Director General Țenea, DG Friptu, DG Toader, DG Herciu,
Honorable Representatives of national and local authorities,
I am honored to welcome you to today’s workshop, organized by the World Bank in collaboration with the Ministry of Regional Development and Administration. Special thanks to representatives of public authorities, public companies, and civil society organizations who made a special effort to be here today, travelling from all corners of Romania.
Today’s event seeks to make a meaningful contribution to the ongoing conversation on a critically important topic that we all care about: ensuring that public investments, irrespective of the source of funds, are utilized effectively and follow criteria that support Romania’s sustainable growth and help meet EU targets.
Over the next seven years, Romania will receive a total of EUR 42.3 billion in EU funds. National and subnational authorities are also expected to continue to allocate substantial funding for capital investments.
But experience proves that simply throwing money at the problem is not the solution. Between 2003 and 2013, Romania ranked 1st in the EU in terms of % GDP allocated to capital spending (~5%), yet the country continues to have the worst quality infrastructure in the EU, according to the 2013-2014 World Competitiveness Report.
At the same time, resources for investments remain scarce, particularly given current constraints. The Government has committed to maintaining stable deficits, consistent with the medium-term budgetary objective (MTO) of 1% of GDP deficit.
There is a consensus in this room and beyond that major investments in infrastructure are needed to fuel the country’s economic development. The simple but critical message is that Romania needs to “do more with less” when deploying scarce resources available for public infrastructure investments, which comes down to effective coordination and prioritization of public investments. This translates into four key recommendations.
First, the Government should ensure that rigorous criteria are designed, adopted, and followed in the selection of investments, regardless of the financing source (EU or state budget). Four general principles are key to prioritizing proposed projects: relevance (i.e., alignment with sectoral strategy); expected impact; applicant’s capacity to carry out the project in a timely manner; and financial sustainability, including potential to cover operation and maintenance costs in the long run.
Second, coordination across investment programs requires that procedures applicable to EU and state-budget funds are equally rigorous, throughout the program cycle: from application to contracting, procurement, implementation, and monitoring and evaluation. Typically, programs funded 100% from the state budget have overlapped in programming with EU funds and have come with less strict procedures. This has aggravated the risk of EU and state programs competing for projects, in the context of absorption rates that are already unsatisfactory. In particular, state-budget-funded programs need stronger M&E mechanisms to assess their impact and decide whether they should be expanded, adjusted, or canceled.
Third, the Government should rationalize the portfolio of ongoing state-budget-funded investments and strictly limiting the financing of new projects. Thousands of infrastructure investments are ongoing across Romania, in various phases. Over the course of 2014 alone, the PNDL portfolio nearly doubled to reach 3,950 financed projects. Assuming that the program would continue to receive an annual allocation of about RON 1.5 billion, it would take 15 years to finish just what has been already started. This portfolio needs to be triaged based on the principles mentioned above and favoring those investments that have higher completion rates.
This goes hand in hand with our fourth recommendation: adopting multi-annual budgeting and the EU programming period for state-budget programs. The status quo system favors frequent shifts in programming priorities and funding allocations, undermining predictability for all stakeholders (local authorities, contractors, service providers, citizens). Instead, the Government should commit to complete a limited number of triaged projects over the programming period and finance new proposals only if there are excess resources after all ongoing investments are accounted for. By mirroring the programming period of EU funds, state-budget programs could be programmed in a coordinated, complementary fashion.
Finally, coordination thrives only in an “enabling environment,” which requires accountability, capacity, and trust. Currently, coordination happens ad-hoc, if at all, because these vital elements are missing. Public employees do not have strong incentives to coordinate and they are not held accountable for failing to coordinate. They often lack the time to reach across institutional boundaries and rely on information systems that do not “speak” to each other (even units within the same ministries use systems that are not interoperable). And they cannot build a culture of trust and collaboration when staff turnover is high, morale is low, and the entrenched mentality is to resist giving up individual power in favor of collective decision-making.
To end on a positive note, Romania has proven that coordination can work – specifically, in the design and implementation of EU funds for 2007-13 and 2014-20. This model should now be replicated to state-budget programs.
I look forward to a very fruitful conversation. Thank you.