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Wednesday, May 27, 2009

ADP takes sky-high aim

The Daily Star : ADP takes sky-high aim

Economists say Tk 30,500 crore plan is too difficult to implement

A Tk 30,500 crore annual development programme (ADP) for the next fiscal year is highly ambitious, a stunt and will be too difficult to implement completely, economists said yesterday.The government must increase development expenditure and take special steps to implement the programme, they said. They also suggested formation of a committee to implement the recommendations of the public expenditure review commission.

"Such a big ADP is simply a stunt and will fail to be implemented," former finance adviser of the caretaker government M Hafizuddin Khan told The Daily Star."Government tends to take on ADP that are beyond their capacity. Furthermore, a major portion of the expenditure is made in the second half of the year in a rush, resulting in a waste of funds."

Khan suggested that the government should take up projects on the basis of priority and avoid unnecessary projects, just for the sake of political consideration.Khan, also former chairman of the public expenditure review commission (PERC), said: "The commission has submitted a report to the government with recommendations for streamlining government spending. But the government did not even read the report."

He said a copy of the recommendations was also sent to Finance Minister AMA Muhith."The commission was formed much earlier but the government can form another committee to decide on which of the recommendations should be implemented," Khan said.

Bangladesh Institute of Development Studies (BIDS) Research Director Zaid Bakht said: "Public expenditure in Bangladesh, which is only about 15 percent of GDP, is low even by regional standards and tilted more towards revenue expenditure."Bakht said the share of development expenditure in the national budget is quite small and has dwindled over time. The size of the realised ADP, as a percentage of GDP, steadily declined from 5.16 percent in FY2002 to 3.41 percent in FY 2008.

"There is a strong case in favour of raising the size of the ADP, which would also be in line with the present government's election pledges on broad-based employment generation and rapid poverty reduction," he said."Augmentation of domestic demand to counter the possible adverse effects of global recession on the Bangladesh economy would also require to enhance public expenditure."

The BIDS research director said notwithstanding these justifications, an ADP of Tk 30,500 crore for FY10 seems too ambitious and risky.Bakht said first, it would require commensurate ambitious growth in revenue earnings, which is unlikely to be achieved given the current outlook for the domestic and global economies.

Second, in the event of a significant shortfall in achieving the revenue target, the government will either have to raise borrowing or downsize the ADP, the latter being the common practice in recent years, which results in a waste of resources due to abruptly stopping the flow of funds to ongoing projects, he said.

Third, the quality of the ADP, already burdened with low-priority projects from the past political government, is likely to be compromised further with the inclusion of a large number of new projects, he said. The industry minister's recent announcement to reopen all closed-down public enterprises to generate employment, adds to this fear, the economist added.

Fourth, an oversized ADP would result in resources being dispersed over a large number of projects, resulting in delayed implementation and a consequent wastage of resources, Bakht said."If we look at the recent trend in the level of ADP implementation, it will be clear that realisation of an ADP target of Tk 30,500 crore in FY10 will require more than 50 percent improvement in the capacity of our project implementation machinery in a single year," the BIDS research director said.

World Bank Senior Economist Zahid Hussain said it appears that the size of the FY10 ADP is likely to be over Tk 300 billion, the largest ADP in Bangladesh's history in nominal terms.Hussain said it is understandable that in its first budget, the newly elected government would like to be seen delivering on the promises it had made in its election manifesto.

"However, it is also important to keep in mind that at the end of the day, it is implementation that matters."Hussain said the quality and effectiveness of the ADP, which typically comprises about 1,000 projects, have remained a major policy concern for years.

"Even though the physical progress in ADP implementation is usually faster than financial progress during the year, we normally fail to implement more than 80 percent of the original ADP size," he said.

Hussain said: "There is growing realisation among policymakers that ADP implementation bottlenecks need to be addressed on an urgent basis to increase the rate of public investment expenditures and improve its effectiveness. The bottlenecks range from procurement snags to land acquisition, court cases, lack of well-developed work plan and instability in project management."

He said these problems have proven difficult to surmount historically.



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