Managing a resource-constraint budget

Public finance management has two important dimensions: one is overall financial management as measured in terms of the overall budget size and the overall fiscal balance; and the other dimension comprises its effects in terms of resource allocation and proper utilization. Budget management, budget control and realization of the budget objectives---all these are parts of effective public finance management (PFM).

In Bangladesh, PFM has been complicated primarily by two factors. One is the lack of revenue mobilization, because of which the government has to function on a very low budget. Our total annual expenditure is just 14%-15% of gross domestic products (GDP), and even less than this in some years. Revenue incomes, including taxes, account for only 10%-11% of GDP, leaving a deficit of 4%-5% of GDP. This, in short, is our annual budget—a very resource-constraint fiscal management.

Another aspect of our public finance management is that quality of expenditure is a big problem. Our expenditure control is very good. The Ministry of Finance (MOF) knows how to cut down the budget in line with shortfalls in revenue earnings, which is a regular phenomenon.  But this does not necessarily mean that our expenditure management is good. A sound management of expenditure means how effectively and efficiently limited public resources have been utilised. Here we see shortcomings in a range of areas—be it quality of services in government offices and regulatory bodies, or the quality of education in the public education system, or the quality of healthcare services in public hospitals. From poverty alleviation schemes to ADP implementation—everywhere we see the same picture—quality of spending remains a big issue. The citizens of Bangladesh are not getting value for their money. Whatever scarce or limited money is collected as revenues, we do not get the value. If we were to get the proper value, we could have gone a long way even with our limited resources.

Tackling these two major issues, I think, should be the government's prime goals if it wants to transform Bangladesh into an upper middle-income country and realize the SDG objectives by FY31.

From the public finance management perspective, the government is trying to function with very limited resources, which restrains total allocation. Say, in education, we need an allocation of at least 4% of GDP. The government is being able to give at most 2% of GDP. For healthcare, there is a need for allocating 4%-5% of GDP, while the government is capable of giving only 0.6%-0.7% of GDP. We also need huge investments in infrastructures. Much more resources are needed for other areas, like poverty reduction. But we have resource constraints, which are hurting and impeding the realization of public sector objectives.

We may review the budget management tools of the government. The finance ministry introduced a financial system management tool, iBAS++, which helps it track spending up to the upazila level. It is real time. Through this system, the authorities are now sending pension allowances directly to the bank accounts of beneficiaries. This is very good. If we look at social protection schemes, we will see students' stipends directly reaching their mobile financial accounts. These are positive developments, but not enough. We have to improve in this area without delay to plug the holes in public finance.      

Let's take a look at the education sector. Whatever small amount is allocated, even with this limited allocation, the quality of public education could have been much better than what it is now. There are many instances where quality of education is much improved despite the low levels of allocations for education— the Indian states of Kerala and Tamil Nadu and Cuba in the western hemisphere are such good examples. Rural education in Bengal in British times used to be of a very high quality, but it has steadily deteriorated in recent decades despite much better salaries for the teachers and staff of the public education institutions from primary and upwards. The poor state of our public school system—particularly in the vast rural areas-- is because of poor management. Teaching quality is bad, teachers' training quality is bad, teachers' performances are not being monitored and evaluated in ways that they should be done. 

Similar problems are visible in the public healthcare system as well. The amount of budgetary resources being spent, though not sufficient, is also not reaching the general population in the way it should be. Patients do not get the medicines delivered to public hospitals for distribution free of cost. Those medicines reappear in nearby pharmacies, from where patients have to buy them. Corruption is so rampant that even during the pandemic, we have seen scams in PPE supplies to government hospitals.  Doctors and nurses also do not want to perform duties in district and upazila level public health facilities. Like most developing countries, we are not good in quality service delivery in large sectors like health and education. We need to change the nature of public finance management in service delivery areas like these. In the greater interest of public service, the authorities need to make the system more effective and service-oriented.

Now, let us look at the state of implementation of our Annual Development Programme (ADP). We are all aware that the quality of our road networks and bridges is quite bad. Projects are revised several times and costs go up 3 to 4 times, with implementation periods becoming correspondingly longer. This happens in small, large and mega projects. Despite the cost overruns and delays, in many instances the public do not get the full benefits and quality infrastructure upon completion of projects.  Line ministries, the Planning Commission and IMED have to be more careful in preparing the project proposals, and in the evaluation and monitoring of projects under the ADP. Contractors, consultants in charge of project implementation, government engineers and project directors must be held accountable for inferior quality of work. Weaknesses in these areas are costing the country dearly and must be addressed systematically. 

If we could improve in two broad areas --- revenue mobilization and public expenditure management --- Bangladesh would have progressed much more in terms of social and infrastructure development. The key objective should be to ensure value for public money. The government has taken some good initiatives. Medium term budget framework is one of them. It allows ministries to frame their own expenditure plans. Even then, projects are growing in number faster than the government's implementation capacity. Projects are being taken up on political considerations. Serious attention should be given here so that the number of projects remains at a manageable level. 1,200 to 1,500 projects cannot go on at a time because the authorities do not have that much capacity. Implementing ministries and agencies can probably handle at best 700-800 projects annually. If we undertake fewer projects, say 800, we can prepare the project documents much better, start them earlier and complete them on time with much better quality of work. Only then can we expect much better value for money. 

These issues have become more pressing during the Covid-19 pandemic than before. In fact, management of the Covid crisis has been more complicated for Bangladesh because of some of these perennial problems. Numerous healthcare-related problems worsened or surfaced during the coronavirus pandemic partly because of public finance management failures in the health sector. Direct cash support for the 5 million households impacted by the pandemic could not even be completed due to significant inaccuracies in the list of beneficiaries. Doctors and nurses have been hired hurriedly in the thousands, without a proper selection process and training, without any significant impact on the quality of the healthcare system.  Implementation of ADP projects suffered badly at a time when the economy needed support in the form of higher ADP implementation. Overall, the government could not use the fiscal stimulus to support economic recovery on any significant scale during the pandemic due to lack of fiscal space, and had to depend primarily on a bank-led stimulus package to support various sectors.

Dr Ahsan H Mansur, Executive Director, Policy Research Institute. Illustration: TBS

The author, Dr Ahsan H Mansur, is Executive Director of Policy Research Institute