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Propagating Development – Towfiqul Islam Khan

Published in Ice Business Times on Thursday, 1 September 2016 

Propagating Development – Towfiqul Islam Khan

Towifiqul-Islam-KhanDearth of adequate infrastructure and able human resources are often cited as the key impediments for private investment. If Bangladesh sets itself on the path to attain a higher economic growth and enhanced job creation as tools for poverty reduction and other developmental targets, private investment must be increased. Public investment in developing countries is seen as a catalyst for private investment. The economic history of the current developed economies provides evidence that without efficient public investment it will not be possible for Bangladesh to attain its envisaged developmental targets over the medium term. Thus public investment not only needs to be higher, it must also fulfill the other criteria of efficacy. We need to have a public investment mechanism, which meets the ambition of value for money, provides the desired quality of services including durability, allows needs to be delivered in a timely manner and it has to be implemented in a sequence so that it compliments each other.

Annual Development Program (ADP) is an important mechanism of the government to help meet the goal of accelerating economic growth, reducing poverty and generating employment. It is the single largest component of public investment. Weaknesses in the implementation of ADP lead to inadequate private investment, and hence, to lower economic growth rate along with limited scope for employment generation. In 1970s, ADP, for delivering public infrastructure and services, was designed when the domestic resource base was small and the country was largely dependent on foreign multilateral and bilateral assistance to carry out its public sector investment programs. These days, the government’s dependence on foreign financing of its ADP has declined significantly. However, public sector resource availability has become inadequate in meeting the rapidly growing demand for physical and social infrastructure. The preset piece makes an attempt to sketch the seven policy priorities to address the ‘classic’ challenges faced by the ADP implementation in Bangladesh. To attain country’s medium term developmental objectives, these challenges need immediate attention.

 

THE LEVEL OF PUBLIC INVESTMENT NEEDS TO BE RAISED

In recent years, the volume of ADP expenditure has increased. Since FY2009-10, ADP expenditure as a share of GDP is rising to reach 4.8% of GDP. However, if we take a medium term view, this level is about one percentage point less than what we had in FY 1999-2000, i.e. 5.8%. Indeed, the government correctly puts a higher allocation of public money for this purpose. In FY 2015-16, ADP allocation as a share of GDP was 5.7%. Inability to implement the annual public investment plan has raised questions over the institutional capacity of the government. Moreover, the demonstrated failure of the ADP-based execution of projects essentially implies that the traditional way of financing and implementing infrastructure projects will not be able to cope with the burgeoning needs of an economy that should grow at an annual rate of 8% or more over the medium-term.

 

BREAK-OUT OF ‘FOURTH QUARTER SYNDROME’ TO ENSURE QUALITY OF EXPENDITURE

There is a chronic problem that is concerned with the fact that low budget execution during the first three quarters of the financial year, followed by a large spike in expenditures in the last quarter, particularly in June. This raises the question about the quality of spending. On an average, 39.3% of the total ADP expenditure is spent in Q4 (April-June) of the fiscal year while only 10-17% is spent in Q1-Q3. The last month of the fiscal year (June) alone contributes to 22.2% of the spending on an average; this is more than the spending of any of the previous three quarters. It should be noted that on average about 17% of the total ADP allocation remained unutilized over the period of past ten years.

 

COST-ESCALATION AND TIME EXTENSIONS NEED TO BE AVOIDED

Cost and time overrun in the implementation of the ADP projects has become more pervasive in recent years. Of the 233 projects completed in FY 2013-14, only 14.2% projects were completed within the stipulated time and planned allocation. This is the lowest since FY 2000-01. About half (48.9%) of the completed projects experienced time overrun which is also the highest since FY2000-01. This type of time overrun led to 51.1% increase of average cost of all completed projects which is the highest in last eight years.

Cost escalation and time extension is also observed for flagship infrastructure projects. For example, the timeline of Padma bridge project increased by 42.9% due to successive revisions which led to an increase in cost by 183.3% Dhaka-Chittagong 4-lane project also faced cost (77.8%) and time escalation (22.2 %) while Joydebpur-Mymensingh Road Improvement Project faced a 100% increase both in cost and timeline. The increase in cost and time reduces the efficacy of public investment and private sector users are deprived of timely benefits. Because of non-completion of these projects within the stipulated time and cost, the crowd-in effect as regards private investment does not take place.

 

LANDMARK SOCIAL SECTOR PROJECTS SHOULD BE PRIORITISED IN LINE WITH THE SDGS

There are three major development programs/projects in the social sector in the ADP— two in the education sector [Primary Education Development Program-III (PEDP-III) and Secondary Education Quality and Access Enhancement Project (SEQAEP)] and one in the health sector [Health Population and Nutrition Sector Development Program (HPNSDP)]. Two out of these three projects were supposed to be completed by FY2015-16; these projects were not completed in time. Consequently, special attention will need to be given to these important large social sector projects through adequate fund allocation. Furthermore, in the next phase, project objectives will have to be redesigned and aligned with the Sustainable Development Goal (SDG) targets.

 

SEPARATE STRATEGY FOR FOREIGN-AIDED PROJECTS NEEDED

Foreign-aided projects are often required to follow additional procedural steps in the overall project cycle. Last year, the Planning Minister noted in a meeting, “The project directors often feel discomfort in utilising the foreign aid part of the development projects although they feel much more comfortable in utilising local funds”. This was not acceptable according to him. He spoke of undertaking an effective strategy through consultation with the Economic Relations Division (ERD) of the Ministry of Finance. A dedicated strategy is thus needed, with a more proactive role of the aid effectiveness unit of ERD, to simplify the overall process for fund disbursement and procedural delays concerning foreign-aided projects. Hopefully, the government will soon spell out this strategy.

 

PROJECT SELECTION AND COSTING NEED TO BE BETTER SCRUTINISED

ADP includes a significant number of projects with a questionable rationale, low priority for public investment, or doubtful viability or equity. Questionable projects regularly find their way into the ADP mainly because of the weaknesses in the system of project management. These weaknesses include (i) insufficient scrutiny of projects; (ii) weak capacity in project selection, design, and implementation; (iii) overly long periods for project implementation; (iv) political imperative of satisfying numerous demands through an excessive number of small projects. For example, ADP expenditures under Roads and Highways Department (R&HD) include about 800 sub-projects with annual ADP allocations of about 2-3% of their project cost, implying that it would take 30-50 years to complete these projects. It is also found that cost of constructing roads and bridges in Bangladesh is also substantially higher compared to other regions including India and Europe. Irrigation activities carried out by the Bangladesh Water Development Board lack cost recovery and much of the investment of the other state owned enterprises are questionable on grounds of public sector rationale, priority, viability, or cost effectiveness.

 

STRENGTHEN IMED BY PUTTING IN PLACE FOLLOW-UP MECHANISMS TO REALISE RECENT INITIATIVES/POLICY DECISIONS

Poor implementation of ADP seems to be a combined consequence of three factors: (i) resource constraints; (ii) unrealistic targeting; (iii) lack of implementation capacity. Procedural lapses – from initiation to completion of a project life cycle have been identified as the major reason for curtailed ADP implementation. It begins with delays during the approval stage. Incomplete proposals, unreasonable expenditure targets, improper feasibility studies, etc. may delay the approval process. Corruption is also frequently blamed for delayed approvals. Sometimes projects get approved and included in the ADP well after the planned inception date. Post-approval procedural delays in land acquisition and procurement also hold back effective commencement. By the time the project takes off, spending the full fiscal year’s allocation becomes difficult.

Some major challenges that were identified by planning ministry in project implementation in July-October of FY 2014-15 include: (i) land acquisition; (ii) preparation of work plan; (iii) frequent changes of rate schedule in construction; (v) consultant/Firm recruitment; (vi) project director recruitment; (vii) manpower recruitment. One may observe a number of features emerging from this self-assessment of ministries and divisions. Firstly, delays both in terms of approval and operationalizing NEC decision, as constraint of ADP implementation is losing its significance. Secondly, and most detrimentally, issues related to early stages of ADP implementation, such as ‘land acquisition’ and frequent change of project directors have emerged as the major bottlenecks.

The government has recently taken a number of initiatives to accelerate ADP implementation. A policy such as the Project Preparatory Fund (PPF), which aims to facilitate timely and successful implementation of the development projects, has been drafted. The main objective of the PPF is to provide funds for completion of preliminary activities before the launch of any development project.

One may recall that the Planning Minister announced a number of proposals related to expediting ADP implementation last year. These include: (i) appointing PDs through direct interviews by the line ministries and divisions; (ii) assigning a dedicated official to each government agency for monitoring and evaluating respective projects: (iii) delisting the longstanding ‘non-operational’ projects from the ADP. However, these are not being adequately followed up. It is suggested that the upcoming budget reports progress these proposed actions.

The IMED provides a number of recommendations in the annual progress reports on a regular basis based on the challenges faced during the project cycle. But, these are often not adequately followed up with concrete measures. Regrettably, a majority of these recommendations tend to be ignored by ministries and divisions as the IMED lacks legal authority to command compliance. These recommendations should be discussed and followed up in the quarterly progress meetings to monitor ADP progress. These proposals need to be implemented by the line Ministries and other concerned entities.

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