Notwithstanding past progress, Bangladesh is still amongst the poorest countries in the world with only $400 per capita income. It will take over 40 years of growth at this pace simple to reach the current per capita income level in Malaysia. The World Bank estimated that Bangladesh could aspire to become a middle-income nation over the next 15-20 years if its per capita growth rate rose to around 5.5 per cent. To achieve this, Bangladesh needs, among other things, a sound public expenditure management.

Generally, economic management in Bangladesh has been sound over the last decade. The country achieved decent rates of growth, a steady reduction in poverty incidence, relatively low inflation, and fairly stable domestic debt, interest, and exchange rates. Public expenditure allocation by broad categories such as interest payments, education, health, agriculture, transport, public order and safety, and others shows that the country is much better than India, Pakistan and Sri Lanka. Each of these countries spends over 6 percent of GDP on interest payments. Our defence spending is also much low 1.3 percent of GDP. India, Pakistan and Sri Lanka spend 2.4, 4.5 and 4.9 percent, respectively, of their GDP on defence (World Bank, 2005). Besides, the role of Bangladesh's defence forces in international peace keeping is a source of significant foreign exchange earning.

One notable feature in public expenditure spending of the government has been the shift of spending from agriculture and industry to the social sectors. Total expenditures on education, health, the social safety net and disaster management are currently about one-third of total budgetary expenditures. Outcomes in the social sectors have been even better than in the physical infrastructure areas.

Bangladesh's budgetary expenditures have not been hamstrung by high share of interest payment. Bangladesh has avoided excessive reliance on domestic and foreign borrowing, unlike its neighbours. Debt servicing has increased significantly, reflecting the increasing cost of domestic borrowing through nationalised commercial banks and foreign suppliers' credit. GoB spends the equivalent of less than one percent of GDP on the safety net programmes. However, the ratio of expenditures on safety net programmes as percentage of GDP and public expenditures has been declining. While expenditure on social sectors have remained fairly constant since the mid-1990s -- in the range of 3.5-4 per cent annually -- safety net expenditures now make up less than 20 percent of all social sector expenditures, down from 30 percent in the late 1990s, indicating crowding out of social assistance.

Safety net programmes roughly cover below 10 percent of poor individuals and are administered by a large number of agencies. Benefit incidence analysis of the safety net programmes reveal that these are essentially pro-poor. For example, Food for Work programme provided about 75,000,000 hours of works in rural areas, Vulnerable Group development programme assisted about 480,000 households by providing food for the poor, National Nutrition programme helped significant reduction in poverty, improved school enrolment, particularly for girls (World Bank 2006).

Another study by the World Bank (2005) shows that the overall system of public expenditures on education and health are pro-poor. For example, primary education (40% of all current educational spending) is strongly pro-poor. The share of the poor of all public health expenditures has been increasing and currently it is estimated at 45 percent. The essential service package (ESP) allocations to "child health" are the most equitable and strongly pro-poor.

There are, of course, some weaknesses in Bangladesh's public expenditures programme. Low effectiveness of capital spending, inadequate attention to operations and maintenance, inappropriate employment and pay policies, and the existence of fairly large subsidiaries etc. are the most important factors that affect sound economic management.

The weak expenditure management combined with other institutional weaknesses has compromised the quality of public services. The most glaring examples of poor public service delivery are the deteriorating law and order situation; the high perception of corruption and citizens' dissatisfaction with services; and an inefficient bureaucracy that still maintains tight control over critical business processes. Moreover, Annual Development Programme (ADP) includes many projects that are questionable. Such projects regularly find their way into the ADP mainly because of the weaknesses in the system of project management. For example, ADP expenditures under Roads and Highways Department include about 800 sub-projects with annual ADP allocations of about 2 to 3 percent of their project costs, implying that it would take 30 to 50 years to complete these projects (World Bank 2005).

Another area of weak public expenditure management is the large hidden subsidies and growing contingent liabilities, which are not reflected in the budget. Direct subsidiary currently amounts to less than 0.5 percent of GDP and is given to school textbooks, fertiliser distribution and several non-traditional export items. Indirect subsidiary is estimated to 2.6 to GDP and is given to gas and electricity prices. Large contingent liabilities have been accumulated on account of state owned enterprises.

However, despite all these weaknesses, public expenditure management in Bangladesh is broadly consistent with government's economic and social development policy objectives. The success in the social sector can be attributed to three factors: (i) the priority given by governments, (ii) strong support from various stakeholders in pursuing human development objectives, and (iii) an improved policy framework that enabled considerable innovation. Recently government has taken efforts to prepare a medium-term expenditure framework. International experience suggests this can be a powerful tool to improve the effectiveness of public spending provided it is well implemented.

Md Matiur Rahman is Joint Commissioner, Customs, Excise & VAT and Dr Haripada Bhattacharja is Professor, Marketing, DU.