Frequently Asked Questions
What is the difference between the PIMA and PEFA frameworks?
The PIMA is an IMF tool that assesses a key component of public financial management, namely public investment, across the planning, allocation and implementation stages, with a clear separation between institutional design (de jure) and effectiveness (de facto). PEFA is a multi-stakeholder tool that provides a broader assessment across all PFM institutions, with less detail on each institution and combining design and effectiveness criteria.
Are PIMAs used to define benchmarks in IMF programs?
A PIMA is done at the request of a country and is independent of IMF program negotiations. In some cases, reform measures that are recommended in PIMAs are subsequently agreed to be included in IMF programs.
How does the IMF support countries in implementing PIMA recommendations?
The IMF assists countries in PIM improvements through PIMA follow-up missions. In some countries, PIMA updates have been undertaken to assess the progress, and more countries are now requesting such updates, often combined with a Climate PIMA (see separate FAQ section on Climate PIMA).
What is the difference between a fiscal target and a fiscal rule?
A fiscal target is set in a policy document, for instance the annual budget document, and may change based on government decisions. A fiscal rule is generally established in legislation, is meant to be permanent for several years and can only be changed by parliament.
Do escape clauses undermine the credibility of fiscal rules?
In most countries, fiscal rules include escape clauses to deal with unforeseen events. If these clauses are very wide and are used repeatedly, the effectiveness of the fiscal rule is impaired. However, they still qualify as fiscal rules for the assessment of institutional design.
How does a fiscal target or rule protect public investment?
Fiscal targets and rules increase the predictability of fiscal planning, including for public investment. They are a necessary, but not sufficient, pre-condition for effective medium-term budgeting of public investments. Some fiscal rules have more direct impacts on public investment, for instance a “golden rule” stipulating that government borrowing can only be used for investment.
How can countries address the fiscal risks from infrastructure?
It is important to adopt an integrated approach to fiscal risks from infrastructure across different delivery modalities – direct provision, public corporations (PCs) and PPPs. The risks related to PCs and PPPs may be less transparent and less well understood than the risks of direct provision, and PC and PPP risks may be underestimated. To address these risks, countries need:
Robust integrated public investment management
Effective fiscal and corporate governance of PCs
A robust PPP preparation, procurement, and contract management framework
Integrated fiscal risk management
The IMF has developed a set of tools to assess fiscal risks (Fiscal-Risks-Toolkit (imf.org).
Is a public investment program (PIP) a part of the planning framework?
This depends on the format of the PIP. In some countries, PIPs are long-term, strategic documents closely linked to the strategic planning framework. But in most countries, PIPs have short- to medium-term focus, and are more closely related to annual and medium-term budgeting.
Why should national and sectoral plans identify specific projects?
Planning of major infrastructure projects is a complex, multi-year undertaking and requires considerable resources. If these projects are only identified at the budgeting stage, there will not be time to ensure rigorous planning and project preparation.
Should outcome and output targets be linked to specific projects, or is it sufficient to link them to policies and programs?
Major projects should be justified by the value of the outputs and outcomes they create. If it is difficult to identify the potential project-specific benefits at the planning stage, it will be difficult to demonstrate a positive benefit/cost ratio during project appraisal.
Are there good country examples of Public Investment Management (PIM) policies?
A few countries, often advanced ones, have developed specific infrastructure and PIM policies and strategies. The UK National Infrastructure Strategy - GOV.UK (www.gov.uk) and Ireland (ov.ie - Project Ireland 2040: Policy Documents (www.gov.ie) are perhaps the best examples. Public investment strategies are likely to be most effective if they are linked to an overall vision for national spatial planning and regional development.
Many EU countries have developed post-Covid recovery and resilience plans with strong emphasis on public investments, partly financed from the EUs recovery and resilience facility. They follow comparable formats and have to be approved by the EU commission. Recovery and Resilience Facility (europa.eu)
In Africa, Rwanda’s National Investment Policy (2017) is a good example of a succinct and focused PIM policy. For a low-capacity country, the most critical factor is to develop a robust strategic planning framework for public investments. A PIM policy must be closely coordinated with and integrated in the broader strategic planning framework. Whether it is a separate document or a part of the broader strategic plan document is a practical issue (Reports (minecofin.gov.rw)).
What does it mean that SNG investment plans are published alongside central government plans?
The SNG investment plans should be available at the same time and in a comparable format as central government plans. They may be a part of budget documentation, or they may be available through a common website. If it is necessary to search through websites of all the different SNGs, this does not qualify as “published alongside”.
What is the definition of a rules-based transfer mechanism for capital spending?
A rules-based transfer mechanism should be embedded in legislation and should provide clear, objective criteria for allocation of transfers. If there are informal rules and practices that lead to consistent allocations over time, effectiveness may be assessed as higher than institutional design.
Should SNGs and PCs report both explicit and implicit contingent liabilities?
Explicit contingent liabilities should always be reported. Implicit contingent liabilities are often related to policy decisions and are more difficult to quantify. For instance, an SNG may decide to bail out a local hospital organized as a PPP, although they are not legally obliged to do so. If the risks related to the implicit contingent liabilities are material, they should be reported when this becomes apparent. In some cases, this reporting could be confidential to avoid jeopardizing the SNG’s negotiating position.
Is a feasibility study the same as a project appraisal?
Usually, a feasibility study is more limited than a full project appraisal. The feasibility study is often done by an external consultant, and focuses on the technical, financial and economic viability of the specific project. An appraisal should also comprise the government’s assessment of the feasibility study, including how this project will support sectoral policies and broader government objectives. The contents of a project appraisal should be clearly specified in government regulations.
Does project appraisal require cost/benefit analysis (CBA)?
All project appraisals should include a comparison of the expected costs and benefits of a project. For small, standard projects, this assessment can be done on a portfolio basis and need not be repeated for each project. In these cases, the appraisal should focus on cost-effectiveness. For countries with limited capacities, the assessment of benefits will often have to be qualitative. As capacities evolve, analyses will gradually become more quantitative and more comprehensive.
How comprehensive should a risk mitigation strategy be?
For basic, standard investments, the risk mitigation strategy should identify at least the five main risks facing the project and make a qualitative assessment of the likelihood and impact of each of these. The strategy should outline measures that can be taken to address each risk, indicating who should be responsible for each risk mitigation measure.
More complex projects require much more complex arrangements for risk identification, mitigation, and management. Successful approaches used in advanced economies include use of reference class forecasting, specialized external assurance of projects at various stage gates, advanced forms of commercial contracts and appropriate governance arrangements.
Can project appraisals be based on market prices for project inputs and outputs?
In many cases, market prices will not fully reflect external impacts of the project, for instance environmental impacts. Because of this, the financial analysis of a project should be supplemented with an economic cost/benefit analysis, where key external impacts are reflected in adjusted prices and/or qualitative assessments. The analysis must be consistent with country capacity. See the PIMA Handbook for references to methodological guidelines.
Should project appraisal requirements be tailored to project size and complexity?
Yes. Many countries have procedures that establish three levels of project appraisal: simplified appraisal for small projects with low complexity, standard appraisal for medium-sized projects, and extended appraisal for large and complex projects. Specific thresholds are provided in appraisal regulations.
How are external impacts reflected in project appraisals?
There are three main approaches: quantified and included in CBA base case, quantified and included in sensitivity analysis, or included in qualitative assessments. Countries often use a combination of the different approaches, sometimes differentiated by sectors, as defined in their appraisal regulations.
How do we assess the independence of a regulatory agency?
An independent regulator should be a separate agency and not part of a ministry or other agency. It should be empowered to take independent decisions, for instance regarding prices in regulated markets, without ministerial approval. It should also have assurances of professional independence and the authority to hire and fire professional staff.
Should the assessment of PPPs include concessions?
Yes. PPPs include all types of contracts for private provision of public goods that entail costs or risks to the government. This will often include concessions, depending on the legal specifics of the country. If the government provides a guarantee to a project, or if there is an implicit expectation that the government will step in if the private supplier fails, the project should be assessed as a PPP.
Do board members from government ministries constitute central oversight of PC investment plans?
No. Board members are usually required by corporate law to reflect the interests of the PC, which may be in conflict with government interests, for instance in the case of insolvency and bankruptcy. The government should have a PC oversight function that is external to the company and the board, including regular reporting and owner meetings.
How should PPPs by SNGs be treated in the national PPP framework?
Good practice in this area implies that SNG PPPs should be covered by the same legal and regulatory framework as central government PPPs, the explicit and implicit liabilities from SNG PPPs should be fully disclosed in financial statements and these liabilities should be counted under any limits on SNG borrowing and/or risk exposure.
Are there any recent country experiences with asset recycling PPPs?
The main feature of an asset recycling PPP is that it involves a brown-field (existing) rather than a green-field (new) infrastructure asset. Some asset recycling involves a complete divestiture of the asset to the private sector, but it seems that long-term leases are more common. Australia implemented a major Asset Recycling Initiative in 2015. The basic idea was to monetize future revenues of existing government-owned infrastructure to finance new infrastructure, through sale or long-term leases (concessions). The program was reviewed in 2019 and deemed to be quite successful.
Review of the National Partnership Agreement on Asset Recycling | Treasury.gov.au).
There are similar initiatives underway in India and Indonesia, and there are discussions in some other countries, including the US. You would expect a brown-field PPP to be less challenging than a green-field PPP, because the risks related to planning, construction and hand-over have already been dissolved and the asset is in the operational phase. But this also means that the potential benefits of private-sector management of the asset is more limited than for a green-field project. The main challenge to government when dealing with long term private finance agreements is to identify, share, price and manage risks. History shows that this is often difficult to do and may be very costly if mishandled.
Is there a role for government-to-government (G2G) collaboration in PPPs?
Some types of infrastructure projects include both G2G and regular PPP arrangements. For instance, a donor country can provide assistance to develop and appraise a project that subsequently is tendered as a PPP. It is important to fully assess and disclose the costs, benefits and risks of these arrangements, and to avoid constraints on the PPP tender process, for instance by limiting this to countries companies from the donor country.
Should user-pays PPPs be assessed and managed alongside other PPP arrangements?
Yes. It is important to ensure that all PPPs are assessed according to clearly defined government policies and criteria, and that all risks and potential costs are thoroughly verified. The illusion that the state is shielded from risks in “user-pays” PPPs, and that these are fundamentally different from other types of PPPs, is one of the major flaws in many PPP governance frameworks. Most user pay PPPs have some form of public support (e.g. land, exclusive rights, tax incentives, guarantees) that should be fully disclosed. Experience clearly shows that these types of PPPs frequently require government bail-outs as project assumptions, for instance regarding traffic volumes, fail to materialize. CEE Bankwatch has a number of articles on PPP mishaps: https://bankwatch.org/public-private-partnerships.
