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Budget Implementation

Poor show exposes dearth of capacity

Budget gets bigger every year but capacity to implement it lags behind

Rejaul Karim Byron and Sohel Parvez
The budget implementation rate has been falling consistently for the last seven fiscal years, exposing poor capacity of government agencies and the widening gap between planning and execution.
The rate fell to 78 percent in FY 2016-17 from 80 percent in the previous year. It was 97 percent in FY 2010-11, according to the finance ministry data.
In the current fiscal year, one-fourth of
the Tk 400,266-crore budget could be implemented in July-December period.
A number of economists have voiced concern over this declining trend.
Even Finance Minister AMA Muhith recently termed it a 'very bad signal for the capacity of the government".
Yet, the government keeps increasing the size of budget every year, ignoring the widening gap between planning and execution. For instance, the outlay of the Tk 400,266-crore current budget is 49 percent higher than the actual spendingin fiscal 2016-17.
Zahid Hussain, lead economist at the World Bank's Dhaka office, said increase in the size of the original budget has greatly outpaced the execution capacity, resulting in a significant rise in implementation shortfall.
"The ability to spend the money has not improved nearly as much as the increase in the willingness to spend. This reflects deficiencies both in target setting and in implementing reforms to strengthen capacity and project management skills of the implementing agencies. ”
The economist said the target setting has typically been based more on aspirations than on a dispassionately logical assessment of the ability.
According to analysts, a key reason behind the declining budget implementation rate is poor execution of the Annual Development
Programme (ADP). In this fiscal year, the size of ADP is 38 percent of the original budget.
Zahid said, "Delays in procurement and fund release, procrastination of work by private contractors, weak project management capacity of the line ministries, and a proliferation of new projects in the ADP year after year are factors that underpin the inability to spend."
For example, 1,710 projects were included in the current ADP. Of those, progress in 120 was zero in terms of financing, according to a planning ministry report on ADP implementation.
It said major reasons for poor ADP implementation are inclusion of projects without feasibility study and inadequate capacity of agencies and ministries to implement and monitor projects.
ADP implementation is also hampered due to appointment of inexperienced project directors, lack of coordination among related agencies and delay in land acquisition and approval from development partners for tender
evaluation, it added.
Ambitious targets for foreign borrowing and revenue collection are also responsible for the failure to fully implement the original budget.
In case of foreign-funded projects, many schemes are included in the ADP even before loans are made available by financiers.
Based on promises from the Chinese authorities, some Tk 7,000 crore was allocated in the ADP for the Padma rail link project in the current fiscal year.
Bangladesh and China signed a Ioan agreement on April 28 this year. Spending under the project is unlikely to start by this fiscal year, according to officials.
Zahid said, "There has been a lot of talk about reforms to address these bottlenecks but success in walking the talk has proven to be elusive."
Selim Raihan, professor of Economics at Dhaka University, said, "The falling implementation rate shows that despite a growing size of the budgets, the ministries and associated institutions are not capable
of handling such big budgets.
"Therefore, at the end of a fiscal year, the implementation rate hovers around 80 percent of the budgets."
In April, the Centre for Policy Dialogue (CPD) said weak budgetary planning and implementation capacity persisted and continued to be a major concern.
Analysing July-December figures of the current fiscal year, the independent think tank said it would be difficult for the government to achieve most of the fiscal parameters this year as those look unrealistic and highly unlikely.
If the parameters are to be attained, ADP implementation rate has to be increased by 79.1 percent, and revenue collection must grow by 65.3 percent, and foreign borrowing and grants by 564.3 percent in the last six months of this fiscal year.
The CPD projected a revenue shortfall of Tk 43,000-Tk 55,000 crore in the collection target set by the government at the beginning of the current fiscal year.
"It shows that planning has not
been done properly. Rather, ambitious targets are set, which do not match reality," said Md Zafar Sadique, senior research associate of the CPD.
Selim, also executive director of South Asian Network on Economic Modeling, said slow growth in revenue generation is one of the reasons why a big-sized budget cannot be financed properly.
"Over the past decade, we have not been successful in raising the tax-GDP ratio and it is now one of the lowest in the world. We cannot implement big budgets with such low level of revenue generation. ”
He said that when resources become scarce in financing the budget, adjustments are made by cutting down expenditures. In most cases, social sectors bear the brunt.
“We must also keep in mind that the success of budget implementation should not be based on whether money was spent.” It should be based on the quality of spending, which is still a big concern, the economist said.
"We will not be able to meet many of the targets under the Sustainable Development Goals unless the capacity and efficiency of ministries are improved significantly in the short term," he added.
Last week, at an event at the Jatiya Press Club, Muhith said the government is carrying out many reforms to speed up implementation.
"But effective results are not coming. So it is necessary to look into what's the area, where you need reform."
The minister, however, said he took it as his "principle" that the budget should be enlarged.
"You cannot provide services; you cannot increase services unless the budget is enlarged. That is why I took it as my principle that budget should be enlarged as far as possible."
Mentioning that implementation has not been that good this fiscal year, he said there are many reasons for the poor performance.
The performance of bureaucracy has not been very pleasant this year, he added.