Dr Jamal Khan :
(From previous issue)
A more reliable option is to ask the operating-agency employees to articulate and rank their programmes to enable the budget authority to know where agency priorities lie in the total package. This practice avoids arbitrary cutting, respects prioritisation, useful ongoing programmes continue, and new programmes commence. Several steps are discernible here: highlighting the finance ministry’s pre-budget expectations, putting intentions in the ministry circular, getting back estimates from the operating agencies, having comprehensive discussions on annual budgeting with personnel, putting everything together, finalising how money will be spent, and what impact the spending will have on the economy as a whole.
When all the agency submissions are in, the budget division tries to put the budget together and see how much the finance ministry can give to each agency. This is where the question of the relationship between recurrent spending and capital spending arises, because capital spending in the capital budget has implications for the recurrent budget. This is where the budgeteers have to do a careful job in seeing what capital programmes will mean for recurrent spending which will be required in the year in question. This is where the link between the capital and recurrent budgets comes in and where the budgeteers need to be wary about estimating accurately what the effect of the total capital programmes will be on the level of recurrent spending in the year in question. Everything is pulled together at this stage and the finance ministry/budget division produce the recurrent estimates and the capital spending programmes which are put in a document that is laid before the parliament for its scrutiny and approval.
To be continued.
INDEED, critics have been carping at the line-item budgeting. The main stricture is that the items are related to organisational needs, such as operations, maintenance, personnel, supplies, etc, rather than the broad purposes the spending is supposed to serve; that it over-rationalises hierarchy, layers and levels; and that it shows bias in favour of incremental change. To illustrate, the more lines there are, the finer the differences among them, the better they mirror the division of labour within the management system. A finance minister faces the perennial problem of numerous operating organisations not submitting their estimates on time. The failure to maintain timeliness forces the finance ministry to do programme/spending control, trimming and pruning without comprehensive discussions with operating ministries. Several of them do not give the kind of information the finance ministry wants. This pushes the finance ministry to cut costs and programmes arbitrarily or to use best guess and knowledge. Despite circulars, reminders and call-backs in many instances, several operating ministries do not seem to see the need for timeliness in respect of submitting estimates and related information.
Currently, budget practices tend to inhibit the comprehensive application of standard allocation criteria to recurrent spending, project spending and public enterprise investments. Aside from gaps in budgeting cohesion, current organisational/managerial practices discourage policy and programme planning, estimating accuracy, and timely performance. The budget division, for example, disproportionately devotes time to analysing recurrent spending, neglecting the critical task of programme/project appraisal using such criteria as unit measures, investment returns and other performance ratios. Yet, despite this over-attention, estimating accuracy is poor, measured by the extensive number of budget adjustments made in fiscal years. Also, allotment practices undermine the ability of line-agency personnel to plan and perform. In any given fiscal year, numerous warrants are issued, but the uncertainty in warrant timing and amounts results in inefficient resources and higher unit costs of operations and projects.
Also noteworthy are several issues with regard to the budgetary process. To start with, one has to be mindful of the effect of injection of capital into an economy, especially the kind that is liquid. It can overheat the economy and can cause inflation to build up. Two, there is the question of whether a country can match the financial resources which are available with the human resources which are necessary to implement programmes effectively and meaningfully so that, in fact, one turns money into roads, highways, bridges, plants, schools, clinics, etc. and that it is done with the least cost. The supply of expertise and the concomitant control are significant when one considers the way in which one spends money on programmes and projects. Three, in funding social and economic development, questions arise in parliaments in developing countries about the control of funding and accountability, especially with regard to disbursements from the funds. If parliamentarians wish to extensively debate every project which is to be funded from public funds, this would delay project approval and execution. But, simultaneously, the parliamentarian anxiety should be understandable because these initiatives are requests for millions of takas from public funds. Hence, as soon as a warrant is signed and approval is granted – to alleviate parliamentarian concern about accountability and transparency – there must be in place a set of satisfactory guidelines and procedures for all the concerned parties to observe timely submission of budgetary documents to parliament, fixed timetable for parliamentary debate and scrutiny of spending out of public finances.
Four, budgeting and planning being interrelated, development planning entails looking at the economy and society, doing some analysis, going far enough and going down to the project planning level. It is wishful thinking if someone were to believe that all operating agencies can formulate and appraise projects to give effect to the planned policies. The hard reality is that some operating agencies are often incapable of doing project planning and the policies as such are not executed.
Five, the pertinent issues concern the way in which planning is utilized, the kind of plan a mixed economy should have, whether to involve the private and third sectors as partners in development growth, whether a plan is an indicative one, and whether it is a plan exclusively restricted to the public sector. Six, budgeting and planning entails synergising technological innovation and managerial capability, deploying expertise, experience, orientation and specialisation, wrestling with a changing economy and a mobile society and grappling with major problems, such as unemployment, underemployment, population, investment and productivity in Bangladesh. Budgeting and planning should generate debate and dialogue in the larger community not only about the course the economy and society are taking but also about the direction in which it should move.
Seven, a large part of public finance is geared to developing and maintaining infrastructure, e.g. increasing water and power supply, low-cost housing, roads, bridges, healthcare, food availability, telecommunication, and so on. Sometimes, funds are available but implementable projects piloted by operating agencies are in short supply. In Bangladesh, for example, agricultural, agro-industrial, fishery and forestry projects could take on a greater visibility. With the collaboration of R&D institutions, universities and ministries, programmes could be initiated to increase revenue and resource generation, meet consumption, diversify and expand exports and intensify international trading.
Eight, fiscal reform comes up nearly everywhere, pointing to taxation, income tax, corporation tax, value-added tax, etc. It is growingly voiced that the public sector is siphoning off big money and fails to use this money profitably and that inflation is pervasive with the result that the profit one sees in accounting reports is not really true profits if one takes into account inflation and the escalating cost of plant and equipment. Looking at the fiscal situation, analysts in Bangladesh need to pay attention to the impact of inflation on the country’s economy.
A lot of inflation in the country is imported inflation – price increases hoisted by resource controllers, business-owners and interest groups. Many countries have had a difficult time in fashioning appropriate tools in dealing with inflation. The question arises if one should use monetary policy as a tool working together with other instruments to deal with the kind of stop-go effect which inflation gives rise to. Strengthening the central bank’s role in interest rate management, in Bangladesh, for instance, and supportive legislation need to be taken up.
Finally, we look at the fundamental nature of mixed economy in the context of budget and planning. Running such economies and maintaining equilibrium are not easy because these are buffeted by balance of payments stresses, inflation, etc. In successful economies, partnership and restraint are required because one partner can negate or undermine what another partner does. So is foreign exchange management crucial. When foreign exchange reserves fall and scarce resources are drained, the authorities have to analyse, take action and see whether there is a capital flight, an active informal channel operates through which foreign currency leaks, foreign currency is siphoned abroad regularly, it is spent abroad on frequent travel and conspicuous consumption or it is spent on gaudy and unproductive projects.
Budgeting wears many faces. For economists, it is a means of guiding the economy and allocating public resources. For accountants, it serves as a record of public sector revenue and spending. To political scientists, budget allocates costs and benefits in society. For a public management specialist, budget finances public agencies and their programmes.
Since there are many productive ways of using – and viewing – the budget, no single strategy can clear away the time-cluttered cobwebs, simplify the existing operating procedures, improve and expedite inter-organisational control and coordination, reduce delays and accelerate delivery, reform and improve the budgetary process and facilitate team-building and task force development. The interaction, complexity and interdependence of budgeting suggest that the budgetary capacity of political/policy authorities may hinge on their going through a set sequence. The strategies should be created and applied with caution in Bangladesh, and it is hoped that they may prove useful in sorting out budgeting experience, and aiding organisational analysis and budget system design.
(Dr Jamal Khan was professor of public sector management at the University of the West Indies. [email protected])
(Concluded)
