Technical notes

This technical note presents a model to evaluate the costs and benefits of plans to scale up public investment. It creates a theoretical framework that considers the positive effects of investment on growth and, in turn, the impact it can have on government fiscal accounts, particularly debt service. This note is accompanied by a template that implements the proposed methodology, which the author hopes will be useful for the work of country economists at the Inter-American Development Bank.

Policy-based lending is an important element within the toolbox of multilateral development banks to assist countries that need budget support and/or that are embarked on institutional changes or reforms. This Technical Note reviews different aspects of policy-based loans (PBLs) to gain a fresh perspective on their structural and financial features. It examines policy-based loans through the lens of their dual goals of providing beneficiary countries with flexible, liquid, and timely funding to meet their financing needs and of supporting policy reforms or institutional changes in a sector or subsector.

The discussion identifies general trends in policy-based lending in Latin America and the Caribbean, explores the sectoral allocation of the policy-based loans of the Inter-American Development Bank (IDB), and examines how policy-based loans are combined with other instruments as they provide liquidity and support reforms. It also explores how the IDB compares to other multilateral development banks in Latin America and the Caribbean in terms of policy-based lending.

This technical note analyzes specific project- and country-level characteristics that affect the duration of the projects approval process from year to year and builds a framework to characterize projects that would require further monitoring to complete their approval process. We present evidence that the number of team leaders changes, the time that a project remains in pipeline A, the size of a project relative to the pipeline of its country, and whether it is an electoral year in a given country affect the rate at which projects are approved. These empirical regularities can support the projects preparation process and better allocate resources and efforts to optimize approval times.

TThe study finds that variability in the approval rate of IDB-funded investment projects depends more on specific project characteristics than on macroeconomic conditions faced by countries or errors in forecasts of economic growth and fiscal deficits.