A Snapshot of Public Investment Management in Libya

Michael Schaeffer

Senior Public Sector Specialist

Wesal Ashur

Public Sector Analyst

 

From 2003-2011, public expenditure in Libya was high by international standards.  At 39 percent of gross domestic product (GDP) on average during 2003–05 (and 35 percent in 2008), consolidated public expenditure was among the highest in the world.  This level of public spending exceeded levels recorded in economies in transition in Eastern Europe and Central Asia, as well as in fast-growing Middle East and North African (MENA) countries, such as Algeria and Tunisia.  However, due to the ongoing nature of political turmoil over the past few years, development budget spending during fiscal year (FY) 2012-2014 virtually collapsed as a share of total budget spending (Figure 1).

Although the annual recurrent and development budgets in Libya are presented and approved as a single document, their preparation follows parallel, bottom-up approaches.  The annual budget itself is still split between recurrent and development expenditures, with preparation of the recurrent budget covering wages (Chapter I), goods and services (Chapter II), and subsidies and transfers (Chapter IV) under the responsibility of the Ministry of Finance’s Budget Department.   The preparation of the development budget (Chapter III) is the responsibility of the Budget and Follow-up Departments of the Ministry of Planning. Development budget execution rates are relatively low, at approximately 25 percent of those budgeted over the past few years.

A diagnosis of the Public Investment Management (PIM) System against the World Bank 28 Public Investment Management Drill-Down indicator set was conducted in December 2013-February 2014.  The Public Investment Management Diagnostic was designed to assist governments in determining how their PIM systems operate. The World Bank tool encompasses a set of indicators used to identify areas of relative public investment weaknesses and strengths. The indicators enable a ‘drill-down’ of the PIM system so that bottlenecks and gaps can be more easily identified.  The indicators are still in a relatively early stage of development. Over time both indicators, and the criteria used for scoring against each indictor, will be augmented in line with experiences from its application.  The diagnostic followed the evaluation framework suggested by the World Bank (2010)3 and is based on semi-structured interviews of government officials and a review of relevant publications and written responses by the Ministry of Planning to a PIM questionnaire.  

Each indicator and subcomponent is allocated a score between A and D.  A score of “A” indicates that the element of the PIM system being assessed is very well developed with few if any areas for improvement.  There are very few countries where a score of A would be allocated across all of the indicators (for example, Chile and the United Kingdom).  A score of “D” suggests that there are no processes of even informal requirements in place to ensure that the PIM element being assessed is completed.  A score of “B” or “C” is given when there are some systems and measures in place, but there are still areas that need strengthening.  There are fewer areas that need bolstering if a score of “B” is given compared to a score of “C”.

The PIM diagnostic revealed substantial weaknesses in Libyan institutional arrangements for public investment management. As provided in the diagnostic, Libya is experiencing a significant degree of fragmented institutional arrangements. An integrated approach to public investment ensures that an appropriate balance between recurrent and development expenditure is achieved within expenditure programs and that operating and maintenance costs of investment proposals are not forgotten.  An integrated approach needs to be introduced at four levels4, the first two of which have implications for the way public investment management is organized at the center of government: (i) organizational and staffing integration, (that is, no separation of responsibilities for capital and recurrent expenditure between organizations or between departments); (ii) integrated budget preparation, (that is, the same staff are responsible for recurrent and capital budgeting); (iii) unified budget documentation and presentation; and (iv) unified reporting and accounting systems. 

 

Stage

Rating

PIM 11 Guidance and preliminary screening

C-

PIM 12 Formal project appraisal

D+

PIM 13 Independent review of appraisal

D+

PIM 16 Project selection and budgeting

C-

PIM 17 Project implementation

C-

PIM 21 Adjustment for changes in project circumstances

C-

PIM 22 Facility operation

C-

PIM 23 Ex post assessment (evaluation)

D

 

Figure 2:  Libya’s Eight Core Public Investment Management Indicators

Source:  Libya:  Public Investment Management Performance Assessment. Michael Schaeffer and Wesal Ashur, World Bank, 2013.

Figure 2 presents a snapshot of the Eight (8) Core Public Investment Management indicators.  A central feature of the Libya public investment management system is that it is non-uniformly based on the term contract rather than on the standard budgetary term of project.  This can be explained by the fact that small contracts tend to prevail as they fit inside a lower value threshold that exempts them from obtaining prior approval before release of their initial resource proceeds.  However, not all sectors have applied this term uniformly.

The excessive fragmentation of public projects resulting from the extensive use of contracts in the public investment system is conceptually flawed and unnecessarily complicates project management.  Conceptually, the standard definition of a project includes its goals, a complete list of its physical targets, human resources and financial inputs required for its implementation, and projected starting and ending dates. These parameters allow for monitoring and evaluation during and after implementation. In exchange, a contract often contains a smaller subset of these parameters. 

Thus, while the final goals of a project are formulated in relation to its different components and inputs, a contract often addresses an intermediary goal associated to a specific component.  In addition, while the inputs of a project represent commitments to the final output, the inputs of a contract are commitments to partial outputs.  It is obvious that the actual number of public projects is much lower than the thousands of contracts registered in the Libyan PIM system, which complicates their preparation, monitoring, and evaluation.

Libya features dual budgeting, which represents a significant obstacle to budget modernization as well as to efficient public investment planning and implementation.  Not only is the development budget prepared as a separate budget from the operating (current) budget, but the operating budget is classified as administrative and financial in nature, whereas the development budget is classified by sector.  In practical terms, these divisions prevent proper joint programming for operating and capital expenditures.   The absence of a modern budgetary classification impedes the linkage of resources with specific sectoral policy objectives.

Despite the current political turmoil, the World Bank continues to provide technical assistance to Libya. The on-going work has been selective in content and with counterparts, focusing on the strengthening of the public financial management system, where strong working relations had been established before the political crisis materialized. In particular, the World Bank has implemented programs for: (i) the introduction of a small-scale management information system linking treasury, accounts, and budget departments at the Ministry of Finance; (ii) a modified budget coding structure; and (iii) the preparation of the primary elements of public investment guidelines, as well as guidelines for dealing with the build-up of legacy infrastructure projects.  However, due to the recurrence of conflict and enhanced political uncertainty, the underlying budget coding structure (while in place) remains largely unused. 

 

 “Drill down” is an expression used to mean to examine data in greater detail.

2Schaeffer, Michael and Wesal Ashur, Libya:  Public Investment Management Performance Assessment.  World Bank (2013).

3 Rajaram, A., T. Minh Le, J. Brumby and N. Biletska, “A Diagnostic Framework for Assessing Public Investment Management”, World Bank Policy Research Working Paper No. 5397, 2010.

4 “Integration of Capital and Recurrent Development Budgets:  Issues, Problems, Country Experience and Way Forward”, Public Expenditure Working Group, World Bank, 2005.