In the coming months the European Commission will again be reimbursing Portugal, according to the schedule contained in the Operational Arrangements of the Recovery and Resilience Program (RRP) signed in January 2022. In January 2023, the European Commissioner for Cohesion and Reforms has voiced little to no concern over Portugal’s specific situation “when compared to other countries”
However, media attention concerning the speed of execution of the RRP in Portugal has increased significantly over the last few months. Fifteen investments have been identified by a committee reporting on the RRP (the Comissão Nacional de Acompanhamento) as being in a critical or unsatisfactory state, and the President of the Republic has emphasized the urgency of regaining speed for achieving the promised milestones and metrics.
Beyond focusing only on execution (i.e., spending money), economists and policy advisors have started to highlight the relevance of the effectiveness of RRP, in order to guarantee its success by and beyond its official end in 2026. From this standpoint, it is imperative to identify and maximize the potential expected impact of each investment and reform to overcome well-known long-term structural challenges to the Portuguese socioeconomic fabric.
This includes developing and delivering to the public supporting metrics justifying how each investment achieves its intended aim, also considering its opportunity cost. In the IPP Policy Paper 23: “Digital Transition in the Recovery and Resilience Plan: Challenges for Portugal” we have pursued an analysis in this direction.
The Portuguese Prime Minister recently stated that the Ministry of Finance’s office for studies and international relations estimates the RRP to have an economic impact of 5.3 euros in additional GDP per euro spent – based on estimated multiplier effects. This translates to an impact of €83 billion euros, amounting to 38.7% of 2021 GDP, [1] but this estimate has been widely ridiculed in the press.
The above-mentioned facts are relevant from a policy standpoint. However, it is still unclear to Portuguese society how exactly the Portuguese government will hold itself accountable for achieving the expected impact per milestone and target, ensuring that this expected monetary value is achieved, let alone structural changes to the economy.
From a citizen’s perspective, to this day a tool to consult the objective and ascertain the achievement of the same for each initiative is missing, though having such a tool would be essential to understand the effect on the main socioeconomic structural factors addressed by the RRP.
Such key performance metrics would be critical to create institutional incentives within the government and the public administration to achieve results with the structure and efficacy required. Indeed, the IMF identified government accountability as one of the most relevant determinants of government efficiency. [2]
Institutions such as the OECD and the World Bank have published working papers addressing this need. In “OECD Best Practices for Performance Budgeting” [3], the institution highlights how “performance budgeting aligns expenditure with the strategic goals and priorities of the government” through “medium-term expenditure frameworks” along with a “continuing system review”.
In “Towards Nex-Generation Performance Budgeting”[4], the World Bank identifies Australia as having wide experience with various adaptations of performance budgeting characterized in OECD terminology as performance-informed budgeting (OECD 2008). The Australian treasury publishes on its website a budget statement according to the OECD framework indicators in which Australia’s progress and well-being performance is measured based on the OECD Framework for Progress and Well-being.These metrics are oriented by a topic-based framework following the OECD’s “Compendium of OECD well-being indicators”, according to which indicators should be relevant, complete, measurable, comparable, reliable and understandable.
Evolving from the concept introduced by Dr. Robert Kaplan and Dr. David Norton in 1992 with “The Balanced Scorecard – Measures That Drive Performance”, according to a hierarchical structure for KPI planning, if a milestone KPI has improved but the associated objective KPI remains unchanged then the measure of achievement for that same milestone will not suffice as evidence that the objective is being reached.
Every individual target and milestone of the Portuguese RRP must be linked to solving a specific socioeconomic structural challenge, receiving a weight for achieving a high-level strategic KPI. This logic is possible through the inclusion of efficacy-oriented KPIs at the intermediary-level layers, with a view to addressing a main macroeconomic structural factor. IPP will be working along these lines to propose a system of KPIs that contributes to measuring the efficacy of the Portuguese RRP and guarantee that present and future funds are well-applied.
[1] Source: INE – Statistics Portugal https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=541035176&DESTAQUESmodo=2
[2] Hauner, D., and Kyobe, A., Determinants of Government Efficiency, World Development, Volume 38, Issue 11, 2010, Pages 1527-1542, ISSN 0305-750X, https://doi.org/10.1016/j.worlddev.2010.04.004.
[3] OECD (2018), ” OECD Best Practices for Performance Budgeting”, OECD Working Party of Senior Budget Officials, GOV/PGC/SBO(2018)7.
[4] Moynihan, D., and I. Beazley (2016), Toward Next Generation Performance Budgeting, World Bank.