Chronic underutilization of ADP
Wednesday, 2 December 2009
It is about time we all got a bit realistic about how much the government machinery can actually spend on development programmes and what resources can be mobilized to finance that spending. What has been happening for the past decade or more is bordering on the absurd. Year after year we are fed with a lofty number that is described as the economy's planned development expenditure -- the Annual Development Programme or ADP. With as much frequency we find the actual spending fall far short of planned -- by as much as 35% in the fiscal year (FY)07. By now, it has become as certain as sunrise and sunset that the ADP number we see at budget time will never be spent.
We hear bureaucrats and policymakers blame each other for the malaise. Most recently, much of the blame has rested on the shoulders of the Anti-Corruption Commission and the Public Procurement Act. We can play the blame game or get real. Let us look at the facts. Only once in the last twenty years was the ADP fully utilized -- 100% in the FY2000. Every year since then, the shortfall in utilization has been in excess of 15%. True, resource mobilization has always been a challenge in this country where taxpayers are so few relative to the income earning population. But that is hardly the problem when one looks at the fact that budget deficits have remained steady at 3-4 percent of GDP and its financing has also been pretty much under control, with prudent levels of domestic and foreign financing.
Then where lies the problem? It lies in what might be aptly described as "incremental budgeting". Planned expenditures in any year must be greater than that of the previous year. As such one can see that every year since FY2000, ADP size has been increasing by at least 10% every year despite the fact that the previous year's ADP was grossly under-utilized. Perhaps there is some political weight attached to the size of ADP. And the principle that is being adhered to runs something like this: the political cost of planning too little is much more than planning too much. Hence the practice takes a life of its own.
What is surprising is that even a non-political government like the caretaker government could not be immune to such over-planning of expenditures. In FY07, only 65% of the 260 billion Taka ADP or Taka 172 billion was actually spent. Yet the FY08 ADP was estimated at Taka 265 billion - a whopping 54% higher than actual spending in the previous year. At the close of FY08, only 70% or Taka 184 billion was actually spent, that is, only 7% more than actual ADP spending of the previous year. In keeping with tradition, and mixing that with some political bravado, current year's ADP has been planned at over 50% above the actual ADP spending (Taka 196 billion) of last year. Reports show that only 10% of that massive amount has been spent in the first five months of the current fiscal year. With government machinery what it is, for all the verbal whiplashing that might be forthcoming, it will not be too far-fetched to guess at the predictable outcome of gross underutilization.
The irony is that, if the tradition of "incremental budgeting" continues, based on planned rather than actual ADP spending, the yawning gap between planned and actual ADP will persist to the point of becoming irrational. Instead, it is time to make a break with the past and plan a size of ADP next year that is "incremental" but related to actual ADP utilization. That will be more realistic than the dream ADP that is given to the public year in and year out.
We hear bureaucrats and policymakers blame each other for the malaise. Most recently, much of the blame has rested on the shoulders of the Anti-Corruption Commission and the Public Procurement Act. We can play the blame game or get real. Let us look at the facts. Only once in the last twenty years was the ADP fully utilized -- 100% in the FY2000. Every year since then, the shortfall in utilization has been in excess of 15%. True, resource mobilization has always been a challenge in this country where taxpayers are so few relative to the income earning population. But that is hardly the problem when one looks at the fact that budget deficits have remained steady at 3-4 percent of GDP and its financing has also been pretty much under control, with prudent levels of domestic and foreign financing.
Then where lies the problem? It lies in what might be aptly described as "incremental budgeting". Planned expenditures in any year must be greater than that of the previous year. As such one can see that every year since FY2000, ADP size has been increasing by at least 10% every year despite the fact that the previous year's ADP was grossly under-utilized. Perhaps there is some political weight attached to the size of ADP. And the principle that is being adhered to runs something like this: the political cost of planning too little is much more than planning too much. Hence the practice takes a life of its own.
What is surprising is that even a non-political government like the caretaker government could not be immune to such over-planning of expenditures. In FY07, only 65% of the 260 billion Taka ADP or Taka 172 billion was actually spent. Yet the FY08 ADP was estimated at Taka 265 billion - a whopping 54% higher than actual spending in the previous year. At the close of FY08, only 70% or Taka 184 billion was actually spent, that is, only 7% more than actual ADP spending of the previous year. In keeping with tradition, and mixing that with some political bravado, current year's ADP has been planned at over 50% above the actual ADP spending (Taka 196 billion) of last year. Reports show that only 10% of that massive amount has been spent in the first five months of the current fiscal year. With government machinery what it is, for all the verbal whiplashing that might be forthcoming, it will not be too far-fetched to guess at the predictable outcome of gross underutilization.
The irony is that, if the tradition of "incremental budgeting" continues, based on planned rather than actual ADP spending, the yawning gap between planned and actual ADP will persist to the point of becoming irrational. Instead, it is time to make a break with the past and plan a size of ADP next year that is "incremental" but related to actual ADP utilization. That will be more realistic than the dream ADP that is given to the public year in and year out.