Rationalisation of sectors in development planning and budgeting

The types of sectors as defined by the Ministry of Finance and Ministry of Planning for overall budget allocations, allocation of development budget, and also for the evaluation of projects/programmes should be critically analysed. Also should be studied the limitations and challenges stemming from differences in sectoral divisions as practised by different ministries. To be more specific, sectors of the economy are defined differently by the Ministry of Finance and the Ministry of Planning. Hence, it raises a questions: why under the same government would sectors or subsectors be defined differently by two most important coordinating  ministries?
The classification structure allows budget and expenditure to trail from the lowest level of disaggregation (used in the financial accounting system) to the highest level of accumulation. This will include examination of a) the sectoral structure used by the Planning Commission in the Annual Development Programme (ADP); b) the administrative structure which forms the basis of the classification used by the Ministry of Finance; and c) the sectoral approach used in the Sixth Five-Year Plan (6th FYP).  
SECTORS OF PLANNING COMMISSION (MINISTRY OF PLANNING): Bangladesh Planning Commission is the central planning organisation of the country. It sets the objectives, goals and strategies of medium and short-term plans within the framework of a long-term perspective plan and formulates policies for the achievement of planned goals and targets helping the best utilisation of available resources. Its activities include the following elements of development planning:
* Policy planning: determination of goals, objectives, priorities, strategies and policy measures for development plans;
* Sectoral planning: identification of the role that the various sectors of the economy are required to play in the context of the Plan objectives and goals;
* Programme planning: Allocation of resources to attain the Plan objectives and goals allowing programme approaches;
* Project planning: appraisal of projects embodying investment decisions for the implementation of the sectoral plans; and
* Evaluation: impact analysis of projects, programmes and plans on the people's living standard (by IMED).
EVALUATION OF PLAN PERFORMANCES (BY GENERAL ECONOMICS DIVISION): Programming Division of the Planning Commission determines the size of the Annual Development Programs (ADP) and sectoral allocations/budgets. Programming Division allocates/evaluates fund and four Sector Divisions of Planning Commission evaluates projects/programmes through classifying the economy into 17 sectors shown in Table 1.

SECTORS AS DEFINED BY FINANCE DIVISION: The Finance Division (FD) of the Ministry of Finance (MoF) allocates fund according to the decision of the ministry and disaggregates the revenue and development budgets. Practically it does not have any direct bearing but has passive role in allocating funds to the development budget. For budgeting purpose, the Ministry of Finance has divided the economy into 13 sectors as shown in Table 2. MoF divides the ministries according to their nature of work:
ANALYSIS OF TWO TYPES OF SECTORS: For analysing resource use efficiency, the sectors of the Ministry of Finance and the Ministry of Planning are incompatible. Mismatch also exists in the approaches of Public Financial Management (PFM) (planning, budgeting and accounting) in both the ministries. The approach of the Ministry of Finance is based on administrative units.
In contrast, the Planning Commission manages Public Investment Management (PIM) based on   a 17-sector structure. This difference is manifested in the two primary publications of each institution: the budget document of Finance Division (FD) and the Annual Development Programme (ADP)  of the Planning Commission.
There are reasons why each coordinating division has different focus in discharging its duties. The Ministry of Finance is interested in expenditure management and accountability, which is consigned to the Principal Accounting Officer. The Planning Commission has responsibility for programming the ADP which is developed at the project level and also for formulation and monitoring the Five Year Plans (FYPs) by the General Economics Division (GED). This difference in goals, exacerbated by the fact that the Ministry of Finance uses a different sectoral grouping from  that of  the Planning Commission,  may lead to inefficiencies, duplication, overlap and confusion in expenditure evaluation. Further, the Planning Commission uses different project codes from the Finance Division (FD). One reasons for this is timing. the Planning Commission tracks projects before they are activated in the accounting system.
There are three processes in Bangladesh by which government's plans and budgets are prepared:
* First, the high-level planning processes. The main document arising from this high level planning process is the FYP (Five Year Plan), which is prepared by General Economics Division (GED) of the Planning Commission;
* The ADP and the Revised Annual Development Programme (RADP) are compiled by the Programming Division. The ADP is the main programming document for the development side of the budget; and
* The Annual Budget is prepared by FD, by which Ministry's medium-term plans are set out through the Medium-Term Budgetary Framework  (MTBF).  
Changes in the classification structure must have implications for the ability of the government to undertake effective monitoring and evaluation (M&E). M&E is currently carried out by the Implement Monitoring and Evaluation Division (IMED) under the Ministry of Planning:
* GED has a responsibility to monitor the progress and performances towards achieving the goals of the Five Year Plan (FYP);
* IMED monitors implementation progress of ADP projects; and
* FD has a statutory responsibility to monitor budget implementation on a quarterly basis and is also nominally responsible for monitoring development-type projects funded through the non-development budget (so-called 'Schemes').
A modified classification structure will create opportunities for streamlining data collection for the different planning and budget processes and making the M&E process more efficient and effective. Ideally there should have correspondence at various levels of planning, budgeting and measuring performance. This will facilitate various aspects of planning and budgeting:
* Selecting priority development projects in order to meet the development objectives spelt out in the long to medium term plans (demand side);
* Managing resource constraints so that available resources are used most effectively(supply side); and
* Facilitating performance and impact measurement as efficiently as possible.
GED is mandated with preparing and monitoring of the implementation of the Five Year Plan (FYP) in the medium-term plan horizon, which covers strategies for both the public and private sector.
The Programming Division compiles the ADP and the RADP which has a one-year time horizon. Under this process ministries, divisions and agencies respond to an ADP Call for the following financial year and prepare summaries of all ongoing projects and those new projects which are planned to come on stream during a financial year.
Projects are classified against the 17 sectors and 41 sub-sectors to which they relate. This sectoral structure, developed about 30 years ago, has not been revisited or modified in response to changes in the priorities facing the government, as reflected in the medium/long-term planning framework.

Professor Shamsul Alam is Member, General Economics Division, Bangladesh Planning Commission. Ummea Saima, Planning Specialist, SSIP Project, GED provided assistance in preparing this policy brief.
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