Efficiency of Public Investment in Peru and Proposals for Its Improvement (#863)

Authors

Velasquez, Arturo

Abstract

To achieve better levels of economic development, both private investment and public investment play a primary role and the most complete theoretical developments indicate the importance of carrying out Pre-investment studies in the projects that are proposed to be developed, in order to ensure the quality and efficiency of investment expenses. In the Peruvian case, investment decisions in the public sector are subject to rules and procedures that have presented appreciable variations in the present century. In the first stage, there were regulations that recognized the importance of the Benefit-Cost Analysis (ABC) in investment proposals. Subsequently, starting in 2016, the regulations and procedures were modified, weakening the requirement to apply the ABC, and a set of criteria were established, focused on closing gaps and concordance with national, regional and local objectives, complemented with economic, financial, social and institutional criteria, not including the ABC requirement. Regarding the magnitude of the budgets for public investment projects, at the 3 levels of government, assigned in recent years, an inconsistent behavior can be seen, with significant positive and negative variations in annual allocations, raising doubts on the maturity or stability of budget allocation procedures. It has been found that in the 2022-2025 Infrastructure Plan, approved by DS No. 242-2022/EF, and complementary regulations, a methodology is established, in the case of projects to be developed in the Public-Private Partnership (PPP) modality prioritization that contains concepts such as: Linkage with national plans or sectoral strategic plans, impact on the Sector's budgetary capacity (temporality), progress of projects in the PPP phases, demand for public resources, generation of synergy with existing projects , level of risk transfer, capacity to measure the availability and quality of the service, project size and others, omitting the requirement to have Pre-investment studies that allow determining, through ABC, the financial profitability and social profitability of the projects proposed. Then, 4 cases of public investment projects executed in recent years, or currently being executed, are reviewed, appreciating that in these cases the objectives of economic efficiency and the protection of the public interest are not being achieved, as a consequence of defective pre-investment studies, or the lack thereof. It is concluded that, in the last two decades in Peru, due importance has not been given to carrying out solid Preinvestment studies with their corresponding ABC, both in the case of the PIPs, and in the case of the projects that are carried out. through PPP, there being the possibility that the inclusion of new projects, without further prior studies, in future National Plans, means promoting investments whose quality and profitability has not been carefully analyzed. Finally, it is recommended to review the selection procedures of public investment projects, in order to require compliance with the Pre-investment phase, applying the ABC benefit-cost analysis or alternatively the CE Cost Effectiveness analysis, in every project with a significant investment amount. This requirement is so important that it even deserves to be included in the Constitution.