Public Investment Management Challenges and Tools
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fiscal resource allocation and execution for capital assets. Associated with this is the desire to meet fiscal constraints through top-down budget reforms, while providing resources to meet the “bottom-up” challenges of project portfolio prioritization and implementation, typically across decentralized agencies and levels of government. More in-depth analysis of practice in each of these areas suggests the need for careful attention to institutional design, and in particular to the prevailing bureaucratic and broader political economy considerations. Successful outcomes will ultimately have to be incentive compatible with the prevailing political economy of fiscal policy and the “PIM subsystem.” In the optimal assignment of roles and responsibilities, PFM reforms since the 1980s and 1990s have strongly emphasized dismantling the dual budgeting processes (current and capital) in place in many posttransition and newly independent developing countries. A main risk of dual budgeting was that it tended to neglect medium- to longer-term operations and maintenance expenditure needs. There appears to be growing recognition that, because of some of the features of capital spending (discretion, myopia, seesaw effects, and execution transaction costs), special attention should be paid to the institutional arrangements for capital spending and the associated operating expenditures, particularly in developing country settings. A potentially emerging concern is whether many governments have adequate capacity to engage in comprehensive and strategic national public investment planning and execution that are consistent with the rest of the budget over the medium term.20 In this context, the assignment of some capital spending to subnational levels of government is relevant. Although such assignment may promise greater responsiveness to local needs through better local information, framing these decisions in the context of limited territorial constituencies can risk generating a fragmented portfolio of suboptimally small projects. From a top-down budgeting and financing perspective, it will be important to determine the actual allocation role played by subnational decision making or whether allocation is primarily determined by higher levels of government (for example, as part of transfer design). Higher levels of government may play a regulatory or direct role in various aspects of the PIM value chain. Mongolia, for example, has recently sought ways to meet the large-scale infrastructure needs associated with the development of its mineral sector versus meeting the needs of individual parliamentary constituencies (Hasnain 2011).