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A case of programming illusion, again

INAM AHMED
The government has once again set out to design an ambitious Annual Development Programme (ADP) for the next fiscal, which will lead to either increased borrowing from the banking sector or mopping up of public savings through high interest bearing instruments.
Conversely, if the government perceives that whatever may be the original size of the ADP, in the end its utilisation will be lower and so would be the demand for resource generation, this will also spell a 'program-
ming illusion'.
Coined by Dr Debapriya Bhattacharya, executive director, Centre for Policy Dialogue (CPD), "programming illusion" means a situation in which neither the planning commission, nor the line ministries would be committed in project implementation being aware of the implicit resource constraint syndrome. On balance, the country will continue to remain hostage to high government borrowing and ill-conceived projects.
Initially, signs were encouraging as the Finance and Planning
Minister M Saifur Rahman slashed this year's (FY02) ADP down to Tk 16,000 crore. Many thought that it was a step towards fiscal consolidation. Then again, as the next fiscal's ADP figures revealed things are taking a different twist.
As indications go, the next ADP has been set at Tk 19,000 crore. And this is not final as the ADP is likely to incorporate more projects, including one aiming at increasing goat production in the country and so it may be stretched to Tk 19,500 crore.
Even a Tk 19,000 crore ADP would mean an 18.8 per cent growth
over this year's revised outlay, the highest jump since 1991. The closest to such a growth was in FY94 when the ADP spiked 18.2 per cent. During the last five years of the Awami League regime, the ADP remained on a double-digit growth barring FY98 when it increased by only 4.3 per cent. During the postflood period, in FY01, the government however went in for an expansionary spree yielding 17.9 per cent growth in development spending.
Now, looking back at the revenue collection figures, one will come across the fact that never in the last one decade or so revenue earnings had registered a matching growth. Exception is FY92 when resource mobilisation witnessed a big jump of 21.7 per cent thanks to the introduction of VAT.
But since then the result is mostly double-digit growths on the lower range barring some years when it even dipped to single digits. Revenue collection was especially poor since FY96 when it clocked a 9.2 per cent growth. In FY97 it was 10.5 per cent, in FY98 it was 9.5 per cent, in FY99 it was even as low as 4.9 per cent. During the recent years, revenue growth rates were 8.4 per cent and 13.2 per cent in FY00 and FY01 respectively.
"Revenue receipt has not been able to keep pace with public expenditure growth," said Dr Debapriya. "Notwithstanding, public expendi-ture-GDP ratio is one of the lowest in Bangladesh compared to other developing countries and the binding constraint is low growth in revenue flow. This has been accentuated by a low foreign assistance flow in tandem with stagnation in non-tax revenue collection. And all these have landed the country in a structural problem in the area of
public finance."
Revenue budget has however always remained quite expansionary. From FY96 to FY02, current expenditure expanded on a doubledigit growth barring in FY97 and FY02. In FY96 it grew by 14.7 per cent, in FY97 by 6.1 per cent, in FY98 by 15.7 per cent and in FY99 by 15.6 per cent. During the last two fiscals (FY00 and FY01) revenue expenditures increased by 10 per cent and 12 per cent respectively. And who knows where it will end up in FY03 with 25,000 staff from different projects being absorbed in the revenue budget.
"The absorption of staff from projects into revenue budget is a paradoxical stance since there is a hold on recruitment of competent manpower through the competitive BCS examinations. In the long run, this will have a bearing on the quality of governance," warned Dr Debapriya.
"There is a demand for infusing creativity in the design of public expenditure portfolio", continues Dr Debapriya. "Opportunities could be created for the private sector and the NGOs to chip resources for infrastructure development and poverty alleviation projects. Revenue expenditure should be put
under a de facto moratorium so that it does not increase in real terms."
"The tendency to increase development expenditure without a proper and credible project screening process due to political reasons also overrides whatever rudiments of system are there. The moot issue continues to be enhancing quality, determining priorities and ensuring effectiveness of public expenditure."
And so, when one sees that the next year's ADP is also going to include projects to support the much-vaunted goat-breeding programme, many an eyebrow are raised. In India in the 1960s, a similar goat breeding project was launched amidst a lot of fan fare. And the result was a sheer wastage of money as people cheated on the government and took credit just by showing the same goats again and again.
But the government may always think that the size of the ADP does not matter as long as project implementation remains as low as this year's. According to third quarter implementation figures of the IMED, the July-March implementation rate of the ADP was only 42 per cent, down from last year's 54 per cent for the same period.
Of the total Tk 9410 crore spending of the ADP during the period, Tk 5671 crore was local currency component and Tk 3739 crore was in project aid. Now, if the government thinks the same will happen with next year's ADP, it might not have to worry much about the revenue implications. But then, low quality projects and their protracted implementation are equally damaging.
"If the budget is framed under demand side pressure, it will have the tendency to result in an over-ambitious revenue target which will undercut the credibility of the fiscal programming. Alternately, a higher level of borrowing from the banking system or savings mop-up will become inevitable," the CPD executive director pointed out.
There are apprehensions that continuation of the post-flood fiscal trend underwritten by moderately expansionary monetary policy will snowball into increased public debt. And, it will consequently result in an increase in already high domestic debt service liability, which is now equivalent to about 16 per cent of total revenue expenditure.
"FY2003 should be a year of fiscal consolidation. If we cannot revert the trend immediately, we
should at least hold it back. Reducing the Tk 19,000 crore ADP to Tk 16,000 crore was a nudge towards that end. But if the ADP at stake again goes as high as Tk 19,000 crore-plus then it will be a signal missed," noted Dr Debapriya Bhattacharya.
The other logic for bigger public expenditure could have been the relatively low off-take of private investment to generate domestic demand. But experience of last couple of years shows that the impact of public expenditure in crowding-in private investment has been limited due to the absence of structural and institutional reforms. Even the low wage good prices could not do the trick.
"I trust that the policymakers are aware of the situation. They are possibly being compelled to accommodate competing investment demands coming from various interested quarters. Taking cue from past experience they are possibly assuming that Tk 19,000 crore will not be spent and so, there will be no need to generate additional resources. They are creating a programming illusion. Programming and implementing agencies won't be serious as even the Tk 16,000 crore revised ADP of FY02 may not
be fully implemented."
But this will again be a wrong way of managing public finance. The cause of fiscal discipline will be harmed. Possibly, the finance ministry is being overridden by certain political expediencies, which undercut the integrity of policymaking process in the country.
"Regrettably, over the period we could not put in place a sound system for initiating public expenditure projects, to scrutinise their rationale and develop their components which will be insulated from interference in allocative decisionmaking process.
"It was a general expectation that the incumbent government will initiate a transparent process which will take a close and critical look at public expenditure portfolio including both on-hand and pipeline projects.
"Desirably it will be done by an agency that is outside the system having no vested interest in the projects. Precisely for this reason we advocated for a Public Expenditure Review Commission. However, such a commission will not be a substitute for a sound internal control system," Dr Debapriya concluded.