This presentation was made by Wojciech Zielinski, OECD Secretariat, at the 7th meeting of the Joint OECD DELSA/GOV Network on Fiscal Sustainability of Health Systems held at the OECD Conference Centre, Paris, on 14-15 February 2019

1. Accountability in capital budgeting
Paris, 15 February 2019
Wojciech Zieliński
Public Governance Directorate
wojciech.zielinski@oecd.org

2. • What is capital budgeting?
• Specific features of capital budgeting
• Relevant OECD documents
• Dimensions of accountability
• Accountability in capital budgeting -
challenges
2
Outline

3. 3
What is capital budgeting?
Most OECD countries define capital budgeting as a specific
process of budgeting to obtain goods that have two main
features:
– The good will be used in the production or supply of goods or
services
– The good has a life that extends beyond one year
It includes large infrastructure projects

4. • Large, costly projects
• Easily measurable outputs
• Sophisticated construction projects
requiring special skills/capacities
• Projects that go beyond one-year period,
sometimes beyond a political cycle
• Impacts that sometimes go beyond a given
region
4
Specific features of capital budgeting

5. • Multiannual budget planning
• Devolving projects to SOEs or entering into
public-private partnerships
• Important role of public procurement
procedures and ex ante analysis
• Important role of depreciation in accounting
• Not always included in the general budget or
included with special provisions
• Ex post reporting on performance
5
Specific solutions used in capital
budgeting

6. 0 1 2 3 4 5 6 7 8 9
>10%
>5-10%
< or equal 5%
no PPPs
number of countries
6
Percentage of investment flows through
PPPs
Source: Capital budgeting and procurement practices, in: OECD
Journal on Budgeting, Volume 2013/1, OECD 2013

7. • Multiannual budget planning
• Devolving projects to SOEs or entering into
public-private partnerships
• Important role of public procurement
procedures and ex ante analysis
• Important role of depreciation in accounting
• Not always included in the general budget or
included with special provisions
• Ex post reporting on performance
7
Specific solutions used in capital
budgeting

8. 8
Value for money analysis is frequently missing
Yes in all cases
In all cases above a
certain value
On an ad hoc basis Only PPP Projects No
Australia Hungary Czech Republic France Austria
Germany Ireland Denmark Mexico Chile
Italy Japan Finland Estonia
United Kingdom New Zealand Switzerland Luxembourg
Norway Belgium Slovenia
Republic of Korea Spain
Turkey Sweden
Non-OECD
South Africa
Philippines
Is there a formal process/legal requirement for ensuring value for money from
infrastructure projects?
Source: OECD (2016), OECD Survey of Infrastructure Governance

9. • Multiannual budget planning
• Devolving projects to SOEs or entering into
public-private partnerships
• Important role of public procurement
procedures and ex ante analysis
• Important role of depreciation in accounting
• Not always included in the general budget or
included with special provisions
• Ex post reporting on performance
9
Specific solutions used in capital
budgeting

10. 0 2 4 6 8 10 12 14
cash
accrual
modified cash
modified accrual
commitment-based
10
Accrual vs cash budgeting in OECD
countries
Source: Capital budgeting and procurement practices, in: OECD
Journal on Budgeting, Volume 2013/1, OECD 2013

11. • Multiannual budget planning
• Devolving projects to SOEs or entering into
public-private partnerships
• Important role of public procurement
procedures and ex ante analysis
• Important role of depreciation in accounting
• Ex post reporting on performance
• Not always included in the general budget or
included with special provisions
11
Specific solutions used in capital
budgeting

12. 0 5 10 15 20
no distinction between capital and current expenditure in
the budget
distinguishing between capital and current expenditure,
but within an unified budget
dual system: separate capital and current expenditure
budgets
number of countries
12
Separate budget for capital?
Source: Capital budgeting and procurement practices, in: OECD
Journal on Budgeting, Volume 2013/1, OECD 2013

13. • High corruption risks
• Frequent underestimation of costs of
investment
• Sectorial, non-coordinated approach
• Weak co-ordination between levels of
government
• Problems with ensuring maintance of
infrastructure
• Lack of long term vision/strategy to guide
infrastructure investments
13
Main challenges in capital budgeting

14. Integrated long-term strategic infrastructure
plans are missing
Countries with a LT strategic
infrastructure plan
Countries with only sector-
based infrastructure plans
Australia Belgium
Austria Chile
Hungary Czech Republic
Italy Estonia
Japan France
Mexico Germany
New Zealand Ireland
Republic of Korea Norway
Spain Slovenia
Sweden Switzerland
Turkey
United Kingdom
South Africa
Around half of the surveyed countries have an integrated strategic
infrastructure plan, but many countries still rely only on sector-based plans
Note: Total respondents: 24. Other forms of strategic planning include medium term (6-7 years), sector and regional plans.
Source: OECD (2016), OECD Survey of Infrastructure Governance

15. 15
Infrastructure Governance in the OECD
documents
2012
2016
2017
2015

16. 1. Develop a strategic vision for infrastructure
2. Manage threats to integrity
3. Choose how to deliver infrastructure
4. Ensure good regulatory design
5. Integrate a consultation process
6. Co-ordinate infrastructure policy across levels of
government
7. Guard affordability and value for money
8. Generate, analyse and disclose useful data
9. Make sure the asset performs throughout its life
10. Public infrastructure needs to be resilient
17
10 dimensions of good infrastructure governance
that addresses current challenges

17. • Who is accountable?
– Political accountability (politically elected officials)
– Managerial accountability (senior civil servants)
• Who holds accountable?
– Parliament
– Administrative oversight (SAI, courts, inspection and
regulatory bodies)
– Social accountability (society, NGOs, media)
• Accountable for what?
– Compliance
– Performance
– Fairness, inclusion
18
Dimensions of accountability

18. • Inclusion/non-inclusion of projects in general
budget
• Decisions on prioritisation of investment projects
• Continuity and sustainability of projects beyond
political cycle
• Co-ordination (between sectors, regions,
governance levels)
• Corruption in decision making
• Setting relevant and well designed targets
• Deciding about the way of implementation: PPP vs
TIP (Traditional Infrastructure Procurement)
19
Political accountability in capital
budgeting – main challenges

19. • Transparency related to: decision making
process, procurement process, investment
process and results.
• Citizens` engagement in decision making
and budgeting: Participatory budgeting,
Porto Alegre, Brazil
20
Social accountability in capital budgeting:
Transparency and citizens` engagement

20. • Decision on who delivers influences the
accountability solutions (TIPs, SOEs,
PPPs) – accountability system.
• Public procurement procedures tend to
favour cheap bidders, not the best ones
• Bidding process: level of detail in ToR
• Tendency to spend more than planned
• Corruption risks in the implementation
phase
21
Managerial accountability in capital
budgeting - challenges

21. • Do senior civil servants have enough
autonomy, empowerment to be held
accountable?
• In longer-term projects – difficult to
measure results on annual basis
22
Managerial accountability in capital
budgeting - challenges

22. Yes No
Czech Republic Australia
Finland Austria
Germany Belgium
Ireland Chile
Italy Denmark
Japan Estonia
Mexico France
New Zealand Luxembourg
Korea Norway
Spain Slovenia
Turkey Sweden
United Kingdom Switzerland
Non-OECD Hungary
Philippines
South Africa
23
Managerial accountability: performance
Is there a policy ensuring that the relevant line ministry or agency conducts
performance assessment of each project?
Note: Total respondents: 25
Source: OECD (2016), OECD Survey of Infrastructure Governance

23. Is there a central, systematic collection of
information on the financial and non-financial
performance of infrastructure?
24
The lack of data impedes accurate
analysis and evaluation of projects
Yes No
Australia Austria
Finland Belgium
Japan Chile
Mexico Czech Republic
New Zealand Denmark
Korea Estonia
Spain France
Germany
Ireland
Italy
Luxembourg
Norway
Slovenia
Sweden
Turkey
Switzerland
United Kingdom
Hungary
Non-OECD Non-OECD
Philippines South Africa
3
5
2
2
1
1
3
0
1
Dedicated PPP Unit
Central Infrastructure
Unit
Central Budget
Authority
Supreme Audit
Institution
Sector regulators
National Public
Procurement Agency
Line Ministries
Competition Authorities
Other, please specify:
Who collects information on financial
and non-financial performance of
infrastructure?
Source: OECD (2016), OECD Survey of Infrastructure Governance

24. • Italy
• UK
25
Case studies

25. 26
References
OECD(2017) Getting Infrastructure Right: A Framework for Better Governance
OECD (2016) Integrity Framework for Public Investment
OECD (2015) Recommendation of the Council on Public Procurement
OECD (2015) Recommendation of the Council on Budgetary governance
OECD (2015) High-Level Principles for Integrity, Transparency & Effective Control of Major Events & Related Large
Infrastructure
OECD (2015), Toward a Framework of Infrastructure Governance
OECD (2014) Recommendation of the Council on Digital Government Strategies
OECD (2014) Recommendation of the Council on Effective Public Investment Across Levels of Government
OECD (2014), The Governance of Regulators, OECD Best-Practice Principles for Regulatory Policy
OECD (2014) Recommendation of the Council on the Governance of Critical Risks
OECD (2013) G20/OECD High-level principles of long term investment financing by Institutional Investors
OECD (2012) Recommendation of the Council for the Public Governance of Public-Private Partnerships
OECD (2012) Recommendation of the Council on Regulatory Policy and Governance
OECD (2010) Guiding Principles on Open and Inclusive Policy making
OECD (2010) Recommendation of the Council on Principles for Transparency and Integrity in Lobbying
OECD (2007) Recommendation of the Council on Principles for Private Participation in Infrastructure
OECD (2003) Recommendation of the Council on OECD Guidelines for Managing Conflict of Interest in the Public Service

26. • European Court of Auditors (2017), Special Report: Protecting the EU from
irregular spending, European Court of Auditors, Luxembourg
• OECD (2014), Budgeting Practices and Procedures in OECD Countries,
OECD Publishing, Paris, https://doi.org/10.1787/9789264059696-en.
• Burger, P. and I. Hawkesworth (2013), "Capital budgeting and procurement
practices", OECD Journal on Budgeting, vol.
13/1, https://doi.org/10.1787/budget-13-5k3w580lh1q7.
27
Other useful reading: