Economic recovery: Investing in infrastructure

Contextualising the review of the National Development Plan (NDP), Minister for Public Expenditure and Reform, Michael McGrath TD discusses how an ambitious public capital programme can play a critical role in the recovery of the Irish economy.

Setting out the context for the delivery of a renewed NDP, Minister McGrath acknowledges the critical role of stakeholders in the delivery of infrastructure throughout the pandemic and the importance of the agility shown not only maintaining the economy but providing a basis for future growth.

The Government’s “determination to deliver infrastructure and ensure the country develops in a co-ordinated and well-planned manner” is driven not only by the acknowledgement that Covid-19 will bring about many changes to how the public interacts with infrastructure but also the projection under Project Ireland 2040 of a population increase of some one million people over the next two decades.

Adopted in 2018, the existing NDP outlined a 10-year capital investment programme of around €116 billion aimed at upgrading the country’s infrastructure, enhancing economic capacity and promoting balanced regional development. So far, the plan has progressed a number of key infrastructure projects and the current Government has continued this momentum, including, most recently, through Urban Regeneration Development Fund allocations of around €1.3 billion across different regions of the country from the Minister for Housing Darragh O’Brien TD.

A review of the current NDP was scheduled for 2022 but in November 2020, the Government opted to launch of Review to Renew. Explaining the decision, the Minister identifies an opportunity to “reassess the country’s priorities”. “The review provides an opportunity to reassess our investment plans as a country, to update our project costings and to highlight any new issues that may need to be taken into account considering the priorities in the Programme for Government [PfG] and of course, the ongoing impact of Covid-19,” he states.

Another crucial factor in the decision, which McGrath highlights, is the opportunity to invest in public infrastructure based on access to “funding at historic low rates of interest”, which he says must be availed of in a “considered and careful” manner. Asserting that an ambitious public capital programme can play a crucial role in the recovery of the economy, he contrasts the current economic outlook with that of a decade ago, when the global financial crisis meant that funding was not available and Ireland experienced a peak-to-trough cut in the public capital programme of some 60 per cent.

By comparison, the €10.8 billion capital budget for 2021, around 5 per cent of GNI*, is not only a record high for Ireland but one of the largest proportional allocations in the European Union.

The Minister outlines a number of key challenges the two-phase review will seek to address, including identifying the appropriate level of public capital investment for the next decade, resetting policy priorities in line with the PfG and closer alignment between the NDP and the National Planning Framework spatial strategy. A further major challenge he raises is around governance of the public capital programme, which he believes can be more efficient.

In April 2021, the Minister published the Phase 1 report on the NDP review, which he describes as an evidence base for Phase 2. The Phase 1 report involves analysis from the National Investment Office and DPER looking at appropriate spending levels and also examines the delivery challenges, with the Minister cognisant that further constraints exist outside finance, such as bottlenecks in the planning system, and that these must be addressed for infrastructure development over the next decade.

The Phase 1 report also deals with sectoral trends in demands across those key areas of climate change, education, and transport, for example. “Critically, it also looks at non-infrastructure investment,” explains the Minister, adding: “Because research and development is increasingly going to be an important part of the NDP, as is digitalisation, enterprise development and equipping people with the skills to match the requirements of a rapidly evolving economy. The NDP is not just about building roads, bridges and houses and our definition and understanding of infrastructure is constantly evolving.”

As well as further exploration of the role of PPPs, McGrath states that Phase 1 will look at the area of assurance, where he has identified the need for essential reform. Several decisions have already been taken in this regard, as he seeks to incorporate greater external involvement and oversight to the public capital programme.

“One of the learnings I have from being in opposition and in observing the management of projects in my time here in the Department is that resources and time spent at the pre-tender stage are generally well spent.”

“One of the learnings I have from being in opposition and in observing the management of projects in my time here in the Department is that resources and time spent at the pre-tender stage are generally well spent. If you can pre-empt problems before they arise, it enables projects to go through the delivery phase in a much smoother manner,” he explains.

McGrath has announced his intention to put in place a framework of external experts in major infrastructure delivery, to advise government departments, at the two key “decision gates” of the business case stage and pre-tender stage. Reviews by the experts, he says, will focus on the robustness of planned delivery, the accuracy of cost forecasts, and give consideration of risk and procurement. The Minister is establishing a major projects advisory group to assist his department in managing the external expert framework and assimilating the forthcoming outcomes from their reviews.

Furthermore, the Minister has announced the expansion of the Project Ireland 2040 delivery board to include five external members from the private sector or those who previously worked in public sector infrastructure delivery, who he believes will add rigour and experience.

Phase 2 of the review is scheduled for summer 2021, with the objective of publishing a new 10-year NDP with rolling five-year capital ceilings for departments, which the Minister says will “offer a line of sight and certainty” about the funding they will have over the next five years.

Looking to the future, McGrath projects a swift economic recovery. While under no illusion that that past year has resulted in considerable economic damage, he points to ESRI predictions of 4.5 per cent economic growth in 2022 and 5 per cent in 2023 as a source of optimism, which in tandem with the Government’s new National Economic Recovery Plan presents an opportunity for economic growth.

However, he is also aware of the hangover challenges presented by the pandemic. For example, the Department has identified significant capital underspend across government departments both in 2020 and this year, largely due to the Covid-19 restrictions on construction. Only 10 per cent of capital budget can be carried forward by a department for the following year by law and, in response, the Minister has introduced new reporting requirements for the main capital spending departments to report quarterly to Cabinet on their capital spending to date and their projections for the remainder of the year.

“This will enable the Government as a collective to take decisions to ensure we are making maximum use of the capital budget that is available, even if that means reallocation from one area to another because we recognise the important role of capital investment in recovery. We need to always be looking at ways to improve the productive capacity of the economy and the public capital programme is a huge lever in that regard,” he concludes.

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