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By
Christine I. Wallich
Country Director
The World Bank Group
Dhaka, Bangladesh, February 14, 2006 As we all know, with the PRSP now underway, the budget takes on a key role as an instrument of strategy implementation. The budget is the government’s main instrument and the most important link in the long chain connecting strategy and policy to actual growth and poverty reduction outcomes on the ground. The government must ensure that its policies are translated into budgets; that approved budgets are effectively executed, consistent with strategic priorities; and that budget implementation is effectively monitored so that mid-course corrections and adjustments can be made expeditiously. If any link in this chain of strategy and accountability is missing or broken, so too is the link between a policy and its expected development outcomes. Given the budget’s central role, improving public financial management and accountability is crucial for meeting the goals of the PRSP. Indeed, the PSRP sees improvements in public financial management (PFM) as a key element of its developmental and anti-corruption agenda. Progress to Date Bangladesh has made real progress in improving public financial management over the past decade. First, the fiscal deficit and its financing have been managed to maintain macroeconomic stability.
Second, government’s budget reports are now timelier and higher quality.
Third, the Comptroller and Auditor General of Accounts (CAG), a key institution (and watchdog) of financial accountability, has been established independent of the executive, avoiding a major conflict of interest between those that execute and record budgetary transactions and those that audit their execution.
Fourth, the Public Procurement Regulations 2003, conforming to international standards of openness, transparency, and competitiveness, are a significant achievement.
Fifth, the more recent effort of introducing a Medium-term Budgetary Framework (MTBF) in pilot ministries has planted the seeds of a more strategic budget planning process, with guidelines calling for the integration of the revenue and development budgets.
Ongoing Challenges This progress notwithstanding, there remains much still to do in improving public financial accountability. Let me mention a few priority areas: (i) Addressing weaknesses in budget planning, reflected in the overprogramming of the ADP. For this, government needs to institutionalize the MTBF approach and mainstream it across the line ministries. We should recognize this as a complex and long-term process. The capacity for sector policy analysis needs to be strengthened in the pilot ministries, as well as their ability to link their sector policies and budgets. (ii) Budget execution systems. Weak budget execution systems hinder transparency and create opportunities for mismanagement of public funds. (Examples include poor accounting information in line ministries, budget accounts not reconciled with bank accounts, reporting delays, etc.) In parallel with the MTBF, therefore, complementary budget execution and auditing reforms are needed to improve the control environment within the executive (internal audits) and outside the executive (via audits by the Comptroller and Auditor General). (iii) Consolidating the legal and institutional framework for public procurement. As the 2003 Regulations (PPR) are approved by the cabinet and transformed into law in the coming parliament, we urge that the good features of the PPR 2003 are preserved. In particular, establishing the CPTU in MOF as the central agency responsible for public procurement and providing for a “bid review committee” to review complaints. The World Bank will support implementation of the law through a second Procurement Reform Project, currently under preparation.
Three other elements of a stronger accountability framework for public financial management would be: (iv) Making the Comptroller and Auditor General a truly independent body. Good practice internationally is that CAG should not rely on the government for its budgetary allocations and should not have government influence on its administrative decisions. Parliament rather than the government should decide on CAG’s annual budget allocation, and the CAG should be able to decide its own organizational structure and staffing, independent of the Establishment Ministry. This avoids any conflict of interest that may arise between those that are audited and those that conduct the audits. (v) Parliamentary oversight of the budget process needs to be strengthened by allowing more time for parliamentary scrutiny on the annual budget bill, and by strengthening the role and capacity of the Public Accounts Committee to review audit reports and enforce its findings. (vi) Finally, moving towards a more participatory budget process, that allows civil society to take part in budget decisions and monitor their implementation will further improve budget performance and increase the credibility of outcomes.
Public Expenditure and Financial Accountability (PEFA) Framework The World Bank is committed to work with government to improve the quality of public financial management and accountability. Strengthening PFM and other aspects of governance are at the heart of our new country assistance strategy. The strategy, developed jointly with ADB, DFID, and Japan, sees public financial management as a key element of Bangladesh’s core governance institutions. It sees Bangladesh’s PFM performance as a key indicator of the soundness of the fiduciary environment that we, as donors, operate in. Harmonizing our approach, the joint strategy proposes a as common tool, for us and government, to measure the performance of public financial management systems: the Public Expenditure and Financial Accountability (PEFA) framework of indicators. This framework is well known and in common use internationally, and a later presentation shares its details. Now widely accepted, it was developed by experts from around the world, in partnership with development and international agencies such as IMF, World Bank, EU, DFID, and OECD, among others. (A partnership program with ADB is also being considered.) The framework provides an objective, expert assessment of the state of affairs in PFM, and allows countries such as Bangladesh to benchmark their performance and to track progress over time. More importantly, it avoids the wasted effort and potential inconsistencies of separate donor assessments. For the World Bank specifically, improved public financial management and accountability, as reflected in the PFM indicators, will be a key factor in the design of our lending program. As you may know, in addition to investment projects, the World Bank also makes “policy-based” loans—Development Support Credits—that support an agreed government reform program. This type of financing provides quick-disbursing funds which go directly into the government’s budget. Bangladesh has received three successive Development Support Credits since 2003. For us, therefore, ensuring that the government’s financial management systems are increasingly able to allocate budget resources according to stated priorities, minimizing leakage and mismanagement, is quite fundamental. It matters not only for our portfolio, but as our responsibility to stakeholders, including the people of Bangladesh. Progress in improving PFM, as reflected in key ratings, will thus be an important indicator in judging the appropriateness of future Development Policy Lending to Bangladesh, and access to such credits will be conditioned on such governance-related benchmarks that are key to creating an enabling environment for more effective use of government’s budgetary resources. |
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