Public Investment Management (PIM) in Bangladesh

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Public Investment Management (PIM) in Bangladesh
« on: September 18, 2014, 06:09:21 PM »
28-12-2013: The Financial Express: to achieve the development targets, public investment should play a catalytic role through providing enabling environment for the private sector. However, available data on public investment management (PIM) in Bangladesh clearly demonstrate that the performance of PIM is far from satisfactory, pointing to the urgent need for action by the government. For example, public investment as percentage of GDP (gross domestic product) declined in FY2006 through FY2009, although it slightly recovered in FY2010 and FY2011. In FY2006-FY2010, the annual disbursement rate of the Annual Development Programme (ADP) was 76 per cent on average, for which the cost overrun was 42 per cent, and the time overrun was 2.9 years (figure 3). PIM must be improved urgently if Bangladesh is to achieve Vision 2021 and attain 7.0 per cent plus GDP growth rate.

Many developing countries face constraints in economic growth and achievement of development outcomes due to poor physical and social infrastructure. Infrastructure development involves large volumes of investment with high risks, and therefore public investment continues to play a significant role in trying to overcome this problem.

While insufficient allocations for infrastructure projects is a typical issue, global evidence increasingly points to deficiencies in the management of public investments - the systems, processes and institutions surrounding public investments - as major constraining factors for growth acceleration.

Project selections are often not aligned to national priorities and poor capacity to implement projects can result in "white elephants" that produce negative returns. Slow and back-loaded disbursements and poor quality of implementations are also indicative of inefficient public investment management systems in a country.

Why public investment management is inefficient: In Bangladesh too, poor outcomes of public investments in infrastructure are recognised as one of the major factors inhibiting attainment of economic growth. The quality of infrastructure related to trade and transport is rated quite poorly (figure 1), and Bangladesh is ranked 122th out of 183 countries in 2012 Doing Business, citing inadequate power supply and poor access to factors of production. The Annual Development Programme (ADP) continues to be underutilised every year. Actual disbursements of development projects in recent years have amounted to only about 80 per cent of the original budget and 95 per cent of the revised budget.

At the same time, as illustrated in figure 2, a significant portion of ADP is spent in the last quarter with disbursements alone accounting for 42 per cent of total yearly disbursements. This tells about the extent of spending rather than the quality of works done.

Reviews by the government's evaluation   unit (IMED) show large cost and time over-runs for completion of projects. For projects completed in fiscal year 2010, the average cost over-run was 26 per cent and the average time over-run amounted to 80 per cent corresponding to 2.79 years. In international comparison this places Bangladesh above some African countries (Tanzania, Malawi and Ethiopia) but well below countries like Vietnam and Philippines (see figure 3).

An increasing number of projects are inserted every year in the ADP without adequate assessment of resource availability and economic feasibility study due to various reasons including persuasion of elected representatives. Due to inadequate allocation, time over run is inevitable which ultimately leads to cost over run for the projects. Table 1 shows the inadequacy of fund allocation of projects calculated for Bangladesh Water Development Board as an example.

Why public investment management is inefficient: The chronic problems with underutilisation of ADP, back-loaded disbursements and cost and time over-runs suggest that adequacy of funding is a necessary but not sufficient condition for achieving better outcomes of public investment. Public investment management (PIM) needs to be thoroughly addressed for effective and timely utilisation of public funds. There is ample scope to improve economic governance to have effects on improving quality of public expenditures. Representative political forces should do homework in these issues so as to reflect these in their election manifestoes.

KEY ISSUES ON PIM: The key issues on PIM identified under the current analysis are grouped into five broad categories (JICA, 2012): (1) the Annual Development Programme (ADP) process; (2) strategic linkages between the Five Year Plan (FYP)  and the ADP; (3) M&E of development plans and projects; (4) strategic resource allocation; and (5) cross-cutting issues.

THE ADP PROCESS: The Annual Development Programme (ADP) plays a big role in PIM in Bangladesh. The Planning Commission (PC) is responsible for overall management of the ADP process. The Finance Division sets annual budget ceilings on the ADP based on the Medium-Term Budget Framework (MTBF), whereas line ministries, divisions and their implementing agencies are responsible for the preparation of the Development Project Proposal and Technical Assistance Project Proposal (DPP/TPP), and the implementation of approved projects. The following key issues must be addressed to improve the ADP process:

l Guidelines are not followed: Every year the Programming Division issues a guideline in the light of the existing policies/strategies of Five Year Plan for inclusion of new projects. But this guideline is not properly followed for selection of priority projects. As a result, a large number of relatively less important or unimportant  projects are included in ADP. Projects of similar nature for different areas are too many, which can be brought under one umbrella project for rationalising costs and avoiding duplications.

l Mismatch between MTBF and demand of the ministries: Every year Finance Division determines the ceiling for each Ministry/Division under MTBF. But often it does not commensurate with the demand of the Ministry/Division. As the demand is much higher than the ceiling stipulated in MTBF, it becomes almost impossible to allocate adequate fund for all on-going projects and new projects (Table1). As a result duration and cost of the projects increase. With long implementation period projects become sick and even unworthy.

l Insufficient capacity of PC to manage the increasing number and budget amount of projects in ADP: The number of staff members of the PC has not changed since the1990s, but the number and budget amount of projects to be reviewed have been soaring rapidly. The PC is already overwhelmed by the increasing number and budget amount of projects in the ADP. This clearly points to the need for strengthening the capacity of the PC to meet the increasing importance and expectations of public investment. Reducing number of small projects may help in this regard.

l Poor quality of DPP/TPP: Generally DPPs/TPPs are prepared at the agency level mostly by non-professional persons. In the Ministry/Division these documents are examined in the Planning Wing. In some cases Planning Wing has to forward these documents to the Planning Commission without proper screening due to the urgency of the agency or Ministry. Very often, Planning Commission also has to complete the approval process within a very short time due to external pressure resulting in the approval of poorly formulated DPP/TPP which cause serious bottleneck in implementation. Revision becomes inevitable in such cases which causes both time and cost overrun.

The quality of DPP/TPP is compromised because of the following factors: (i) insufficient capacity of implementing agencies to prepare quality DPP/TPP; (ii) insufficient capacity/motivation of planning wings of line ministries and divisions to appraise DPP/TPP; (iii) insufficient capacity of the PC to prioritise and select DPP/TPP; and (iv) lack of an established process to train officials who prepare and appraise DPP/TPP.

These factors cause delays in approving DPP/TPP, and result in time and cost overruns for implementation of projects. Divisions in the Planning Commission should be headed by long experienced professionals as they can be less malleable to undue pressures to get a project approved. In this regard, their status may also be restored to what was prevalent in the early years of the Planning Commission, and also in keeping with the status prevailing in Indian Planning Commission. For this, selection/recruitment policies need also to be developed.

Professor Shamsul Alam is Member, General Economics Division, Planning Commission, Ministry of Planning, Government of Bangladesh. Md Taibur Rahman, Senior Assistant Chief, General Economics Division, Planning Commission, assisted in the preparation of this policy brief.
Md. Ariful Islam (Arif)
Administrative Officer, Daffodil International University (DIU)
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