## htnea2025001 - Introduction ## Source details **Canonical URL:** [htnea2025001 - Introduction](https://www.imf.org/-/media/files/publications/howtonotes/2025/english/htnea2025001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/howtonotes/2025/english/htnea2025001.pdf.md) - [Structured JSON version](/-/media/files/publications/howtonotes/2025/english/htnea2025001.pdf.json) --- ### Introduction and purpose - Public investment is particularly important for low-income developing countries (LIDCs) to: improve and expand infrastructure, provide basic public services, climate-proof infrastructure, and achieve the UN Sustainable Development Goals. - Efficient public investment management (PIM) is necessary to realize expected benefits; inefficient investment can produce “white elephants” and crowd out productive investments. - In 2020, average efficiency loss in public investment in LIDCs was estimated to be as high as 54 percent (Schwartz and others 2020). - Well-designed projects can help countries access financing with better conditions, including grants and concessional loans from international financial institutions. - Reform success requires realistic design and implementation that reflect country circumstances, capacities, realistic targets and timetables, and buy-in from top leadership and stakeholders. - The note focuses on practical steps for LIDCs and distinguishes basic practices (realistic initial reform objectives for low-capacity countries) and medium practices (objectives for medium-term reforms). ### Key analytical findings on PIM efficiency - Efficiency measurement and frontier analysis: - Efficiency is measured as the ability to transform a given level of resources into a larger volume or quality of infrastructure assets; benchmarking against best performers is a common methodology. - Efficiency frontier analysis assigns a score of 1 to frontier countries; less efficient countries receive a score less than 1. - Recent IMF-related quantitative findings: - For LIDCs and emerging markets, the average efficiency gap is 53 percent and 34 percent, respectively. - The gap for LIDCs can be as high as 96 percent. - Addressing inefficiency drivers (for example, through better infrastructure governance) could increase infrastructure output by 65 percent in LIDCs. - Many LIDCs have very significant efficiency gaps; the mean gap is close to 40 percent, with some cases exceeding 60 percent. - PIMA evidence: - The IMF Public Investment Management Assessment (PIMA) framework has been applied in 82 countries, including 37 LIDCs. - At the time of drafting, the total number of PIMA reports is 89 (including two subnational government PIMAs and five PIMA updates). - PIMA assesses institutional design (de jure) and effectiveness (de facto) across planning, allocation, and implementation stages. - PIMA scoring convention: low, medium, and high are equivalent to 1, 2, and 3 respectively. ### PIMA institutions most associated with low efficiency - Five institutions particularly weak in most LIDCs (from completed PIMAs): - monitoring of public assets - maintenance funding - project selection - project appraisal - multiyear budgeting - Five institutions highly correlated with public investment efficiency in LIDCs (principal component analysis): - project management - project appraisal - procurement - availability of funding - project selection - The note focuses on eight PIMA institutions that are least effective across LIDCs and have the most significant effect on public investment efficiency: - project appraisal - multiyear budgeting - maintenance - project selection - procurement - availability of funding - project management - monitoring of public assets ### Organization and implementation guidance - The note is organized into three sections after the introduction: - Overview of current public investment and PIM in LIDCs. - How to address main gaps via key functional reform priorities, with basic and medium practices and possible reform paths. - How to overcome reform implementation challenges and consolidate reforms. - Annex 1 provides examples of action plans to implement the reforms, drawing on Fiscal Affairs Department experience. - Practical reform design principles emphasized: - Tailor PIM reforms to country context and priorities. - Set realistic objectives and a limited set of high-priority reforms with a clear timetable over a three- to five-year period. - Incorporate PIM reforms into broader national development and PFM reform strategies. - Emphasize effectiveness of redesigned institutions and monitor the reform process with regular reporting to senior officials and ministers. --- ### Priority reform agenda — key bottlenecks and why they matter - Project appraisal - Fundamental for assessing strategic importance, expected costs and benefits, and readiness for implementation; inadequate appraisal prevents decision makers from ensuring projects achieve strategic objectives and maximize net benefits. - Appraisal quality has major implications for selection and monitoring. - Multiyear budgeting - Essential for credibility of project planning and efficiency of project implementation; absence risks delays, interruptions, crowding out of higher-priority projects, and reduced accountability. - Multiyear budgets should be consistent with realistic fiscal policies and national investment strategies. - Maintenance - Essential to preserve value and performance of public investments; spending on maintenance is often the most efficient use of funds on public assets (OECD 2021a). - Maintenance is systematically underfunded in most LIDCs; efficient maintenance critically depends on information about existing fixed assets. - Project selection - Should prioritize projects with highest likelihood of achieving strategic objectives and highest net benefits relative to costs; requires robust project appraisal and consistency with medium-term budgets. - Procurement - Must be open, competitive, and transparent to realize planned objectives at lowest possible cost and avoid corruption and governance issues. - Unwarranted confidentiality (e.g., failure to publish tender awards or contracts) raises suspicions of corruption or collusion. - Availability of funding - Major bottleneck in many LIDCs: in-year fiscal resources constrained by unrealistic revenue projections and unplanned expenditures; weak medium-term budgeting undermines future funding. - Weak cash forecasting and management may lead to cash rationing and arrears, undermining credibility of funding for ongoing investment projects. - Project management - Requires technical competence, clear implementation plans, good design, and clear accountability to deliver projects within budget and on time. - Proper preparation, stakeholder engagement, and permits are essential before construction to avoid delays and cost escalation. - Monitoring of public assets - Fundamental prerequisite for effective planning and management of public capital stock, including maintenance; building a comprehensive asset register is multiyear but initial steps are feasible. --- ### Defining PIM reform agendas — complementarities, sequencing, and practical constraints - Practical constraints - Low-capacity countries rarely can pursue multiple PIM reforms in parallel; targeted reform packages with clear objectives and realistic timetables are more effective. - Successive reform programs can cover all key aspects in the longer term; short- to medium-term clear prioritization is critical. - Complementarities and sequencing - Project appraisal mechanisms should support project selection and medium-term budgeting. - Institutional design is necessary but often not sufficient; governance, transparency, and enforcement capacity matter for effectiveness. - Financial limitations and political factors must be considered when defining reform priorities. - Cross-cutting PFM relevance - Multiyear budgeting, procurement, availability of funding, and monitoring public assets also strengthen broader public financial management (PFM). --- ### Summary advice on key PIM institutions in LIDCs (basic and medium practices) - Project appraisal (large projects, simplified for smaller projects) - Basic Practice: - Describe project rationale, objectives, main project options, cost and revenue estimates, project benefits and effects (qualitative), main risks, basic implementation, procurement, and financing plans. - Medium Practice: - Include cost-effectiveness analysis; extend project option analysis; detail estimates of costs, revenues, benefits, and effects (quantitative); extend risk analysis; develop implementation and procurement plans. - Medium-term budgeting - Basic Practice: - Demonstrate clear political commitment to medium-term public investment plans and their funding over the coming years, through cabinet or parliament endorsement. - Medium Practice: - Publish medium-term budget framework that incorporates medium-term public investment program, taking account of funding requirements of existing projects and potential new investments. - Maintenance - Basic Practice: - Provide general allocations to routine maintenance based on aggregate estimates of asset values and annual maintenance costs. - Medium Practice: - Augment funding of routine maintenance by selective support to capital repairs (major maintenance) and reinvestment projects, based on assessments of the condition of major assets. - Project selection - Basic Practice: - Simple but consistent framework for project selection comprising a limited number of qualitative criteria, including national development strategy targets. - Medium Practice: - Expand project selection criteria to include additional quantitative criteria, reflecting improvements in project appraisal capacities and clearly linked to national and sectoral policy, consistent with a medium-term budget framework. - Public procurement - Basic Practice: - Ensure procurement strategies are realistic and in line with legislation, that project documents provide the necessary basis for efficient procurement, and that contracts on public infrastructure projects are published. - Medium Practice: - Require procurement documents for public investments prior to project approval so that the procurement contract can be announced immediately. Publish forward-looking procurement plans for major entities. - Availability of funding - Basic Practice: - Prepare quarterly cash flow forecasts covering relevant inflows and outflows, including from development partners, and avoid delays in investment payment processing. - Medium Practice: - Prepare monthly cash flow forecasts and expedite processing of payment orders for public investments. - Project management - Basic Practice: - Ensure major projects have identified responsible project managers, clear implementation plans, and monitoring of progress against baselines. - Medium Practice: - Establish central public investment unit to support project managers and help address implementation challenges. - Monitoring of public assets - Basic Practice: - Establish register of major government assets, with information about type of asset, owner, location, and initial value, based on simplified reports or surveys. - Medium Practice: - Establish consolidated register of government assets, with information about asset condition and online updates of asset information and asset values. --- ### Foreign financing, external support, and capacity building (Box 3 key points) - Development partners often perform functions covered by critical PIM institutions (project appraisal, project selection, procurement, availability of funding). - Significant shares of public investment realized through grants or loans from development partners can lead to project selection driven by availability of external funding rather than screening against national priorities. - Reliance on external resources for appraisal is understandable given capacity constraints but is not viable long-term; countries need to develop domestic PIM capacities and ensure systematic assessment of all potential projects against national priorities. - External support should include knowledge transfer and domestic capacity building, and be independent from donors to avoid conflicts of interest. - Project implementation units set up for externally financed projects should over time be streamlined and integrated into governments’ project management frameworks. - Recent trends: multilateral and bilateral institutions have increased efforts to rely more on recipient countries’ systems and ensure capacity transfer during implementation; share of foreign project financing has been reduced in many countries as incomes and development levels increase. --- ### Practical guidance on project appraisal and staged capacity development - Appraisal objectives - Ensure all key project parameters are identified and considered and that information and analyses are realistic and credible. - Ensure consistent assessment across projects and sufficient information to decide whether a project needs further development or can be considered for funding and implementation. - Iterative approach - Appraisal should be iterative and differentiated by project size and complexity: basic appraisal for small, routine projects; extensive analysis for large, high-risk projects. - Only most beneficial proposals should reach full appraisal to avoid wasting scarce appraisal capacity. - Basic appraisal framework (required elements) - Identification and estimates of direct costs and revenues. - Qualitative assessment of effects on environmental and social conditions and regional growth and employment (using simplified scale: positive/negative and low/medium/high, if possible). - Identification of important project risks. - Appraisal components include: project rationale/objectives/targets; option analysis; project status and timetable; project description; cost estimates; revenue estimates; project benefits and effects; risk analysis; implementation plan; procurement strategy and plan; financing plan. - Capacity development path - As capacity develops, appraisal can include quantitative cost-effectiveness assessment, more detailed estimates, quantification of some benefits for simple cost–benefit analyses, and more elaborate risk analysis. - Appraisal should be scaled to country capacity so components are comprehensive but not overly demanding. --- ### Illustrative country examples and data highlights - Uganda — national parameters for project appraisal: - economic opportunity cost of capital (11 percent) - foreign exchange premium (7.25 percent) - premium on non-tradable outlays (1 percent) - value-added tax of 18 percent - Bangladesh — e-GP system (July 2011 to September 2018): - Open-tendering method: Tenders Initiated 141,529; Percent 68.0; Value (Billion BDT) 1,628.6; Percent 86.8 - Limited-tendering method: Tenders Initiated 63,318; Percent 30.4; Value (Billion BDT) 183.3; Percent 9.8 - Request for quotation: Tenders Initiated 1,777; Percent 0.9; Value (Billion BDT) 0.2; Percent 0 - One-stage, two-envelope tendering: Tenders Initiated 1,452; Percent 0.7; Value (Billion BDT) 64.9; Percent 3.5 - Direct procurement: Tenders Initiated 23; Percent 0; Value (Billion BDT) 0; Percent 0 - Selection under a fixed budget: Tenders Initiated 8; Percent 0; Value (Billion BDT) 0; Percent 0 - Selection-based consultant qualifications: Tenders Initiated 5; Percent 0; Value (Billion BDT) 0; Percent 0 - Quality- and cost-based selection: Tenders Initiated 4; Percent 0; Value (Billion BDT) 0; Percent 0 - Total: Tenders Initiated 208,116; Percent 100.0; Value (Billion BDT) 1,877.2; Percent 100.0 - Uzbekistan — in-year funding reforms outcomes: - Reforms improved cash availability; delays occurred in less than 5 percent of cases. - 2020 PIMA findings: investment projects had access to adequate funding; cash flow forecasts were updated monthly; budget organizations were provided with commitment ceilings for the full fiscal year. - Remaining shortcomings: donor accounts not fully included in TSA; cash flow forecasts beyond 1 month are not reliable. - Gambia — project management arrangements: - Centralized project coordination units within ministries and agencies manage individual capital projects; Ministry of Finance and Economic Affairs established a centralized project coordination unit responsible for planning, fiduciary and safeguard support, coordination, and reporting. - Tanzania — asset monitoring (Value of Property, Plant, and Equipment (Billion Tsh)): - 2021 / 2020 - Land: 17,771 / 17,227 - Roads: 19,568 / 17,491 - Office buildings and structures: 10,610 / 9,408 - Works in progress: 17,654 / 10,932 - Other: 29,279 / 23,860 - Total gross assets: 29,279 / 78,968 - Accumulated depreciation: (16,544) / (9,610) - Total net assets: 78,428 / 69,358 - Timor-Leste — selected PIM reform milestones: - Project Appraisal Guideline (August 2017) - Project Brief Standard Form (2017) - Model TOR for IF projects (February 2018) - Feasibility Study Guideline (May 2018) - Fund Administration Manual (December 2018) - Ex-Post Evaluation Guide (2019) --- ### Overcoming implementation challenges — the three As and reform delivery - Authority - Secure explicit high-level support anchored in legislation and policy documents; responsibility for reform should be clearly assigned to the relevant minister and senior civil servant. - Ability - Establish a dedicated PIM reform unit with necessary skills and capacity, headed by a project manager reporting to the responsible senior civil servant, with authority and sufficient resources. - Anchor the reform unit in a central ministry with clear functional responsibility. - Acceptance - Build capacity and support in ministries and agencies through proactive outreach, training, and support so stakeholders see benefits rather than additional burdens. - Practical guidance for reform design and monitoring - Set realistic objectives and a limited set of high-priority reforms linked to major PIM weaknesses with a clear timetable over a three- to five-year period. - Incorporate PIM reforms into broader national development and PFM reform strategies to secure political support. - Monitor reform implementation with regular reporting to senior officials and ministers and extend monitoring of the overall PIP to include specific metrics for reform progress and systemic implementation challenges. *Source: htnea2025001 - conclusions regarding the efficiency and effectiveness of measures to ensure climate-sensitive public investment in LIDCs (IMF How to Note).* ### Introduction ........................................................................................................... ### htnea2025001 - Introduction ### Introduction - Public investment is particularly important for low-income developing countries (LIDCs) to: improve and expand infrastructure, provide basic public services, climate-proof infrastructure, and achieve the UN Sustainable Development Goals. - Efficient public investment management (PIM) is necessary to realize expected benefits; inefficient investment can produce “white elephants” and crowd out productive investments. - In 2020, average efficiency loss in public investment in LIDCs was estimated to be as high as 54 percent (Schwartz and others 2020). - Well-designed projects can help countries access financing with better conditions, including grants and concessional loans from international financial institutions. - Reform success requires realistic design and implementation that reflect country circumstances, capacities, realistic targets and timetables, and buy-in from top leadership and stakeholders. - The note focuses on practical steps for LIDCs and distinguishes basic practices (realistic initial reform objectives for low-capacity countries) and medium practices (objectives for medium-term reforms). Advanced practices are not discussed. ### Public Investment and Public Investment Management in Low-Income Developing Countries - Efficiency is measured as the ability to transform a given level of resources into a larger volume or quality of infrastructure assets; benchmarking against best performers is a common methodology. - Recent IMF-related analysis finds: - For LIDCs and emerging markets, the average efficiency gap is 53 percent and 34 percent, respectively. - The gap for LIDCs can be as high as 96 percent. - Addressing inefficiency drivers (for example, through better infrastructure governance) could increase infrastructure output by 65 percent in LIDCs. - Many LIDCs have very significant efficiency gaps; the mean gap is close to 40 percent, with some cases exceeding 60 percent. - Efficiency frontier analysis assigns a score of 1 to frontier countries; less efficient countries receive a score less than 1. ### Public Investment Management Priorities in Low-Income Developing Countries - The IMF Public Investment Management Assessment (PIMA) framework provides a basis for defining PIM reform programs; it has been applied in 82 countries, including 37 LIDCs. - At the time of drafting, the total number of PIMA reports is 89 (including two subnational government PIMAs and five PIMA updates). - PIMA assesses institutional design (de jure) and effectiveness (de facto) across planning, allocation, and implementation stages of public investments. - PIMA scoring convention: low, medium, and high are equivalent to 1, 2, and 3 respectively. - Completed PIMAs indicate five PIMA institutions are particularly weak in most LIDCs: - monitoring of public assets - maintenance funding - project selection - project appraisal - multiyear budgeting - A complementary principal component analysis (Box 2) identifies five PIMA institutions that are highly correlated with public investment efficiency in LIDCs: - project management - project appraisal - procurement - availability of funding - project selection - The note covers eight PIMA institutions that are least effective across LIDCs and have the most significant effect on public investment efficiency. These eight are: - project appraisal - multiyear budgeting - maintenance - project selection - procurement - availability of funding - project management - monitoring of public assets - The note outlines basic and medium practices for each institution, and emphasizes tailoring reforms to country specificities. ### Removing the Bottlenecks—Priority Reform Agenda (overview) - The note identifies key reform priorities to address main PIM bottlenecks in LIDCs and describes how to define reform agendas to overcome those bottlenecks. - It distinguishes realistic initial objectives (basic practices) for low-capacity countries from medium-term objectives (medium practices). - The reform agenda includes institutional priorities, practical steps for implementation, and examples of action plans in Annex 1. ### Key analytical findings and diagnostics referenced - PIMA-based evidence and IMF analytical work establish a statistical link between infrastructure governance (PIM institutions) and public investment efficiency: - A 2020 regression analysis using 62 PIMAs found a statistically significant link between PIM institutional strength and investment efficiency (Baum, Mogues, and Verdier 2020). - A subsequent IMF working paper identifies which PIMA institutions have the most significant effect on overall public investment output and efficiency in the 37 LIDCs covered by PIMAs so far. - Figure and box references in the source document provide: - Figure 1: Public Investment Efficiency Frontier—Hybrid Indicators - Figure 2: Average PIMA Scores by Income Group (Effectiveness) - Figure 3: PIMA Scores by Institution in 37 LIDCs - Box 1: PIMA Framework - Box 2: PIM Bottlenecks in LIDCs (principal component analysis results) ### Organization of the Note and Implementation Guidance - The note is organized into three sections after the introduction: - Overview of current public investment and PIM in LIDCs. - How to address main gaps via key functional reform priorities, with basic and medium practices and possible reform paths. - How to overcome reform implementation challenges and consolidate reforms. - Annex 1 provides examples of action plans to implement the reforms, drawing on Fiscal Affairs Department experience. *Prepared by Khaled Eltokhy, Nicoletta Feruglio, Kezhou Miao, Arturo Navarro, and Eivind Tandberg; January 2025.* ### conclusions regarding the efficiency and effectiveness of measures to ensure climate-sensitive public ### conclusions regarding the efficiency and effectiveness of measures to ensure climate-sensitive public investment in LIDCs ### C-PIMA overview - The IMF launched the Climate PIMA (C-PIMA) in 2021, and more than 40 assessments have been conducted so far. - The C-PIMA follows the same logic as the PIMA and comprises five pillars of PIM that are key for climate-smart infrastructure: planning, coordination across government, project appraisal and selection, budgeting and portfolio management, and risk management. - Given the early stage of climate-sensitive investment in most countries, the C-PIMA focuses on the design of these institutions and does not provide effectiveness scores or estimates of efficiency gaps. ### Removing the bottlenecks — priority reform agenda (key bottlenecks and why they matter) - Project appraisal - Fundamental for the whole PIM process; necessary to assess strategic importance, expected costs and benefits, and readiness for implementation. - Inadequate appraisal prevents decision makers from ensuring projects achieve strategic objectives, maximize net benefits, and have a basis for effective implementation. - Appraisal quality has major implications for selection and monitoring. - Multiyear budgeting - Essential for credibility of project planning and efficiency of project implementation; major projects are generally multiyear. - Absence of realistic and credible medium-term budget process risks delays, interruptions, crowding out of higher-priority projects, and reduced accountability. - Multiyear budgets should be consistent with realistic fiscal policies and national investment strategies. - Maintenance - Essential to preserve value and performance of public investments; spending on maintenance is often the most efficient use of funds on public assets (OECD 2021a). - Maintenance is systematically underfunded in most LIDCs, significantly undermining public investment efficiency. - Efficient maintenance critically depends on information about existing fixed assets. - Project selection - Should prioritize projects with highest likelihood of achieving strategic objectives and highest net benefits relative to costs, ensure adequate preparation, and consistency with available resources. - Requires robust project appraisal; absence leads to suboptimal portfolio and likely delays. - Selection must be consistent with medium-term budgets and in-year funding availability. - Procurement - Must be effective to realize planned objectives at lowest possible cost and to avoid corruption and governance issues. - Procurement should be open, competitive, and transparent; attempts to circumvent regulations (e.g., limiting bidders) lead to delays and inferior proposals. - Unwarranted confidentiality (e.g., failure to publish tender awards or contracts) raises suspicions of corruption or collusion. - Availability of funding - Major bottleneck in many LIDCs: in-year fiscal resources constrained by unrealistic revenue projections and unplanned expenditures; weak medium-term budgeting undermines future funding. - Weak cash forecasting and management may lead to cash rationing and arrears, undermining credibility of funding for ongoing investment projects. - Ineffective coordination with external funding and financing sources can exacerbate these challenges. - Project management - Must ensure implementation in accordance with budget, timetable, and technical specifications; requires technical competence, clear implementation plans, good design, and clear accountability. - Essential that project is properly prepared, stakeholder interests addressed, and permits secured prior to start of construction to avoid delays and cost escalation. - Monitoring of public assets - Fundamental prerequisite for effective planning and management of public capital stock, including maintenance. - Without knowledge of existence, location, condition, and value of major public assets, investment becomes ad-hoc and inefficient. - Building a comprehensive asset register is multiyear, but initial steps to identify most important assets are feasible in LIDCs. ### Defining public investment management (PIM) reform agendas - Practical constraints - Although multiple PIM reforms could be pursued in parallel in theory, this is rarely feasible in low-capacity countries; clearly defined and targeted reforms are more effective than broad programs. - Clear objectives and realistic timetables are critical. - Successive reform programs can cover all key aspects in the longer term, but short- to medium-term clear prioritization is critical. - Complementarities and sequencing - Important to understand complementarities (e.g., project appraisal mechanisms should support project selection and medium-term budgeting). - Good institutional design is often necessary but not sufficient; institutional design scores are systematically higher than effectiveness scores. - Weak governance and lack of transparency can produce inefficiencies and corruption, undermining effectiveness. - Sometimes the institutional and governance framework must be improved before practices can be strengthened (for example, procurement processes are ineffective if the legal system cannot enforce adherence). - Financial limitations and political factors must be considered when defining PIM reform priorities. - Cross-cutting PFM relevance - Some PIM reform areas (multiyear budgeting, procurement, availability of funding, monitoring public assets) are also important for broader public financial management (PFM). - Upgrading these institutions to support PIM provides benefits for broader PFM capacities. ### Summary advice on key PIM institutions in LIDCs (basic and medium practices) - Project appraisal (large projects, simplified for smaller projects) - Basic Practice: Describe project rationale, objectives, main project options, cost and revenue estimates, project benefits and effects (qualitative), main risks, basic implementation, procurement, and financing plans. - Medium Practice: Include cost-effectiveness analysis; extend project option analysis; detail estimates of costs, revenues, benefits, and effects (quantitative); extend risk analysis; develop implementation and procurement plans. - Medium-term budgeting - Basic Practice: Demonstrate clear political commitment to medium-term public investment plans and their funding over the coming years, through cabinet or parliament endorsement. - Medium Practice: Publish medium-term budget framework that incorporates medium-term public investment program, taking account of funding requirements of existing projects and potential new investments. - Maintenance - Basic Practice: Provide general allocations to routine maintenance based on aggregate estimates of asset values and annual maintenance costs. - Medium Practice: Augment funding of routine maintenance by selective support to capital repairs (major maintenance) and reinvestment projects, based on assessments of the condition of major assets. - Project selection - Basic Practice: Simple but consistent framework for project selection comprising a limited number of qualitative criteria, including national development strategy targets. - Medium Practice: Expand project selection criteria to include additional quantitative criteria, reflecting improvements in project appraisal capacities and clearly linked to national and sectoral policy, consistent with a medium-term budget framework. - Public procurement - Basic Practice: Ensure procurement strategies are realistic and in line with legislation, that project documents provide the necessary basis for efficient procurement, and that contracts on public infrastructure projects are published. - Medium Practice: Require procurement documents for public investments prior to project approval so that the procurement contract can be announced immediately. Publish forward-looking procurement plans for major entities. - Availability of funding - Basic Practice: Prepare quarterly cash flow forecasts covering relevant inflows and outflows, including from development partners, and avoid delays in investment payment processing. - Medium Practice: Prepare monthly cash flow forecasts and expedite processing of payment orders for public investments. - Project management - Basic Practice: Ensure major projects have identified responsible project managers, clear implementation plans, and monitoring of progress against baselines. - Medium Practice: Establish central public investment unit to support project managers and help address implementation challenges. - Monitoring of public assets - Basic Practice: Establish register of major government assets, with information about type of asset, owner, location, and initial value, based on simplified reports or surveys. - Medium Practice: Establish consolidated register of government assets, with information about asset condition and online updates of asset information and asset values. ### Foreign financing of infrastructure projects (Box 3 key points) - In many LIDCs, development partners often perform functions covered by critical PIM institutions (project appraisal, project selection, procurement, availability of funding). - Significant shares of public investment realized through grants or loans from development partners can lead to project selection dominated by availability of external funding rather than comprehensive screening against national priorities. - Reliance on external resources for appraisal is understandable given capacity constraints but is not viable long-term; countries need to develop domestic PIM capacities and ensure systematic assessment of all potential projects against national priorities. - External support should include knowledge transfer and domestic capacity building, and be independent from donors to avoid conflicts of interest. - Project implementation units set up for externally financed projects should over time be streamlined and integrated into governments’ project management frameworks. - Recent trends: multilateral and bilateral institutions have acknowledged that reliance on partners’ systems can undermine domestic capacity building; efforts have increased to rely more on recipient countries’ systems and to ensure capacity transfer during implementation. Also, share of foreign project financing has been reduced in many countries as incomes and development levels increase. ### Project appraisal — practical guidance and framework - Appraisal objectives - Ensure all key project parameters are identified and considered and that information and analyses are realistic and credible. - Ensure consistent assessment across projects and sufficient information to decide whether a project needs further development or can be considered for funding and implementation. - Iterative approach - Effective project development and appraisal should be iterative; projects are reviewed and some rejected or returned for further analysis. - Only most beneficial proposals should reach full appraisal to avoid wasting scarce appraisal capacity. - Appraisal should differentiate projects by size and complexity: basic appraisal for small, routine projects; extensive analysis for large, high-risk projects. - Common problem: too many projects under preparation, no differentiation, and appraisal capacity spread too thin. - Basic appraisal framework (Table 2 overview) - Major projects: subject to financial analysis and simplified multicriteria analysis. - Required elements: identification and estimates of direct costs and revenues; qualitative assessment of effects on environmental and social conditions and regional growth and employment (using simplified scale: positive/negative and low/medium/high, if possible); identification of important project risks. - Appraisal components listed in Table 2: - Project rationale, objectives, and targets: consistency with national and sectoral strategies; provide indicative project objectives. - Option analysis: qualitative explanation of why proposed project concept is best approach. - Project status and timetable: illustrate status and provide estimated timeline if available. - Project description: broad overview of main elements. - Cost estimates: broad estimates of investment and operational costs if available. - Revenue estimates: broad indication of possible revenue flows (if any). - Project benefits and effects: qualitative description of known and expected benefits and effects (social development, environmental effect, job creation, regional economic effect). - Risk analysis: identify key project risks and potential impacts on costs, benefits, and timetable. - Implementation plan: identify key milestones and timetable. - Procurement strategy and plan: describe key elements. - Financing plan: identify secured and requested financing from relevant sources. - Capacity development path - As capacity develops, appraisal can be extended to include quantitative cost-effectiveness assessment, more detailed estimates for costs, operational costs, revenues, and external factors, quantification of some benefits for simple cost–benefit analyses, and more elaborate risk analysis. - Project appraisal should be scaled to country capacity so components are comprehensive but not overly demanding. *Source: htnea2025001 - conclusions regarding the efficiency and effectiveness of measures to ensure climate-sensitive public investment in LIDCs (IMF How to Note).* ### Box 4. Project Appraisal in Uganda ### Box 4. Project Appraisal in Uganda ### Uganda's appraisal framework and institutional arrangements - In 2016 the Ministry of Finance, Planning and Economic Development published “Development Committee Guidelines for the Approval and Review of the Public Investment Plan Projects,” which apply to all projects within the public sector. - The guidelines established project preparation committees at ministry and sector working group level to facilitate the project preparation and appraisal process. - Project pre-investment studies are reviewed and approved by the Development Committee, which acts as independent reviewer and gatekeeper. - Ministry of Finance, Planning and Economic Development also developed the “Public Investment Manual for Project Preparation and Appraisal.” The manual has sections on all key aspects of project preparation and appraisal, including qualitative and quantitative risk analysis. ### National parameters for project appraisal - National parameters include: - economic opportunity cost of capital (11 percent) - foreign exchange premium (7.25 percent) - premium on non-tradable outlays (1 percent) - value-added tax of 18 percent - An update of national parameters is currently ongoing and includes additional parameters such as the economic opportunity cost of labor, social value of time, and economic value of natural and environmental resources. ### Principles and methodological guidance - The appraisal function should be supported by a clear and transparent legal and regulatory framework, as well as methodological guidelines and arrangements for training and quality assurance. - For low-capacity countries, a simple but transparent legal and regulatory framework is preferable; it can be developed and extended over time as capacity evolves. - Capacity building must initially focus on central institutions (usually the finance/planning ministries) to develop regulations, guidelines, and training materials, while also developing appraisal knowledge and capacity in line ministries, agencies, and local governments with oversight and support from central institutions. - It is important to ensure consistent appraisal across different projects and sectors: - Methodological guidelines should describe how cost estimates should be prepared to ensure realism and consistency. - Guidelines should define key assumptions to be used in project appraisal (including a common discount rate for economic analysis and assumptions regarding population growth and other key demographic factors). - Treatment of inflation and taxes in economic analysis is important. - Over time, countries will also define shadow prices for externalities (for instance, a common shadow price for CO2 emissions). ### Capacity constraints and realism in methodology - Appraisal methodologies can be very sophisticated and some applied by international development banks put high demands on analytical capabilities and data availability (OECD 2018). - Some LIDCs have defined national appraisal methodologies that emulate what development partners do; these have often been beyond national administrations’ capacities and consequently ignored in practice. - In some cases, countries remain dependent on international consultants for appraisals, with limited national involvement; international financial institution appraisals may focus on issues other than those of primary interest to the country. - The aim should be to develop capacities so that the appraisal process normally can be carried out within available national resources, while recognizing the need to draw on international expertise for large and complex projects. ### Multiyear budgeting for investment (linked appraisal and funding) - Systematic medium-term budgeting is an essential prerequisite for a credible public investment process. - Development and implementation of major investment projects are multiyear undertakings; necessary funds for different steps over the whole project period should be identified and reflected in relevant planning and allocation mechanisms. - This should include information about commitments related to ongoing capital projects. - Uncertainty about whether an approved project concept or capital project will receive necessary funding undermines successful implementation and may crowd out critical project development activities. - The inability to secure correct budget allocations normally results in delays and cost overruns because projects are exposed to risks of changing costs and rising fees from contractors. *Source: IMF (2022b).* ### Box 8. Electronic Procurement System in Bangladesh ### Box 8. Electronic Procurement System in Bangladesh ### e-GP system description and coverage - The Bangladeshi government introduced a web-based electronic government procurement system, e-GP in 2011. - The system is managed by the Central Procurement Technical Unit, part of the Implementation Monitoring and Evaluation Division, Ministry of Planning. - The system covers procurement of works, goods, and services, with the exception of consulting services. - Virtually the entire development budget that requires procurement is acquired through e-GP, which captures data on each step in the procurement process. - The public has access, through the e-GP website, to tender documents, bid statistics and summary contract data relating to each tender, and key performance information covering all tenders announced. - The procurement methods used in e-GP have been overwhelmingly competitive. ### Methods used in e-GP (July 2011 to September 2018) - Open-tendering method: Tenders Initiated 141,529; Percent 68.0; Value (Billion BDT) 1,628.6; Percent 86.8 - Limited-tendering method: Tenders Initiated 63,318; Percent 30.4; Value (Billion BDT) 183.3; Percent 9.8 - Request for quotation: Tenders Initiated 1,777; Percent 0.9; Value (Billion BDT) 0.2; Percent 0 - One-stage, two-envelope tendering: Tenders Initiated 1,452; Percent 0.7; Value (Billion BDT) 64.9; Percent 3.5 - Direct procurement: Tenders Initiated 23; Percent 0; Value (Billion BDT) 0; Percent 0 - Selection under a fixed budget: Tenders Initiated 8; Percent 0; Value (Billion BDT) 0; Percent 0 - Selection-based consultant qualifications: Tenders Initiated 5; Percent 0; Value (Billion BDT) 0; Percent 0 - Quality- and cost-based selection: Tenders Initiated 4; Percent 0; Value (Billion BDT) 0; Percent 0 - Total: Tenders Initiated 208,116; Percent 100.0; Value (Billion BDT) 1,877.2; Percent 100.0 *Sources: e-GP, MOP, Bangladesh.* ### Procurement preparation and transparency (Medium practice expectations) - Procurement documents for public investments should be prepared before project approval to: - Provide a better understanding of how a project will be delivered and implications for cost, schedule, and risk transfers. - Allow the procurement contract to be announced immediately after approval, reducing project delays. - Ministries, agencies, and public corporations that undertake significant public investment should publish forward-looking procurement plans so potential bidders know what will be tendered and when. - Countries may allow prior announcement of project procurement contracts, subject to project approval by the government and appropriation by the legislature; applicable only where the risk that projects are not approved is small. - Medium practice comprises: - A well-defined legal and regulatory framework for procurement. - Competitive and transparent procurement processes. ### Availability of funding: risks and basic practice - Government payments to contractors during project implementation are often large and typically based on completion of milestones. - If payments are not made on time: - Arrears emerge and can accumulate, increasing government liabilities, reputational damage, and corruption risk. - Project costs increase directly via late payment penalties and indirectly via higher tender bids if contractors anticipate delayed payments. - Line ministries see reduced incentives to undertake rigorous project planning and budgeting. - Reduced competition as construction firms are less likely to tender; private firms may build in a risk premium. - Basic practice to avoid funding shortfalls: - Prepare at least quarterly cash flow forecasts and make quarterly releases of funds to central government entities. - Forecasts must be based on realistic estimates for cash inflows and outflows, including from development partners, and include necessary buffers. - Forecasts require basic information about commitments related to ongoing capital projects. - Ensure necessary payment processing facilities to make project invoice payments without undue delays. ### In-year funding arrangements in Uzbekistan (illustrative example) - Reforms in cash management procedures and forecasting improved cash availability for investment projects. - Key reforms included: - Launch and increased coverage of a Treasury Singla Account. - Development of a cash flow forecasting framework. - Adequate cash buffers to ensure liquidity. - Outcomes: - Project outlays were provided in a timely manner, with delays occurring in less than 5 percent of cases, likely when documentation was noncompliant and payments had to be rejected. - 2020 Public Investment Management Assessment for Uzbekistan findings: - Investment projects had access to adequate funding. - Cash flow forecasts were updated monthly based on revenue and expenditure forecasts provided by tax and customs administration and the Treasury. - Budget organizations were provided with commitment ceilings for the full fiscal year. - Reports were prepared for internal use and also distributed to the Council of Ministers and the Parliament. - The share of cash in accounts outside the TSA was assessed as low except for external financing and foreign currency accounts not yet fully integrated; donor accounts continued to be managed through commercial banks. - Reliance on dedicated donor funding enabled implementation of cash buffers. - Remaining shortcomings: - Donor accounts not fully included in TSA. - Cash flow forecasts beyond 1 month are not reliable, undermining efficient allocation of resources. ### Medium practice for funding and cash management - Budget releases should be made to ministries for the full fiscal year, and fund commitments by line ministries should be consistent with available budget appropriations. - Strengthen cash forecasting over time to include monthly cash flow forecasts because capital expenditure is lumpy. - Strengthen mechanisms for expedient authorization and processing of payment orders. - Quality of cash management is related to other PIM institutions, such as medium-term budgeting. ### Project management: principles and basic practice - Good project management and governance are critical for implementation according to timetable and within budget. - Essential elements: - A responsible project manager with clear accountability, adequate skills, time, and resources. - For large and complex projects, a supporting team with procurement, engineering, and financial management expertise and a project governance structure including a high-level project owner. - Where project management is outsourced, a project owner within the government agency must retain clear accountability. - Project implementation plans with baseline timetables for physical progress and expected financial outlays are essential. - Progress should be recorded on a weekly or monthly basis for early identification and resolution of issues. - Plans should be developed during project preparation and covered by project appraisal arrangements. - The S-curve is a common tool for monitoring and managing projects: - Compare actual accumulated financial execution and physical execution against planned curves to identify cost overruns and delays early. - Example guidance: identify deviations from plans after less than 12 months and determine corrective actions. - Basic practice for project management: - Appointed project managers and implementation plans for each major project. - Clear timetables and procurement schedules. - Proactive monitoring of project implementation against a baseline, using the S-curve or similar technique. - Low-capacity countries may rely on project implementation units in externally financed projects initially. ### Project management in Gambia (Box 10 summary) - Centralized project coordination units within ministries and agencies manage individual capital projects. - Donor-funded projects often require establishment of such units as disbursement preconditions. - Where capacity concerns exist, agencies outsource project implementation to the Gambia Agency for Public Works under delegated management contracting. - The Ministry of Finance and Economic Affairs established a centralized project coordination unit responsible for overall planning, fiduciary and safeguard support, coordination, and reporting while supporting implementing agencies. - The model aims to manage fiduciary responsibilities (financial management, procurement, safeguards) of multisectoral projects and includes capacity-building programs with technical assistance and training. ### Asset monitoring: basic and medium practice, Tanzania example - Reliable information about accumulated infrastructure stock is necessary to manage portfolio decisions on maintenance, upgrades, renewal, replacement, and additions. - Governments need information on existence, location, condition, and value of assets, typically kept in a government asset register (often a sub-ledger). - Many LIDCs lack comprehensive asset information, undermining effective infrastructure management. - Basic practice: - Compile aggregate information about most important government assets in a basic asset register covering assets above a threshold with type, owner, location, and initial value. - Consolidation by a central authority is essential. - Medium practice: - A consolidated asset register of all government assets including condition of assets and routines for regular updates and asset values, often based on an integrated database with entries by asset-owning entities and central oversight. - Tanzania (Box 11) — Value of Property, Plant, and Equipment (Billion Tsh) - 2021 / 2020 - Land: 17,771 / 17,227 - Roads: 19,568 / 17,491 - Office buildings and structures: 10,610 / 9,408 - Works in progress: 17,654 / 10,932 - Other: 29,279 / 23,860 - Total gross assets: 29,279 / 78,968 - Accumulated depreciation: (16,544) / (9,610) - Total net assets: 78,428 / 69,358 *Sources: Tanzania (2001, 2019, 2022).* ### Overcoming implementation challenges and making reforms happen - Successful PIM reform requires well-designed and effectively managed reform processes, operating at the intersection of acceptance, authority, and ability (the three As) from the reform space model. - Authority: - Explicit high-level support for the reform program, anchored in legislation and policy documents supported by government and endorsed by parliament. - Responsibility for reform should be clearly assigned to the relevant minister and senior civil servant. - Ability: - A dedicated PIM reform unit with necessary skills and capacity should manage the reform program. - The unit should be headed by a project manager reporting to the responsible senior civil servant and have authority and sufficient resources to manage reforms without being crowded out by operational tasks. - The PIM reform unit should be anchored in a central ministry with clear functional responsibility. - Acceptance: - Build capacity and support in ministries and agencies through proactive outreach, training, and support so stakeholders understand and see benefits from new public investment requirements. - Design institutional developments and procedures so stakeholders perceive clear benefits rather than additional burdens. - Practical guidance for reform design: - Tailor PIM reforms to country context and priorities; fully understand country-specific causes of weak institutions and drivers of improvement. - Set realistic objectives and a limited set of high-priority reforms linked to major PIM weaknesses with a clear timetable over a three- to five-year period. - Incorporate PIM reforms into broader national development and PFM reform strategies to secure political support. - Emphasize effectiveness of redesigned institutions and monitor the reform process with regular reporting to senior officials and ministers. - Extend monitoring of the overall PIP to include specific metrics for implementation of reforms and identify systemic challenges to timely implementation or cost control. *Italic: Source: IMF (How to Note content unit).* ### Box 13. Successful Public Investment Management Reforms in Timor-Leste ### Box 13. Successful Public Investment Management Reforms in Timor-Leste ### Overview and institutional setup - Timor-Leste has a multiyear public investment program specified in a separate volume of the budget documents each year. - A Public Investment Management Assessment mission in 2016 pointed out several areas for further improvement in public investment management. - The public investment management framework has been gradually extended and strengthened in the following years. - There is strong political support for this work, and the Ministry of Finance and the line ministries play active roles in developing the system. - The public investment system is managed by the dedicated Major Projects Secretariat, and there is significant emphasis on capacity building. ### Key milestones in the reform process - Project Appraisal Guideline (August 2017) - Project Brief Standard Form (2017) - Model TOR for IF projects (February 2018) - Feasibility Study Guideline (May 2018) - Fund Administration Manual (December 2018) - Ex-Post Evaluation Guide (2019) ### Principal reforms and practices highlighted - Establishment and specification of a multiyear public investment program in budget documentation (separate volume, annually). - Progressive extension and strengthening of the public investment management framework following the 2016 PIMA mission recommendations. - Active engagement by the Ministry of Finance and line ministries in system development. - Centralized management through a Major Projects Secretariat combined with substantial capacity building efforts. *Source: Tanzania (2022).* --- _Source: https://www.imf.org/-/media/files/publications/howtonotes/2025/english/htnea2025001.pdf_