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Public finance under the lens

  • Published at 01:01 pm November 14th, 2017
  • Last updated at 04:17 am November 15th, 2017
Public finance under the lens
The World Bank has described public financial management (PFM) as being critical to the achievement of public policy objectives, and for efficient, timely, and accountable use of public funds. It is also a reliable indicator of the quality of governance, and, when done right, leads to strong, sustainable economic growth. The subject of PFM is rather significant when it comes to countries receiving high levels of aid, especially in South Asia, Southeast Asia, and the Sub-Saharan African regions, where transparency and accountability in public finance take a front seat. Cambodia, one of the least developed members in the Southeast Asia region, has recently garnered much praise from the World Bank for dramatically revolutionising their PFM to achieve “notable successes.” Such stories of outstanding reform stand high as benchmarks for similar economies to target, including Bangladesh. PFM in Bangladesh The process of strengthening public finance management in Bangladesh could be metaphorically described as an uphill path full of unprecedented potholes. On the Open Budget Index (OBI), Bangladesh has a score between 41 and 60 and is placed right in the middle, category C3 (C1 being lowest and C5 being highest). According to OBI, this score suggests that while some basic budget information is available, in-depth data on critical factors are missing. And the overall data is not sufficient for public debate. The 2015 Fiscal Transparency Report of the US State Department rubs it in even more, saying that not only does Bangladesh fail to meet the baseline criterion for fiscal transparency, it has made no attempt to fix the situation either. In order to revamp and strengthen Bangladesh’s public finance, we need to conduct thorough evaluations from the inside-out. To that end, the Policy Research Institute (PRI) in Bangladesh conducted an extensive study using the four pillars of the IMF code and manual as base references. The pillars are: Clarity of roles and responsibilities, open budget processes, public availability of information, and assurances of integrity. In the context of Bangladesh, the issues with these pillars are correlated and often overlap one another. Poor framework and role definition Maintaining transparency as well as a clear framework for various budget segments should be a constitutional obligation. But the nature of the financial relationship between public non-financial and financial institutions and the budgetary central government is rather vague and in a lump-sum form, not to mention the existence of consolidated financial accounts being close to nil. This allows local fiscal authorities to announce an assortment of fiscal measures, and propose supplementary budgets, many of which are ultimately not reflected in the fiscal accounts of the authority.
Maintaining transparency as well as a clear framework for various budget segments should be a constitutional obligation
A similar pattern is followed by various non-market nonprofit institutions (NPIs) like the Sena Kalyan Sangstha Fund, national medical colleges, as well as Bangladesh Bank’s special discount windows for SME loans. As a result, the various quasi-fiscal activities by these institutions are not realised in the official budgetary books. Due to this murkiness in the public financial roles structure, any new trends incorporated are unable to sustain framework clarity. For instance, financial data of contracts, leases, and amortisation are not clearly defined for Public Private Partnerships (PPPs). Timeliness and reliability of data The fiscal authority in Bangladesh made rigorous efforts in an attempt to maintain strict budgetary controls, for example through implementing the Integrated Budget and Accounting System (IBAS ++) to keep account of intra-year expenditure allocations. Nevertheless, the remaining array of budgeting and reporting bodies such as the Finance Division, Bangladesh Bank, and National Board of Revenue (NBR) all fail to provide timely and relevant financial data when required. Moreover, a lack of stipulated fiscal responsibility laws allows for the entrenched practice of exempting several public account audits and producing revenue projections on an ad hoc basis, devoid of any detailed analysis or impact assessments of fiscal measures and their macro consequences. In reference to the third pillar of IMF code, most available documents are neither timely, nor do they reach the comprehensive benchmark of international standardisation. The Open Budget Survey of 2016 revealed that besides only three of the main budget reports, the remaining key data including mid-year and audit reports were neither publicly available nor timely produced. Non-debt and contingent liabilities arising from unaccounted government guarantees, vague publicities of production sharing contracts by large entities like Petro Bangla, and poor supervision of various allotted quasi-fiscal subsidies, all contribute to even more opacity. Transparency regarding military spending and earlier mentioned PPP transactions are also confusing. Guidelines and oversight Even if the required information and display of operational structure is clearly stated and available, its core integrity and reliability are vital to the health of PFM. Thus, implementation of sincere and thorough internal and external oversight mechanisms is necessary for identifying, correcting, and maintaining the integrity of fiscal activities. One such needed regulatory guideline is the Civil Service Act, which is currently being constructed. Therefore, in an attempt to substantially overhaul our fiscal structure, a diverse range of strategies should be undertaken. “Quick-wins” are short-term interventions, the effective application of which could show drastic improvements within one to two years. Intense scrutinisation during pre-budget discussions, along with the practice to adhere to strict accountability regulations for quasi-fiscal activities, PPP projects (including mega infrastructure contacts), and pre-examination of supplementary budget could ensure sustainability of reforms. As for medium-term reforms, which can take between five to 10 years, an intense and strongly supervised streamlining program has to be adopted. A few years back, the World Bank conducted a PFM Capacity Building project for Kyrgyzstan. Some of the components of the program involved rehabilitation of human and institutional capacity, project management, internal audit and controls, as well as strengthening of budget processes. If Bangladesh attempts to take up similar agendas with keenness and determination to upgrade the efficiency, effectiveness, accountability of its public finance management, it can soon reach the track to encouraging economic growth and sustainability. Mamun Rashid is a leading economic analyst in Bangladesh. This piece has been informed by the discussion held on PFM at PRI and subsequent discussions with Finance Secretary Muslim Chowdhury and former finance secretaries Mohammad Tareque and Akbar Ali Khan.
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