Rationalisation of sectors in development planning and budgeting — II

Although previous FYPs used the same sectoral structure as the ADP, the 6th FYP is formulated around 10 broad thematic areas which are different from the sectors used in ADP. Table 3 shows the ten broad thematic areas used in 6th FYP.
Furthermore, the "monitorable targets" described in the 6th FYP are grouped into seven broad categories which equally do not align with the sectoral structure:
* Income and Poverty
* Human Resource Development
* Water and Sanitation
* Energy and Infrastructure
* Gender Equality and Empowerment
* Environment Sustainability
* Information and Communications Technology (ICT).
INCONSISTENCIES: Inconsisten-cies in the terminology used in the 6th FYP complicated the alignment between thematic areas and targets on the one hand and sectors, on the other hand.
As a consequence, it is difficult to "map" the sector-wise list of projects in the ADP into divisions of the economy in the 6th FYP. So the problem lies within the Planning Commission itself. It will be equally challenging to use the financial accounting systems to track expenditure incurred in implementing the programmes and projects, as  ADP (PIP) preparation process has never been reconciled with the MTBF process and vice versa.
CROSS-CUTTING PROGRAMMES: The main challenge is that the high-level strategies outlined in the 6th FYP are not always specific to a sector. For example, strategies under "Reaching out to the Poor and the Vulnerable Population" are cross-cutting in nature and delivered by a number of ministries such as the Ministries of Education, Health, Social Welfare, Women and Children Affairs and Food Division. All have poverty reduction dimensions. Therefore, it is extremely difficult to use the accounting system (iBAS) to measure how much has been spent on each of the thematic areas in the FYP.
LACK OF SECTOR-BASED PLANS AND TARGETS: Another way to look at the 6th FYP is to recognise that this plan reflects "policies" rather than sector-based interventions and that there are instances where the strategies/activities derived from the policies do not map neatly onto the sectors. The main challenge lies in this area, since most expenditure has a multi-sectoral dimension.
CHALLENGES OF HARMONISATION OF THE PUBLIC INVESTMENT PROGRAMMES (ADP) AND RESOURCE ALLOCATION FOR PROJECTS/PROGRAMMES FOR BUDGET PREPARATION BY THE FINANCE DIVISION: ADP is an integral component of the budget. Differences in sectoral division of the economy by the planning process and that of recurring budget by the FD creates inefficiency in resource allocation and that ultimately affects economic outcome envisioned in the long and medium term plans.  Divisions of the economy into 17 sectors were made by the planning commission in early 1970s and were not revisited in the light of the structural changes the economy went through. On the other hand, FD under MTBF process allocates resources on the basis of 13 sectors. The rationale for division of the economy into 13 sectors by the FD is not very obvious.  It has been done for the conveniences of the preparation of the budget allocation.  This needs to be harmonized. As the author understands, no attempt was made to divide the economy into uniform sectors. The implementation of development projects/programmes has consequences on the recurring budget prepared by the FD to make the development sustainable. For example, LGED Ministry receives funds from two different sectors of the planning commission, namely, Agriculture Division and the Physical Infrastructure Division. Similarly Home and education ministry also receives public resources from Physical Infrastructure Division  as well as Socio-economic Infrastructure Division whereas these ministries are considered in the same sector cluster of the FD. As a result, resource utilised by these ministries cannot be accounted for properly for performance evaluation. It is therefore become imperative that the differences of the division of the sectors by two coordinating Ministries for preparing budget must be harmonized for ensuring effectiveness of scarce public resources and warrants immediate resolution so that the upcoming seventh plan is prepared based on uniform division of the sectors.

COMPLICATIONS  IN MONITORING AND EVALUATION: Use of different frameworks for devising sectors by Ministries/Divisions makes evaluation and monitoring of sectoral performances on a common yardstick very complicated for wholesome understanding of the performances of the public finance expenditure.
Differences in sectoral divisions by the Planning Commission and by the FD complicates the monitoring and evaluation by the IMED. It also creates unnecessary burden for the ministries/divisions to come up with different sets of reports for ADP monitoring and evaluation and budget performance reports. Uniform synchronization of the division of the economy will not only avoid fragmentation and duplications but also would save time.  
RECOMMENDATIONS:
1. A new classification structure should be immediately explored. An option that could be explored is whether the policy analysis could be added by a segment with two tiers:
* One tier for a national policy code, which links it to the FYP; and
* Another tier for a sectoral policy code which links it to the ADP sector.
This separate two-tier segment would be a good solution because it offers flexibility in managing the linkages between the policy-based national planning framework and the low level project-based accounting data. The code can be assigned to a project at the point when the Development Project Proposal (DPP) for ADP submission is prepared by the Project Selection Committee.
This two-tier policy segment in the classification structure can be explored. This could be discussed in the Working Groups with an active participation of all the parties involved in budget preparation process.
2. The Planning Commission should establish a Working Group/Task Group to review the sector/sub sector structure. Comprehensive and consistent accounting conventions are required to be introduced for synchronization of the economy. The Working Group should include representatives from all relevant Divisions, including Planning Division, GED, Sector Divisions, Programming Division, Implementation Monitoring and Evaluation Division (IMED) and Finance Division.
3. Immediately after preparation of Five Year Plan, sectoral plans should be prepared as well, mentioning sectoral targets in line with the FYP. These targets will help monitor and evaluate the sectoral performance.
4. GED can have a mechanism to monitor the Five Year Plans regularly. For this GED must have a permanent institutional set up. They can assign macroeconomic and perspective plan wing as 'Monitoring and Evaluation' focal point headed by the respective Joint Chief. This wing can monitor plan objectives on sectoral basis and publish reports on regular basis by collecting information from all concerned/ministries.
5. Planning Commission's budget allocation and monitoring mechanism should be in line with the FYPs sectors. To do this Planning Commission will require structural reorganization to align its work with the strategic and indicating planning system. Right now Planning Commission has six divisions. Assignments may be reallocated to conform to the FYPs sectoral division in line with the thematic area.
6. GED/Programming Division of the Planning Commission can conduct a study to review the existing sectoral arrangement and align the economy into ten sectors consistent with the FYP. Finance Division also may bring down 13 expenditure sectors to ten classifications conforming to national mid-term planning document.
THE UPSHOT: There are differences in the concepts of sectoral divide between the Finance and Planning Ministry. The number and formation of sectors are not the same. The 13 sectors used by the Finance Division are somewhat arbitrarily determined largely for administrative reasons while Planning Commission has 17 sectors for economic evaluations and allocation of the development budget. It is imperative that an endeavour is made for synchronisation of the economy before formulating the 7thFive Year Plan. This will greatly improve accountability, monitoring and evaluation mechanism.

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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