Dr. Binayak Sen is a Research Director at the Bangladesh
Institute of Development Studies (BIDS). He was lead consultant in the
preparation of I-PRSP for Bangladesh and also a Member of the Public
Expenditure Review Commission. His main areas of work cover growth,
poverty, inequality, labour and governance issues. Here, he talks on the
upcoming ADP with A.B.M. Shamsud Doza and Zaheen Zaema Khan of The
Daily Star.

The Daily Star (DS): Government has
allocated Tk. 55,000 crore for the ADP of fiscal 2012-13. How do you
evaluate the upcoming ADP compared with the performance of the current
ADP?

Binayak Sen (BS): The low inflow of foreign
aid this year and rising fuel prices in the international market are
reasons for the current macroeconomic instability. Both are external. We
need to convince the donors so that we can get aid for our development
budget. That needs political skill and robust economic diplomacy. We
need to understand the psychology of the donors. In our economic reality
we cannot avoid foreign assistance, at least for now. China also
applied for IDA even as late as 1995!

ADP implementation requires
foreign currency. It also needs access to concessional source of
finance. We are not getting it. For example, we have deficit financing
of 5% of GDP, of which 2% is financed through foreign aid, and the rest
3% comes from domestic borrowing. In this fiscal year we had shortfall
on account of the former, and hence we had to rely heavily on domestic
borrowing. That has created problems in ADP financing. Our ADP
implementation is now critically dependent on the availability of
foreign assistance. In 2007-08 a similar situation prevailed. The prices
of food, fuel and energy were rising in the international market and
the government was constrained fiscally. During that time, major donor
agencies provided at least 3 major budget-support loans, which helped to
ease our problems in ADP financing and also in meeting stresses that
built up on balance of payment. Unfortunately, this did not happen in
2011-12, and it may not happen in 2012-13 either. This is the time to
recognise fiscal realism as a virtue of good rule. I am trying to draw
attention to this aspect of governance so that the government can start
addressing the trust deficit between the major donors and the
government, between the West and Bangladesh, or at least stop creating
new tensions or re-igniting old sore points.

DS: In the
next ADP the total number of projects is 1037, of which 1002 is a
backlog from the current ADP of 2011-12. It seems that the ADP is
burdened with projects while the implementation is poor. What is your
view on that?

BS: The quantity of the projects
is also a problem in ADP implantation. There are projects that do not
have adequate financing. Some are even "token projects" with symbolic
allocations of funds, waiting to be funded in some near or distant
future. My proposal is to rank the projects in order of priority.
Priority should be given to ADP projects that were started but not yet
finished. In any case, the whole process of ADP project selection needs
to be reformed. It should not be just limited to the judgment of the
sectoral ministry. There should be broader consultation, with
participation from specialists and civil society representatives on the
relevance of a particular ADP project, especially if it is a major
project in terms of size and impact.

By March, 2012 only 50-60%
resources under ADP were implemented, and the rest will be spent
hurriedly by June. This has been the feature for the last two decades.
It is very difficult to monitor the implementation from "one centre" in a
country with 160 million people. The former Soviet Union failed to
manage its economy from "one centre."

Our economy demands fiscal
decentralisation because of our enormous population (population-wise it
is ranked 7th in the CIA World Fact Book). Hence, for the speedy
implementation of the development budget, at least 10-15% of ADP
resources should be earmarked to go directly to the local governments as
conditional matching grant. The condition is that local bodies will be
given 80% of the local development budget from the centre if they agree
to generate at least 20% of that. This is practiced routinely in most
developed countries as well in some of the South Asian countries,
especially in the Indian state of Kerala where one-third of the budget
goes directly to the local governments. The Union Parishads and
Pourasavas will be able to make their own ADP according to their local
needs. The local physical infrastructures that are not covered by either
LGED or Roads and Highways Department can be covered under the local
ADP. The ADP budget is inadequate for large number of Union Parishads
and Pourasabhas.

There has been some positive experience in
Bangladesh in supporting local governments through innovative projects
like Local Government Support Project (LGSP); but such projects need to
be scaled up across the country with adequate fiscal empowerment,
especially with regard to local-level revenue mobilisation. But, for
that, we need to reform also a few taxation codes so that the local
governments have the legal entitlements to raise local revenues.

DS:
In the next ADP, Tk. 33,500 crore of the total allocation is projected
to come from domestic resources and Tk. 21,500 crore will come from
external resources. Do you think the share of external resources is
realistic given the non-availability of external assistance in the
current fiscal year following World Bank's suspension of funding over
corruption allegations?

BS: It is not
unrealistic, and this I say even after the dismal Padma Bridge affair.
But, the government needs to apply more efforts so that all the issues
could be settled in a congenial way and without further delay. That is
the national priority. I have two points to make. First, the economy
should dictate the terms of politics and the nature of our external
diplomacy. Economics is the concentrated expression of politics. Even
for China, good relationship with World Bank is vital. Considerable
efforts are needed here because the domestic resource for financing the
ADP will not be enough. Tax collection has increased, but there is a
long way to go before we can say that we are self-reliant fiscally. This
we realise even more in times of economic slump, which is now happening
again worldwide.

Secondly, we cannot rely too much on domestic
borrowings because we have already built up considerable internal debt
on account of interest payment on government loans from domestic
sources. This has become a large component of our revenue budget
already. Hence, we cannot go for domestic borrowing infinitely. Besides,
there are other implications of this mode of domestic financing for the
private sector borrowers.

Finally, the amount of external
resource that we currently receive is within our "resource absorption
capacity," i.e. fiscally realistic, but steps must betaken, especially
on government's compliance standards, so that the concerns of the donors
are met.

In defence of the current government I would say that
sometimes the donors give too much weight to anti-corruption measures
than to pro-human rights and democracy measures. In 2007-08, the donors
did not pay much attention to the violation of human rights that was
taking place then, or that the democracy standard was not always upheld
during that period. I always had a debate on this. My point is that
anti-corruption, human rights and quality of democracy should be given
equal weight in judging a borrowing country's performance standard. I
also maintain that these measures of good life and decent liberal
democratic society should not be traded against one another.

My
point is that Bangladesh is still maintaining a decent though different
democracy, and that it has not derailed to autocracy or to any military
driven development, so some positive credit and some pro-active support
by way of aid and other economic advantages need to be given to
Bangladesh, at least for upholding the standard of liberal democracy.
Even on the human rights performance -- although the current situation
is getting increasingly murkier -- I would argue that it is still better
than it would have been under autocracy, and that may also be taken
into account. Bangladesh has a negative image in relation to corruption,
but corruption cannot be discussed without discoursing on largely
corruption-driven income inequality concerns, and I agree that this
needs to be addressed.

DS: In this ADP, among the 17
development sectors, the power sector gets highest fund followed by
communication, education and religion, and rural development and rural
institutions in terms of priority. Do you think the prioritisation is
reasonable?

BS: I think these are broadly in
right direction. As I said, whatever is half-done needs to be fully
completed, whether it relates to power sector or to communication. But
this applies only in the case of the major ones. One of the key sources
of ADP corruption is the small infrastructural road projects, which
often tend to be undertaken from political consideration. For instance,
some road projects in the ADP may be included because of the requests of
the local members of parliament: such projects may not have any
national or regional significance so we need to be cautious about it,
and strike a balance between what is needed from the national point of
view and what is being motivated from a political point of view. This is
the last full budget before the next election, and there will be
obvious political pressures for undertaking projects from local or
national political exigencies. Normally, those projects tend to be of
lower quality and need to be discouraged. The ministry of finance is
also aware of this and that may the reason why many of those projects
have been included under the ADP, but they have not been allocated
resources or at most given only token resources "on the book." This may
reduce the political influence on the infrastructural and other projects
in the ADP.

DS: It seems that the government
formulated the ADP eyeing the next elections. Do you think that
political consideration has got priority over economic consideration?

BS:
I don't think that was the major driving force. In the last three to
four years' ADP budget economic consideration drove the ADP selection
process and not the usual political consideration. However, in this
year's budget, we apprehend there will be strong political pressure, and
some quarters might want to see ADP being flushed by politically
"imagined" projects, especially by national or local political
functionaries and their cronies. On the whole, I don't think that the
ADP is motivated by political consideration, simply because, if you look
at how the public expenditure-GDP ratio has increased over the last
several years, you'll see that there has been only a gradual increase,
i.e. there has not been any dramatic increase which would have suggested
that there is a spending spree on the part of the incumbent government
and spending spree always helps the political contractor. I don't think,
in an analysis of the fiscal expenditure of twenty years, we will find
any trend towards fiscal profligacy: the budget deficit was always
maintained within the parameter of 5-6%. The inflation rate, until
recently, was maintained in the range of 5-7% and the growth was
accelerating gradually by half percentage point every five years. I
think that has been the record for the last twenty years.

I feel
that the ministry of finance and the Bangladesh Bank are more or less
insulated from political cronyism. But, there have been disturbing
instances of undue influence of politically powerful business groups
during successive regimes. For instance, due to pressure of such groups,
the government waived all taxes on the profits earned by individuals
who had invested in the secondary share market. This year, there is
pressure by the big propertied class to remove the provision of
"property tax" (imposed in the form of additional 10% surcharge on taxes
paid by people owning properties exceeding Tk. 2 crores). There are
also implicit financial concessions given to large-scale
borrowers/defaulters who pay very little by way of "cash payment" and
get away with periodic "rescheduling" of their overdue loans. Those
powerful actors who profited from the share market scam of 2010 have not
been pursued by the government following the preliminary report on the
same by the Ibrahim Khaled Committee. New banks are being allowed to
open at a time when the existing banks are suffering from liquidity
shortage. These banks are not necessarily bringing any new financial
products to the market, say, by addressing the needs of the SMEs and/or
addressing any missing social segments not serviced by the existing
banks. I am told that the ministry of finance and the Bangladesh Bank
are currently under tremendous pressure from politically influential
lobbies to allow a few more new banks in the private sector. People with
political affiliations with the ruling party have been made "directors"
of the nationalised commercial banks (NCBs). That this has been the
case in the successive regimes since 1991 does not justify such a
decision. NCBs should be run mainly by professional bankers. Why can't
these NCBs get out of the mess of "sick industry" loans and "classified"
loans? What happened to the proceeds of privatisation from units that
were privatised two decades ago? Why is there no policy talk about
privatisation of state-owned enterprises anymore? Is there a chairman of
the Privatisation Commission at present? Has one been appointed? In Din
Bodoler Pala I think the government said that to reduce losses of the
public enterprises many of them will be privatised and divested. What
has happened to the mission of privatisation? Why is nobody talking
about whether there has been any progress in this respect? These are
examples of many unanswered questions. Even the World Bank does not talk
about debt default and privatisation anymore. In those areas I find
that the progress has been much less than satisfactory.

But this
is not all. Not only could we not reform the bad economic institutions,
we also managed to undermine the good economic institutions. Thus, a few
economic institutions of excellence with sound financial health, proven
track record and global recognition have to face unreasonable and
unfair interference "from above" -- probing through committees,
commissions or otherwise, which are perceived widely as being
politically motivated -- as in the recent probe into Grameen Bank and
its subsidiary companies! The unfortunate part of these investigations
is not the tension that often persists between the state and the NGOs.
It is not about institutional rivalry about the command over service
delivery. It is taking the form of an apparent crusade by the state
machinery to undermine the fame and the moral authority of Professor
Muhammad Yunus.

Our world's greatest misery is often caused not
by the fight between good and evil, but marked by the fight that takes
place between two key players on the same side. By that, I mean the
liberal-democratic side that took part in the struggle for our
independence and for its subsequent development. It is one of the most
unfortunate events that I have witnessed in my professional life as an
economist.

DS: In the next ADP, 10 projects
have been included under PPP though the government has failed to
utilise a single penny from the Tk. 3000 crore of the current fiscal so
far. What do you say about this?

BS: We need to
find out whether these PPP projects did not happen because of lack of
interest on the part of private sector or because of the macroeconomic
stabilisation concern that the government could not allocate enough
resources to play its own part in order to support these PPP projects.
We need to find out the real causes. Is it the lack of interest on the
part of foreign or domestic private sectors in those projects? Since
there are ten projects of Tk. 3000 crore, which means Tk 300 crore on
average, that makes them big projects. We need to know what the main
cause is behind non-implementation of each of these big PPP projects.

DS: Our ADP implementation rate is poor. This time
the Planning Commission has taken initiative to form a body to monitor
ADP implementation. How do you evaluate this move? How can we do better
in implementation of the ADP?

BS: I have heard
about it and the finance minister has been saying that there have been
certain institutional changes in this regard, but we need to find out
more about what actually took place. I was a member of the Public
Expenditure Review Commission in 2001-03, which was led by Mr.
Hafizuddin Khan. I recall that we made a number of suggestions with
regard to institutional monitoring of major ADP projects. For example,
we suggested new institutional mechanism -- an improved process for the
selection of ADP projects (especially exceeding certain size thresholds)
and also how they need to be implemented and monitored. For that, there
has to be a civil society, government and academic partnership
programme so that these project implementations (especially for large
projects) can be monitored. In India, for instance, in the last fiscal
year they created an Independent Evaluation Office outside the orbit of
their planning commission to monitor a selection of major central
government projects every year. The idea is that the Planning Commission
needs to be supplemented by evaluation office that would run very much
like the evaluation offices in international agencies such as World Bank
or ADB.

Our own version of IMED in the Planning Commission is
not up to this task for a variety of reasons (it is actually used as a
dumping ground for the civil servants; the IMED has been provided with
very little incentives and resources, and is also deficient in
evaluative skills). I strongly suggested earlier that a similar office
as in India needs to be created here as well. In fact, we could go
further than that.

There is a need to have an independent
evaluation commission -- similar to Human Rights Commission and
Information Commission -- which would be a permanent set-up for
monitoring the implementation of ADP projects and testing the rationale
for a particular ADP project in consultation with specialists, media and
the civil society. It will perform a very important role in ensuring
the quality of ADP projects and can be chaired by a fiercely independent
minded person, as should be case with other commissions. Such an
institutional body can perform very important development functions.
Unfortunately, as I said earlier, reform has become an ugly word for the
present government, which has apparently lost its appetite for
institutional reforms. So, even though my proposal may carry economic
rationale, it is likely not to be accepted. As Paul Krugman once put it,
we are actually passing through an "age of diminished expectations."