Public procurement, referring to the purchase by governments and state-owned enterprises of goods, services, works, represents an important economic activity of governments. A large sum of taxpayers’ money is spent on public procurement in order to perform the tasks of government and deliver on their mandates. As such, governments are expected to carry out this important economic and government activity in line with key governance principles of integrity, transparency, accountability, efficiency and effectiveness.
In 2017, spending on public procurement represented, on average, 17.4% of total government expenditures in LAC. This share varied widely across countries. For example, it totalled up to almost half of government expenditures in Peru (46.4%), somewhat over one-third (34.0%) in Colombia, due to the efforts to promote economic growth through public procurement (for instance, Peru devotes a large share of public expenditures to investment). By contrast, Brazil (13.5%) and Mexico (16.0%) it was less than one-fifth. Overall in the region, this share has significantly decreased since 2007 (21.5%), marking a 4 p.p. decrease in 2017. The most significant changes were in Brazil (-8.2 p.p.), Peru (+6.8 p.p.) and Chile (-3.7 p.p.).
The economic significance is also well represented when looking at its size in terms of the gross domestic product (GDP). In 2017, public procurement represented 6% of GDP in the LAC region, compared to 6.7% in 2007. At the country level, it ranged from 3.6% in Mexico to 9.9% in Peru. Considering its significant size, governments carry out public procurement reforms in order to achieve efficiency gains to respond to fiscal pressure, as well as to use this important function as a strategic governance tool to achieve policy objectives. At the same time, the large sum of money and close interaction between the public and the private sectors make public procurement one of the government activities that are most prone to risks of waste, misuse and corruption.
Governments at the sub-central level are key actors of public procurement reforms considering the share of public procurement spending at the sub-central level. In the LAC region, public procurement spending at the local level accounted for 38.2% of the total procurement spending, followed by 37.1% at the central level and 24.8% at the state level. On the other hand, 5 out of the 8 countries where this data are available, the share of public procurement spent by the central government was more than half – such as in Honduras (82.6%), Paraguay (82.1%), El Salvador (79.7%), Chile (77.5%) and Peru (51.0%). This variation reflects the institutional set-up of each country and especially the different organisations of public service delivery.
