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Tuesday, April 5, 2016

June syndrome in project execution again?

                                            Mahfuz Kabir

The Medium-Term Budgetary Framework (MTBF) has provided an opportunity to ministries, divisions and agencies (MDAs) to prepare their own budget in a bottom-up approach. The recent flexibility granted to MDAs to prepare and get approval of  development projects has given rise to unprecedented growth of the number of projects.

However, the number of unapproved projects is about to touch the approved ones in the recent fiscal years. Many of them tend to wait for receiving approval in the ECNEC meeting.

In the last five years, the size of Annual Development Programme (ADP) took gigantic shapes. While in FY2011-12, the actual ADP was Tk 375 billion, it became more than double after just three years. It is rationally going to touch the landmark of Tk 1.0 trillion in the upcoming fiscal year as the planning minister has already confirmed with indication of including mega-projects. However, it would remain one-third of the upcoming budget, which was only 24 per cent in FY2011-12. Thus, the share of ADP is going to be the highest in the upcoming budget compared to the recent past.

The share of ADP in Gross Domestic Product (GDP) is also showing an increasing trend; it stood at 6 per cent in FY2014-15 from 4.1 per cent of FY2011-12. Growth of ADP is also outpacing the total budget. We continuously intend to skyrocket with a good trust on the implementing agencies despite the backdrop of significant under-utilisation in monetary terms. May not be fully trailing the budget size, the number of projects is also going up.

In the recent years, the rate of implementation has witnessed improvement in quantitative terms even though quality remains a big question. The average rate of spending is about 89 per cent in the last five fiscal years, which is a big improvement over the same of the previous period (77 per cent on average). This has been mainly due to extraordinary rush of implementation in the later period.

Despite severe criticism over implementation, the fourth quarter of a fiscal year has long been blessed with superb pace of ADP spending. The rate of execution, according to a report of the Implementation Monitoring and Evaluation Division (IMED), has been ranging from 37 per cent to 44 per cent in this quarter in the last nine fiscal years. While the execution in the first three quarters vary widely ranging from 31 per cent to 49 per cent, spending in this quarter witnesses a narrow range. Thus, the rate of ADP implementation in the last quarter has reached a quite predictable pattern in the long run.

Figure: Rate of implementation (%) in the first three and fourth quarter (left) and implementation in June as % of the fourth quarter (right)

The gap in speed of implementation between champion and lazy agencies has been surprisingly big. The average rate of implementation of the current fiscal year up to the third quarter was 43 per cent. Out of 55 MDAs listed in the IMED report, 22 show lower rate of implementation than the average.

Five out of ten ministries and divisions receiving top allocation actually spent less than the national average spending. The Road Transport and Highways Division, a very important agency to provide public service having the second highest number of development projects (120 while the highest 157 belong to Local Government Division), spent 39 per cent of its allocation during this period. May not sound like satire, the rest 61 per cent is kept for implementation during the period of onset of monsoon that damages roads and highways. Thus, construction and reconstruction efforts are most likely to be in vain. It would also require allocation of more funds which could have been avoided by implementing most of the projects during November to March which is a dry period. By the same token, 39 per cent implementation of ADP implementation of the Ministry of Health and Family Welfare during the first three quarters does not justify any real significance.

Is there any linkage between size of ADP of the agencies and rate of implementation? Generally 'yes'. The rate of implementation is statistically higher among ministries and divisions that receive higher allocation. However, only the Local Government Division (LGD) could implement more than half of its allocation among the top ten ministries and divisions in the first three quarters. This division has a long tradition of implementing more than 100 per cent, and the extra spending is approved during the presentation of supplementary budget in the parliament. In the last fiscal year, it implemented 107 per cent of its allocation. If that rate also prevails, the LGD is going to spend 47 per cent of its ADP in the last quarter.

On the other hand, the Internal Resources Division (IRD) is located in the middle of the allocation schedule due to its size of ADP (25th position among the 55 MDAs), while it implemented the lowest, only 7 per cent from July to March. It means, the IRD would spend another 17 per cent if the spending pattern of the last fiscal year prevails. Conversely, only five out of 55 ministries or divisions spent less than two-thirds of their allocation. Thus, there are many instances of receiving high but spending very poor in the first nine months no matter how critical the impact of the agency is at macro level. This altogether results in extraordinary pressure on the final quarter, which is culminated in the last month.

Tragic but true, the month of June becomes the culprit of portraying extraordinary spike of burning public money for development. It will be a great surprise if a June syndrome does not occur in this fiscal year.

How to get rid of this? Minimum implementation rate per quarter is a must to reduce burden in the last months. There must be a certain calendar of implementation keeping in mind the seasonality, and endogenous and exogenous shocks. Most of the implementation should take place before the final quarter and no implementation in June.

In the absence of any structural transformation in ADP, lazy agencies should be identified not merely for IMED reporting, but for devising strategy of punishment such as cutting allocation in the subsequent fiscal year by squeezing the resource envelope. However, introducing a Multi-Year Public Investment Programme to overhaul the traditional ADP would largely reduce the recurrent spikes through a smart implementation schedule for the medium term and improve the quality of projects.

The writer is Senior Research Fellow at Bangladesh Institute of International and Strategic Studies (BIISS).

Source:  The Financial Express, 20 May 2015

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