Publication: Assessing Public Investment Management Functions and Institutional Arrangements for State-Owned Enterprises: A Diagnostic Framework
Date
2021-07-20
ISSN
Published
2021-07-20
Author(s)
Abstract
This paper provides a diagnostic
framework (DF) for helping governments conceptualize and
develop desirable functions and institutional arrangements
for public investments managed by state-owned enterprises
(SOEs). The DF also extends its coverage to not-for-profit,
quasi-independent government entities. Determining the
appropriate approach to managing SOE public investments
requires a measured reconciliation of multiple trade-offs.
In certain cases, when SOEs make profit-seeking investments
for commercial purposes, operate in competitive markets, and
make investments that present no major externalities,
governments should take a hands-off approach, a scenario
that may include cases in which governments simply exit and
leave the corporate governance in the hands of private
investors. Governments should let SOEs make their own
investment decisions in pursuit of business efficiency. In
such instances, governments need to establish a level
playing field on which SOEs can operate and compete with
private actors and exercise their public interest as a
shareholder. In other cases, however, governments should
establish a robust system - well aligned with the national
public investment management (PIM) architecture to regulate
SOE investments. This alignment should occur when SOE
investments extend the role of line ministries and are
financed by the general government budget or involve
large-scale projects, posing significant fiscal risks
through implicit or explicit contingent liabilities. The PIM
practiced by SOEs should also align with the national PIM
system when there are potential detrimental impacts on the
environment, climate, and resilience. Our DF consists of
four matrices intended to be used in combination to assess
the gap between a country’s current SOE PIM and
international best practices. Matrix 1 sketches the
guideposts to determine which stakeholders should guard SOE
investments, focusing on who. Matrix 2 helps assess PIM
functions, focusing on what should be done under each PIM
function and by whom. Matrix 3 presents a framework and a
set of measurement indicators to evaluate how governments
should introduce PIM processes and systems. Matrix 4 gives
some consideration to the project viability of SOEs. To
effectively apply the DF, it cannot be used mechanically: it
must be grounded in a good understanding of the country’s
political economy and the vested incentives of all
stakeholders involved in SOE PIM.
Citation
“Glenday, Graham; Le, Tuan Minh; Mahdi, Shireen; Pijuan, Albert. 2021. Assessing Public Investment Management Functions and Institutional Arrangements for State-Owned Enterprises: A Diagnostic Framework. Equitable Growth, Finance and Institutions Insight;. © World Bank, Washington, DC. http://hdl.handle.net/10986/36002 License: CC BY 3.0 IGO.”