![]() ![]() The following graph – based on a combination of three-, four- and five-year projects –clearly demonstrates the relationship between past commitments and current payments. Conversely, payments can later catch up rapidly precisely when commitments slow down. Everyone knows how payments can lag commitments, sometimes by several years, as projects are slowly picking up. In fact, because many investment projects have a multi-year time horizon, the payment needs in any year are mostly determined by past commitments, very little by new projects. When it comes to assessing payments on capital expenditures, past commitments are critical. ![]() This can be attributed to a lack of rigorous bookkeeping of commitments. ![]() Simple questions such as how many projects are active, or what are the effective amounts contracted, may be difficult to answer. The second reason is that the collection and analysis of data on capital projects is often deficient. The first one has to do with line ministries’ over-optimism on investment projects - a much more appealing type of expenditure than current spending - without acknowledging that capital expenditure is often complex and thus subject to delays. Two main reasons can explain this observation. Although investment projects often exceed their expected costs, when it comes to capital budgeting, there is a common bias towards overestimating payments. ![]()
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