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IMF flags gaps in state spending practices

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THE GOVERNMENT is on the right track in ramping up spending, especially on infrastructure, but much remains to be done to improve project planning and implementation, the International Monetary Fund (IMF) said in a May 16 report that was e-mailed to journalists on Wednesday.

The technical assistance report — which resulted from an Aug. 9-22, 2018 mission in the country from the IMF’s Fiscal Affairs Department that was requested by Philippine authorities — gauged public investment management practices against 15 indicators, namely: fiscal target and rules, national and sectoral planning, coordination among entities, project appraisal, alternative infrastructure financing, multi-year budgeting, budget comprehensiveness and unity, budgeting for investment, maintenance funding, project selection, procurement, availability of funding, portfolio management and oversight, project management and monitoring of assets.

“Overall, the Philippines has better institutional framework than the average of emerging market economies, including emerging Asia, in the areas of national and social planning, budget comprehensiveness and unity, budgeting for investment, availability of funding, and monitoring of assets in terms of both institutional design and effectiveness,” the report read.

“However, in terms of effectiveness of institutions, the Philippines is weaker than its peers in the areas of project appraisal, multi-year budgeting, portfolio management and oversight, and procurement,” it noted, adding that the country “also shares similar weaknesses with its peers in the areas of project selection and project management.”

A summary of the team’s findings bared “high” institutional strength in national and sectoral planning, availability of funding and monitoring of assets; as well as “high” effectiveness in terms of budgeting for investment.

At the same time, the report identified as “reform priority” five fields that are marked by “low” effectiveness, namely:




• project appraisal (land issues and resettlement, as well as detailed designs and risk mitigation are not always considered during appraisal);

• multi-year budgeting (no published projections, no multi-year ceilings for projects, updating of cost without effective cost validation);

• maintenance funding (routine maintenance not costed appropriately and not adequately funded);

• project selection (land and resettlement issues not resolved before projects are funded);

• and procurement (low competition in most public investment sectors and no systematic review of procedures to induce competition).

The report also cited three other fields as reform priorities, namely:

• alternative infrastructure financing (no gateway process for preliminary assessment of fiscal risks and for post-award proactive management of fiscal risks);

• portfolio management and oversight (certain major projects are monitored but with significant time lag, and review of actual gains or losses is not conducted systematically);

• and project management (project adjustments are not confined to unforeseen technical issues; there is a need for rules on cost overruns; and there are limited audits on actual gains/losses).

In order to address these weaknesses, the IMF mission prescribed eight “priority” ways to strengthen the country’s public investment management framework, namely:

• Strengthen fiscal assessment of actual gains or losses of infrastructure projects by forming “a dedicated unit” within the Finance department, the Budget department and the National Economic and Development Authority that will be responsible for conducting such thorough ex-ante assessment of projects focusing on long-term fiscal sustainability and fiscal risks, including contingent liabilities and proposing mitigation measures for accepted risks;

• Broaden the framework for private participation in infrastructure, particularly at the local government level;

• Expand medium-term budgeting, particularly by introducing a multi-year perspective for public investment per line department;

• Make project appraisal and selection more rigorous and comprehensive — by including right-of-way readiness and resettlement of affected residents — in order to prevent or at least minimize delays and cost overruns;

• Improve routine infrastructure maintenance;

• Foster effective competition in infrastructure procurement (the report noted that “[M]any procurements result in a single bidder) by addressing potential constraints to effective competition, such as projects that are too large, qualification criteria that are too strict, deadlines that are unrealistic, or specifications that are poorly defined, while sanctions for anti-competitive practices by bidders should be steeper and procurement Web sites should be revamped to make procurement information more easily accessible to the public;

• Improve regulations for project cost adjustments, among others by allowing cost increases only for unforeseen technical issues and not to address inadequate design and planning and changes to the scope of the project;

• Strengthen central monitoring of implementation of major projects.