Introduction of sound PIP budget procedures and PIP financial management methods

This is a new development area for PCAP2. Inadequate PIP project budgeting would make it difficult to complete the project with the expected achievements, and may affect the achievement of NSEDP targets. PCAP2 has identified the following main issues in the field of PIP budget management.

Main Issues

The PCAP2 team has identified issues on PIP budget management through discussions with MPI and provinces. The core issue that the PCAP2 team has identified is that there are a number of inappropriate, inefficient and ineffective projects. Inadequate budget management is considered one of the main causes of this core issue.

Issues in PIP management, especially those related to the core issue above, are as follows.

1. Assessment of PIP projects is not conducted properly as part of the annual PIP budget formulation process.
2. Due to delays in payment of project costs, projects face increased costs and delays in completion.

Projects with an inappropriate scope must be rejected through assessments. However, due to the unstable budget process, many projects that received bad assessment results were still included in the PIP budget request list submitted to MPI. This suggests that the budget formulation process, including submission deadlines and contents of guidelines and assessment procedures, needs improvement.

Among PIP projects, the ones that face serious payment problems are called “debt projects.” However, other projects that are not categorized as “debt projects” face similar payment problems.

Main Countermeasures

The following are the main countermeasures that PCAP2 proposes to decrease the number of inappropriate, inefficient and ineffective projects.

1. Allow enough time for DPI and planning departments to conduct project assessment by improving the entire PIP budget formulation schedule.
2. Develop a process where MPI sets clear directions on solving payment problems and monitor the progress so that provinces, the responsible body for budget planning and disbursement, are able to solve payment problems on their own.

Main Issues

The following are issues on the PIP budget formulation process.

1. MPI and DPI are unable to take enough time to assess project proposals.
2. The deadlines for project proposal submission from Project Owners (POs) to DPI are unclear.
3. POs submit too many project proposals.

Due to the issues above, although PCAP2 has developed project assessment tools to improve the quality of projects, the quality of project proposals is still not secured,

The PCAP2 team has proposed the following countermeasures to secure the quality of project proposals.

1. MPI should announce the budget formulation guideline in December so that DPI can take more time for project assessment.
2. The guideline indicates the deadline for project proposal submission to DPIs. PCAP2 recommends that the deadline be set as 6 weeks before DPI submits the PIP budget request to MPI. Thus, DPI will have enough time to conduct project assessment before PIP budget request submission.

3. The guideline includes the instructions on the formulation of the mid-term PIP expenditure outlook. The instructions provide details on avoiding the “due amount,” i.e., the project costs minus the amount paid, and announce upper limits of new project costs. The upper limits are likely to decrease the number of new project proposals. DPI would then be able to spend more time for assessment of project proposals, and the quality of projects would improve.

Here are the actions to enhance PIP financial stability.

1. Formulate PIP financial analysis methods and provide training to MPI staff members.
2. Establish methods to enhance provincial PIP financial stability and provide training to provincial DPI staff members.

In formulating PIP financial analysis methods, PCAP2 has set up an indicator to measure the level of payment problems within the provinces. The indicator measures the “Payment Duration” of the total amount of PIP project costs, which shows how many years it takes a province to finish paying for existing PIP projects.

The payment duration shows the depth of payment problems in each province. The duration can be derived as the due amount divided by the annual PIP budget. When the payment duration is shorter, the amount of additional costs is reduced. Reduced additional costs mean more budgets toward completion of PIP projects, a positive effect on the economy, and contribution to the achievement of the NSEDP targets.

To reduce the payment duration, the due amount should be kept to a minimum. Thus the costs of new projects have to be controlled and the costs of existing projects have to be closely monitored. Then, the role of MPI in building PIP financial stability is to set clear directions on avoiding increase in due amount and payment duration, and the role of provinces, is to improve their PIP financial status by reducing payment durations on their own.

PCAP2 is now preparing training for MPI and DPI to encourage PIP budget management by improving the PIP budget formulation process and enhancing PIP financial stability.