Budget's implementation challenges: Experts blame lower revenue collection, poor execution capacity

Anyone who follows the national budget of Bangladesh is familiar with some expressions such as 'ambitious budget' and 'implementation will be challenging".

These views usually come from analysts and businesses after the finance minister places his annual income and expenditure plans at the parliament for a new fiscal year.

The underlying reason for such assertions is clear: the consistent failure of the government to achieve its revenue target and spend as much as it wants under its development programmes.

As a result, since the fiscal year of 2008-09, the government has not been able to implement the budget fully.

The execution rate, which was as high as 97 per cent in 2010-11, has hovered around 80 per cent in recent years, leading local think-tanks and international development partners to raise questions about the credibility of the budget targets.

"Over the last decade, the budgetary target setting in Bangladesh has emerged primarily as a numbers game, with each year's targets surpassing the previous year's - notwithstanding the extent of actual attainment," said the Centre for Policy Dialogue (CPD) in its recommendations for the budget for the upcoming fiscal year, starting on July 1.

According to the think-tank, the targets for public expenditure have remained consistently unmet and hovered around 80-85 per cent as a share of the allocation.

The weak implementation has already forced the government to revise the allocation downwards to Tk 593,500 crore, a decrease of 1.69 per cent from the original plan of Tk 603,681 crore.

For the next fiscal year, the government plans to unveil a Tk 677,874 crore budget, which is 12 per cent bigger than the current budget.

Last month, the World Bank, in its Bangladesh Development Update, also raised the question of credibility.

"Budget credibility remains a challenge. The gap between the original and executed budgets has grown substantially in recent years," it said, citing the fiscal year of 2019-20, for example.

In FY20, only 70.3 per cent of revenue and 80.3 per cent of expenditure in the original budget was executed.

The National Board of Revenue (NBR) achieved 80 per cent of its tax collection target of Tk 330,000 crore in the last fiscal year, marginally higher than the original target of Tk 325,600 crore the previous year.

The tax generation target for the NBR has remained unchanged at Tk 330,000 crore for 2021-22. Taxmen managed to collect 53 per cent of the goal in the first six months of the current fiscal year, according to the finance ministry data.

In the case of the Annual Development Programme (ADP), the actual implementation has fallen below the goal in the past decade: the implementation rate averaged 85 per cent between FY11 and FY21.

State-run agencies were able to lift ADP implementation by 5 percentage points at 80 per cent in FY21 and executed 45.5 per cent of the original allocation of Tk 237,693 crore in the July-March period of FY22, planning ministry data showed.

Amid the sluggish pace of development work, the government has cut the ADP budget by 9 per cent to Tk 217,175 crore for the current fiscal year.

"Accurate revenue and expenditure forecasts are a key input to the preparation of a credible budget. In Bangladesh, overly optimistic expenditure allocations are presented with aspirational revenue targets," said the World Bank.

Zahid Hussain, a former lead economist of the global lender's Dhaka office, said budgetary targets can be over-achieved.

"In the case of Bangladesh, it is always under-achieved. The problem lies in the target setting both in terms of revenue and expenditure. These two continue to be under-achieved."

In Bangladesh, the development spending usually goes up towards the end of a fiscal year. Cheques are issued hurriedly to release funds.

"As a result, the quality of development expenditure suffers. This encourages mismanagement," Hussain said.

Setting bigger budgets ignoring the actual implementation capability may give some political dividend but it ruins credibility, he said. 

"A higher target also erodes the motivation of officials because they know that these are unrealistic and are not achievable."

The WB, in the update, also said the large gap between budget and execution limits the ability to enforce accountability in public finances and weakens the credibility of the budget.

"It also reduces effective implementation of public investment and service delivery, affecting the overall development outcomes of government programmes."

Selim Raihan, executive director of the South Asian Network on Economic Modeling, thinks Bangladesh needs big budgets to ensure adequate allocation for health, education and social protection.

"From that perspective, a bigger budget is appreciable. We are doing that too every year but we are failing to implement that," he said.

In order to raise the size of the budget, a higher tax collection is necessary and reform in the tax system is needed. But the opposition to reforms is very strong.

Besides, there is a lack of capacity to spend, said Raihan, also a professor of economics at the University of Dhaka.

"The budget has fallen into a cycle of low revenue collection, low implementation capacity and low spending. This cycle needs to be broken."

Khondaker Golam Moazzem, research director of the CPD, argues that the political economy of a bigger budget target is it provides the scope to take up a large number of projects knowing fully well that they will not be implemented.

"Governments initiate many projects for political reasons and many of them are implemented over a long period. It has a demonstration effect."

In the case of a cost spiral, the longer implementation period provides the leeway to the dishonest people to take advantage of increased cost, he said.

Moazzem points out the efficiency of public agencies to implement the budget. "Public agencies can't utilise resources and implement projects if the number of schemes exceeds their capacity."

The CPD recommended fiscal targets be set in a realistic manner by taking into account current macroeconomic trends.