Noakhali Science and Technology

University

A Study on

“The Quality of Fiscal Governance in Bangladesh along with Public Financial

Management (PFM) System”

Prepared For

Md. Rubel Miah

Assistant Professor
Department of Business Administration
Noakhali Science and Technology University (NSTU)

Prepared By

Nazmul Islam Shipon

ID: ASH1310008M; Session: 2012-2013
Department of Business Administration
Major: Accounting and Information Systems

Submission Date: 2nd of April, 2018

 Certification Letter

Date: 2nd of April, 2018

I am pleased to certify that Nazmul Islam Shipon and ID-ASH1310008M, a student of BBA
program was advised to perform a research work and he choose to conduct his research work on
the topic of “The Quality of Fiscal Governance in Bangladesh along with Public Financial
Management (PFM) System”.

This student has reviewed all the relevant materials and has conducted efforts to measure “The
Quality of Fiscal Governance in Bangladesh along with Public Financial Management
(PFM) System” to enlighten the actual situation of Fiscal Governance in Bangladesh. I have
supervised his study from the very beginning as well as the preparation of the final Report.

I also knowingly certify that the Project Report is an original one and has not been submitted
elsewhere previously for publication in any form.

He is wished all the very best of his luck for his effort to make it happened.

SUPERVISOR CHAIRMAN

Md. Rubel Miah MD. Mahbubul Haq

Assistant Professor Assistant Professor
Department of Business Administration Department of Business Administration
Noakhali Science and Technology University Noakhali Science and Technology University
(NSTU) (NSTU)

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 Supervisor’s Approval

I hereby declare that the concerned report titled “The Quality of Fiscal Governance in
Bangladesh along with Public Financial Management (PFM) System” is originated by
Nazmul Islam Shipon, Session: 2012-2013, student of BBA program, Noakhali Science and
Technology University, completed his project under my supervision and submitted for the degree
of Bachelor of Business Administration (BBA).

……………………………….
(Signature)

Md. Rubel Miah

Assistant Professor
Department of Business Administration
Noakhali Science and Technology University (NSTU)

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 Declaration

Date: 2nd of April, 2018

I am Nazmul Islam Shipon; ID-ASH1310008M, a BBA final year second-semester student of

Noakhali Science and Technology University. Hereby declare that the project report under the
project title “The Quality of Fiscal Governance in Bangladesh along with Public Financial
Management (PFM) System” is my own work and I have done this project under the
supervision of Md. Rubel Miah (Assistant Professor of Department of Business Administration).

I also declare that the content of this project is purely a part of this comprehensive project work
and the content has not been submitted to any other university for the award of any degree,
diploma or fellowship.

Further, I assign the right to the university to use the information and contents of this project
report to develop cases, case leads, and paper for publication or for use the teaching.

……………….…………………..
(Signature)
Nazmul Islam Shipon
ID-ASH1310008M

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 Letter of Transmittal

Date: 2nd of April, 2018

Md. Rubel Miah

Assistant Professor
Department of Business Administration
Noakhali Science and Technology University
Noakhali-3814, Bangladesh
Subject: Submission of Project paper.

Dear Sir,

It is great pleasure to submit the project paper on, “The Quality of Fiscal Governance in
Bangladesh along with Public Financial Management (PFM) System” as a part of BBA
program. My involvement in preparing this project paper has given me the opportunity to
explore one of the latest and unexplored areas of advertising concept in context of Bangladesh
and expand my knowledge thereby.

Within the limited time, I have tried my level best to complete the project paper and compile the
pertinent information as comprehensively as possible and if you need any further information, I
will glad to assist you.

Sincerely,

………………………………………
Nazmul Islam Shipon
Department of Business Administration
Major in Accounting and Information Systems
B.B.A Program
Noakhali Science & Technology University

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 Acknowledgement

First of all, I would like to express my gratitude to almighty Allah to give me the opportunity to
successfully conduct this research work and my parents for all the support of the last 24 years.

I would like to express my gratitude to my worthy Project Supervisor, Md. Rubel Miah for his
suggestions, support and affection throughout the last few months, and relevant suggestions
towards the success of this work.

I would like to express my gratitude also to my friends who helped me by providing very
valuable information regarding the topic. Basically, the all type of assistances made my project
paper complete.

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 ABSTRACT

As of late, the significance of sound Fiscal Governance and Public Financial

Management (PFM) System is increasing in developing nations. As a Developing nation with
direct level of reliance on outside help, Bangladesh likewise needs a sound Fiscal Governance
Framework alongside solid Public Financial Management (PFM) Systems which will eventually
bolster better administration to accomplish the star poor formative targets of the legislature. This
examination chiefly tries to translate the nature of Fiscal Governance and Public Finance
Management (PFM) System in Bangladesh based on Public Expenditure and Financial
Accountability (PEFA) evaluation done by the World Bank in 2006 and Government of
Bangladesh in 2010. The investigation tends to the examination question- What is the present
condition of Fiscal Governance in Bangladesh that identified along with Public Financial
Management (PFM)? The investigation is Descriptive in nature of Methodology and utilized
Paolo de Renzio‟s system to analyze. The experimental outcomes demonstrate that the nature of
Fiscal Governance and PFM in Bangladesh is genuinely low. The vast majority of the execution
markers positioned either 'D' or 'C' implies that those pointers are as yet feeble in execution and
need more prominent level of enhancements. The general normal score in 2010 of all the PFM
pointers of Bangladesh is just 2.07 (generally considered 'C') is much lower than 57 nations
general normal score 2.33. It shows that nature of PFM in Bangladesh is lower than the normal
nature of PFM in 57 nations. In these conditions, Bangladesh should make activity arrangement
to raise the greater part of its 'D' and 'C' positioned markers to at any rate 'B' positioned pointers.
Also, to do that the legislature should address the reasons for bring down execution in the six
principle measurements of PFM framework.

Keywords: Fiscal Governance, Public Financial Management, Execution Marker

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 LIST OF TABLES

Serial No. Title Page

Table-4.1 Ranking of Bangladesh among 213 Countries by Governance Indicators 12
Table-5.1 Selected Economic Indicators 16
Table-5.2 Government Revenue Receipts 17
Table-5.3 Public Expenditure 18
Table-5.4 Critical Dimensions of Performance of PFM System 19
Table-5.5 The PFM High-Level Performance Indicators Set 21
Table-6.1 Assessment of Budget Credibility Indicators 24
Table-6.2 Assessment of Comprehensiveness & Transparency Indicators 25
Table-6.3 Assessment of Policy-Based Budgeting Indicators 25
Table-6.4 Assessment of Predictability & Control in Budget Executions Indicators 26
Table-6.5 Assessment of Accounting, Recording & Reporting Indicators 27
Table-6.6 Assessment of External Scrutiny & Audit Indicators 27
Table-6.7 Assessment of Donor Practices Indicators 28
Table-7.1 Summary Results by Budget Dimensions & Indicators & Comparison with 30
57 Countries Average Score
Table-7.2 Summary Results by Budget Dimensions & Comparison with EAP, SSA & 31
LIC Countries Average Score

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 LIST OF ABBREVIATIONS

ADP (Annual Development Program)

PEFA (Public Expenditure and Financial Accountability)

UNDP (United Nations Development Program)

IMF (International Monetary Fund)

NGOs (Non-Governmental Organizations)

KPI (Key Performance Indicators)

OECD (Organization for Economic Cooperation and Development)

MTBF (Medium Term Budgetary Framework)

GDP (Gross Domestic Product)

GNI (Gross National Income)

FY (Fiscal Year)

HR (Human Resource)

EAP (East-Asia and Pacific)

SSA (Sub-Saharan Africa)

LICs (Low Income Countries)

SAP (Standard Accounting Practices)

NBR (National Board of Revenue)

ERD (Economic Relation Division)

PAC (Public Accounts Committee)

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PI (Performance Indicators)

WDI (World Development Indicators)

EC (European Commission)

GoB (Government of Bangladesh)

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 TABLE OF CONTENTS

Serial No. Title Page

Certification Letter [ii]

Supervisor’s Approval [iii]
Declaration [iv]
Letter of Transmittal [v]
Acknowledgement [vi]
Abstract [vii]
List of Tables [viii]
List of Abbreviations [ix]

CHAPTER-1:
01
INTRODUCTION
1.1 Background of the Study 01
1.2 Objectives of Fiscal Governance 02
1.3 Advantages of Effective Fiscal Governance 02
1.4 Significance of the Study 03
1.5 Objectives of the Study 03
1.6 Definition of Key Terms 04

CHAPTER-2:
05
RESEARCH DESIGN AND METHODOLOGY
2.1 Research Methodology 05
2.1.1 Data Collection 05
2.1.2 Data Analysis 05
2.2 Research Questions 06
2.3 Limitations of the Study 06

CHAPTER-3:
07
REVIEW OF LITERATURE
 CHAPTER-4:
HISTORY OF FISCAL GOVERNANCE IN BANGLADESH
4.1 Commencement of Fiscal Governance 08
4.2 Different Dimensional Parameters of Good Governance 08
4.2.1 The Eight Parameters 08
4.2.2 Identification of Parameters by World Bank 09
4.2.3 The OECD Criteria 10
4.2.4 Institutional Vs. Non-Institutional Parameters 10
4.3 State of Good Governance in Bangladesh: An Overview 11
4.4 Past Scope of Fiscal Governance in Bangladesh 13

CHAPTER-5:
PUBLIC FINANCIAL MANAGEMENT IN BANGLADESH
5.1 Introduction to Public Financial Management 15
5.2 Economic Condition of Bangladesh 15
5.3 Fiscal Policy & Financial Management 17
5.3.1 Government Receipts 17
5.3.2 Public Expenditure 17
5.4 Overview of PEFA Framework 19
5.4.1 Background Information 19
5.4.2 Scope & Coverage of the Framework 19
5.5 The Set of High-Level Performance Indicators 20
5.6 Scoring System 22

CHAPTER-6:
ANALYSIS OF THE QUALITY OF FISCAL GOVERNANCE IN
BANGLADESH
6.1 Preface 23
6.2 Budget Credibility 23
6.3 Comprehensiveness & Transparency 24
6.4 Policy-Based Budgeting 25
6.5 Predictability & control in Budget Execution 25
6.6 Accounting, Recording & Reporting 26
6.7 External Scrutiny & Audit 27
6.8 Donor Practices 27

CHAPTER-7:
FINDINGS AND RECOMMENDATIONS
7.1 Findings 29
Policy Actions That Should be Taken to Strengthen Fiscal
7.2 31
Governance in Bangladesh

CHAPTER-8:
34
CONCLUSIONS

CHAPTER-9:
35
REFERENCES
 CHAPTER-1

INTRODUCTION

1.1. Background of the Study:

Governance is seen as a reflection of the role of the state in giving direction to the
development, a country and political regime whereas the Fiscal Governance is a subset of overall
fiscal responsibility, and can be defined as a set of rules, regulations and procedures that
influence the way budgetary policy is planned, approved, carried out and monitored.

Bangladesh gained independence from Pakistan after a long destructive war where the
main purpose of the war was the freedom on Economic and Social Life but the dream remains
the dream after almost 46 years of the independence as political instability is the main culprit that
failing the Fiscal Governance again and again that costs the economic failure in Bangladesh.
Only sovereignty has been gained but rule of law, good fiscal governance seems to be mythical
term for Bangladesh.

Quality fiscal governance is taking under considerations in case of solving many

problems and for the socio-economic development of developing countries. Bangladesh has
enormous resources, manpower but still it is not able to capitalize those advantages only because
of poor governance. With deep concern of such matters, World Bank, United Nations
Development Programme (UNDP), International Monetary Fund (IMF) and a good number of
Non-Governmental Organizations (NGO‟s) have started emphasizing fiscal governance as a
precondition of delivery of their services and funds. Bangladesh like other developing countries
has been marked by the failure of the public sector to meet the demand of its citizens, ineffective
public services, and unfavorable environment for the proper growth of the private sector,
leadership crisis, lack of transparency and accountability in administration, ineffective political
institutions and so on.

It is a matter of concern that some progress has been done but a lot of expectation gap
still exists in Bangladesh in the field of fiscal governance. In the recent years, there are some
achievements in many areas of economic and social development such as macroeconomic
stability, growth in exports and in remittances, increase in enrolment in primary education,
improvements in female's education, and reductions in infant and maternal mortality rate,
improvement in women's empowerment and participation in economic activities etc. but to be
fair, a lot to be done for Bangladesh to go forward with this competitive world and a well-
mannered fiscal governance framework has to be the first priority in which Bangladesh should
look for.

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1.2. Objectives of Fiscal Governance:

Fiscal governance has several objectives including:

I. Increasing Better Budgetary Position: Unsustainable fiscal policy offers ascend to

high shortfalls and expanding obligation proportions. The control of the shortage and master
patterned predispositions can be accomplished by arrangement producer with effective fiscal
governance planning.

II. Advancing Reasonable and Sensible Financial Strategy: Reducing its cyclicality,
considering the advancement of the monetary cycle and staying away from dangers identified
with inward and outside stuns;

III. Improving the Effectiveness of Public Spending: Finds a better coordination

among the various government layers so that public spending can be effective.

1.3. Advantages of Effective Fiscal Governance:

Effective fiscal governance has many advantages the in long run of the economy as
follows:

I. Budgetary lopsided characteristics can be averted by powerful monetary

administration. Manageability in monetary arrangement system and adjusted spending
plans counteract unsustainable increments in the spending deficiency and the load of
obligation that can be a deterrent to development and improvement of the current
economy;

II. The development of a more educated open civil argument on the outline of strategy in
connection to accessible assets and its execution;

III. A straightforward system as a very much outlined monetary arrangement and

sufficient checking adds to and shields the proficient, viable and responsible utilization of
assets. Monetary administration may bolster the productive utilization of open assets by
checking the proficiency of open spending programs and connecting the asset portion to
execution;

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 IV. Fiscal governance incorporate Medium Term Budget Frameworks which set policy in
the medium term, contribute to an efficient allocation of public resources and their
predictability and continuity through time.

1.4. Significance of the Study:

As Bangladesh is a developing country with all its possibilities to do well in future

economic world, Fiscal Governance framework should be efficient and effective. In case of
Fiscal Governance, Bangladesh hasn‟t able to satisfy their own interest due to inconveniences
raised intentionally or unintentionally. This research paper will provide the clear view of those
inconveniences and will come up with some findings by answering the research questions
mentioned upward and this paper is concern about providing some specific solutions that would
be useful to strengthen the current Fiscal Governance Framework in Bangladesh.

1.5. Objectives of the Study:

Every study has its own aim to be accomplished & a study without definite objectives
cannot reach the exact goal. So, this study has been conducted to accomplish some objectives to
perpetrate the ultimate results of the study.

General Objective: To interpret “The Quality of Fiscal Governance in Bangladesh

along with Public Financial Management (PFM) System”

Specific Objectives:

I. To understand and analyze the current state of Fiscal Governance through discussing
Public Financial Management (PFM) System in Bangladesh.

II. To ascertain the impact of poor Fiscal Governance in Bangladesh.

III. To investigate the flaws of Fiscal Governance in Bangladesh.

IV. To acquire the reasons behind the poor Fiscal Governance in Bangladesh.

V. To reveal the egregious barriers in the way of constructing good Fiscal Governance in
Bangladesh.

VI. To indicate some rules and policies that would strengthen the Fiscal Governance in
Bangladesh.

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1.6. Definition of Key Terms:

Some terms that might be seen through the study has been defined as stated as below:

Governance: “Governance is all of the processes of governing, whether undertaken by a

government, market or network, whether over a family, tribe, formal or informal organization or
territory and whether through laws, norms, power or language of an organized society.” (Bevir,
Mark 2013)

Fiscal Governance: “Comprises all arrangements, procedures, rules and institutions that
underlie the conduct of budgetary policies of general government & the term fiscal governance
can be used interchangeably with fiscal framework.” (Stability and Growth Pact Glossary by
EU 2013)

Public Finance: Public finance is the study of the role of the government in the economy. It is
the branch of economics which assesses the government revenue and government expenditure of
the public authorities and the adjustment of one or the other to achieve desirable effects and
avoid undesirable ones. (Jain, P C 1974)

Public Financial Management: Public Financial Management (PFM) refers to the set of laws,
rules, systems and processes used by sovereign nations (and sub-national governments), to
mobilize revenue, allocate public funds, undertake public spending, account for funds and audit
results. (Andrew Dawson 2015)

Performance Indicator: A performance indicator or key performance indicator (KPI) is a type

of performance measurement. KPIs evaluate the success of an organization or of a particular
activity (such as projects, programs, products and other initiatives) in which it engages. (Carol
Taylor Fitz-Gibbon 1990)

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 CHAPTER – 2

RESEARCH DESIGN AND METHODOLOGY

Methodology is a system of broad principle or rule from which specific methods or

procedures that may be derived to interpret or solve different problems within the scope of a
particular discipline. Methodology is not a formula but set of practices. This study was
conducted “To Interpret the quality Fiscal Governance Framework” through investigation for
existing flaws and probable remedies to sort those flaws out.

2.1. Research Methodology:

The nature of the study is Descriptive and Data are gathered from the secondary sources
particularly from PEFA, the World Bank and the Ministry of Finance in Bangladesh and
different databases. PEFA execution estimation structure is gathered from the PEFA site and
information on appraisal of PEFA markers are gathered from the Bangladesh Country Assistance
Strategy 2006-2009 and Public Financial Management Performance Report of Government of
Bangladesh. Data on general society use administration are gathered from the Ministry of
Finance, Bangladesh. The investigation utilized Paolo de Renzio‟s system to ascertain the
numeric score of various execution pointers of nature of PFM and to break down the nature of
Fiscal Governance through PFM in Bangladesh.

2.1.1. Data Collection:

There are many sources where to get data for this study. Sources can be categorized as:

A. Paper-based sources: Books, journals, periodicals, abstracts, indexes, directories,

research reports, conference papers, market reports, annual reports, internal records of
organizations, newspapers and magazines.

B. Electronic sources: CD-ROMs, on-line databases, Internet, videos and broadcasts.

2.1.2. Data Analysis:

To make comparative analysis on the performance of quality PFM in Bangladesh with

other country the study also used the findings of Paolo de Renzio.

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2.2. Research Questions:

In that particular research paper, it is focusing on some specific questions such as

follows:

I. What is the current state of fiscal governance along with Public Financial Management
(PFM) system in Bangladesh?

II. What are the impacts of poor fiscal governance that effecting Bangladesh?

III. What are the specific flaws in fiscal governance in Bangladesh?

IV. What are the reasons behind the poor fiscal governance in Bangladesh?

V. What are the egregious barriers in the way of constructing good fiscal governance in
Bangladesh?

VI. What rules and policies can possibly strengthen the fiscal governance in
Bangladesh?

2.3. Limitations of the Study:

As the study was depended on only secondary data, it has faced some limitations such as:

1. Non-availability of systematic data for this study,

2. Non-availability of most required data which might be useful for this Study,

3. The data available and used in the study may not be accurate and can be fraudulent,

4. The data available and used in the study can be manipulated intentionally by
Government/Institutions itself,

5. It was not possible to go in-depth of the Governmental or Institutional information for

confidential constraints,

6. Lack of primary data etc.

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 CHAPTER – 3

REVIEW OF LITERATURE

In 21st century, Bangladesh is not in a position to claim it as a successful nation although

it had a huge potential & in that case along with other facts, Fiscal Governance is the most
burning factor that hasn‟t been up to mark. It‟s a matter to be delighted that Bangladesh actually
going through a progressive session but it still needed a lot to do to overcome with its poor
governance framework including the flaws that are existed in the system. Over the past 10 years,
Bangladesh managed to make progress in governance indicators; however global indicators
suggest that improving governance should remain a key priority for the full realization of
development aspirations. This includes the effectiveness of government, the transparency of
authorities, and stability of political situations. [World Bank, 2013]

Governance is “good” when it allocates and manages resources to respond to collective

problems, in other words, when a State efficiently provides public goods of necessary quality to
its citizens. Hence states should be assessed on both the quality and the quantity of public goods
provided to citizens [Rotberg 2004-05].

The policies that supply public goods are guided by principles such as human rights,
democratization and democracy, transparency, participation and decentralized power sharing,
sound public administration, accountability, rule of law, effectiveness, equity, and strategic
vision [Cheema 2005]. The Human Development Report issued in 2002 insists on “good”
governance as a democratic exigency, in order to “[rid] societies of corruption, [give] people the
rights, the means, and the capacity to participate in the decisions that affect their lives and to
hold their governments accountable for what they do” [Nzongola-Ntalaja 2002]. “Good”
governance promotes gender equality, sustains the environment, enables citizens to exercise
personal freedoms, and provides tools to reduce poverty, deprivation, fear, and violence [Cheema
2005]. The UN views good governance as participatory, transparent and accountable. It
encompasses state institutions and their operations and includes private sector and civil society
organizations.

In practice, such principles should translate into “strengthening democratic institutions”

[Nzongola-Ntalaja 2002] by free, fair and frequent elections, a representative legislature, some
judiciary and media independence from the State, the guarantee of human rights, transparent and
accountable institutions, local governments that possess decentralized authority, a civil society
which sets priorities and defends “the needs of the most vulnerable people” [Cheema 2005].

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 CHAPTER – 4

HISTORY OF FISCAL GOVERNANCE IN BANGLADESH

4.1. Commencement of Fiscal Governance:

In Bangladesh, it has been seen that Fiscal Governance was always depended on the
Good Governance by the state government. The concept of governance is as old as the concept
of governance itself. However, in the recent times, particularly during the last decade of the
twentieth century, widespread poverty, rampant corruption and other socioeconomic problems
prevailing in the Sub-Saharan African countries and its linkage with the quality of governance
has brought about an interest in the discussion of good governance. Since 1978, due to Un-
international standardized management, i.e. especially of some countries in Latin America and
Africa the super state World Bank then proposes the term of good governance. Governance has
three major components: that of process, contents and deliverables. The process of governance
includes factors such as transparency and accountability. Content includes values such as justice
and equality. Governance cannot be all process and values. It must ensure the basic needs and
security of its citizens. In this sense, it is only when all these three conditions are fulfilled that
governance becomes good governance. Good governance implies an administration that is
sensitive and responsive to the needs of the people is effective in coping with emerging problems
in society by framing and implementing appropriate laws and policies.

4.2. Different Dimensional Parameters of Good Governance:

Good governance has a number of political, economic and social parameters through
which the state of governance of a country can be diagnosed. Different international
organizations and good governance theorists have identified different criteria of good
governance from different angles.

4.2.1. The Eight Parameters:

Dhiraj Kumar Nath has identified eight major parameters of good governance, which has
been depicted in the following picture.

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 Figure 1: Major parameters of good governance

Consensus Oriented

Accountable

Good
Participatory Governance Transparent

Follows the Rule of Law Responsive

Efficient and Effective Equitable and Inclusive

4.2.2. Identification of Parameters by World Bank:

The World Bank has identified a number of parameters of good governance, which have
assumed significance for the developed and developing countries. These are:

1. The legitimacy of a political system which can best be achieved through regular
elections and political accountability.

2. Freedom of association and participation by various socioeconomic, religious, cultural

and professional groups in the governance.

3. An established legal framework based on the rule of law and independence of the
judiciary to protect human rights, secure social justice.

4. Bureaucratic accountability, including transparency in administration.

5. Freedom of information and expression.

6. A sound administrative system, leading to efficiency and effectiveness.

7. Cooperation between the government and civil society organizations.

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4.2.3. The OECD Criteria:

The Organization for Economic Cooperation and Development (OECD) has

identified a set of criteria of good governance. These are as follows:

1. Legitimacy of government;

2. Accountability of political and official elements of government;

3. Competence of government to make policy and deliver services; and

4. Respect for human rights and rule of law.

4.2.4. Institutional Vs. Non-Institutional Parameters:

To sum up, the parameters of good governance can be categorized primarily into two types
which are as follows:

a) Institutional parameters which include independent election commission,

effectiveness of parliament, efficient bureaucracy, independent judiciary, strong and autonomous
local government, freedom of press and media, strong and vigorous civil society, independent
and effective anti-corruption agencies.

b) Non institutional parameters which cover legitimacy of the political system, mass
participation in the polity, dynamic and efficient leadership, responsiveness of government,
accountability and transparency of government, efficient administrative system, respect for the
rule of law, decentralization, equal distribution of the state‟s wealth and resource, respect for
human rights, women empowerment, sound education system and combating corruption.

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4.3. State of Good Governance in Bangladesh: An Overview:

The Bangladesh constitution accommodates every one of the components fundamental

for good governance, though the nation is yet to completely grow right arrangements, condition,
organizations, limit and routine with regards to great governance. In spite of coming back to
parliamentary majority rule government following a mass development for vote based system in
1990, and resulting free and reasonable decisions under nonpartisan guardian governments, the
foundation of fair standards and practices has not been smooth in the nation. Popularity based
Governance, which alone can protect the sacred rights and interests of the regular natives and
guarantee better execution of the state functionaries, is as yet absent.

Accountability of the parliament to the general population and that of the official to the
parliament couldn't yet be regulated. Clear absence of institutional limit and different diseases
keep on impeding social and financial advancement, and serene democratic process. Feeble
execution of state organizations bringing about disappointment, to change state structures, settle
on dynamic strategy choices, make an empowering domain and give administration of various
levels of government and society implied that individuals' want for democratic governance is a
long way from being satisfied. Absence of sufficient accountability and transparency bringing
about far reaching corrupt practices and weakening law and request circumstance have turned
out to be endemic highlights of political, social and managerial culture, hosing the improvement
soul. The ailments defeat equity and decency, limit effort and nature of open administration
conveyance and restrain liveliness of market powers. Extent of trade off and accord on the
significant national issues is compelled, in this manner impeding the democratic procedure and
further heightening angry legislative issues showed in UITS Journal Volume: 3 Issue: 2 29
parliamentary blacklist, visit hartal and far reaching brutality. As indicated by the World Bank
appraise, the income loss of the administration because of corruption and wastefulness surpasses
US$500 million, US$1 billion is lost because of poor administration, and power division
misfortune adds up to over US$100 million every year amazing measures of misfortunes for a
country held by neediness. Notwithstanding, absence of human security and social issue continue
because of disgraceful law authorization, as uncovered in a current UNDP report efficient
infringement of human rights goes unabated in a developing society of exemption. Free guard
dog establishments such a human rights commission, Anti-corruption commission and
ombudsman couldn't yet be organized. There are missing connections in the chain of
accountability between people in general, the lawmaking body, the legal and the official.
Regardless of numerous very much recorded reports of waste, extortion, and manhandle of open
assets, little move has been made, empowering further corrupt practices.

Therefore, despite remarkable progress in some areas, there is still a long way to go
before the desired momentum in economic growth, poverty reduction, and improvement in
quality of life and overall social development is created to realize national aspirations and global
commitment like millennium development goals. The problem of leadership in governance
looms large in every sector. A substantial gap exists in the nation‟s ability to generate sound
11 | P a g e
understanding of the situation, to identify problems and constraints and implement better
policymaking, managerial and leadership practices and to measure progress towards good
governance. Bangladesh has the basic infrastructure for good governance, but they are not well
utilized. That‟s why, „Effective democratic governance continued to be the elusive golden deer
that that nation doggedly sought but could not find.

Along these lines, notwithstanding exceptional advance in a few zones, there is as yet far
to go before the coveted force in economic growth, poverty reduction, and change in personal
satisfaction and general social improvement is made to acknowledge national yearnings and
worldwide responsibility like millennium development goals. The issue of administration in
governance poses a potential threat in each segment. A considerable hole exists in the country's
capacity to create sound comprehension of the circumstance, to distinguish issues and limitations
and execute better policymaking, administrative and authority hones and to gauge advance
towards great governance. Bangladesh has the fundamental framework for good governance,
however they are not all around used. That is the reason, 'Compelling democratic governance
kept on being the tricky brilliant deer that that country stubbornly looked for however couldn't
discover.

The current state of governance in Bangladesh has been demonstrated in the following
table: 4.1 which clearly indicate that Bangladesh‟s performance on good governance criteria
between 1996 and 2006 has been declining.

Table-4.1: Ranking of Bangladesh among 213 countries by governance indicators.

Ranking of Bangladesh in Ranking of Bangladesh in

Governance indicators
percentile rank in 2000 percentile rank in 2010

Voice and accountability Lowest 41.5 Lowest 31.4

Political stability Lowest 26.9 Lowest 6.6

Government effectiveness Lowest 38.3 Lowest 21.1

Regulatory quality Lowest 39.4 Lowest 14.9

Rule of law Lowest 26.4 Lowest 19.8

Corruption control Lowest 40.2 Lowest 7.9

Source: Daniel Kaufman, and associates, Governance Matters: Aggregate and individual indicators
for 2000-2010, World Bank, Washington D.C, September, 2011.

12 | P a g e
4.4. Past Scope of Fiscal Governance in Bangladesh:

To maintain a stable economic condition, it was important to conduct an efficient,

effective and timely fiscal governance framework. Previously for effective Fiscal Governance,
Incorporations should have been done about matters such as:

I. National numerical fiscal rules: Numerical limits on budgetary aggregates (ex. debt,
budget balance, expenditure, and revenue rules) that impose a long-lasting constraint on fiscal
policy and the emergence of fiscal imbalances.

II. Fiscal transparency and independent fiscal institutions: Availability of

information on the design and conduct of fiscal policy and the existence of independent public
bodies that monitor fiscal performance and contribute to fiscal policy making and surveillance by
providing analysis, assessments, and recommendations. These include independent oversight
(Parliament), independent Fiscal Council, independent audit (supreme audit institution), and
finally open government policies, referring to the fact that the public is aware about the fiscal
policies.

III. Medium term budgetary framework (MTBF): Effective design and

implementation of fiscal policy in the medium term expressed through the Medium term
budgetary framework (MTBF). The MTBF generally refers to a set of procedures, and rules that
underlie the conduct of budgetary policies beyond the annual calendar. It is accompanied by the
adoption of a fiscal planning horizon of at least 3 years, to ensure a multiannual fiscal planning
perspective.

IV. Budgetary Procedures: The budgeting procedures constitute the last dimension of
fiscal governance. There is a strong link between budgeting procedures and the other dimensions
of the fiscal governance budgeting procedures are used in the preparation, approval and
execution of the budget. Scholars have noted that the characteristics of budgeting procedures
have influenced public expenditure efficiency and the capability to achieve the budgetary targets
fixed ex-ante. These characteristics are the prudent economic assumptions underlying the budget
projections, the use of financial planning tools extending over a multi-year horizon, the use of
techniques tending to centralize the budget process and focus on results rather than on inputs,
and the use of procedures to ensure an adequate level of transparency. The following is an
example of an analysis index of budgets – The European Commission carried out an analysis of
the European budgeting procedures based on the data available in the OECD database
“International budget practices and procedure” (OECD, 2003), using an index composed of
seven characteristics (European Commission, 2007, pp. 131-145). These are as follows:

A. Budget transparency with elements ensuring government accountability for its

policies. Transparency is synthesized in the completeness, clarity, and timeliness of

13 | P a g e
financial information and disclosure of public policies implemented by government and
public administration (Alt & Lassen 2006; OECD, 2002; IMF, 2001);

B. Multiannual planning horizon, referring to the elements that commit the government to
predefined policies and behavior with the aim of strengthening the quality of budgeting
procedures and evaluating, ex-ante and ex-post, the fiscal policy;

C. Centralization of the budget processes, including those elements of the budgetary

procedures that limit the impact of the common pool resource problem, mainly related to
a “delegated” framework, where spending decisions are fragmented between autonomous
cost centers that internalize the benefits without the associated costs related to an increase
in public debt, or, alternatively, to an increase of taxation required to finance such
expenses.

D. Centralization during execution, including special procedures enabling the budgetary

authority to intervene in the line ministries‟ management of the budget. It should be
emphasized that the centralization of the budget must be seen as a control variable to
monitor the effectiveness of other characteristics of budgeting procedures, such as top-
down budgeting and performance management, which require a greater budgetary
flexibility in the implementation of expenditure plans already approved;

E. Prudent economic assumptions, assuring the reliability of budgetary procedures and

sound fiscal positions flowing from the budget and to avoid over-optimistic
macroeconomic forecasts and projections. These anomalies, as already noted, appear to
be limited by the involvement of independent fiscal institutions through budgeting
procedures and the adoption of accounting techniques aimed at basing the budget
definition on a less techniques aimed at basing the budget definition on a less positive
scenario and using the reserve funds;

F. Top-down budgeting techniques, avoiding the disadvantages of the bottom-up

methodology in which a trend toward the expansion of public spending is due to the fact
that ministerial requests are quantified in an amount greater than that actually necessary
because the ministries have no incentives to reduce their funding requests (Kim & Park,
2006).

F. Performance budgeting, using a result-oriented budget rather than an input-based

budget. Performance budgeting strengthens the links between the resources provided for
the program and its output or outcome, to assure the quality of public finance and
improve the effectiveness and efficiency of public expenditures.

14 | P a g e
 CHAPTER-5

PUBLIC FINANCIAL MANAGEMENT IN BANGLADESH

5.1. Public Financial Management (PFM):

As of late, there has been growing concern with respect to the quality of public financial
management (PFM) on creating nations particularly in the high guide beneficiary nations of the
sub-Saharan Africa and south and south-east Asia in light of the fact that the proficient
utilization of assets from both remote help and household sources exceptionally relies upon
people in general fund administration arrangement of the beneficiary nation. Both the creating
nations and benefactor offices have likewise perceived the center significance of PFM
frameworks for accomplishing the national formative targets, including economic growth and
poverty reduction. To address the trustee concerns and to distinguish qualities and shortcomings
that can influence accomplishment of national formative goals and help viability contributor
organizations have been giving expanding consideration and assets to surveying and fortifying
the quality of PFM frameworks in beneficiary nations.

The key connections in the chain of public financial accountability are frail in
Bangladesh. A standout amongst the most essential shortcomings is the absence of a key and
long haul see in the arranging procedure, reflected in the over-programming of the yearly
advancement design. This need permits optional conduct, makes open doors for lease chasing,
and prompts excessively numerous under-financed ventures, delays in usage, and incessant
under-use.

5.2. Economic Situation of Bangladesh:.

Bangladesh is a thickly populated low income nation of South Asia. Its population is
around 156.59 million (WDI, 2013) with a high rate of population growth of 1.22% every year.
Furthermore, finished the most recent five years the population growth rate is expanding step by
step. The nation encountered a progressively increment in GDP growth rate from the year 2009
to 2012. The yearly GDP growth rate was 6.63% of every 2006 and it diminished to 5.05% in the
year 2009 and again came to 6.01% of every 2003. GDP per capita as far as PPP was US$
1870.52 out of 2006 and expanded to US$ 2948.01 out of 2013 with a steady expanding pattern.
Net capital development as a level of GDP likewise expanded over the period 2006 to 2013.

Both the exports of goods and services and the imports of products and enterprises of
Bangladesh as a percent of GDP have expanded over the time. Fares of merchandise and
enterprises as a percent of GDP came to 19.54% of every 2013 and the imports was 26.74% of
the GDP for a similar period. Readymade article of clothing is the most contributing area in the
fare container of Bangladesh. Add up to stock exchange came to 43.66% of GDP in the year

15 | P a g e
2013 which demonstrates that Bangladesh is ending up more exchange subordinate over the
time. Net ODA got as a level of GNI was 1.61% of every 2006 and came to 2.10% out of 2008
and dropped to 1.07% out of 2011 and again came to 1.65% of every 2013.

Table-5.1 depicts the overall economic situation of the country using some selected
economic indicators of Bangladesh.

Table-5.1: Selected Economic Indicators

Indicators 2006 2007 2008 2009 2010 2011 2012 2013

Population, total 144.87 146.46 147.97 149.50 151.13 152.86 154.70 156.59
Population growth
1.20 1.09 1.03 1.03 1.08 1.14 1.19 1.22
(annual %)
GDP (current 71819 79612 91631 102478 115279 128638 133356
149990
US$)
GDP growth
6.63 7.06 6.01 5.05 5.57 6.46 6.52 6.01
(annual %)
GDP per capita
495.75 543.59 619.26 685.46 762.80 841.53 862.05 957.82
(current US$)
GDP per capita, 2033.65 2175.08 2279.20 2409.55 2588.50 2773.66 2948.01
1870.52
PPP (current US$)
Gross capital
formation (% of 26.14 26.18 26.20 26.21 26.25 27.42 28.26 28.39
GDP)
Gross domestic
savings (% of 20.72 20.23 18.90 19.99 20.49 19.84 20.47 21.17
GDP)
Gross national
expenditure (% of 105.40 105.95 107.30 106.21 105.75 107.58 107.79 107.22
GDP)
Inflation, GDP
deflator (annual 22.02 6.47 7.86 6.76 7.14 7.86 8.16 7.17
%)
Merchandise trade 42.81
38.76 39.00 36.02 40.78 47.15 44.47 43.66
(% of GDP)
Imports of goods
and services (% of 21.76 22.95 24.96 23.15 21.78 27.50 27.95 26.76
GDP)
Exports of goods
and services (% of 16.35 17.00 17.66 16.94 16.02 19.92 20.16 19.54
GDP)
Net ODA received
1.61 1.79 2.10 1.11 1.14 1.07 1.49 1.65
(% of GNI)
Source: World Development Indicator, 2014

In the year 2006, the rate of inflation (GDP deflator) was 22.02% however it decreased to 7.17%
out of 2013. Along these lines, for the time of 2007 to 2013 the issue of inflation was not all that
16 | P a g e
serious. The gross national expenditure as a percent of GDP was 105.40% of every 2006 and
expanded to 107.22% out of 2013.

5.3. Fiscal policy and financial management:

Detailing and execution of a sound fiscal policy is one of the center elements of the
administration of Bangladesh to keep up macroeconomic soundness and encouraging economic
growth and improvement in accordance with focuses of poverty reduction. Overabundance
public expenditure over income (tremendous spending shortfall) may make unfriendly
consequences for keeping up the macroeconomic manageability. Along these lines, proficient
fiscal management is of incredible significance for dealing with the general economic
circumstance of the nation.

5.3.1. Government receipts:

The primary source of the government revenue of Bangladesh is the tax revenue and it
represents around 80% of the aggregate government revenue. The tax revenue incorporates
income tax, import obligation, extract obligation, turn over tax, supplementary obligation,
different taxes and duties and so forth. Add up to tax revenue/GDP was 7.50% in the fiscal year
(FY) 2005-06 and was expanded to 9.74% in FY 2012-13. Non-tax revenue/GDP likewise
expanded over the time as the aggregate revenue/GDP expanded for a similar period. Table-5.2
demonstrates the government revenue receipts as a percent of GDP for the FY 2005-06 to FY
2012-13.

Table-5.2: Government revenue receipts (as a % of GDP)

Particulars 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13

Tax Revenue 7.50 7.14 7.64 7.88 8.02 8.63 9.12 9.74

Non Tax Revenue 1.80 1.86 1.99 1.94 1.95 1.76 1.76 1.91

Total Revenue 9.30 9.00 9.63 9.81 9.97 10.39 10.89 11.65

Source: Bangladesh Economic Review, 2014. Figures are based on revised budget.

5.3.2. Public expenditure:

The prime objectives of public expenditure of the government of Bangladesh are to enhance the
living states of the general population, create HR and physical framework and diminish poverty.

17 | P a g e
Table-5.3 speaks to the public expenditure of Bangladesh (as % of GDP) under the general
classifications development and non-development expenditure for the FY 2005-06 to FY 2012-
13. Non-development expenditure is the real piece of the aggregate public expenditure of
Bangladesh. On a normal, non-development expenditure constitutes around 60% of the total
public expenditure and development expenditure constitutes around 35% to 40% of the aggregate
expenditure. Non-development expenditure incorporates for the most part intrigue installments
on remote and local credits, pay and remittances, endowments and exchange installments. What's
more, the development expenditure incorporates for the most part the expenditure on Annual
Development Program (ADP). As a percent of GDP development expenditure was most elevated
in the FY 2005-06 (4.90%) and in FY 2012-13 it was 4.82%.

Table-5.3: Public Expenditure (as a % of GDP)

Particulars 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13

Development Exp. 4.90 4.27 3.87 3.65 3.99 4.33 4.33 4.82

Non Development Exp. 7.68 8.08 9.13 9.52 9.67 9.08 9.57 9.23

Other Expenditure 0.08 0.19 1.88 0.19 0.20 0.79 1.38 1.75

Total Expenditure 12.66 12.16 14.89 13.35 13.86 14.20 15.28 15.79

Source: Bangladesh Economic Review, 2014

5.4. Overview of Public Expenditure and Financial Accountability (PEFA) Framework:

5.4.1. Background Information:

The PEFA public financial management (PFM) performance measurement framework is

an integrated framework that permits or potentially encourages estimating the nation PFM
performance after some time. It has been produced by the PEFA accomplices (The World Bank,
EC, DFID and so forth.) and gives dependable data on the performance of PFM frameworks,
procedures and establishments after some time. The data gave by the framework additionally
adds to the government change process and encourages harmonization of the discourse amongst
government and givers around a typical framework estimating PFM performance and in this
manner add to decrease exchange costs for accomplice governments. "The Performance
Measurement Framework incorporates an arrangement of abnormal state indicators, which
measures and screens performance of PFM frameworks, procedures and foundations and a PFM

18 | P a g e
Performance Report (PFM-PR) that gives a framework to give an account of PFM performance
as estimated by the indicators".

5.4.2. Scope and Coverage of the Framework

A sound PFM framework is of vital significance for execution of the government policy
needs and accomplishment of the ace poor formative objectives by supporting full scale
economic and fiscal train, strategic allotment of assets and smooth and proficient public
administration conveyance. An open and organized PFM framework is one of the empowering
components for these three levels of budgetary results:

A) Effective controls of the budget totals and management of fiscal dangers add to keep
up large scale economic fiscal discipline;

B) Planning and executing the budget in accordance with government needs adds to
usage of government's objectives; and

C) Managing the utilization of planned assets adds to proficient administration

conveyance and incentive for cash.

PEFA identifies the following six critical dimensions of performance of an open and orderly
PFM system,

Table-5.4: Critical dimensions of performance of an open and orderly PFM system

Dimensions Explanations

1. Credibility of the budget The budget is realistic and is implemented as intended

2. Comprehensiveness and The budget and the fiscal risk oversight are comprehensive and fiscal &
Transparency budget information is accessible to the public.

3. Policy-based budgeting The budget is prepared with due regard to government policy.

The budget is implemented in an orderly and predictable manner and

4. Predictability and control
in budget execution
5. Accounting, recording
and reporting
6. External scrutiny and
Audit
there are arrangements for the exercise of control and stewardship in the
use of public funds.
Adequate records and information are produced, maintained and
disseminated to meet decision-making control, management and
reporting purposes.
Arrangements for scrutiny of public finances and follow up by executive
are operating.

Source: PEFA - PFM Performance Measurement Framework, 2011, p.2

19 | P a g e
The framework does not gauge the elements affecting the nation PFM performance, for example,

A. PFM framework out-turns: these catch the prompt aftereffects of the PFM
framework as far as genuine expenditures and revenues by contrasting them with the first
endorsed spending plan, and also level of and changes in expenditure unfulfilled
obligations.

B. Cross-cutting highlights of the PFM framework: these catch the completeness and
transparency of the PFM framework over the entire of the spending cycle.

C. Spending cycle: these catch the performance of the key frameworks, procedures and
establishments inside the spending cycle of the focal government.

D. Giver hones: these catch components of benefactor rehearses which affect the
performance of nation PFM framework.

PR utilizes the marker based examination to build up an integrated appraisal of the PFM
framework against the six basic measurements of PFM performance and assess the imaginable
effect of PFM shortcomings on the three levels of budgetary results"

5.5. The set of high level performance indicators:

The PEFA identified 31 high level performance indicators for measuring the performance
of PFM of a country. Among these 31 indicators, 28 indicators are for the country‟s PFM system
and the remaining 3 indicators are for donor practice that affects the country PFM system. The
selected 28 indicators for the country‟s PFM system are classified into three broad categories and
3 indicators for donor practices put into a single category. Table- 5.5 represents the PFM high
level performance indicator set.

20 | P a g e
 Table-5.5: The PFM High-Level Performance Indicator Set
A. PFM-OUT-TURNS: Credibility of the budget

PI-1 Aggregate expenditure out-turn compared to original approved budget

PI-2 Composition of expenditure out-turn compared to original approved budget
PI-3 Aggregate revenue out-turn compared to original approved budget
PI-4 Stock and monitoring of expenditure payment arrears
B. KEY CROSS-CUTTING ISSUES: Comprehensiveness and Transparency

PI-5 Classification of the budget

PI-6 Comprehensiveness of information included in budget documentation
PI-7 Extent of unreported government operations
PI-8 Transparency of inter-governmental fiscal relations
PI-9 Oversight of aggregate fiscal risk from other public sector entities.
PI-10 Public access to key fiscal information
C. BUDGET CYCLE

C(i) Policy-Based Budgeting

PI-11 Orderliness and participation in the annual budget process
PI-12 Multi-year perspective in fiscal planning, expenditure policy and budgeting
C(ii) Predictability and Control in Budget Execution
PI-13 Transparency of taxpayer obligations and liabilities
PI-14 Effectiveness of measures for taxpayer registration and tax assessment
PI-15 Effectiveness in collection of tax payments
PI-16 Predictability in the availability of funds for commitment of expenditures
PI-17 Recording and management of cash balances, debt and guarantees
PI-18 Effectiveness of payroll controls
PI-19 Competition, value for money and controls in procurement
PI-20 Effectiveness of internal controls for non-salary expenditure
PI-21 Effectiveness of internal audit
C(iii) Accounting, Recording and Reporting
PI-22 Timeliness and regularity of accounts reconciliation
PI-23 Availability of information on resources received by service delivery units
PI-24 Quality and timeliness of in-year budget reports
PI-25 Quality and timeliness of annual financial statements
C(iv) External Scrutiny and Audit
PI-26 Scope, nature and follow-up of external audit
PI-27 Legislative scrutiny of the annual budget law
PI-28 Legislative scrutiny of external audit reports
D. DONOR PRACTICES

D-1 Predictability of Direct Budget Support

D-2 Financial information provided by donors for budgeting and reporting on project and program aid
D-3 Proportion of aid that is managed by use of national procedures
Source: PEFA - PFM Performance Measurement Framework, 2011

21 | P a g e
5.6. Scoring System:

Public financial management (PFM) performance has been assessed against each of the
indicators by assigning ratings of A (the highest) to D (the lowest) based on the comprehensive
criteria given in the PEFA framework document. A rating of A would be an international level
practice and that of B a good achievement. Ratings of C and D indicate weak performance of the
indicator and identify PFM elements that are in relatively greater need of improvements. A+ sign
represents intermediate scores available for composite indicators that include two or more sub-
dimensions (See PEFA - PFM Performance Measurement Framework - Revised January 2011
for more details).

22 | P a g e
 CHAPTER – 6

ANALYSIS OF THE QUALITY OF FISCAL GOVERNANCE IN BANGLADESH

6.1. Preface:

This area speaks to the outline result of the evaluation of high-level performance
indicators of Bangladesh's PFM system in light of PEFA framework for estimating the general
nature of public finance management (PFM) system of Bangladesh under seven expansive
headings in view of two unique assessments done by the World Bank in 2006 and Government
of Bangladesh (GoB) in 2010. The evaluation of World Bank in 2006 utilized the information for
the FY 2003 to FY 2005 (3 years) and the appraisal of GoB in 2010 utilized the information for
the FY 2007-08 to FY 2009-2010 (3 years).

6.2. Budget credibility:

The capacity to actualize the budgeted expenditure to help the government's ability to
convey the public administrations for the year as communicated in policy statements, formative
yield duties and key work designs is a urgent factor. The performance indicator, PI-1 looks at
initially endorsed add up to expenditure of the budget with real expenditure. As the genuine
essential expenditure were over 10% lower than the budgeted essential expenditures in all the
three years, the PI-1 got rating C in 2006 which shows there is more prominent need of changes
to lessen the hole between the real essential expenditures and the budgeted essential expenditure.
Be that as it may, in 2010, this marker got rating B which shows a slight change in this angle. PI-
2 measures the fluctuation in expenditure structure with the first budget expenditures and got
general rating C in 2006 and it drop off to rating D+ in 2010 on the grounds that difference in
expenditure piece surpassed general deviation in essential expenditures by in excess of 10 rate
focuses if there should be an occurrence of both the assessments. It demonstrates that
Bangladesh had poor accomplishment on PI-2 and it is a long way from universal standard.

In deciding budget performance, precise estimating of domestic revenue is a basic factor,

since budgeted expenditure distributions depend on that conjecture. An examination between the
budgeted and actual revenue gives a general sign of the nature of revenue estimating and
accomplishment. PI-3 measures the actual domestic revenue gathering contrasted with the
budgeted revenue estimation. Bangladesh got rating C on PI-3 out of 2006 and B in 2010
implying that we are enhancing to have a standard revenue determining. "A high level of unpaid
debts can demonstrate various distinctive issues, for example, insufficient responsibility controls,
money proportioning, deficient budgeting for contracts, under-budgeting of particular things and
absence of data". The PI-4 measures the degree to which there is a load of back payments, and
the degree to which any systemic issue is being brought under control and tended to. The
circumstance was more awful in Bangladesh for PI-4 out of 2006 as this indicator got rating D.

23 | P a g e
For the appraisal of 2010, this indicator was not scored on account of absence of solid
information. Table-6.1 outlines the evaluation of budget credibility indicators.

Table-6.1: Assessment of budget credibility indicators

Rating
PEFA Indicators
2006 2010
Aggregate expenditure out-turns compared to original approved budget
PI-1 C B
Composition of expenditure-outturn compared to original approved budget
PI-2 C D+
Composition of expenditure-outturn compared to original approved budget
PI-3 C D
Stock and monitoring of expenditure payment arrears
PI-4 D NS
Source: GoB (2010), Bangladesh: Public Expenditure and Financial Accountability Assessment, Annex 2, p.72

6.3. Comprehensiveness and transparency:

A strong budget arrangement system permits the following of spending on the significant
after measurements like Administrative Unit, Economic, Functional and Programs. The current
budget arrangement structure of Bangladesh is a 13-digit structure comprising of four separate
measurement covering Legal, Organizational, Operational Unit and Economic measurements. PI-
5 measures the characterization of national budget and got general rating C in 2006 and
enhanced to rating B in 2010. It shows that however Bangladesh gained ground on this indicator
still far from international standard.

Annual budget documentation (the annual budget and budget supporting records), as
submitted to the assembly for investigation and endorsement, ought to permit a total picture of
focal government fiscal forecasts, budget proposition and out-turn of earlier years. Getting the
general rating C in 2006 and B in 2010 on comprehensiveness of data incorporated into budget
documentation (PI-6) shows that however Bangladesh is doing admirably on this indicator needs
higher level of change. Performance indicator PI-7 and PI-8 got general rating D and D+
individually in 2006, implies that the circumstance was more terrible for unreported government
activities and transparency of between governmental tasks. In 2010, PI-7 got the rating B which
is a huge change on this indicator however PI-8 drop declined to rating D. PI-9 appraised C in
2006 and drop off to rating D in 2010 shows that oversight of total fiscal hazard from other
public area elements are underneath the normal level and needs to enhance substantially more.

Transparency for the most part relies upon whether data on fiscal plans, positions and
performance of the government is effectively open to the overall population or if nothing else the
applicable partners. PI-10 measures the degree to which the key fiscal data available to public. In
Bangladesh, PI-10 got the rating C in 2006 speaks to that public access to key fiscal data was

24 | P a g e
bring down around then yet it enhanced to rating B in 2010. Table-6.2 speaks to the evaluation of
comprehensiveness and transparency indicators.

Table-6.2: Assessment of comprehensiveness and transparency indicators

PEFA Indicators Ratings

2006 2010
PI-5 Classification of the budget C B
PI-6 Comprehensiveness of information included in the Budget C B
PI-7 Extent of unreported government operations D B
PI-8 Transparency of inter-government fiscal relations D+ D
PI-9 Oversight of aggregate fiscal risk from other public sector entities C D+
PI-10 Public access to key fiscal information C B
Source: GoB (2010), Bangladesh: Public Expenditure and Financial Accountability Assessment, Annex 2, p.72

6.4. Policy-based budgeting:

For the most part the Ministry of Finance is associated with the budget definition and
usage process in a joint effort with the Planning Commission and other line services. PI-11
measures the level of precision and cooperation in the annual budgeting process. Bangladesh got
rating B on PI-11 in both 2006 and 2010. It demonstrates that Bangladesh got great
accomplishment on this performance indicator. Be that as it may, the circumstance was more
regrettable for PI-12 out of 2006 and enhanced a considerable measure in 2010 if there should be
an occurrence of estimating the long haul (multi-year) point of view in fiscal arranging,
expenditure policy and budgeting.

Table-6.3: Assessment of policy based budgeting indicators

PEFA Indicators Ratings

2006 2010
PI-11 Orderliness and participation in the annual budgeting process B B

PI-12 Multi-year perspective in fiscal planning, expenditure policy & budgeting D+ B

Source: GoB (2010), Bangladesh: Public Expenditure and Financial Accountability Assessment, Annex 2, p.72-73

6.5. Predictability and control in budget execution:

An arrangement of 9 performance indicators (PI-13 to PI-21) of the total 31 high-level

performance indicators constitute the wide measurement, consistency and control in budget
execution of the nation PFM system. Among these 9 performance indicators, 1 indicator (PI-19)
got the rating B, 1 indicator (PI-15) got the rating D+, 1 indicator (PI-21) got D in both the
assessments, 4 indicators (PI-13, PI-14, PI-16, and PI-17) got enhanced rating in 2010 than 2006
and 2 indicators (PI-18 and PI-20) got bring down rating in 2010 than 2006. The greater part of
the indicators of this class aside from PI-19 got a rating equivalent to C+ or less. From this

25 | P a g e
discovering obviously Bangladesh is powerless in budget predictability and control in budget
execution. Table-6.4 abridges the appraisal of consistency and control in budget execution
indicators.

Table-6.4: Assessment of predictability and control in budget execution indicators

PEFA Indicators Ratings

2006 2010
PI-13 Transparency of taxpayer obligations and liabilities D+ C
PI-14 Effectiveness of measures for taxpayer registration and tax assessment D+ C
PI-15 Effective collection of tax payments D+ D+
PI-16 Predictability in the availability of funds for commitment of expenditures C C+
PI-17 Recording and management of cash balances, debt and guar C C+
PI-18 Effectiveness of payroll controls C D+
PI-19 Competition, value-for-money & controls in procurement B B
PI-20 Effectiveness of internal controls for non-salary expenditure C D+
PI-21 Effectiveness of internal audit D D
Source: GoB (2010), Bangladesh: Public Expenditure and Financial Accountability Assessment, Annex 2, p.73

6.6. Accounting, recording and reporting:

Timely and frequent compromise of data from various sources is central for information
unwavering quality. PI-22 measures the level of timeliness and regularity of records. Bangladesh
scored general rating C in 2006 and B in 2010 on this indicator implies that she is enhancing
with breathes easy. Government of Albania and the World Bank specified that-issues much of
the time emerge in cutting edge benefit conveyance units giving administrations at the group
level, (for example, schools and wellbeing facilities) in getting assets that were expected for their
utilization, regardless of whether as far as money exchanges, dispersion of materials in kind, or
arrangement of halfway enrolled and paid work force. PI-23 centers around the issue of
accessibility of information on assets got by benefit conveyance units. Indicator PI-23 got the
general rating C in 2006 and D in 2010 speaks to moderately less accessibility of information on
assets got by benefit conveyance units and substantial upgrades are required in this regard.
Bangladesh likewise evaluated C in 2006 and C+ in 2010 for quality and convenience of in-year
budget reports (PI-24) and for quality and auspiciousness of annual money related statements
(PI-25) got C and D+ in 2006 and 2010 separately (See Table-6.5). These discoveries show that
nature of accounting, recording and reporting is much lower in Bangladesh and necessities a
more prominent level of changes.

26 | P a g e
 Table-6.5: Assessment of accounting, recording and reporting indicators

PEFA Indicators Ratings

2006 2010
PI-22 Timeliness and regularity of accounts reconciliation C B
PI-23 Availability of information on resources received by service delivery units C C
PI-24 Quality, timeliness of in-year budget rep C D+
PI-25 Quality and timeliness of annual financial statements C D+
Source: GoB (2010), Bangladesh: Public Expenditure and Financial Accountability Assessment, Annex 2, p.73-74

6.7. External scrutiny and audit:

A high quality external audit is a key prerequisite for making transparency and
responsibility in the utilization of public assets. The extension, nature and follow-up of external
audit (PI-26) is evaluated D+ in both the assessments. Administrative security of annual budget
law (PI-27) and authoritative security of external audit reports (PI-28) got the rating D and C
individually in 2006 and enhanced a tad in 2010 (see Table-6.6). It demonstrates that the external
security and audit system are likewise poor in Bangladesh.

Table-6.6: Assessment of external security and audit indicators

PEFA Indicators Ratings

2006 2010
PI-26 Scope, nature, follow up of external audit D+ D+
PI-27 Legislative scrutiny of the annual budget law D D+
PI-28 Legislative scrutiny of ext. audit reports C D+
Source: GoB (2010), Bangladesh: Public Expenditure and Financial Accountability Assessment, Annex 2, p.74

6.8. Donor practices:

Coordinate budget support (both general budget support and part budget support) from
the donor agencies gives an essential wellspring of revenue for focal government in numerous
nations. Poor consistency of inflows of budget support influences the government's fiscal
management exercises similarly as the effect of external stuns on domestic revenue age. As per
the PEFA framework, indicator D-1 measures the consistency of direct budget support. The
indicator D-1 got the rating B in 2006 and declined to D+ in 2010 implies that consistency of
direct budget support is getting exacerbate in Bangladesh and still underneath the international
standard. Consistency of payment of donor support for ventures and projects influence the
execution of particular details in the annual budget. Indicator D-2 measures the degree to which

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the donors give budgetary information to budgeting and reporting on venture and program help.
Bangladesh got rating C in 2006 and B in 2010 on this indicator (D-2) implies that performance
is enhancing in this respects. Donor's arrangement with the beneficiary country‟s national
techniques is additionally a vital factor for help viability, since it supports the government's PFM
system. Indicator D-3 measures the extent of help oversaw by the utilization of national methods.
Indicator D-3 got the rating B in 2006 and D in 2010 (See Table-6.7) in Bangladesh implies that
donor arrangement with the nation system was great in 2006 however in 2010 it was
exceptionally poor and past the focused on level A.

Table-6.7: Assessment of donor practices indicators

PEFA Indicators Ratings

2006 2010
D-1 Predictability of Direct Budget Support B D+
D-2 Financial Information provided by Donors for budgeting and reporting on aid C B
D-3 Proportion of aid that is managed by use of national procedures B D
Source: GoB (2010), Bangladesh: Public Expenditure and Financial Accountability Assessment, Annex 2, p.74

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 CHAPTER – 7:

FINDINGS AND RECOMMENDATIONS

7.1. Findings:

Table-6.8 speaks to the summary results of all the 28 nation level PEFA indicators of
Bangladesh's PFM system and furthermore makes a comparison with the 57 countries normal
score on those indicators under 6 expansive measurements at the same time. PEFA scores are
changed over into numerical incentive as indicated by Paolo de Renzio‟s following
methodology:

PEFA Score A B+ B C+ C D+ D
Numerical Value 4 3.5 3 2.5 2 1.5 1

The summary result demonstrates that Bangladesh ranked B for just 2 of the indicators
among all the 28 indicators and C, D+ and D for rest of the indicators in 2006. The circumstance
was more awful in 2006 for the measurements credibility of the budget (average score 1.75),
budget comprehensiveness and transparency (average score 1.75), consistency and control in
budget execution (average score 1.83) and external security and audit (average score 1.50) in
Bangladesh since singular average score for these three measurements are lower than 2.00
(proportional to C). Be that as it may, in 2010, Bangladesh got rating B for 10 indicators which
demonstrates, she made a critical change in fiscal management contrasted with past evaluation.
In addition, the result likewise demonstrates that the average score of all the significant
measurements aside from external scrutiny and audit of Bangladesh got change in the evaluation
of 2010 than the appraisal of 2006.

The results on the comparison amongst Bangladesh and 57 countries of the world (for the
most part creating) on the PEFA indicator demonstrates that in 2010, Bangladesh's average score
on every one of the six measurements aside from policy based budgeting is lower than the 57
countries average score. The general average score of Bangladesh was 1.82 of every 2006
(generally proportionate to C) and 2.07 out of 2010 (generally equal to C). Both of which is
additionally essentially lower than the general score of 57 countries which is 2.33. Just a couple
of individual indicators scored higher than the 57 countries average in both the appraisal. In spite
of the fact that Bangladesh is enhancing her quality of PFM the confirmation unmistakably
demonstrates that quality of PFM in Bangladesh is lower than the average quality of PFM in 57
countries.

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 Table-7.1: Summary results by budget dimension and indicators and comparison
with 57 countries average score

Budget Dimension and Indicators Bangladesh Average

Ratings Num. Value Score
2006 2010 2006 2010
Credibility of the budget
PI-1 Aggregate expenditure out-turn compared to original approved budget C B 2 3 3.01
PI-2 Composition of expenditure out-turn compared to original approved budget C D+ 2 1.5 2.26
PI-3 Aggregate revenue out-turn compared to original approved budget C B 2 5 3.41
PI-4 Stock and monitoring of expenditure payment arrears D NS 1 -- 2.28
Average 1.75 1.88 2.74
Comprehensiveness and Transparency
PI-5 Classification of the budget C B 2 3 2.61
PI-6 Comprehensiveness of information included in budget documentation C B 2 3 2.84
PI-7 Extent of unreported government operations D B 1 3 2.67
PI-8 Transparency of inter-governmental fiscal relations D+ D 1.5 1 2.47
PI-9 Oversight of aggregate fiscal risk from other public sector entities C D+ 2 1.5 1.96
PI-10 Public access to key fiscal information C B 2 3 2.44
Average 1.75 2.42 2.50
Policy-Based Budgeting
PI-11 Orderliness and participation in the annual budget process B B 3 3 3.02
PI-12 Multi-year perspective in fiscal planning, expenditure policy and budgeting D+ B 1.5 3 1.96
Average 2.25 3.00 2.49
Predictability and Control in Budget Execution
PI-13 Transparency of taxpayer obligations and liabilities D+ C 1.5 2 2.77
PI-14 Effectiveness of measures for taxpayer registration and tax assessment D+ C 1.5 2 2.33
PI-15 Effectiveness in collection of tax payments D+ D+ 1.5 1.5 2.01
PI-16 Predictability in the availability of funds for commitment of expenditures C C+ 2 2.5 2.22
PI-17 Recording and management of cash balances, debt and guarantees C C+ 2 2.5 2.76
PI-18 Effectiveness of payroll controls C D+ 2 1.5 2.16
PI-19 Competition, value for money and controls in procurement B B 3 3 2.10
PI-20 Effectiveness of internal controls for non-salary expenditure C D+ 2 1.5 2.14
PI-21 Effectiveness of internal audit D D 1 1 1.63
Average 1.83 1.94 2.23
Accounting, Recording and Reporting
PI-22 Timeliness and regularity of accounts reconciliation C B 2 3 2.35
PI-23 Availability of information on resources received by service delivery units C D 2 1 1.79
PI-24 Quality and timeliness of in-year budget reports C C+ 2 2.5 2.47
PI-25 Quality and timeliness of annual financial statements C D+ 2 1.5 1.98
Average 2.00 2.00 2.15
External Scrutiny and Audit
PI-26 Scope, nature and follow-up of external audit D+ D+ 1.5 1.5 1.69
PI-27 Legislative scrutiny of the annual budget law D D+ 1 1.5 2.45
PI-28 Legislative scrutiny of external audit reports C D+ 2 1.5 1.56
Average 1.50 1.50 1.90
Overall Average 1.82 2.07 2.33
Source: GoB (2010), Paolo de Renzio (2009, ODI working paper no. 302) and author’s calculation.
* The average score on PEFA indicators of 57 countries is calculated by Paolo de Renzio in the ODI working paper no.
302 in 2009.

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 Table-7.2 speaks to the average score of Bangladesh on six budget measurements and its
comparison with East Asia and Pacific (EAP) countries, Sub-Saharan Africa (SSA) countries and
Low Income Countries (LICs). The result demonstrates that if there should arise an occurrence
of policy based budgeting and accounting, recording and reporting Bangladesh is improving the
situation than these three gatherings of countries. In any case, for different measurements
Bangladesh is doing very much contrasted with EAP, SSA and LICs. In the event of budget
credibility Bangladesh's performance is far from the EAP, SSA and LICs. The result additionally
demonstrates that general score of Bangladesh on six measurements in 2010 is not as much as
the general average score of EAP, SSA and LICs yet bit nearer to them.

Table-7.2: Summary results by budget dimension and comparison with

EAP, SSA and LICs countries average score
Budget Dimension and Indicators Bangladesh Average Score
2006 2010 EAP SSA LICs
Credibility of the budget 1.75 1.88 2.70 2.54 2.39
Comprehensiveness and Transparency 1.75 2.42 2.44 2.36 2.88
Policy-Based Budgeting 2.25 3.00 2.38 2.45 2.42
Predictability and Control in Budget Execution 1.83 1.94 1.96 2.08 1.97
Accounting, Recording and Reporting 2.00 2.00 1.76 1.96 1.95
External Scrutiny and Audit 1.50 1.50 1.54 1.97 1.75
Overall Average 1.82 2.07 2.13 2.23 2.13
Source: GoB (2010), Paolo de Renzio (2009, ODI working paper no. 302) and author’s calculation. * The average score on
PEFA indicators of EAP (8 countries), SSA (21 countries) and LICs is calculated by Paolo de Renzio in the ODI working
paper no. 302 in 2009.

7.2. Policy Actions that should be taken to Strengthen Fiscal Governance of Bangladesh:

Following policy actions should be taken for improving the quality of Fiscal Governance
of Bangladesh through improving Public Financial Management (PFM) System:

I) To build the credibility of the budget, government should –



 Get out from the inclination of over-programming the ADP in the original budget to
lessen the hole between actual essential expenditure and the budgeted essential
expenditure.
 Forecast the domestic revenue gathering in a more precise way considering the truth and
maintaining a strategic distance from the over-eager penchant, particularly for non-
impose revenue forecasting.
 Improve the observing of expenditure installment unfulfilled obligations and make a
dependable information source on expenditure installment back payments.

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II) For accomplishing budget comprehensiveness and more transparency government
should –

 Build another budget characterization structure which will be reliable with the
Classification of the Functions of Government (COFOG) meaning of the functions of the
government.
 Include all vital information in the budget documentation and endeavor to decrease
unreported government activities.
 Introduce standard accounting practices (SAP) for state-possessed endeavors and
independent government agencies to lessen the fiscal hazard from these public segment
elements.
 Make key fiscal information open to public.
III) To promote the policy-based budgeting government can take steps to –

 Enhance the interventions of line ministries in the budget build up process.

 Address to long-term perspective (Medium Term Budgetary Framework and PRSP
targets) in fiscal planning, expenditure policy and annual budgeting.

IV) For better consistency and control in budget execution government should –

 Strengthen the National Board of Revenue (NBR) both lawfully and institutionally to
make them more productive in gathering of tax payments and facilitate the tax payment
process for the citizens.
 Increase the proficiency of Economic Relation Division (ERD) and Bangladesh Bank in
recording and overseeing of money adjust, debt (external and domestic) and assurances.
 Make the public acquisition system more transparent and efficient.
 Strengthen the internal audit instrument with strategic supports.

V) For better accounting, recording and reporting, government should –

 Computerize the government accounting system at the upazila level for auspiciousness
and consistency of records compromise make the information more accessible on assets
got by the administration conveyance units.
 Produce accounting information on a timely premise and increment the quality and
auspiciousness of annual money related statements.

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VI) To enhance the external scrutiny and audit government should –


 Present the proposed annual budget to the Parliament not less than 45 days before begin
the fiscal year for better administrative scrutiny.
 Strengthen the public accounts committee (PAC) for better administrative scrutiny of
external audit reports.

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 CHAPTER – 8

CONCLUSIONS

A sound Fiscal Governance along with Public Financial Management (PFM) system is
fundamental for better administration that enables the government to accomplish the
macroeconomic manageability, formative goals and fiscal development. As a developing nation,
Bangladesh ought to likewise have a sound Fiscal Governance Framework to oversee
productively her fiscal discipline with a view to support the formative works. In any case, the
proof demonstrates that the quality of PFM in Bangladesh is genuinely low. Bangladesh‟s
average general score on every one of the indicators is 2.07 as indicated by the evaluation of
2010 which is much lower than the 57 countries general average score (2.33). Average score of
every one of the six noteworthy budget measurements in Bangladesh additionally lower than that
of 57 countries average (Table-6.9). In addition, among the 28 PEFA high-level performance
indicators (PI) to gauge the quality of PFM at the nation level, 3 indicators ranked „D‟, 9
indicators ranked „D+‟, 2 indicators ranked „C‟, 3 indicators ranked „C+‟ and 10 indicators
ranked „B‟ and no indicator ranked the highest positioning „A‟ in Bangladesh. A sum of 17
indicators ranked in the class of either „C‟ or „D‟ show that performance of those indicators are
low and needs a more prominent level of upgrades on those indicators. In this way, to enhance
the quality of PFM system of Bangladesh the government ought to explicitly distinguish the
components in charge of low performance of the PEFA indicators and take activities on those
elements to enhance the performance steadily. Government ought to likewise build up a detailed
activity anticipate raising a significant number of the „C‟ and „D‟ rating indicators to „B‟ rating.
Assist policy research can help the government of Bangladesh in this respect.

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 CHAPTER – 9

REFERENCES

[1] GoB, Bangladesh Economic Review 2008, Ministry of Finance, Dhaka, Bangladesh, 2009.
http://www.mof.gov.bd/en/index.php?option=com_content&view=article&id=71&Itemid=1, last
consulted: February 28, 2010.

[2] GoB, Bangladesh Economic Review 2014, Ministry of Finance, Dhaka, Bangladesh, 2014.
http://www.mof.gov.bd/en/index.php?option=com_content&view=article&id=304&Itemid=1,
last consulted: June 04, 2015.

[3] GoB, Bangladesh: Public Expenditure and Financial Accountability Assessment,

Government of Bangladesh and SPEMP, Dhaka, Bangladesh, (2010).
http://www.pefa.org/en/assessment/bd-dec10-pfmpr-public-en , last consulted: June 02, 2015.

[4] Government of Albania and the World Bank, Albania: Public Expenditure and Financial
Accountability (PEFA) Public Financial Management Assessment, Washington DC, USA, 2006.
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[5] Government of the Punjab, the World Bank Group, EC, DFID, ADB, and Pakistan Punjab
Province: Public Financial Management and Accountability Assessment, Washington, DC:
PEFA Secretariat, 2007. http://www.pefa.org/assesment_reportmn.php , Last Consulted:
February 24, 2010.

[6] OECD-DAC, 2006 Survey on Monitoring the Paris declaration: Country Chapter-
Bangladesh, Paris, France, 2007.

[7] PEFA, Public Financial Management Performance Measurement Framework, Washington,

DC: PEFA Secretariat, 2011. (http://www.pefa.org/sites/pefa.org/files/attachments/PMFEng-
finalSZreprint04-12_1.pdf)

[8] PEFA, Public Financial Management Performance Measurement Framework, Washington,

DC: PEFA Secretariat, 2005.

[9] P. de Renzio, Taking Stock: What do PEFA Assessments tell us about PFM systems across
countries?, Working Paper No. 302, ODI, London, UK, 2009.

[10] P. de Renzio, and W. Dorotinsky, Tracking Progress in the Quality of PFM Systems in
HIPCs., Washington, DC: PEFA Secretariat, 2007.

[11] World Bank, “Bangladesh Country Assistance Strategy 2006-2009”, Washington DC, USA,
2006.http://siteresources.worldbank.org/BANGLADESHEXTN/Resources/CAS_MAIN_BOOK
_FINAL.pdf

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