# **II. Defining “Must Have” Features for an Efficient Public Investment System**

## **1. Investment Guidance, Project Development & Preliminary Screening**

9. First, some broad strategic guidance for public investment is often an important way to anchor government decisions and to guide sector-level decision-makers. Such guidance may be derived from a national plan or other medium to long term strategic document that establishes economy-wide development priorities at the highest decision-making levels. The Poverty Reduction Strategic Paper (PRSP) may serve as such a document in some countries. In other countries longer term vision documents may provide the necessary directional guidance. In many countries, this may be supplemented by a sector level strategy or even sub-sector strategy level that provides more detailed translation of the overarching priorities.<sup>4</sup> The existence of credible strategic guidance to public investment, which can be meaningfully interpreted at sector or sub-sector levels, is a basic requirement and may be referenced in annual budget preparation instructions.<sup>5</sup> 10. Further, there should be a formal process for project development. Line ministries and spending agencies initiating projects for public investment should prepare a project profile with basic project information, including relevant strategic priority and sub-program or program, specific problem to be addressed, project objective, main activities, expected results and estimated budget. In addition, it is important at this stage that options for addressing the problem with and without a project are considered, and demand, supply and gap analysis is undertaken.

11. First level screening of all project proposals should be undertaken to ensure that they meet the minimum criteria of consistency with the strategic goals of government, and meet the budget classification tests for inclusion as a project rather than as a recurrent spending item. A project that fails to meet this consistency test should be rejected, making it unnecessary to subject it to further evaluation. An appropriate institutional arrangement to ensure that all major project proposals are screened is a critical must-have feature so that resources are not wasted in more detailed project appraisal; this function may on occasion rely substantively on responsibilities delegated to line ministries and spending agencies.

## **2. Formal Project Appraisal**

12. Projects or programs that meet the first screening test should be subject to the appraisal of their viability which requires undertaking feasibility analysis. Its objective is to answer the essential question of whether a spending agency or line ministry should proceed with a project even though it is consistent with government priorities. This process requires

> 4 The U.K. requires departments to prepare Departmental Investment Strategies to guide investment decisions. Some countries produce plans for subsectors where the subsector is characterized by long planning and building cycles, such as roads, hospitals and schools.

> 5  Five year plans in many countries proved to be non-credible to the extent that they proposed targets that were not grounded in realistic resource projections.

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