|Volume 6 | Issue 06 | June 2012 ||
Managing Expectations in Public Expenditure for Development
ZIAUDDIN CHOUDHURY takes a brief look at the history of poor ADP implementation in previous years and suggests ways to reverse the trend.
In a few days Bangladesh will have its 41st annual budget since the country's inception, and fourth by this government. Judging from the past few years, it is likely to be a humongous budget, several thousand crores higher than last year's budget of 1.64 trillion crores against which the country's first budget of 784 crores pales into nothingness. Yet, Bangladesh's public expenditure at 14-15 percent of our GDP remains among the lowest in the world, which is consistent with a very low revenue-to-GDP ratio of about 10 percent. Our revenue base is low; therefore, our capacity for incurring huge public expenditures is also limited. We met our financing gap initially through external financing (primarily official development assistance). However, as our growth performance remained strong, net foreign financing of the deficit declined significantly from about five percent of GDP in the 1990s to about two percent now.
To an average person the budget has, however, two visible aspects -- taxes and expenditures. Since direct taxes affect only a small percentage of our people, it is the expenditure part of the budget -- more precisely development expenditure that grabs domestic and international attention, even though it is less than half of total public expenditure. Yet it is in spending and managing this part of our annual budget appropriation we seem to have numerous pitfalls where we stumble. That part of the budget, known as the Annual Development Program, finances our development needs and expectations. It is this program that attracts financing from our development partners, and hence this attention.
The Annual Development Program has been growing at a rate of 12 percent over the last six years on average. Three decades ago over eighty percent of this program would be financed with external assistance. The dependency has reduced substantially averaging slightly below 50 percent now. Four big partners in this development are the World Bank (through its soft term lending agency IDA), Asian Development Bank, Japan, and UK. Although these four do not exactly contribute to the full external assistance need, they fund the bulk of our development expenditures. They provided about 71 percent of total foreign funding during 2005-2009. Naturally they are anxious to see how these expenditures are allocated, utilised and managed.
Every year we embark on this development program with high hopes, high budgets, and we invite our donors to participate. The donors oblige because they want to see us develop, attain our goals to eradicate poverty, raise levels of education, and provide employment and training to our people. We also want to develop our infrastructure in transportation, communication, health and education facilities, and invest in other modern technologies. The result is that every year we have a plethora of development projects in our portfolio, some undertaken with due diligence, some with rudimentary feasibility studies, and some others at the behest of a political leader's constituency. This we do despite the fact that we routinely revise our ADP every year since the gap between plan and actual performance is ten percent or lower.
In any given year we have nearly a thousand projects included in ADP. According to a report the FY07 ADP allocation was programmed to support implementation of 852 projects (715 investment projects and 137 technical assistance projects) costing Tk. 1,968 billion. By mid-year, only 33.1 percent of investment projects and 11 percent of technical assistance projects had been implemented. This implies that it takes an average of 7.1 and 6.6 years to fully implement the remaining investment and technical assistance projects respectively. According to another report for the current fiscal year about 28 per cent of the allocation made under the ADP was utilised during its first half up to December last.
This is about the aggregate ADP implementation. Let us look at the segment of development projects that is funded by the World Bank (IDA). According to 2010 report on the status of IDA funded projects under implementation in Bangladesh, there were 28 projects, including three that were yet to be launched. Work had begun in some projects as far back as 1999, yet disbursement in projects ranged from a low of 10% to a maximum of 90% of the grant /credit amount. And this is about projects where the implementation period was generally assumed to be 4-5 years!
Delays in implementation of projects have reached a chronic stage in our country and these have far reaching consequences. On the one hand it ties up funds which could have been better used for some other worthy causes, and on the other it makes our donors shy away from new commitments. We are between a rock and a hard place when we ask for new funds even though the projects that we have embarked upon drag on for years, and remain incomplete.
Project implementation delays have led to another set of problems -- a highly bunched pattern of reported ADP expenditure, particularly in the last quarter of the fiscal year. This has also raised questions about the credibility of expenditure utilisation and project implementation.
To what do we attribute this low performance and slow implementation of projects? Our development partners have often cited many obstacles and road blocks in ADP implementation. Principal among these are largely discretionary ADP allocation system that does not seem to accommodate spending ability; carrying a huge backlog of old projects each year; and diverting resources to some projects to accommodate increasing project scopes at the cost of other projects. To these they have also added other reasons such as lack of uniformity in capacity for implementation across line ministries; fragmentation of duties and accountabilities among ministries and departments; absence of decentralisation in decision making; and bureaucratic delays and inertia in procurement and disbursement.
There is a considerable gap between planning and execution apart from lack of capacity for project planning and implementation. Skills in line ministries are not of a uniform standard leading to a varying degree of success in project implementation. The quality and effectiveness of the ADP portfolio that averages more than one thousand projects annually, has been of great and long-standing concern to policy makers. Donors have questioned the practice of adding new activities while continuing with all existing projects at the expense of inadequate maintenance of existing ones. Scope creep in projects and lack in resources to implement projects have led to time and cost overruns; projects expected to be completed in three years have taken double that or even more.
Are there ways to manage our expectations in this highly visible area of public expenditure? Are there ways to better manage our Annual Development Plan and ensure a more pragmatic approach to implement it?
Our Annual Development Program is a vital platform for inviting and attracting foreign financing. In a sense we showcase our development agenda through this program. But year after year we have shown a weakness in our implementation capacity even though we have increased the size of the program. It is not that we have failed to achieve all our targets; we have grown impressively in our economy and social development indicators with investment made through our Annual Development Program. But we need to do better.
First and foremost step in this direction is political will, leadership, and engagement in the planning and execution cycle. Second is adopting a more dynamic approach to development planning that takes into consideration the absorptive capacity of each sector. Third is political commitment to bringing about reforms in the institutions and government agencies that are charged with implementing the development program. This includes delegation of decision making and financial powers to project implementing units. Lastly, bringing reforms in the procurement process and ensuring transparency and accountability in the process are imperatives.
Our development partners as well as our own planners have reflected on the issues above for years, and many recommendations have been made to address the problems. But like our projects in development, the implementation of these recommendations has been slow. The recommendations primarily relate to improvement in the quality of ADP by proper vetting of the selected projects, allocation of resources based on priority, streamlining the responsibilities among different institutions such as Planning Commission, Ministry of Finance, and the line ministries, devolution of decision making, and further streamlining of the procurement process to make it speedy, efficient, and transparent. The recommendations have also been made for significant restructuring of government and reform of local government institutions to create a more devolved system that operates with incentives for efficient behaviour at all levels.
Our Annual Development Program accounts for forty percent of our annual budget expenditures, and it is the single most important vehicle to attract foreign interest in our development efforts. It prepares the country for better infrastructure that will ultimately encourage foreign direct investment from private sources in our economy.
The Annual Development Program, however, cannot be seen in isolation from the overall improvement in other areas of government performance and service delivery. As commented in a recent evaluation of ADP we need to bear in mind that without improvement in the overall governance of the country, the desired results cannot be achieved and sustained. The key areas of governance that require immediate attention are, reforms in civil service, developing a more decentralised system of decision making, and more transparency and accountability in public service delivery.
We hope that we will have a robust Annual Development Program that is tied to reality, focused on results, and aimed at improving the lot of the average person in the country.
Addendum: The Bangladesh Government announced the ADP for this year after the composition of this article. As anticipated in the article the plan at 55,000 crores is the most ambitious in history. With a stark history of chronic delays in implementation that increase donor fatigue at funding our development agenda, it is all the more imperative that our planners and implementers coordinate better and ensure that our development projects do not become pipe dreams.
Ziauddin Choudhury works for an international organisation in the USA.
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