Transiting from a regime of shortage to adequacy

AID, DEFICIT FINANCING, UNEMPLOYMENT, INFLATION: The test of success, or effectiveness, of aid is graduating out of aid.  Aid to Bangladesh has been on the decline and since FY06 financed less than 2.0 per cent of the deficit, measured as percentage of GDP. Sustained reduction of reliance on aid is a cause for celebration for us - and the development partners as well.
Currently, Bangladesh has substantial savings and large external reserve, thanks to healthy remittances and not so thankful to weak investment and import. Investment is smaller than savings, which reflects anomaly of statistical reporting. External fund - both aid and market loan at affordable price - is needed to augment public investment, because revenue has been stubbornly low. The policy need to focus on how to redesign tax policies as well as tax administration. High tariff accompanied by rate dispersion and exemptions, lower elasticity of tax. So tax revenue may not keep pace with output growth and public expenditure.
Remittances make significant contribution to savings - about 8 per cent of national savings measured as percentage of GDP. The remittance-receiving households invest about 1.7 per cent of their receipts in financial instruments and bank deposits. If their investment in financial instruments and institutions could be raised further, that could finance deficit in lieu of aid. But that concerns issues of return and sociological issues which cannot be relevantly discussed in this context (e.g. land price appreciation, security, status, income, lack of familiarity with the world of urban investment.)   
SOURCES OF PUBLIC EXPENDITURE DATA INCLUDING AID: Currently, the sources of fiscal and monetary data are the following:
l    Budget, which conforms to the laws of the constitution and the technical requirement of COFOG (Classification of the Functions of Government) embedded in the National Accounting methodology and SITC (Standard International Trade Classification). Budget is also the main instrument for  accountability;
l    Economic Survey, published with the budget, provides summary macroeconomic data and more detailed sector-specific information;
l    Annual Development Programme (ADP) shows total allocation for each project and separates allocation from local and foreign sources,  total estimated cost and expenditures already incurred;  
l    Five Year Plan, prepared for every five year, shows medium-term (five years) programme;
l    Medium-term Budget Framework (MTBF) which is a rolling budget projection for medium;
l    Quarterly Monetary Policy Statement (MPS) & Annual Report of Bangladesh Bank, which show changes in money supply, credit flows, BOP (balance of payment), etc.  
The budget alone follows standardisation which is internationally established and is voted by Parliament. Many other reports could be added as the Government wishes.
Any information necessary for analysis of public expenditure can be extracted from the above documents, including information relevant to particular interest or advocacy groups. Information as regards localised benefits (i.e. disaggregation by location) is available from project documents and allocation orders. Such projects are few; the analyst has to expend energy and time on the search.    
LOCAL CONSULTATIVE GROUPS:  There are eighteen LCGs (Local Consultative Groups), sixteen on sectors or specific areas (disaster management, climate change), and one on macroeconomics and one on governance. Planning Commission is assigned poverty assessment and has nothing to do with resource estimation, investment programming, prioritisation of use, and so on. Given that projects are subject to approval by the Planning Commission, there is disconnect between macroeconomics and public investment. Revenue budget contains recurrent expenditure and allows, or requires, littler judgment on quality of expenditure.
Governance is multi-faceted and can be bewilderingly complex, given the diversity of views on state-building and the relative importance of order vis-à-vis rights and participation at different stages of state-building. The issues can be handled by stereotyping, which has been the practice of the development partners. Standardisation of governance issue - which is termed stereotyping above - helps comparison, but misses the critical elements in particular context.
Both macroeconomics and governance are cross-cutting subjects and, to be effective, demand professional competence and capacity for imperative coordination with appropriate central location within the government structure.  These are not just another project or sectoral issue. Coordination is a major problem in any government, and each government addresses it in its particular way.
The composition and functions of LCGs have changed radically in the last three decades or so. Earlier, the World Bank, on behalf of the development partners, would prepare a consolidated report showing the estimates of resource requirement as well as assessment of the sectors. The initial draft would be presented to the donors in Dhaka. A small number of government representatives would remain present but would participate or intervene only if absolutely necessary. The report, finalised after consultation, would be presented at the Aid Group meeting in Paris - later those meetings were held in Dhaka until abandoned.
The Government also would prepare a consolidated report for the Aid Group. The reports of GoB and WB were coordinated on critical points e.g. total aid required, sectoral performance and demand, etc. the reports are no longer prepared by either GoB or World Bank. Good or bad, Aid Group meeting and the reports for the meeting acted as an institutional arrangement for coordination. The arrangement has been dispensed with, which requires new ways of coordination.
The sectoral LCGs are headed by the relevant officials of the Government and an official representing development partners, presumably that partner which has particular interest in that sector. It is expected that the partner representative on the sector committee has specialised knowledge of the subject-matter. If the representative is without such knowledge, she/he can make little contribution to the substantive contents of the activities. Monitoring and donor participation then are likely to concentrate on the formal/regulatory aspects such as whether particular action was taken on fixed dates, reports were kept in prescribed format, etc. This might have happened to some extent as is evident from the unease the project agencies feel using aid.
COMPLEX COORDINATION: Coordination within one government itself is problematic; it multiplies when coordination is done among government departments, among development partners, and between government and development partners. The following example from Germany is cited as an instance or how complex it can get - and yet works.   
l    Multiple fragmentation of sovereignty and administrative authority: The Federal Government shares sovereignty with EU and Länder (state) Governments. The federal law and policy are implemented by Länder Government, including the directives of EU. Länder, with consent of Federal Government, can transfer powers to trans-border institutions.
l    EU Parliament & National Parliament: EU directives and conventions are reduced to appropriate legislative form for implementation. Bundestag and Bundesrat can deal with EU Parliament directly; if either House expresses an opinion on EU convention or policy, the Federal Government is obliged to refer it to EU Commission or Parliament. The EU directives and conventions are binding on the government unless rendered invalid for violating 'subsidiarity' principle.    
l    Constitutional Court:  The Constitutional Court can nullify any law while it is pending before Parliament, after it has been passed and promulgated and at any time if a reference is made by a Court or a complaint is filed by a Länder, municipality, or an individual. The Constitutional Court can direct that a law be amended in particular way or replaced by a new law. The Constitutional  Court's constraint on legislative and policy initiate often faces criticism.
l    Coalition Government: The mixed electoral system and relatively high threshold for party list imposes constraints on the majority coalition partner. Each voter casts two votes - one for the constituency candidate and another for the party list. Each party has to poll at least 5.0 per cent popular vote to qualify for a place in Parliament. The leader of the minor coalition partner is appointed Vice Chancellor (Deputy Prime Minister) who holds an important portfolio and controls the bureaucracy and administration. The current Vice Chancellor from SPD (Social Democratic Party) is also Minister for Economy and Energy, which is a newly created portfolio for him, and deals with the most critical policy areas for Germany.
l    Autonomy of certain ministers: The administrative/ institutional law grants that Ministers for Defence, Law and Justice, and Finance function independently within the broad policy framework laid down by the Cabinet. Chancellor has a role in determining the broad policy, derived also from the electoral manifesto. The other ministries also are independent in detailing and implementing specific policies within the broad framework, but are not granted autonomy by administrative law as in the case of the Ministers for Defence, Law and Justice, and Finance.  
l    Chancellor in militant and fortified democracy: The constitutional rule for constructive no-confidence strengthens the position of the Chancellor. Vote of no-confidence requires that the successor Chancellor is chosen; the vote fails if the second condition is not met. The vote for party list also strengthens the leadership of the Chancellor.
l    Organisation for coordination: The Chancellor's Office, about 500 strong, is responsible for administrative liaison and coordination with ministries. The Chancellor's Office is divided into 'mirror departments' that deal with ministries counterpart ministries, and 'cross-cutting departments' that deal with ministries that operate across several ministries or subjects. The personnel are drawn from professionals aligned with the party and occasionally a sprinkling of currently serving career civil servants.
Coordination and oversight by the Chancellor involves relationship with transnational bodies (e.g. EU, NATO), as well as with (e.g. Länder, federal agencies), sideways and around (e.g. Parliament, Constitutional Court, coalition partners). All these institutions have deeply entrenched and significant autonomy. The maze seems unworkable, yet the coordination network actually works and does better than most other governments: Germany has the strongest economy of the OECD members.  
ADVISERS IN WESTMINSTER: The continental tradition of Minister's cabinet office is the model for Chancellor's Office. The Westminster government lacked this traditional model. However, changes have taken place in the U K. The War Cabinet of Churchill had engaged Lord Keynes as an expert in the Treasury; he conducted the most critical lend-lease negotiations with the US Government. Kaldor had been an adviser during transition to social democracy. Harold Wilson authorised ministers to hire advisors/experts as they felt necessary. By the time of Margaret Thatcher the number of experts/advisers rose to 70, where it has remained till date - most working in PM's Office. The increased analysis of technology with a view to bringing about change in the society necessitates use of advisers.
MAKE THE POTENTIAL HAPPEN: Bangladesh has entered a new phase - or at least in a transitional phase - in regard to development and resource management. Until recently, its main problem was shortage of resources. In the new or transitional phase, it has resource shortage or resource surplus in a relative sense: it is resource short because it wants to do more; it is resource surplus because it cannot use all the resource available. The challenge has new dimensions: raise implementation capacity and use all the resources actually and potentially available.  Aid has diminishing importance, and the potential additional resource includes also market borrowing at affordable price.
The existing methods of administrative and resource mobilisation seem to be getting obsolete fast. Bangladesh is transiting from a regime of shortage to adequacy, potential if still not actual. The challenge is to make the potential happen.
Dr. Mashiur Rahman is Economic Adviser to Prime Minister. A shorter pre-edited version was read out at the launching of AIMS on October 26, 2014 at ERD.