Case Study 3: Externally Supported Budget Reforms - the case of the RIBEC Project (Bangladesh)

Externally Supported Budget Reforms - the case of the RIBEC Project (Bangladesh)

Synopsis

1.The programme of Reforms in Budgeting and Expenditure Control (RIBEC) has been in existence since the early 1990s when the Government of Bangladesh (GoB) embarked on the restructuring of its budgeting and accounting systems. Since 1992 the Department for International Development (DFID), then the Overseas Development Administration, has provided technical assistance to supplement the Government’s programme and to provide access to international expertise. The RIBEC programme continues and the funding of the current phase is committed until the end of June 2001.

2.The goal of the Government’s programme is the efficient management of the economy achieved through modern budgeting and expenditure management techniques. In the late 1980s Government recognised the need for fundamental improvements to Government’s financial management processes and a Committee was established-the Committee on Reforms in Budgeting and Expenditure Control (CORBEC)-under the leadership of the Ministry of Finance (MoF). The Committee reported on the significant weaknesses in the financial management arrangements, and following the endorsement of the report by Government, the RIBEC programme started in 1992 with the launching of a diagnostic and design study.

3.The challenges facing Government in transforming its financial management systems were extensive. The essence of the CORBEC report confirmed that the budgeting and accounting systems in Government were no longer effective. The processes and the outputs, including the basic financial data, had become incomplete, unreliable and no longer operated as effective instruments in public expenditure management.

4.The phased implementation, starting effectively in 1996, has made an impact. There have been significant improvements achieved to date through RIBEC: the compilation and presentation of the Budget has been simplified, made more consistent and structured using relevant classifications. Regular financial reporting has been streamlined so that monthly accounts are now produced within 6 weeks of the period end (compared with 4 months). Production of the Government’s annual accounts will be produced within 3 months of the period end (compared with the previous 3 to 4 years’ delay). The development and the recurrent budgets and reporting are more closely aligned.

5.This success has involved a considerable investment by Government and DFID over the last 7 years and the next 2 years - in the region of £11 million. It has included the delivery of extensive training to over 6,000 officers drawn from the whole country and the installation of computer hardware and software in the Ministry of Finance and the main accounting offices in Dhaka. The success of the programme, after a slow and difficult start, is due to range of factors including: the leadership of key senior Government officials; the team based participative approach adopted by the Project Implementation Unit (PIU) in partnership with the national and international consultants; the quality of the Government staff and consultants working jointly in task teams; the flexibility and responsiveness of the programme design and implementation arrangements; and the explicit, visible deliverables set out in the reform programme. It has been the strengths of the people involved and their relationships which has been the determining factor rather than the quality of the technical solutions. However the technical solutions have been tailored to match the operating conditions.

6.RIBEC is only the start to the reform of public expenditure management. Although other initiatives have been tried in the past, the improved quality of financial information is the first, sustainable building block in the broader transformation process that is starting to emerge. Government is starting to implement sector investment programmes and to encourage spending ministries to manage their own “resource envelope”. The need to improve resource allocations within an agreed macro economic framework has always been recognised by Government. Only through RIBEC is there sufficiently reliable and timely financial data becoming available in a format that will facilitate the closer linking of resource allocation and budgeting with policy objectives and spending priorities and provide the data for starting the process of measuring cost efficiencies. Government now needs to start planning for the period post RIBEC.

Introduction

7.This case study reviews the efforts of GoB to reform the public sector financial management system as part of overall public administration reforms through a technical assistance programme jointly sponsored by the Government and DFID. It has evolved through initial setback into a successful programme delivering tangible outputs over the last three years with prospects for future extension until reforms are “internalised” and become self-sustaining. The case study analyses and evaluates the underlying reasons for problems in the first year of implementation as well as the factors that contributed to the recovery of the image of the programme and its continuing successes to the present day. The study highlights the lessons learned from the programme, in its bad as well as good times, and in doing so provides some pointers to those practitioners embarking on, or currently implementing, reforms in Government budgeting and accounting. The case study suggests that the success factors experienced with this programme are indeed applicable to, and replicable in, many transformation programmes in the public sector.

8.The structure of the case study, following this introduction, is as follows:

  • brief summary and description of the main phases of the programme
  • description of the broader public sector reform context
  • the RIBEC approach and programme
  • achievements to date
  • reasons for success
  • future of financial management reform.

Main phases

9.Thetiming and phasing of the RIBEC programme is most easily presented in tabular form:

Table 1: Phasing of the RIBEC Programme

Phase / Date
CORBEC report issued / 1990
RIBEC Phase 1 / October 1992 to June 1993
RIBEC Phase 2 / January 1995 to January 1996
RIBEC Phase 2A / March 1996 to March 1997
RIBEC Phase 2B / April 1997 to December 1998
RIBEC 2000 / 1 January 1999 to 30 June 2001

10.The first phase comprised a detailed diagnostic study elaborating on the findings of the CORBEC report and proposing an implementation plan. DFID agreed with Government to fund a substantial proportion of the implementation plan and committed itself to providing £9.8 million over the implementation period. From the outset, the programme was phased to reflect the uncertainties about the pace of change and the likely costs particularly in relation to the implantation of computer hardware and software.

11.At the end of the first year of implementation, in January 1996, DFID reviewed progress. It concluded that the overall progress was inadequate, major slippages in meeting deadlines were occurring and that it would be unlikely that the programme would deliver its outputs or achieve its purpose within the agreed timeframe and budget. The status was so low that the programme was under threat of being closed down at that time. In the event, the programme was continued into Phase 2A but only with an immediate commitment for a further year and only after a radical restructuring of the programme deliverables and significant changes in the technical assistance team and their approach to the reform process.

12.In retrospect, this radical surgery proved to be the essential catalyst for the programme partners and the technical assistance team. Progress since mid 1996, with the start of Phase 2A, has proceeded according to schedule and without any major disruptions. The subsequent Phase 2B design included outputs which were logical extensions of Phase 2A outputs and intended to establish linkages to future programme activities. The major activities done in this phase included: the extension of accounts consolidation system to remaining accounts offices, development of a budget database with forecasting, profiling and modelling capabilities, introduction of new budget and accounts classification structure throughout the Government and related training. In addition, all core financial rules were updated and published. The programme also initiated training of a selected core group of mid level GoB officers in financial management.

13.The programme has just started a new phase aimed at consolidating the outputs already delivered, capitalising the benefits of past interventions and creating future building blocks to carry forward reforms to their logical conclusion. The important deliverables in the new phase, RIBEC 2000, are: creating an effective interface between recurrent and development budgets; improving the quality of financial information and cash management; enhancing financial management functions in line ministries; related training and introducing an internal review unit within MoF.

The context

14.Bangladesh has a population of 120 million occupying an area of 144,000 square miles with dimensions of 400 miles north to south and 270 miles east to west. Internal communication is difficult due the topography and the inconsistency of telecommunications. Power shortages are common. Major natural disasters, affecting substantial areas of the country and large numbers of the population, are a frequent occurrence.

15.The public sector is predominant in the economy with around one million employed in the civil service. Government is centralised across 49 ministries with representation in 20 regions, 64 districts and 460 thanas. Government business continues to operate using systems, procedures and rules that have been in existence before Independence. Modern working practices, including the widespread use of information technology, are absent. The budgeting and accounting systems in Government are manual being maintained by around 14,000 staff in MoF and in Accounts Offices.

16.During the 1980s and 1990s the public sector in Bangladesh, has been subject to increasing demands for reform. A large number of reform initiatives covering a wide range of public sector activities, including public sector financial management, have been targeted for change. An inter-ministerial committee, CORBEC, appointed by the Government and led by MoF, was charged with the analysing existing problems in public financial management and to recommend improvements. The problems identified by the Committee in its report in 1990 included:

  • lack of adequate, accurate and timely financial information due to the manual processes, unsatisfactory systems and procedures of accounting and for bank reconciliation;
  • cumbersome, repetitive and overlapping budgetary system using an ineffective and old classification structure;
  • lack of updated, comprehensive and easy to use financial rules and regulations;
  • insufficient trained manpower and an inadequate training system unable to meet the financial management needs across Government.

17.The Committee emphasised the urgency to address all of these weaknesses. Only by doing so could the appropriate financial accountability be established and economic development and poverty alleviation priorities of the Government receive firmly established institutional support. The results of the diagnostic Phase 1 confirmed the findings of the CORBEC review and made 79 recommendations to remove the deficiencies and put pubic sector management on a firmer footing.

19.These technical weaknesses derived from broader, structural deficiencies in the management and operation of the public service. In several independent assessments of Government’s performance the assessment has been critical. In 1996, the World Bank commented that

“Government is seen as: preoccupied with process; too pervasive; highly centralised; overly bureaucratic; too discretionary in governance; unaccountable and unresponsive; and wasteful.” [1]

This report described a suggested route map for Government to follow in reaching improved performance. The emphasis was on the following: redefining the frontiers of the public sector to focus on its core functions; enhancing the level and nature of accountability and responsiveness of public agencies to citizens; streamlining the regulations, laws and processes; overhauling the rules and processes by which Government conducts its policy and decision making functions; and maintaining an efficient, committed and professional public servant.

20.In the context of increasing accountability, the report emphasised the importance of improving the budgetary process whereby a link is established between budget allocation and outputs/outcomes and the formulation and presentation of the budget in the framework of a medium term revenue and expenditure plan. This medium term framework should more closely align budgets to policy objectives within an agreed macro economic framework. But the report also commented on Government’s performance with regard to policy setting. Public policies exhibited the following characteristics: lack of responsiveness, inconsistent, unpredictable, lack credibility, and are unimplementable.[2] The report reiterated the conclusions of CORBEC in that the budget system exhibits

“....none of the essential ingredients of an efficient budget system exists.....it does not link individual spending programmes to specific policy objectives....” [3]

21.Unfortunately Government has not followed the route map suggested in this 1996 report. The situation in 1999 is not discernibly different, with the public sector demonstrating little evidence of structural change, despite the creation of a Public Service Reform commission in 1996. The World Bank explained the lack of progress in terms of the fragile political environment and the absence of credible champions for reform. [4] The report concludes that:

“...... planning and budgeting system continues to remain beset with a number of deficiencies which diminishes the transparency and accountability of how public funds are allocated and spent...... expenditure outcomes get very little attention and are not subject to sufficient parliamentary scrutiny...... the budget is not framed within a consistent macro economic and medium term expenditure framework. This delinks the level and composition of expenditures and the financing of the deficit from other macro economic aggregates.....such delinking also erodes allocative efficiency and undermines effective macro economic management.” [5]

The analysis echoes that of CORBEC nearly 10 years earlier, namely: the development and recurrent budgets are prepared and approved on parallel tracks; the recurrent budget continues to be formulated on an incremental basis; cash and resource management needs strengthening; and policy and expenditure evaluation is limited.

22.It is in this context that RIBEC has been operating. It is clearly not a conducive environment for change with the absence of commitment and, by all appearances, would suggest an impossible, or at least an uphill, task for the programme implementers and their sponsors.

Approach and programme

23.The current goal of the programme is the efficient management of the economy. This has evolved from the earlier goal of “reforms in budgeting and expenditure control implemented”. The change has come about in response to the gradual broadening of the project’s outputs and purpose into broader areas of financial management than just the improvements in the quality of financial data. RIBEC, during Phase 2B, moved into the next stage of starting to use the data for decision making. The piloting of Management Accounting Units in the line ministries is the main vehicle for this initiative.

24.The present purpose is “to improve Government’s financial management capacity through adopting modern budgeting and expenditure management techniques”. This purpose, like the goal, has evolved from a simpler statement, namely “Government using new classifications for budgeting and accounting with improved quality of information and timeliness”.

25.The essence of the outputs however have remained largely unchanged since the beginning of Phase 2A. The main differences reflect the attempts to consolidate achievements to date and to broaden and deepen the coverage of the new procedures. The outputs can be grouped under the following headings:

  • Implementing the new budget classification
  • Improving the quality of financial information in terms of accuracy, consistency and timeliness both in the budget preparation and the monthly accounts
  • Establishing Management Accounting Units (MAUs) in ministries to improve the completeness of financial reporting and to start to improve the functioning of Budget Committees
  • Developing the necessary IT infrastructure
  • Increasing skills through training.

26.The programme has concentrated on improving the collection, aggregation and presentation of financial data. With the exception of the new classification, there have been only minor changes to the principles and procedures of Government budgeting and accounting. The roles of staff have not been changed other than from the consequences of computerisation. Even then, the extent of computerisation has been limited to the 20 Accounts Offices in Dhaka, most of which are centrally located within the Office of the Controller General of Accounts. It is only in this current phase that the computerisation of regional and district offices is being tested. The piloting of the Management Accounting Units (MAUs) is a logical extension to the efforts to capture all financial data both development and recurrent budgets. The immediate intention of the MAU is to provide the Principal Accounting Officer with a consolidated statement of recurrent and programme/development expenditure.

27.RIBEC, as a planned strategy, has limited its coverage to the civil accounts of Government and has not attempted to cover either the Defence, Food and Foreign Aid accounts or those of the Posts, Telegraphs and Telecommunications Department and Railways Corporation. Revenue is also outside the scope of RIBEC. The programme has been kept as narrow as possible with any moves into new areas or initiatives being subject to detailed feasibility studies.

Achievements

28.Faced with a difficult institutional context, the programme has made significant progress in an unobtrusive and evolutionary way. The turnaround from a failing programme in 1996 to the highly visible and admired success story in 1999 is remarkable. Since 1996 the programme has tried to deliver tangible and focused outputs and also has concentrated on change management initiatives. The key players recognised, at least implicitly and perhaps intuitively, that the change management issues were more important to, and influential on, the potential success of the programme than the purely technical solutions. Although the visible successes to date are largely of a technical nature (and these are the ones that the traditional logical framework format tends to capture), there are more subtle changes that have occurred with regard to personal behaviour and performance. These changes, though difficult to discern, are in many ways more important than the upgrading in systems and deliverables.