An outsider’s look at Investment in Ireland

IMF seeks improvements in Ireland’s Public Investment Management Systems

 

The International Monetary Fund’s latest Report is a very useful and timely comment on Ireland’s public investment management systems.^[i] The report was drawn up by an expert team from the IMF that visited Ireland last July. Their main task was to evaluate the design and effectiveness of the institutions in Ireland that shape decision-making at the different stages of public investment. The report highlighted both strengths and weaknesses, and contains a number of recommendations to improve future performance. Overall, the report concluded that Ireland manages its public infrastructure relatively well.

The IMF assessment was undertaken at the request of the Department of Public Expenditure and Reform (DPER). Accordingly, the IMF Report now appears on DPER’s website. In welcoming this publication, Minister Paschal Donohoe TD said that the report:

“…will play an important role in identifying how institutions and public governance systems in Ireland who are responsible for planning, allocating and delivering public capital infrastructure might be further strengthened”.^[ii]

 

Report’s Findings

The IMF Report assessed Ireland’s public investment systems to measure the effectiveness of the institutions that shape decision-making in the course of the public investment cycle. It used a ‘scorecard’ system to mark the quality of the different processes.  The scoring went from ‘good’ to ‘medium’ and down to ‘low’. Fifteen areas were measured for their ‘institutional strength’ and ‘effectiveness’, providing a total of 30 individual scores (see Table 1). The breakdown of the 30 scores was:

• 12 at ‘good’;
• 17 at ‘medium’; and
• 1 at ‘low’.

The ‘low’ result relates to the weak institutional strength in ‘assets accounting’. The IMF observed that “…a comprehensive asset survey is not carried out, but data are available for some sectors. No information on infrastructure assets in financial accounts”. In the light of these findings, the IMF recommended that there should be improved “…asset management and the allocation of maintenance funding by developing a central register of infrastructure assets valued at either book (initially) or (ultimately) market value”.^[iii]

 

Table 1: IMF’s Findings for Different Stages and Areas of Ireland’s Public Investment
Phase	Action area	Institutional Strength	Effectiveness
Planning	Fiscal rules	Good	Medium
	National and sectoral planning	Medium	Medium
	Central-local coordination	Medium	Medium
	Public-private partnerships	Good	Medium
	Regulation of infrastructure companies	Good	Good
Allocation	Multi-year budgeting	Medium	Medium
	Budget comprehensiveness	Good	Medium
	Budget unity	Good	Medium
	Project appraisal	Good	Good
	Project selection	Medium	Medium
Implementation	Protection of investment	Medium	Good
	Availability of funding	Good	Good
	Transparency of execution	Medium	Medium
	Project management	Good	Medium
	Assets accounting	Low	Medium
Source: IMF, ‘Ireland: Public Investment Mangement Assessment’, Sept. 2017

 

The IMF concluded that Ireland’s overall performance is considerably stronger than the global average, while falling short of the average for the advanced G20 countries. The main findings from the IMF for the different investment stages are as follows:

Planning stage

• Ireland’s fiscal rules support public capital formation, and public corporations are well regulated and have relatively good public investment management practices.
• However, there is a proliferation of sector strategies, with weak results frameworks, and limited information on cost estimates. Spending on Public Private Partnerships (PPPs) could also be brought more firmly within the fiscal envelope.

Allocation stage

• Implementation of multi-year budgeting has improved the allocation of resources for projects, but the planning process is still inadequately linked to decisions on funding.
• Moreover, there is room to improve the methodological rigor, sequencing, and effectiveness of the project appraisal and selection processes.

Implementation phase

• Funding for ongoing projects is adequate, and generally good project management practices are in place.
• However, more attention needs to be given to the management of assets, including prioritising spending on the maintenance of infrastructure assets.

 

 

The IMF report acknowledges that Ireland has already put in place advanced institutions of public investment management in many areas. The recommendations that have been made by the IMF focus only on issues identified by the mission as requiring further attention. The recommendations cover a range of actions in the areas of planning, allocation and implementation of investment projects. In total, the IMF make 27 specific recommendations relating to these areas. Space does not allow all to be examined. We will confine comment to just three.

 

1. Investment appraisal:

   The IMF recommends reinforcing the eappraisal of investment projects to ensure that weaker projects are prevented from proceeding and riskier projects are identified early, then planned and managed accordingly.

2. Robust gatekeeper:

   The IMF recommends enhancing DPER’s role as the coordinator and gatekeeper of the appraisal and selection process.

3. Cost-benefit analyses (CBAs):

   The IMF recommends making CBA results more widely available; while strengthening the rules on the use and application of CBA and other appraisal techniques.

 

 

Final Comments

The IMF reports shows that:

• Ireland has relatively strong infrastructure, with some sectoral weaknesses;
• Management of public investment is generally good, but with scope for improvement; and
• There appears to be significant scope for strengthening the efficiency of public investment to match the best-performing advanced economies.

The publication of this IMF report is indeed timely. It has been published against the backdrop of Irish Government planning for a substantial increase in public capital investment over the next ten years, and for agreement on a new national planning framework. The IMF has not provided all of the answers, but its findings and conclusions can certainly play a very helpful role in informing and guiding the important policy debates that are now taking place.

 

Notes

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^[i] Department of Public Expenditure and Reform press release, available here.

^[ii] Ibid.

^[iii] Ibid.