available statistics on cost overruns and delays. - Preliminary EPD monitoring data indicate significant delays in large and complex projects; smaller projects less problematic. - MoPW indicated that the portfolio of projects under implementation amounted to 1.2 billion JD. - Recommendations to improve implementation over time: - Comprehensive project design and appraisal, especially for large/complex projects, including preparation of implementation plans prior to budget decisions. - Require project completion reports for all projects. - Implement systematic ex-post evaluation to facilitate portfolio analysis and learning. - Make EPD monitoring reports widely available to build empirical basis for future project development and implementation. ### Assets accounting (Institution 15: Assets accounting — Strength – Low; Effectiveness – Low) - Government financial statements do not recognize or report the value of government assets. - Monitoring of government assets, particularly fixed assets, is incomplete: - Government agencies prepare cash-based accounts with no information on non-financial assets. - SOEs, including NEPCO, prepare financial statements according to IFRS. - The Government Shareholding Company will manage GoJ’s shareholdings in 24 companies and prepare a report when fully functional. - Asset registers and inventories: - Government agencies are required to maintain asset registers, but in practice this is not done. - MoF revised its Financial By-law in 2010 to require all government agencies to have asset registries. - An inventory of moveable assets (vehicles, office furniture) is maintained; immoveable assets (buildings) are not. - Very limited systematic surveying of stock, value, and condition of nonfinancial assets. *Source: cr17366 - 51. Adequate project appraisal is an absolute prerequisite for an efficient capital* ### 70. Public asset data to be produced through the implementation of IPSAS for the whole ### 70. Public asset data to be produced through the implementation of IPSAS for the whole ### Public asset data and IPSAS implementation - Finding: Public asset data to be produced through the implementation of IPSAS for the whole government will improve the efficiency of public investment decision making process, but full IPSAS implementation will take some time and efforts. - Government intention: The MoF intends to implement the accrual basis IPSAS standard as part of its public sector accounting reforms. - Phase IV focus: Phase IV of the IPSAS Implementation Plan will focus on the government agencies that should establish accounting systems on the full accrual basis adhering to IFRS. - Enabler: The GFMIS will facilitate the transition to accrual accounting. - Challenge: Consolidating and reporting all accounting information from different agencies and SOEs may require significant improvement on the legislation, business practices and skills. - Recommendation (explicit): Ensure timely implementation of the “Roadmap for the Implementation of IPSAS” and Financial By-Law 2010 on asset registry. (MOF and line ministries). ### A. Investment Planning Institutions — Strengthen Strategic Planning - Issue 1 (finding): The planning process for public investment is fragmented with roles and responsibilities shared by a complex grid of institutions (i.e., MoF, MoPIC, GBD, PM office). Coordination between these institutions is poor, each generating a multiplicity of planning documents, without a clear prioritization of projects or clear link to the budgetary capacity. In addition, some projects can be financed without going through the EDP cycle. - Recommendation 1: Improve the quality of strategic planning by clarifying roles and responsibilities, enhancing coordination mechanisms between the institutions involved, and ensuring that strategic project go through the EDP cycle. - The MOPIC should take the lead in coordinating the strategic planning process to ensure its consistency and “realism”, technical feasibility, and financial viability. MoPIC should give priority to the implementation of the PIM framework developed by the WB and approved by government in April 2015 to develop existing PIM capacities. (MoPIC and line ministries in line with timetable in the PIM framework). - All initiatives and projects should be included in the EDP (mega projects, PPPs, externally financed projects). (PMDU, MOF, MoPIC, and line ministries in line with timetable in the PIM framework). - Clearly distinguish capital expenditure from current expenditure in the EDP. (MoPIC and PMDU, end 2017) ### A. Investment Planning Institutions — Strengthen the oversight of PPPs - Issue 2 (finding): Exemptions to the 2014 PPP Law approved by Cabinet for the water and electricity sectors have reduced the MoF’s oversight function over fiscal risks arising from PPPs, increasing regulatory uncertainty and potentially future financial costs for government. There is no systematic recording or monitoring of explicit and contingent liabilities of existing PPPs, despite their growing number and importance in Jordan’s public investment portfolio. - Recommendation 2: Strengthen the oversight and disclosure practices of PPPs through: - Preserve the oversight role and responsibility of the PPP unit in the MoF as prescribed by the 2014 PPP law and 2015 by-law. The PPP Unit of the MoF should retain its mandate to review Value for Money (VfM), budget affordability, and fiscal risk analysis of all PPP projects at different stages of the project cycle, regardless of the economic sector involved, or the type of financing agreements (e.g., BOT, power-purchase agreements). (Cabinet, 2017) - Record and disclose in an annex together with the budget documents data on existing PPP contracts (including those signed before the 2014 PPP law), including: (PPP Unit MOF, 2018) - investment in physical assets by PPP companies (regardless of whether they are classified public or private); - long-term cash-flow forecasts of gross costs and revenues of PPP companies and their associated PV - estimates of government’s future payments to PPP companies (e.g., availability payments) and their associated present value; and - assessment of the risks associated with PPPs (e.g., explicit guarantees, traffic risks, force majeure, etc.) ### A. Investment Planning Institutions — Improve SOEs oversight - Issue 3 (finding): SOE investments are coordinated with CG, but oversight of SOE investment plans is weak, and monitoring focuses primarily on financial performance. No reports on operational performance or fiscal risk assessment are provided. There is no centralized reporting of the cost of quasi-fiscal activities or risks of SOEs. - Recommendation 3: Design and implement a roadmap for improving central oversight of public investment plans and financial performance of SOEs. - A unit in the MoF should be assigned to monitor SOEs’ financial and operational performance and produce a consolidated report. The unit should collaborate with the shareholding company (The Government Shareholdings' Management Company) on oversight issues. (MOF, 2017) - To assess the real performance of the SOE sector, classify the Government Units in line with international standards (i.e., GFSM 2014). (MOF, 2017) ### B. Investment Allocation Institutions — Strengthen project appraisal - Issue 4 (finding): The lack of a systematic and consistent appraisal process undermines project quality and leads to uncertainties and delays in project implementation. - Recommendation 4: Strengthen project appraisal to ensure that: (i) all projects are well-defined and address clear objectives; (ii) estimated project benefits are higher than their costs; (iii) project implementation is feasible; and (iv) projects are sufficiently developed so that they can be implemented immediately after final funding decision. - Develop comprehensive guidelines for capital project preparation; (MOPIC with WB support, 2017) - Give MOPIC formal responsibility to assess all public investment projects, regardless of source of funding, to ascertain that they are fully appraised and documented, prior to any funding decisions. (Cabinet, 2017) - Provide training to MOPIC’s and line ministry’ staff in project appraisal and review in collaboration with the WB. (MOPIC with WB support, 2017–19) - Apply new guidelines to EDP for 2019–2020 (MOPIC, 2018). ### B. Investment Allocation Institutions — Strengthen project selection - Issue 5 (finding): There are no standardized, central criteria for project selection, and the EDP is not an effective gateway for project selection. In practice, project prioritization and selection is largely done by line ministries, with some exception for major, externally funded projects. - Recommendation 5: Strengthen the EDP process to ensure that it provides a credible and realistic pipeline of high-priority, high-quality projects, and that project selection is done consistently regardless of funding sources. - Develop guidelines for the EDP process to ensure that project proposals are fully prepared and compatible with realistic fiscal envelopes (MOPIC, GBD, MOF, 2017). - Establish and publish clear and transparent criteria for project selection for the EDP (MOPIC, with World Bank support, 2017). - Update budget guidelines to ensure that budget funding decisions are consistent with EDP (GBD, 2017). - Apply new provisions for 2019 budget (MOPIC, GBD, 2018). ### C. Investment Implementation Institutions — Introducing a carry-over rule - Issue 6 (finding): The current practice of using trust funds to transfer lapsed appropriations for unpaid invoice balances from one budget year to the next undermines both the basis of the appropriation and the intent of the budget law as approved by parliament. - Recommendation 6: Based on the review of the usage of trust funds for carrying over expenditure, consider the introduction of a clearly defined and transparent carry-over mechanism in the PFM legal framework. - Define the criteria allowing budget managers to retain unspent appropriations; (MoF and GBD, with support from METAC, 2018). - Define quantitative restrictions to the usage of carry-over such as: (i) a limit on the amount of carry-over authorized for a given fiscal year; (ii) a ceiling on the amount of the accumulated stock of carry-over, or (iii) limits on the draw-down of accumulated carry-overs; (MoF and GBD, with support from METAC, 2018). - Set the level of carry-over to restrain their use to the initial object of the appropriation (e.g., to a specific investment project). (MoF and GBD, with support from METAC, 2018). ### C. Investment Implementation Institutions — Strengthen project implementation and oversight - Issue 7 (finding): Implementation plans are only prepared after budget approval of a project. Cost increases lead to extended implementation times, but there is never any reassessment of project rationale. Until now, there has been no systematic portfolio analysis of project implementation and no comprehensive statistics on cost overruns and delays. There is still scope for improvements in procurement, ex-post evaluations, and ex-post audit. - Recommendation 7: Strengthen project implementation and oversight by ensuring consistent procurement rules, systematic project completion reports, and effective ex-post audit of major projects. - Update procurement legislation to ensure that procurement of public investment is based on competitive, international tenders, that all tenders and awards are fully disclosed on the website of the GTD, and that there is an independent tender appeals mechanism. (GTD, with World Bank support, 2018). - Update EDP guidelines to include specific provisions for comprehensive project completion reports for all public investment projects, with disclosure of cost overruns and project delays, and identification of lessons learnt (MOPIC, 2018). - Include in AB work plan at least 10 ex-post audits of major public investment projects each year, and publish the audit reports (AB, gradually phase in 2018). ### C. Investment Implementation Institutions — Register and valuate fixed assets - Issue 8 (finding): The value of fixed assets is not recognized and reported in financial statements. Although government agencies are required to maintain asset registers, in practice this is not done. - Recommendation 8: Ensure timely implementation of the “Roadmap for the Implementation of IPSAS” and Financial By-Law 2010 on asset registry. (MOF and line ministries). ### Appendix highlights — Appraisal and Selection of Public Investment Projects in Colombia (summary) - Colombia’s PIP (equivalent to the capital budget) applies a comprehensive set of assessments: - Project identification includes analysis of underlying problems and expected beneficiaries, and initial indications of project objectives and options. - Project preparation follows clearly specified methodologies to clarify project features. - Project appraisal is rigorous and involves sponsoring agencies’ project offices, planning offices in line ministries, and the National Planning Department (DNP). - DNP determines feasibility and pre-selection for inclusion in the BPIN database. - The PIP is prepared from BPIN projects, is consistent with the medium-term budget framework, and is compiled by DNP and consolidated with the rest of the budget proposal by the MOF. *Source: cr17366 - 70. Public asset data to be produced through the implementation of IPSAS for the whole* ### 7. Budget Comprehensiveness: To what extent is capital spending undertaken through the budget? ### 7. Budget Comprehensiveness: To what extent is capital spending undertaken through the budget? ### 7. Budget Comprehensiveness — inclusion and disclosure of capital spending - 7.a. Is capital spending mostly undertaken through the budget? - Significant capital spending is undertaken by extra-budgetary entities with no legislative authorization or disclosure in the budget documentation - Significant capital spending is undertaken by extra-budgetary entities, but with legislative authorization and disclosure in the budget documentation - Little or no capital spending is undertaken by extra-budgetary entities - 7.b. Are externally funded capital projects included in the budget documentation? - Externally funded capital projects are not included in the budget documentation - Externally funded capital projects are included in an appendix to the budget documentation - Externally funded capital projects are integrated into ministerial or sectoral investment budgets in budget documentation - 7.c. Is information on PPP transactions included in the budget documentation? - No information on PPP transactions is included in the budget documentation - Information on PPP transactions is included in supplementary information or an appendix to the budget documentation - Information on PPP transactions is fully integrated into the tables on capital investment by ministry or sector in the budget documentation ### 8. Budget Unity — integration of capital and recurrent budgeting - 8.a. Are capital and recurrent budgets prepared and presented together? - Capital and recurrent budgets are prepared by separate ministries and/or presented in separate budget documents - Capital and recurrent budgets are prepared by a single ministry and presented in a single document but not using a program classification - Capital and recurrent budgets are prepared by single ministry and presented in single document, using a program classification - 8.b. Does the budget include appropriations of the recurrent costs associated with capital investment projects? - The budget does not include appropriations of the recurrent costs associated with investment projects - The budget includes appropriations of the recurrent costs associated with investment projects for the budget year only - The budget includes appropriations (or estimates) of the recurrent costs associated with investment projects for the budget year and the medium term - 8.c. Does the budget classification and CoA distinguish clearly between recurrent and capital expenditure, in line with international standards? - The budget classification and CoA includes some recurrent expenditure in the definition of capital expenditure or some capital expenditure in recurrent expenditure - The budget classification and CoA includes some capital expenditure in financing or some financing in capital expenditure - The budget classification and CoA clearly distinguishes between recurrent and capital expenditure and financing in line with international standards ### 9. Project Appraisal — systematic appraisal and risk assessment - 9.a. Are capital projects subject to standardized cost-benefit analysis whose results are published? - Capital projects are not systematically subject to cost-benefit analysis - Cost-benefit analysis is usually conducted for major projects but not systematically published - Cost-benefit analysis is conducted systematically for major projects and the results published - 9.b. Is there a standard methodology and central support for the appraisal of projects? - There is no published methodology or central support for project appraisal - There is either a standard methodology or central support for project appraisal - There is both a standard methodology and central support for project appraisal - 9.c. Are risks taken into account in project appraisal? - Risks are not systematically assessed as part of the project appraisal - A risk assessment covering a range of potential risks are included in the project appraisal but budgets do not include contingency reserves to cater for possible cost overruns - A risk assessment covering a range of potential risks are included in the project appraisal and budgets include contingency reserves to cater for possible cost overruns ### 10. Project Selection — institutions, criteria, and pipeline management - 10.a. Does the government undertake a central review of major project appraisals before decisions are taken to include projects in the budget? - Project selection is largely a decision of the line ministries - Major projects are reviewed by MoF staff prior to inclusion in the budget. - All major projects are scrutinized by MoF staff and with input from external experts prior to their inclusion in the budget - 10.b. Does the government publish and adhere to standard criteria for project selection? - There are no published criteria for project selection - There are criteria published for project selection but projects are regularly selected without going through the required selection process - There are published criteria for project selection and generally projects are selected through a required selection process - 10.c. Does the government maintain a pipeline of approved investment projects for including in the annual budget? - Investment projects are included in the budget on an ad hoc basis - The government maintains a pipeline of approved investment projects but other projects may be selected for financing through the annual budget - The government maintains a comprehensive pipeline of investment projects which is used for selecting projects for inclusion in the annual budget and for the medium term ### 11. Protection of Investment — appropriation, virement, and carryover - 11.a. Are total project outlays appropriated by Parliament at the time of commencement of a project? - Outlays are appropriated on an annual basis - Outlays are appropriated on an annual basis, but information on total project costs is included in the budget - Total project outlays are appropriated on commencement of the project, with adjustments being made to the budget appropriation on a year by year basis - 11.b. Are in-year transfers of appropriations (virement) from capital to current spending prevented? - There are no limitations on virement from capital to current spending - Virement from capital to current spending may be approved by the MoF - Virement from capital to current spending is allowed only by Act of Parliament - 11.c. Can unspent appropriations for capital spending be carried over to future years? - Unspent appropriations for capital spending lapse at the end of the year - Unspent appropriations for capital spending may be carried over within certain limits - Unspent appropriations for capital spending may be carried over without limitation ### 12. Availability of Funding — cash planning, release, and integration of external financing - 12.a. Are ministries/agencies able to plan and commit expenditure on capital projects in advance on the basis of reliable cash flow forecasts? - Cash flow forecasts are not prepared or updated regularly and ministries/agencies are not provided with commitment ceilings in a timely manner - Cash flow forecasts are prepared or updated quarterly and ministries/agencies are provided with commitment ceilings at least a quarter in advance - Cash flow forecasts are prepared or updated monthly and ministries/agencies are provided with commitment ceilings for the whole year - 12.b. Is cash for project outlays released in a timely manner? - The financing of project outlays is frequently subject to cash rationing, leading to significant delays in project implementation - Cash for project outlays is sometimes released with delays, leading to some delays in project implementation - Cash for project outlays is normally released in a timely manner according to the appropriation - 12.c. Is external (donor) financing of capital projects integrated into cash management and the TSA? - External financing is largely held in commercial bank accounts outside the central bank’s government accounts/TSA - External financing is held at the central bank’s government accounts but is not part of a TSA - External financing is fully integrated into a TSA ### 13. Transparency of Budget Execution — procurement, monitoring, and audit - 13.a. Is the procurement process for major capital projects open and transparent? - Few major projects are tendered in a competitive process and the public has limited access to procurement information - Many major projects are tendered in a competitive process but the public has only limited access to procurement information - Most major projects are tendered in a competitive process and the public has access to complete, reliable, and timely procurement information - 13.b. Are major capital projects subject to monitoring during project implementation? - Most major capital projects are not monitored during project implementation - For most major projects, annual project costs as well as physical progress are monitored during project implementation - For all major projects, total project costs as well as physical progress are centrally monitored during project implementation - 13.c. Are ex-post audits of capital projects routinely undertaken? - Major capital projects are usually not subject to ex-post external audit - Some major capital projects are subject to ex-post external audit, information on which is published by the external auditor - Most major capital projects are subject to ex-post external audit information on which is regularly published and scrutinized by the legislature *Source: cr17366 - 7. Budget Comprehensiveness: To what extent is capital spending undertaken through the budget?* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17366.pdf_