How to improve the Pnrr
The parliamentary hearing of the economist Domenico Lombardi on the Pnrr
The Recovery and Resilience Plan (PNRR) will be the priority of the new Draghi government – also in terms of time – since the deadline given by Brussels for its submission is 30 April. In the short time that remains, it will be necessary to make some drafts that the outgoing government has bequeathed to a real plan that will allow Italy to access EU funds. Overall, it is over 200 billion, of which about 70 are non-repayable.
In recent days, the Budget, Treasury and Planning Commission of the Chamber audited the economist Domenico Lombardi. Experiences at the International Monetary Fund and the Brookings Institution of Washington, Lombardi indicated, as in his always constructive and polite style, the areas in which the current draft should be significantly improved, not only to meet the expectations of those who will evaluate the PNRR. Brussels, but above all to promote an ambitious reform and investment agenda that our country can no longer postpone . ( Start Magazine editorial staff )
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Honorable President, Honorable Members,
I thank the V Commission of the House for the invitation.
In the following considerations, I focus on the most important aspects of the National Recovery and Resilience Plan (PNRR) with respect to the European economic policy framework, the serious economic situation in our economy and the prospects that the Plan can offer, if validly set up and correctly executed.
In doing so, I rely on the PNRR proposal presented by the President of the Council of Ministers to the Chambers recently, well aware that it is a draft that can be improved, albeit in the short time still available.
The numbers. The PNRR will guide the use of almost 200 billion put in place by the EU through the Next Generation EU (NGEU) initiative which consists of resources that can be quantified, for Italy, in about 69 billion and resources on loan for a short time. more than 127. To these amounts are added additional resources, deriving for the most part from our Multiannual Financial Framework which, overall, consist of almost 100 billion.
In assessing the adequacy of the PNRR, it is therefore necessary to keep in mind that European funds catalyze national resources, the use of which goes to support the wider aims of the Plan. Overall, the PNRR should count on the use of around 300 billion.
The EU's response to the economic emergency of the pandemic . The PNRR is required as part of the European initiatives formulated in response to the economic and financial emergency triggered by the pandemic – initiatives articulated on at least three pillars:
- the suspension of the Stability and Growth Pact to allow national governments to implement potentially counter-cyclical fiscal policies;
- further unconventional interventions by the European Central Bank aimed at providing, in the short term, virtually unlimited liquidity, and further hyper-expansionary impulses to the money and credit market;
- finally, the NGEU which stimulates and finances structural interventions in the beneficiary economies.
Strategic aspects of the NGEU. The NGEU represents a highly innovative initiative with respect to:
- to the set of resources that it directly and indirectly activates;
- the financing methods, which also provide for the issuance of EU debt securities;
- and, finally, to the areas of intervention that focus on the transversal sector linked to the digital and ecological transition in the economies that form the Single Market .
I would also like to underline that the choice to focus on investments is significant. Investments are a component of aggregate demand: therefore, interventions aimed at favoring this component are a form of support for demand. At the same time, investments also determine the growth potential of an economy which, in the Italian case, is currently at levels close to zero.
The NGEU aims to foster a structural transformation of the European economy as a whole. Given the size of the economies involved, this is a structural intervention capable of potentially altering the morphology of a significant block of the world economy, orienting it towards sustainability and inclusiveness. This aspect, as we will see, imposes a mandatory criterion in the selection and evaluation of the projects to be financed.
Therefore, transformative projects that are located upstream of the production chain rather than downstream, capable of creating significant externalities, must be considered. It follows that these projects must be driving forces for the rest of the economy with an impact not only vertically on the sector to which it belongs, but also and, above all, transversal for the rest of the economy.
The beneficiary countries are also requested not only to articulate the projects in a strategic framework aligned with the aims of the initiative, but to favor those reforms that enable the implementation of the Plans themselves. Therefore, in the evaluation of the PNRR, it is necessary to formulate a judgment of consistency on this criterion, given the inhibiting potential that the lack of reforms would have on the impact of the investments in question.
The Italian painting. As is well known, investments in Italy have been at modest levels for a long time. In the Report of the Bank of Italy of last May, it emerges that gross investments have settled in the last decade at a level significantly lower than the previous three, in proportion to gross national income. Furthermore, for public funds, considered net of depreciation, there is a progressive erosion of capital stock .
Overall, the negative impact of these dynamics on economic growth is significant, so much so that per capita income, at the beginning of the pandemic, had not yet recovered to the level prior to the 2008-09 international financial crisis.
For high-debt countries such as Italy – a debt that the pandemic has significantly raised – an effective investment program accompanied by ambitious reforms is the only viable option to bring the debt / GDP ratio back onto a sustainable path, aiming to increase the impact of the denominator on the long-term evolution of the relationship in question .
The criteria for evaluating the PNRR. On the basis of the above, the following operational criteria can be formulated with which to evaluate the draft PNRR in question, with the sole intention of helping to improve it, albeit in the reduced residual time window:
- strategic nature of the project interventions;
- enabling reforms;
- and finally, public-private collaboration.
In particular, a holistic evaluation approach to PNRR according to criterion 1 is useful since, given the architecture originally conceived at European level, the impact on growth it should generate is not simply attributable to sectoral multipliers. The interactions between the various strategic interventions upstream of the supply chain and with the enabling reforms could have a significant effect on growth far beyond sectoral multipliers.
Strategic nature of the project interventions. The PNRR consists of 6 missions or structural areas of intervention. The missions, in turn, are divided into 16 functional components. The latter, then, envisage 48 lines of intervention that aggregate the individual projects for homogeneity.
The impression obtained is that the strategic nature associated with the Plan can be significantly improved, hoping that subsequent versions will give reason for a greater selectivity of the interventions, identifiable among the most driving ones.
The additive or aggregative rather than strategic approach can also be seen in the way digitization is presented within the Plan. Thinking of digitizing the Public Administration, characterized by a high average age of employees, by an organizational culture traditionally not inclined to innovation and by stringent regulatory and bureaucratic constraints, is unlikely in the absence of radical reform measures.
Another element to underline that is derived from the reading of Pian o is the approach with which digitization is presented – a sort of panacea, indeed, a real revolution to embrace (text on p. 23). Digitization can be a multiplier of the efficiency and competitiveness of an economy, but it can create an infinitely larger army of precarious workers with no prospects, for whom there is no incentive to invest in training and in increasing their human capital.
In this sense, it is particularly important that the NRP is finalized so as to provide strategic guidance in favor of macro-investments in the most driving sectors. The alternative is that the inequalities between genders, generations and territories that the PNRR aims to eliminate, on the contrary, increase further, amplifying the dichotomy between the hyper protected and the hyper excluded.
Another aspect that should be emphasized is that these investments should be placed in a context of level-playing field , in which similar activities are regulated – and taxed – in a similar way. It must be avoided that the hoped-for paradigm shift, which we all naturally hope for the good of our country, generates new asymmetries that are benefited by few to the detriment of many. This brings us to the other dimension with which to evaluate the PNRR.
Enabling reforms. The correct articulation of the reforms is an essential condition for the implementation of the Plan. In international surveys , our economy is systematically paid attention to its poor ability to attract investments, based on regulatory and administrative variables, as in the case of the Ease of doing business of the World Bank . Overall, Italy ranks 58th among 190 countries, but in the context of procedures for setting up new businesses it is 98th, in that of contract enforcement it is 122nd.
The administration of justice is one of the areas to be reformed in the Plan. The methods indicated, however, suggest the need for improvements. Reading the parts where the topic is dealt with, one gets the impression that such a conditioning issue for our society and economy cannot simply be traced back to the need to reduce trial times, hire more staff or, obviously, greater digitalisation in the administration of justice.
Another reform dealt with in the PNRR is the tax one, necessary to create an enabling and non-distorting environment for investments. The plan, in particular, focuses on the reform of IRPEF, the tax from which the greatest revenue for the Treasury derives. Yet, even in this case, beyond certainly acceptable statements on the fight against tax evasion and the reduction of the tax burden in the name of fairness and progressivity, it is difficult to grasp further indications.
It will be important to reform the tax system in the context of the increasing digitalization of our economy so as to avoid (further) fiscal distortions that the pandemic has had the effect of imposing even more forcefully on everyone's attention.
Other aspects. Finally, and I am going to conclude my speech, the ability of the Public Administration to finalize the transformative interventions in question must be taken into consideration. In this sense, a smaller but more strategic mix of projects would help in the implementation of the Plan.
The effective involvement of the private sector is equally necessary in a Plan that intends to be so transformative. In reality, the PNRR recognizes that the radical nature of the foreshadowed transformations imposes a collaboration between public and private. However, again from reading the text, one gets the impression that for the private sector its involvement is not adequately articulated – an involvement that could increase the ability to implement the Plan itself.
Conclusions. In conclusion, Hon. President and Hon. Deputies, the NGEU initiative can generate a significant discontinuity from which our economy can potentially benefit greatly. In this sense, the PNRR needs to live up to the ambitions that many of us place on it. To this end, moments of genuine discussion with stakeholders can only contribute to improving the Plan as it is today.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/come-migliorare-il-pnrr/ on Sun, 14 Feb 2021 06:41:33 +0000.