APEC Members Must Address Inefficiency to Ensure Better Investment Climate

Lapu-Lapu City — APEC member economies must improve or reduce the efficiency gap in their budgeting process to be able to strengthen investments in their respective economies, an official from the International Monetary Fund said on Thursday.

Sanjeev Gupta, the Acting Director for the Fiscal Affairs Department of the IMF was among the participants in the fiscal reforms and transparency meeting here in Lapu-Lapu City on Thursday.

The discussions focused on two issues: ensuring transparency of budget operations of the governments and pushing for infrastructure developments by improving efficiency in public investments.

These two issues are interrelated, Gupta said adding the background of the discussions focused on the region’s experiences with financial crisis in the past.

During those periods, a number of countries experienced unexpected increases in debt to GDP ratio, he said with debt increasing much larger than those countries anticipated.

This happens because governments did not fully report deficits arising from public private partnerships, (PPPs) and the operations of small and medium enterprises (SMEs) as well as building up some expenditure areas and the emergence of some large contingent liabilities.

As a response, Gupta said the IMF revived its code of fiscal transparency at the height of those developments and introduced a new instrument called Fiscal Transparency Evaluation.

“We have done 13 evaluations including three in APEC economies and the reports are published and are available in IMF’s external website,” he said.

There are five key lessons that came out of those evaluations so far, he noted.

One lesson is that countries often report much less of their fiscal operations of the public sector than they should. More than 20 percent of the spending has not been reported in many of the countries, Gupta said.

Second, there are major gaps in the balance sheets and that they don’t fully report all the liabilities as well as the full extent of the research.

Another lesson is that countries make very optimistic fiscal forecast for the medium term, which means that their medium term budgeting is not very credible, Gupta explained.

“They are generally very optimistic about the evolution of spending, understating the spending plans going forward,” he said.

There is also a large contingent liabilities such as those arising from PPPs, pensions and the guarantees that the government actually provides that are not reported in the accounts

And finally there is the issue of lack of transparency in some of the project operation systems that appear on public investment, he said.

These issues give rise to the efficiency of public investment processes. Gupta said that after analyzing the data of those countries, they found that roughly one third of the investment potential impact is being lost through inefficiencies.

“So in other words if you are spending a dollar you are losing roughly one third of that money through inefficient investment,” he noted.

“If we were to strengthen the investment processes, then one can improve or reduce this efficiency gap that we’ve talked about,” he said.

For this purpose, Gupta said they introduced a new tool called public investment assessment to help countries deal with the weaknesses in investment in infrastructure.

The IMF carried out assessment in about 40 countries on which 11 are APEC economies. In the case of APEC economies they lie between the advanced economies and emerging economies so their deficiencies are not as bad as those of emerging economies as a whole, according to Gupta.

But still there are some weaknesses, which can be dealt with and pertain mainly to one of the particular phases of investment, which is the planning stage.

Gupta added that strengthening some of the institutions that he mentioned can help APEC economies to achieve constructive pillar, which is contained in the Cebu Action Plan.

APEC finance ministers are expected to sign the CAP on Friday, after hammering out the regional roadmap for three days. PND (as)