Looking towards meeting needs for balancing investment allocations
Tuesday, 14 December 2010
Bangladesh is one of the few countries in the world that has all modes of transport serving the needs of its economy and people with very little integration among them. It has a vast network of highways and rural roads, a railway system, inland waterways, two seaports, maritime shipping and civil aviation and a national airliner. The economic expansion and social development witnessed in Bangladesh since independence was accompanied by a rapid growth in transport demand, which grew at 9.0 per cent per year. Much of this growth was met by road transport, which has emerged as the dominant mode of transportation over the years.
Transport sector policy in Bangladesh aims to provide safe and dependable transport services to the population. The policy is designed to play an important role in helping to reduce the transport costs of goods for export and keeping them competitive in the world market. A multimodal transport policy has been prepared that introduces the notion of an integrated system, combining rail, road and water transport.
Continued public investments in the road sector have established one of the most extensive road networks in a developing country. The road network has expanded by an additional 50,000 kms since 2001 and now covers some 271,000kms. Bangladesh has developed major road corridors connecting Dhaka with key economic centers and towns, and a network of village roads connecting communities to market centers and the main road. New bridges connect communities with road transport, as well as integrate whole regions, including the multipurpose Jamuna Bridge that provides uninterrupted east-west road and rail connection in Bangladesh. This extensive network surpasses other countries in South Asia in total road density.
Notwithstanding the massive expansion of transport infrastructure since independence, the services provided to users have not kept up with the demand in terms of quality and safety. The quality of the road network is poor, as roads are often too narrow for the traffic they carry. Only about 40 per cent of main roads (the national and regional highways and the Zila roads) are in good condition, and the situation of rural roads is not very different. Congestion, overloading, air pollution, and safety are major problems.
The role of the Bangladesh Railway in the economy has been limited and is declining due to sector governance challenges and inadequate resource allocation. The inland water transport system has not been used to its full potential, partly due to inadequate dredging of the waterways and lack of berthing facilities
Despite recent improvements (for example in the vessel turnaround times), the poor quality of Chittagong port services (the main port in the country), the associated land transport system (road and rail connection to the port), and the inland connections (mostly dominated by the trucking industry) have been a major barrier to trade.
Public finances have played and continue to play a major role in the transport sector and its outcomes. Accounting for about one-tenth of total government expenditures and the largest component of the Annual Development Programme (ADP), transport spending declined slightly during 2000-2007. As a share of national income, however, it remained constant at around 2.0 per cent of gross domestic product (GDP). Nevertheless, national incomes increased by almost 50 per cent during this period and transport expenditures also increased in real terms.
The largest share of transport spending was used on investments (about 69 per cent) in new roads at the expense of essential rehabilitation and maintenance to improve existing road conditions and safety, which accounted for only 31 per cent. While the transport investment (ADP) allocation is large compared to other sectors, it appears to be below what is required to achieve sustainable economic growth. The Tk.62 billion investment in 2006/07 represented 1.40 per cent of GDP.
Normally, developing countries with a satisfactory GDP growth rate invest 2.5-3.0 per cent of GDP in transport. In South Asia, in order to sustain a GDP growth rate of 6.5 per cent, investment in sealing roads alone is estimated to require 2.0 per cent of GDP.
Despite recognizing the need for a more balanced approach to development of the transport sub-sectors, the government's expenditure policy continued to favor the construction of new roads during FY2003-07. This was especially the case in rural areas with rural roads accounting for about 45 per cent of total transport sector investments (ADP). This was followed by roads and highways managed by the Roads and Highways Department (RHD) with 38 per cent, which means that the road sector accounted for 83 per cent of the total transport investment (ADP) allocation during the period.
Railways received about 12 per cent, while inland water transport and civil aviation each received only 2 per cent each.
This public expenditure policy that emphasizes the road sector is not consistent with the government's recent policy pronouncements to provide a more balanced development of the transport system. Despite the 2004 National Land Transport Policy that recommended increased investment in rail, the road sector continues to receive the lion's share. The allocation of transport ADP funds to rural roads also increased faster during the FY2003-07 period, while allocation for rail remained constant and increased only marginally in 2007.
At the same time, funding for road maintenance, especially for highways, has remained substantially inadequate, resulting in major deterioration of the highway network. One-third of the national highway network is in poor or very poor condition, and the situation is much worse for regional and Zila roads, with 54 per cent and 79 per cent respectively in poor or very poor condition.
The relatively weak quality of the investment portfolio in transport further highlights the inefficiency of public expenditure policy. Limited resources combined with an inadequate forward planning process lead to significant delays in the implementation of the sector budget.
The pressure to include too many projects results in resources being spread thin in small annual allocations per project, and in long delays in project completion. On average, for instance, Roads & Highways Division (RHD) projects take six years and the range is from one year to 21 years. In the highway sector, the RHD has 131 projects on its books as of fiscal year (FY07), with an average completion time of seven years compared to an average of two years for international practice.
While the degree to which different subsectors are able to spend these resources varies, the overall trend is one of underspending, which points to serious institutional capacity weaknesses in implementing projects. Furthermore, political influences also play a role in resource allocation, distorting priorities and contributing to inefficiencies.
While the need for investments in transport remains large, foreign financing to the sector has fallen. Weak implementation capacity and related governance issues are perceived to play a major role in the decline of foreign aid. In 1998, almost half the ADP came from foreign aid, while by 2007 the share had declined to 25 per cent. In absolute terms, the total ADP allocation more than doubled between 1998 and 2007, while foreign aid fluctuated during the period. Foreign aid increased during FY00-04, but declined after FY05 as a result of donors reducing or ending their assistance and is currently at the level it was in 1998.
Cost recovery systems, an important financing instrument for the sector, remain weak. Users of public transport infrastructure and services cover only a minor part of the cost of operating and maintaining the transport system through fares and fees. Road user payments cover less than one-fifth (less than 20 per cent) of the cost of maintaining the road system. In addition, the cost recovery system for road use is wrongly structured. All fees and charges are fixed annual values and do not depend on the actual use of the roads. This creates a perverse incentive for users to use the roads more than they would if there were a variable charge. A proposal for establishing a fuel levy is being considered by the government. The situation in the Bangladesh Railways is similar with users covering about 42 per cent of the operating costs.
Going forward the government needs to balance its investment allocations in the transport sector and increase funding to meet maintenance requirements. Achievement of these objectives from a technical perspective will require:
l a more effective budget management system, which is informed by performance and expenditure analysis;
l strengthening cost-recovery systems in all modes of transport;
l refocusing the role of the public sector to support maintenance for better quality and safety of the transport to improve the regulatory framework, avoid fragmentation and strengthen enforcement standards; and
l re-orienting and modernizing the transport sector agencies to promote a well-coordinated and integrated transport system.
..................................................
Courtesy: Bangladesh Public Expenditure and Institutional Review, Towards a Better Quality of Public Expenditure, a report prepared recently by Poverty Reduction and Economic Management Sector Unit, South Asia Region, World Bank
Transport sector policy in Bangladesh aims to provide safe and dependable transport services to the population. The policy is designed to play an important role in helping to reduce the transport costs of goods for export and keeping them competitive in the world market. A multimodal transport policy has been prepared that introduces the notion of an integrated system, combining rail, road and water transport.
Continued public investments in the road sector have established one of the most extensive road networks in a developing country. The road network has expanded by an additional 50,000 kms since 2001 and now covers some 271,000kms. Bangladesh has developed major road corridors connecting Dhaka with key economic centers and towns, and a network of village roads connecting communities to market centers and the main road. New bridges connect communities with road transport, as well as integrate whole regions, including the multipurpose Jamuna Bridge that provides uninterrupted east-west road and rail connection in Bangladesh. This extensive network surpasses other countries in South Asia in total road density.
Notwithstanding the massive expansion of transport infrastructure since independence, the services provided to users have not kept up with the demand in terms of quality and safety. The quality of the road network is poor, as roads are often too narrow for the traffic they carry. Only about 40 per cent of main roads (the national and regional highways and the Zila roads) are in good condition, and the situation of rural roads is not very different. Congestion, overloading, air pollution, and safety are major problems.
The role of the Bangladesh Railway in the economy has been limited and is declining due to sector governance challenges and inadequate resource allocation. The inland water transport system has not been used to its full potential, partly due to inadequate dredging of the waterways and lack of berthing facilities
Despite recent improvements (for example in the vessel turnaround times), the poor quality of Chittagong port services (the main port in the country), the associated land transport system (road and rail connection to the port), and the inland connections (mostly dominated by the trucking industry) have been a major barrier to trade.
Public finances have played and continue to play a major role in the transport sector and its outcomes. Accounting for about one-tenth of total government expenditures and the largest component of the Annual Development Programme (ADP), transport spending declined slightly during 2000-2007. As a share of national income, however, it remained constant at around 2.0 per cent of gross domestic product (GDP). Nevertheless, national incomes increased by almost 50 per cent during this period and transport expenditures also increased in real terms.
The largest share of transport spending was used on investments (about 69 per cent) in new roads at the expense of essential rehabilitation and maintenance to improve existing road conditions and safety, which accounted for only 31 per cent. While the transport investment (ADP) allocation is large compared to other sectors, it appears to be below what is required to achieve sustainable economic growth. The Tk.62 billion investment in 2006/07 represented 1.40 per cent of GDP.
Normally, developing countries with a satisfactory GDP growth rate invest 2.5-3.0 per cent of GDP in transport. In South Asia, in order to sustain a GDP growth rate of 6.5 per cent, investment in sealing roads alone is estimated to require 2.0 per cent of GDP.
Despite recognizing the need for a more balanced approach to development of the transport sub-sectors, the government's expenditure policy continued to favor the construction of new roads during FY2003-07. This was especially the case in rural areas with rural roads accounting for about 45 per cent of total transport sector investments (ADP). This was followed by roads and highways managed by the Roads and Highways Department (RHD) with 38 per cent, which means that the road sector accounted for 83 per cent of the total transport investment (ADP) allocation during the period.
Railways received about 12 per cent, while inland water transport and civil aviation each received only 2 per cent each.
This public expenditure policy that emphasizes the road sector is not consistent with the government's recent policy pronouncements to provide a more balanced development of the transport system. Despite the 2004 National Land Transport Policy that recommended increased investment in rail, the road sector continues to receive the lion's share. The allocation of transport ADP funds to rural roads also increased faster during the FY2003-07 period, while allocation for rail remained constant and increased only marginally in 2007.
At the same time, funding for road maintenance, especially for highways, has remained substantially inadequate, resulting in major deterioration of the highway network. One-third of the national highway network is in poor or very poor condition, and the situation is much worse for regional and Zila roads, with 54 per cent and 79 per cent respectively in poor or very poor condition.
The relatively weak quality of the investment portfolio in transport further highlights the inefficiency of public expenditure policy. Limited resources combined with an inadequate forward planning process lead to significant delays in the implementation of the sector budget.
The pressure to include too many projects results in resources being spread thin in small annual allocations per project, and in long delays in project completion. On average, for instance, Roads & Highways Division (RHD) projects take six years and the range is from one year to 21 years. In the highway sector, the RHD has 131 projects on its books as of fiscal year (FY07), with an average completion time of seven years compared to an average of two years for international practice.
While the degree to which different subsectors are able to spend these resources varies, the overall trend is one of underspending, which points to serious institutional capacity weaknesses in implementing projects. Furthermore, political influences also play a role in resource allocation, distorting priorities and contributing to inefficiencies.
While the need for investments in transport remains large, foreign financing to the sector has fallen. Weak implementation capacity and related governance issues are perceived to play a major role in the decline of foreign aid. In 1998, almost half the ADP came from foreign aid, while by 2007 the share had declined to 25 per cent. In absolute terms, the total ADP allocation more than doubled between 1998 and 2007, while foreign aid fluctuated during the period. Foreign aid increased during FY00-04, but declined after FY05 as a result of donors reducing or ending their assistance and is currently at the level it was in 1998.
Cost recovery systems, an important financing instrument for the sector, remain weak. Users of public transport infrastructure and services cover only a minor part of the cost of operating and maintaining the transport system through fares and fees. Road user payments cover less than one-fifth (less than 20 per cent) of the cost of maintaining the road system. In addition, the cost recovery system for road use is wrongly structured. All fees and charges are fixed annual values and do not depend on the actual use of the roads. This creates a perverse incentive for users to use the roads more than they would if there were a variable charge. A proposal for establishing a fuel levy is being considered by the government. The situation in the Bangladesh Railways is similar with users covering about 42 per cent of the operating costs.
Going forward the government needs to balance its investment allocations in the transport sector and increase funding to meet maintenance requirements. Achievement of these objectives from a technical perspective will require:
l a more effective budget management system, which is informed by performance and expenditure analysis;
l strengthening cost-recovery systems in all modes of transport;
l refocusing the role of the public sector to support maintenance for better quality and safety of the transport to improve the regulatory framework, avoid fragmentation and strengthen enforcement standards; and
l re-orienting and modernizing the transport sector agencies to promote a well-coordinated and integrated transport system.
..................................................
Courtesy: Bangladesh Public Expenditure and Institutional Review, Towards a Better Quality of Public Expenditure, a report prepared recently by Poverty Reduction and Economic Management Sector Unit, South Asia Region, World Bank