Dr. Ahsan H. Mansur Executive Director, Policy 7. Dr. Ahsan... · Dr. Ahsan H. Mansur . Executive Director,…

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<ul><li><p>Dr. Ahsan H. Mansur Executive Director, Policy Research Institute (PRI) of Bangladesh </p><p>December 22, 2016 1 </p></li><li><p>The Presentation will Cover </p><p> Challenges of Public Financial Management in Bangladesh The current status of public finances in Bangladesh </p><p> The future challenges related to public finances in Bangladesh Resource Mobilization challenge Service delivery challenge Infrastructure challenge Deficit financing challenge </p><p> How to address the challenges through PFM reforms </p><p>December 22, 2016 2 </p></li><li><p>Outlook for Public Expenditure A Challenge and Responsibility </p><p> The draft Delta Plan, which is based on the Seventh Five Year Plan and well beyond that, envisages a 10 percentage points increase in budgetary spending to more than 25% of GDP by FY31. </p><p> Since the government will be empowered to spend 1/4th of Bangladesh GDP, it is also an enormous responsibility. </p><p> All categories of spending are projected to increase except for interest payments. </p><p> We all are aware that, if resources of such a high proportion is not spent well, as a society we may not be better off with the larger size of the Government and larger revenue collection from the private sector (from around 12% of GDP to 20% of GDP). </p><p>December 22, 2016 3 </p><p>3.1 3.9 4.1 4.5 1.9 1.8 </p><p>2.3 2.7 2.5 2.6 </p><p>2.6 2.6 2.8 </p><p>3 3.5 3.9 1.0 </p><p>1.1 1.4 </p><p>1.7 </p><p>1.1 1.3 </p><p>2.0 2.1 </p><p>6.1 6.2 </p><p>6.9 7.7 </p><p>0.0</p><p>5.0</p><p>10.0</p><p>15.0</p><p>20.0</p><p>25.0</p><p>30.0</p><p>FY16 FY19 FY20 FY25 FY31</p><p>(As % of GDP, FY16 to FY31) </p><p>CapitalInvestmentExcluding DeltaDelta PlanExpenditure-Public SectorHealth</p><p>Education</p><p>Interestpayments</p><p>Social protection</p><p>Expenditure Composition in Delta Plan </p><p>Source: PRI Staff Estimates </p></li><li><p>Public Financial Management in Bangladesh </p><p> A sound public financial management (PFM) system is essential for better governance that allows the government to achieve the macroeconomic sustainability, developmental objectives and pro-poor economic growth. </p><p> As a developing country Bangladesh should have a sound PFM system to manage fiscal discipline with a view to support the developmental works. </p><p> Bangladeshs PFM system is composed of a series of government activities relating to: </p><p> Resource mobilization, allocation of resources, management of resource flows, execution of programs and projects, and oversight of public financial resources. Overall, the process includes revenue collection and management, the planning, </p><p>public procurement, implementation of programs and projects, and audit of public expenditure programs and projects. </p><p>December 22, 2016 4 </p></li><li><p>Role and Implications for PFM </p><p> The objectives of public financial management are to: (a) achieve fiscal discipline consistent with macroeconomic stability; (b) effectively allocate resources to national priorities; and (c) ensure value for money and efficient use of resources to deliver services. </p><p> Achievement of these objectives require improvements in a range of PFM areas working thru three major themes: </p><p>Macroeconomic/Fiscal Context Public Resource Mobilization Public Expenditure Public Debt Management </p><p>Sectoral Context Sectoral Programs for higher inclusive growth (power, energy, transport, agriculture, rural </p><p>development and water) Sectoral programs for empowering citizens (health, education, social protection) </p><p>Resource Efficiency and Governance Public Financial Management and Oversights Public Sector Management </p><p>December 22, 2016 5 </p></li><li><p>Context and Background </p><p> In 1971 Bangladesh was a new country, emerging from conflict and with an inherited public financial management system modeled according to the needs of the colonial administration in the Indian sub-continent. </p><p> The public financial management (PFM) system has evolved over time to cater to the development needs of the country, but retains features of a system focused on controlling inputs with an emphasis on following administrative orders. </p><p> A series of reforms have been introduced over the last two decades, and much has changed since the inherited system. New laws (notably the Public Money and Budget Management Act, 2009) were introduced to enact the principles of sound financial management. </p><p> A series of public financial reform programs were undertaken from the 1990s onwards, which undoubtedly improved the management of public resources, but nonetheless fell short of expectations. </p><p> The purpose of the new PFM Strategy 2016-21 is to build on the past reforms and learn from what has worked and what has not, in order to strengthen the basics required for achieving the overarching national goals. </p><p>December 22, 2016 6 </p></li><li><p>Overarching National Goals Bangladesh has made remarkable development progress since Independence; in </p><p>the last decade average economic growth rates reached 7 percent per year, and growth has been inclusive: poverty headcount rates have fallen from 31.5 percent in 2010 to 25 percent in 2015. </p><p> Several successes from the last decade are notable and worth mentioning as they set the scene for the next public financial management reform strategy. These include macroeconomic stability which has supported a private sector-led export-oriented growth, and a vibrant non-government and private sector which together with the public sector have provided services that have contributed to reductions in infant and maternal mortality rates, improved gender equality and a rise in completion rates in education. </p><p> Future goals is to reach middle-income country status by 2021 and further reduce the poverty headcount to 15 percent of the population. </p><p> To reach the new national objectives the public financial management system needs to be able to deliver several improvements; such as a broader tax base and higher government revenues, a program of public investments to build core infrastructure, and social expenditures that can deliver protection for the poor and vulnerable. 7 December 22, 2016 </p></li><li><p>Trends in Bangladesh GDP Growth Since 1985 </p><p>December 22, 2016 8 </p></li><li><p>Guiding Principles of Public Financial Management Reform </p><p> The guiding principles of the PFM reform strategy 2016-21 is to build upon what has been achieved and strengthen the basics considered fundamental to achieving the 7th Five Year Plan and sufficient for the required human and physical investments. </p><p> Accelerate Growth from 6% to 7-8% growth path Average 5-year GDP growth increase from 6.3% to 7.4% </p><p> Empower Citizens Reduce Poverty: extreme poverty by 4 percentage points; moderate poverty by 6 </p><p>percentage points Reduce income inequality Increase human development (specific targets for health, education, nutrition and </p><p>population control) Enhance female empowerment Strengthen social protection Strengthen social inclusion </p><p>December 22, 2016 9 </p></li><li><p>Current Performance </p><p> Recent diagnostic studies indicate that although there has been a considerable investment of time and resources in implementing PFM reform strategies since 2007, progress has been mixed. </p><p> Fundamental reforms of the tax administration and public investment management, for example, are overdue. The 2015 draft PEFA assessment summarizes the main PFM issues: </p><p> There is a lack of reliability in the revenue and expenditure budgets and limited improvement in the use of reliable annual macroeconomic and fiscal forecasts. </p><p> Improvements have been made, but insufficient oversight of fiscal risks is an issue for concern. Progress has been made to introduce a medium-term perspective to the budgeting system but </p><p>incrementalism and the fragmented dual (revenue and development) budget issues persist. There is a good degree of predictability in funding for ministries but there are weaknesses in </p><p>revenue and expenditure controls, and in reporting and accountability mechanisms. Inadequate disclosure of a timely annual audited financial statement. </p><p> The PEFA 2016 concluded that Bangladesh has made positive strides in developing its PFM systems since 2010, however the gradual approach has not been sufficient to shift scores in many cases </p><p>December 22, 2016 10 </p></li><li><p>Past Experience in Bangladesh The success of PFM reform depends on whether or not the changes in </p><p>practices become institutionalized. There are three general take away lessons from the implementation of the </p><p>2007-12 PFM reform strategy: moving across many fronts simultaneously is inevitably slow-going in the Bangladesh </p><p>environment; the lack of focus on few important priorities has left some of the more fundamental </p><p>PFM reforms incomplete; the technical commitment to reform in certain units and departments in agencies may </p><p>be necessary but is not likely to be sufficient for comprehensive reforms to be rolled out across all agencies. </p><p> The political interest in PFM reforms to mobilize taxes has grown. Building a public discourse and fiscal transparency will need to continue. The 2007-12 PFM Reform Strategy lacked structured and regular </p><p>communication of the objectives (within and outside government) and the absence of reform activities in complementary areas such as civil service reform. Engagement had been limited within the Ministry of Finance; and engagement with the Cabinet, Parliament, and civil society had been very limited. </p><p>December 22, 2016 11 </p></li><li><p>International Lessons Learning from international experience indicates that PFM reforms are typically an on-</p><p>going process, take several years to implement and in many senses are never done. In this sense, the Bangladesh is fairly typical. </p><p> While the technical design and implementation of PFM reform are important, the political and institutional factors generally matter more. </p><p> The finance minister is a critical leader of PFM reforms, but this is often not enough. PFM reform needs to be driven by the priority development results of government, rather </p><p>than an externally generated model of best practice PFM solutions Creating an authorizing environment for decision-making that allows for experimentation </p><p>and learning to identify relevant, home-grown solutions, and engaging board sets of agents to ensure reforms are viable. This has become known as problem-driven iterative adaptation </p><p> PFM reform requires changes not only to systems, but also to behaviors and practices of the stakeholders involved (ministry civil servants, front-line service providers, political leaders and others). </p><p> The sequence of reforms is an important consideration. This includes the need to first get the basics right before moving to more complex PFM reforms </p><p> Capacity is a key factor in the design of PFM reforms. December 22, 2016 12 </p></li><li><p>Goals, Objectives and Actions for the Strategy 2016-2021 </p><p> PFM Reform Strategy 2016-21 identified the requirements to support delivery of the 7th Plan. The critical requirements are: Raise revenue, especially through the new VAT law and broadened </p><p>direct tax base Implement a new financial management information system (IBAS++) </p><p>based on the new chart of accounts Implement reforms to strengthen public investment management and </p><p>planning-budgeting linkages Strengthen PFM skills and staff retention Improve the timeliness of publication of audited financial statements Roll out e-procurement across government </p><p>December 22, 2016 13 </p></li><li><p>Goal 1: Objectives </p><p>Goal 1: Maintain aggregate fiscal discipline compatible with macro-economic stability and pro-poor growth Enhance tax revenues to create fiscal space for key public investments and </p><p>priority social expenditure. This will require, in addition to revenue mobilization, acting on: containing growth in domestic interest bill, containing rapidly rising pension liabilities, and containing growth in wage bill through reconfiguration of public sector staff in line with technological adaptation and skill requirements. </p><p> Improve the role of the macro model to determine resource parameters and maintain fiscal discipline </p><p> Improve the management of fiscal risks, debt and cash to maintain fiscal discipline </p><p>December 22, 2016 14 </p></li><li><p>Goal 1: Reform Actions to Augment Revenue </p><p>Intermediate-Short term </p><p> Launch the new VAT Law July 2017. o Introduce registration return from January 2017 o Introduce filing of online tax return from August 2017 </p><p> Ensure harmonization and taxpayer data sharing across the NBR Reorganize the VAT Wing along functional lines (see next slide) Review and refine new direct tax law Adopt new Direct Tax Code Introduce filing of online tax return Introduce registration and filing of online VAT return from July 2017. Launch on-line payment system for VAT, Income Tax and Customs together with an interface with </p><p>iBAS++ Build taxpayer awareness on new Integrated VAT system (IVAS) to promote voluntary compliance Carry out systemic risk assessment in VAT, Customs and Income Tax Wings before planning audit and </p><p>establish systematic approach to risk management and risk-based audit. Also automate the process of selection of audit </p><p> Strengthen capacity to carry out risk assessment across NBR Introduce new arrangements (legal, institutional, procedural and others) for strengthening withholding </p><p>of VAT and income tax. Strengthen the capacity of intelligence, the research and statistics, and the budget outfits Build capacity to estimate tax expenditure </p><p>Medium Term Integrate and expand tax base and automated systems Reorganize Income Tax Wing on functional lines Develop tax expenditures statements to be annexed to the budget LTUs of income tax and VAT integrated Ensure automation for full disclosure of arrears with their aging </p><p>December 22, 2016 15 </p></li><li><p>VAT W</p><p>Chairman NBR </p><p>Member VAT </p><p>Operations </p><p>Member VAT Support </p><p>Services </p><p>Senior Member Policy, Research </p><p>&amp; Reform </p><p>Model Functional Structure (top level) VAT Headquarters </p><p>Sen Director Enforce-</p><p>ment </p><p>Sen Director Filing &amp; Payment </p><p>Sen Director Taxpayer </p><p>Audit </p><p>Depty Dir Arrears </p><p>Depty Dir Audit </p><p>Depty Dir Returns Filing </p><p>Director General Operational Standards </p><p>Depty Dir Payments </p><p>Depty Dir CC / CPC Liaison </p><p>Depty Dir Special Audit </p><p>Depty Dir Lge TP Audit </p><p>Depty Dir Delinqut Returns </p><p>Depty Dir Risk </p><p>Profiling </p><p>Director TP Suppt &amp; Registratio</p><p>n </p><p>Depty Dir Taxpayer Support </p><p>Depty Dir Registr-</p><p>ation </p><p>Reports to Member VAT Operations </p><p>Taxpayer Contact Centre </p><p>Central Processing </p><p>Centre </p><p>Note: TCC &amp; CPC are separate, contracted-out businesses. </p><p>Liaison Teams monitor &amp; provide technical tax support as required </p><p>Reports to Member VAT Policy </p><p>Sen Director Internal Audit </p><p>Director Planning &amp; Reform </p><p>Director Legal Affairs </p><p>Director Research &amp; Statistics </p><p>Director General Policy &amp; Reform </p><p>Depty Dir Legal Supt &amp; Advice </p><p>Depty Dir Litigation &amp; Appeals </p><p>Depty Dir Policy </p><p>Research </p><p>Depty Dir Statistics &amp; Reporting </p><p>28 July 2016 Revision </p><p>Director Finance &amp; Accountg </p><p>Director Human </p><p>Resources </p><p>Director Admin &amp; Facilities </p><p>Director General Support Services </p><p>Depty Dir Revenue Accounts </p><p>Depty Dir Wing </p><p>Accounts </p><p>Depty Dir Procure-</p><p>ment </p><p>Depty Dir Admin </p><p>Support </p><p>Depty Dir Office </p><p>Facilities </p><p>Depty Dir Premises </p><p>&amp; Maintce </p><p>Depty Dir Postings </p><p>Depty Dir Perfce </p><p>Managet </p><p>Depty Dir Staff </p><p>Welfare </p><p>Reports to Member VAT Support Services </p><p>Director...</p></li></ul>


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