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The
introduction of the MTBF
marked a new era in
Bangladesh
’s PFM reforms.
Recognizing the limitations
of an annual, input-oriented
and fragmented process, the
government introduced a
three-year MTBF with the
FY05-06 budget in four pilot
line ministries.26 The MTBF
was subsequently rolled out
to 20 key line ministries
(in FY09-10) covering over
53 percent of total budget
expenditure and 86 percent
of the ADP.27 However, it is
still too early for the MTBF
to have had a measurable
impact on budget outcomes.
Strengthening
the management role and
flexibility of the line
ministries in budgeting
remains a priority to
improve budget performance.
The MTBF approach is
encouraging ministries to
plan their programs for the
medium term, thus giving
them a greater voice and
decision making power in how
resources are allocated. At
the same time it has placed
new demands on them with
regard to budget planning
and management. It will be
important to ensure that the
necessary institutional
framework and incentives are
in place to sustain the
engagement of the line
ministries in the MTBF
process. Some of the key
reforms in this context
include the need to remedy
inconsistencies between the
procurement cycle and the
budget cycle, computerize
Treasury and Accounting
transactions and, in the
longer-term, delegate
additional financial powers
to the line ministries that
meet benchmark PFM standards
(with the aim of moving from
ex-ante
controls
towards accountability
backed up by strengthened ex-post
inspection
and audit).
Bangladesh
lags other countries of its
size and per capita income
in aggregate expenditure and
revenue measures of fiscal
decentralization.
Sub-national expenditures as
a percentage of total
consolidated government
expenditures are estimated
to be in the range of 3-4
percent. On the revenue
side, most major tax bases
remain under the control of
the central government and
while own-source revenue
potential varies vertically
across the different levels
as well as horizontally
across different entities at
each level, less than 2
percent of total government
revenue is collected at
sub-national levels, again
placing
Bangladesh
at the lowest end
internationally. Besides the
restricted revenue base,
revenue collection is
undermined by weak municipal
and local government tax
administration.
Consequently, transfers from
the central government are
the main source of financing
for many local governments.
Reforms
of local government
institutions and
intergovernmental fiscal
relations can be critical to
supporting more effective
and efficient public
spending in
Bangladesh
.
The government has
maintained fiscal prudence
and expanded services in a
number of sectors, including
education and health and
more recently rural roads.
The challenge now is to
improve quality and
efficiency in service
provision, which is more
difficult to achieve in the
centralized framework.
Greater devolution of
government would offer
significant advantages by
enhancing the quality of
local public service
delivery, encouraging local
resource mobilization, and
allowing greater local voice
in public service decisions.
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