Lesson 2: The ABC of organizing Guyana’s public investment management regime

Introduction

 

Last week I introduced the first in the present series of lessons explaining Guyana’s public investment management regime. This sought to explain why, at all stages of the process of public policy formulation in Guyana, one should anticipate the unwanted emergence of the negative impact of ‘pathological altruism’. Based on the old adage that: “the way to hell is paved with good intentions,” this refers to the ever present danger that government policies designed to benefit the ‘masses’ could end up bringing them great harm. Indeed I would more broadly claim this notion constitutes one of the most important rationales for a well-organized public investment regime in Guyana.

Today’s and next week’s column will present the second lesson, which is designing a basic yet adequate framework within which to situate the country’s public investment regime.

Today I shall indicate the minimal generic components (ABC) for an acceptable framework to execute public investment regimes in Guyana- type economies. Next week I intend to offer for public debate and possible consideration by the new post- election government a pro forma representation of a framework that I consider appropriate for Guyana’s circumstances.

 

Framework

 

20131103cliveIn my earlier contributions on this topic I had indicated that there are conceptually four phases, which take place under the rubric or framework of every country’s public investment regime. For analytic clarity I represent these phases here as being both distinct and sequential, even though in practice these do not always obtain. What I indicate here can therefore be taken as a model or idealized representation of reality. This is being done so as to illustrate the process clearly and not to obfuscate it.

 

Phase 1

 

The first phase is where the investment strategy is formulated. In many developing countries the formal undertaking of this task is the responsibility of either a Ministry of Planning or an autonomous or semi-autonomous body like a National Planning Commission or Agency. Such bodies are usually tasked with the responsibility for preparing, monitoring, and generally superintending what is commonly described as the National Development Plan.

In situations where a ministry carries this direct responsibility its integration into the process of political direction of the state and its policies is self evident. Where however there is only an autonomous or semi-autonomous body, in order to ensure insertion into the political process a government cabinet minister (usually one holding the portfolio for finance or economy) has responsibility for the planning body.

Whereas in Guyana there is neither ministry nor other authorized body source documents are consulted for national policy guidance and direction. Typically these documents would include manifestos of the ruling party; those of other parliamentary parties; policy documents prepared jointly with international financial institutions (IFIs) like the IMF, World Bank, or United Nations agencies like the UNDP; regional policy documents; international development commitments like the Millennium Development Goals (MDGs); as well as sector plans prepared by various departments of government.

 

Phase 2

 

Two consequences flow from the above. First, because the resources governments can command are limited and country needs are limitless, the projects identified by the investment strategy would routinely require more resources than those that can be mobilized by government over the immediate to the near-term. Second those that can be afforded would have to be sequenced for their implementation, as they cannot all be simultaneously realized.

This combination of circumstances leads directly into the second phase of the public investment management regime. This is the use of project evaluations/cost-benefit analyses/ feasibility studies to establish 1) what projects are selected to proceed with, and 2) the time sequence for their implementation.

As I had indicated previously in related discussions on ‘Guyana’s troubled projects’, unless the investment strategy is filtered through the economic analytics indicated above, the selection of projects from the investment strategy would in effect amount to little more than guesswork and operating in the dark.

This judgment applies irrespective of how well articulated and reasoned is the investment strategy. Indeed this is the environment in which “the way to hell is frequently paved with good intentions” and therefore the need to proceed carefully is the greatest.

As this is a highly skilled area of public investment management the state is required to clearly identify where it is to be located in the public service. Typically it is established as a dedicated unit, usually linked to the Ministry of Finance. Of course if a Ministry of Planning or other public planning body exists it will be located there. The important point to note however at this stage is that, Phase 2 is a necessary albeit insufficient component for an effective public investment management regime. No matter how well developed is the investment strategy (Phase1) it cannot guarantee that correct projects will be selected, let alone implemented.

 

Phase 3

 

Surveys of experiences in a number of developing countries reveal that effective management of the public investment regime is only possible where the selected projects are well integrated into the annual national budgetary process, particularly in light of its broader medium-term budgetary framework.

Organizationally, therefore, Phase 3 is centred on the integration of a country’s annual national budget cycle with the public investment project cycle. At this juncture the choice or rather the selection of public projects along the lines of Phases 1 and 2 becomes linked to the national budget’s capital and recurrent spending. Parenthetically, this is the Phase that would facilitate foreign (donor) funded government projects to create assets in the country, while providing for their ongoing operational and maintenance costs to be covered locally.

 

Phase 4

 

The fourth and final phase in the management of a country’s public investment management regime is post-evaluation audits of projects. This takes one of two general forms: either immediately after the project has been completed, or after some pre-determined lapse of time, usually 2-4 years. The former audit focuses on issues like variations between projected project and actual costs, identifying delays in project implementation and the reasons for these, while the latter focuses on issues like overall project goals and whether these are being met.

Next week I shall conclude this second lesson of the series on the ABC of organizing Guyana’s public investment regime.