Nigel Clarke | Public investment management system crucial for development

Public investment, which has the potential to transform quality of life, is investment by the Government of Jamaica in assets. Public investments generate positive externalities where benefits spill over, creating other benefits in a positive chain reaction. Cutting commute time between two cities, with a new highway, makes new businesses, new logistics arrangements and new residential, office and warehouse developments more feasible. Public investments are therefore often growth inducing.

However, public investments typically involve large sums and multi-year commitments. Weak public investment management systems can therefore imperil public finances, and compromise intended development outcomes.

Governments of Jamaica have long recognised the dangers of weak public investment management systems and acted to strengthen Jamaica’s regime. In November 2009, Cabinet approved the Public Sector Investment Prioritisation Framework as the framework through which public investments would be ranked for budgetary support. This was a first step in addressing the problem.

By 2011, some of the impact of the structural weaknesses in Jamaica’s public investment system were documented in the Third Review under the IMF Standby Arrangement published in February 2011, which stated: “The authorities (GOJ) also agreed with staff (IMF) that there was an urgent need to tighten procedures for evaluating and monitoring public investment projects. Cost overruns related to certain road construction projects have reached as high as 50 per cent. These included design flaws that subsequently had to be corrected as well as escalation of material and labour costs during project execution.”

Public investments often involve funding by way of grant or loan from multilateral and bilateral partners. These partners will refrain from participating, or lower their participation, if public investment management weaknesses remain unaddressed.

The European Commission has been the largest provider of grant assistance. The Public Expenditure & Financial Accountability Report of 2013, sponsored by the European Commission, and conducted in close cooperation with the World Bank, Inter-American Development Bank and the UK’s Department for International Development, identified the absence of an effective and efficient functioning Public Investment Management System as a weak link in Jamaica’s Public Financial Management system.

The report found that there were no rules-based procedures or institutions, and no governance mechanisms for analysing, prioritising, managing, monitoring and evaluating the efficiency and effectiveness of public investment projects. As such, projects were poorly designed, inadequately planned with little feasibility analysis prior to proceeding with the implementation of projects.

COMPREHENSIVE DEFINITION

In 2014, legislative action created a comprehensive definition of public investment, and enhanced the Public Investment Management System (PIMS) to address poor project design and weak institutional capacity. The legislation prescribed the establishment of a Public Investment Management Committee (PIMC) with responsibility for screening all project ideas/concepts and to evaluate subsequent proposals that flow from these ideas, prior to the PIMC taking a decision to recommend projects to the Cabinet for inclusion in the Public Sector Investment Programme. The legislation also mandated the establishment of a Public Investment Secretariat to support the work of the PIMC by undertaking the technical work of screening and appraising the project concepts and proposals. .

In December 2016 Cabinet approved the guidelines governing the operation of the PIMS, inclusive of the requirements for project concepts, project appraisal, and project proposal development inclusive of feasibility analysis, and business case. At the launch of the PIMS, then Minister of Finance Audley Shaw hailed the occasion as one of “great significance” and warned that it would not be “business as usual … as we can no longer continue to tolerate the poor performance of public investment projects”. In 2017, the Financial Administration and Audit Act Instructions were amended to be consistent with the new guidelines.

The reform, which spanned administrations, was funded by a World Bank loan and a grant from DFID and was initially set up as a project, with the Secretariat staffed by temporarily engaged consultants contracted to the Ministry of Finance and the Public Service (MOFPS). When the loan came to an end in December 2021 the GOJ folded the Secretariat into the permanent apparatus of Government creating the Public Investment and Appraisal Branch in the MOFPS. The PIAB is the single point of entry for all projects intended for the Public Sector Investment Programme.

Jamaica’s improved fiscal profile has accommodated a doubling of central government capital expenditure budgetary allocations over the past seven years.

The 2014 legislation, the 2016 guidelines and the 2017 financial instructions create a robust PIMS. Paraphrasing former Minister Shaw, this is great. It serves the long-term public interest and assures our bilateral and multilateral partners that resources that they provide for public investment projects, whether by grant or loan, will be properly and efficiently used. This allows Jamaica to obtain more external support, on better terms.

In February, parliamentarians expressed bipartisan concern about aspects of the PIMS. Some valid points were made. We may need to introduce modest thresholds and extract isolated maintenance expenditure from the definition of public investment.

As such, the PIMS guidelines and user manual/handbook will be revised in this calendar year. More importantly, however, some observations imply a fundamental lack of awareness and/or capacity within ministries, departments and agencies (MDAs) of the workings of the PIMS. These capacity gaps will have to be addressed within ministries and the MOFPS is designing a curriculum to be delivered by the Management Institute of National Development that will provide training for persons in MDAs who interface with the PIMS.

Jamaica has a robust PIMS, which is necessary to enable our country to achieve her development objectives and deliver value to citizens.

- Dr Nigel Clarke is minister of finance and the public service, and member of parliament for St Andrew North West. Send feedback to opedjamaica@gmail.com or columns@gleanerjm.com