PB-005

8/8/2019 PB-005

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Zero Based Budgeting (ZBB), aZero Based Budgeting (ZBB), a

concept whose time has come for concept whose time has come for

application in GoB Budgets for FYapplication in GoB Budgets for FY

2008 and FY 2009.2008 and FY 2009.

Prof. M. Shamsul Haque, Ph. D.*Prof. M. Shamsul Haque, Ph. D.*

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An opportunity is there for the care taker An opportunity is there for the care taker

government (CTG) to adopt the concept of government (CTG) to adopt the concept of ZeroZero-- BaseBase --Budgeting and divert resourcesBudgeting and divert resources

for agricultural and rural development tofor agricultural and rural development to

avoid food shortages and increaseavoid food shortages and increase

employment. A paradigm shift is necessaryemployment. A paradigm shift is necessaryfor a sound strategy for economicfor a sound strategy for economic

development and reducing national risks indevelopment and reducing national risks in

Bangladesh.Bangladesh.

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What is ZBB?What is ZBB?

Efficient allocation of resources being anEfficient allocation of resources being an

overriding objective in good governance,overriding objective in good governance,budgeting for expenditures is done every year budgeting for expenditures is done every year both for revenues and capital expenditures inboth for revenues and capital expenditures inthe ADP. Usual practice in budgeting is knownthe ADP. Usual practice in budgeting is known

as incremental allocation on what was budgetedas incremental allocation on what was budgetedor spent last year or so. In this system existingor spent last year or so. In this system existinglines of expenses get some money allocatedlines of expenses get some money allocatedevery year without any critical analysis of theevery year without any critical analysis of theitems. Given the fact politicians tend to useitems. Given the fact politicians tend to usebudgetary allocations to maintain their supportbudgetary allocations to maintain their supportbase, corruption side, money gets allocated inbase, corruption side, money gets allocated incertain projects even if there are better certain projects even if there are better expenses or projects within an area of interest or expenses or projects within an area of interest or

outside.outside.

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³With zero³With zero--based processing one can forgetbased processing one can forget

about last year, pretend that the program isabout last year, pretend that the program isbrandbrand-- new and see if one can provide a detailnew and see if one can provide a detail

of expenses for what one would need to fullyof expenses for what one would need to fully

accomplish the program.´accomplish the program.´

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Rising prices of food items in Bangladesh and theRising prices of food items in Bangladesh and theworld over are permanent.world over are permanent.

The spiraling upward movement of prices of essentials,The spiraling upward movement of prices of essentials,food items mainly has created a near panic conditionfood items mainly has created a near panic conditionamong the people. Although sky rocketing prices for rice,among the people. Although sky rocketing prices for rice,wheat and edible oil in the international markets arewheat and edible oil in the international markets arelargely the cause for rising prices in Bangladesh, therelargely the cause for rising prices in Bangladesh, thereare allegations that there might have been delays inare allegations that there might have been delays in

decision making in the government agencies to procuredecision making in the government agencies to procurefood items from abroad with our own FC reserves.food items from abroad with our own FC reserves. It isIt isknown that rising prices create incentives for hoarding asknown that rising prices create incentives for hoarding assellers gain more by that action. Many house holds withsellers gain more by that action. Many house holds withsurplus grains are also afraid of selling stocks until thesurplus grains are also afraid of selling stocks until thenext harvest is nearly certain. Besides importers alsonext harvest is nearly certain. Besides importers alsohave had incentives to stock up as that led to larger have had incentives to stock up as that led to larger gains from one or two shipments.gains from one or two shipments.

The trend for rising prices of food grain, of course startedThe trend for rising prices of food grain, of course startedtwo years back. That is the year 2006 was critical to plantwo years back. That is the year 2006 was critical to planfor meeting the short fall and arrange imports duringfor meeting the short fall and arrange imports during

2007.2007.

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So the crisis had its manifold causes and the current CTGSo the crisis had its manifold causes and the current CTG

among other things is trying to make the best of theamong other things is trying to make the best of thesituation against tougher international markets as mostsituation against tougher international markets as most

of the rice exporting countries has put restrictions onof the rice exporting countries has put restrictions on

export to avoid shortages in their domestic markets.export to avoid shortages in their domestic markets.

It is a commonly known problem in governance that we canIt is a commonly known problem in governance that we can

only see the actions and outcome of the presentonly see the actions and outcome of the presentgovernment without having no way to see what wouldgovernment without having no way to see what would

have been the situation if there were the so calledhave been the situation if there were the so called

elected government, failure of which brought the CTGelected government, failure of which brought the CTG

and its prolongation for two years instead of threeand its prolongation for two years instead of threemonths. This is a government by ten technocrat advisorsmonths. This is a government by ten technocrat advisors

and by definition this government was expected toand by definition this government was expected to

perform better than the horrendously large cabinet of illperform better than the horrendously large cabinet of ill

prepared politicians.prepared politicians.

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As the information goes we are expecting a As the information goes we are expecting abumper crop within a month. Potatoes andbumper crop within a month. Potatoes and

wheat are being harvested and we are expectingwheat are being harvested and we are expectingsome relief from rising prices.some relief from rising prices. H owever we must H owever we must also be aware that prices of essentials have aalso be aware that prices of essentials have atendency to be sticky downwards. Even if we get tendency to be sticky downwards. Even if we get a bumper harvest we may not get adequatea bumper harvest we may not get adequatesupply for government procurement at muchsupply for government procurement at muchlower prices this year. Surplus farmers havelower prices this year. Surplus farmers havetested tested higher higher prices for the first time in prices for the first time inBangladesh and they will be reluctant to reduceBangladesh and they will be reluctant to reduce

prices significantly as they have gained holding prices significantly as they have gained holding power from high prices from the last season. power from high prices from the last season. After all there is a structural shift upward in world After all there is a structural shift upward in worldgrain prices after a decade of low and stagnantgrain prices after a decade of low and stagnantprices.prices.

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Why ZBB for FY 2008 and FY 2009?Why ZBB for FY 2008 and FY 2009?

What we have to do is to recognize this permanent andWhat we have to do is to recognize this permanent andbeneficial upward shift of rice price to farmers and actbeneficial upward shift of rice price to farmers and actaccordingly. Market prices give signals to producers toaccordingly. Market prices give signals to producers toincrease production and this years high prices will doincrease production and this years high prices will dothat. In this budget we have to make provisions for that. In this budget we have to make provisions for huge fund needed to procure rice at higher prices( closehuge fund needed to procure rice at higher prices( close

to international prices), to include cost of food subsidy toto international prices), to include cost of food subsidy tothe poor in larger numbers, include higher costs for agrothe poor in larger numbers, include higher costs for agro--inputs for next year etc. This is a short term measure toinputs for next year etc. This is a short term measure toreduce threats from food shortages this year as importsreduce threats from food shortages this year as importsmay not be possible at all, given that most rice producingmay not be possible at all, given that most rice producing

countries have already banned export of rice.countries have already banned export of rice.

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T he concept actually involves taking a fresh look T he concept actually involves taking a fresh look at over all priorities and allocate resourcesat over all priorities and allocate resourceskeeping future requirements in view and ignoring keeping future requirements in view and ignoring the smaller base or zero bases that we might the smaller base or zero bases that we might have had for last years.have had for last years. Let¶s assume that suchLet¶s assume that suchdiversion to food and related aid sectors willdiversion to food and related aid sectors will

require 20% of the budget as opposed to 10%require 20% of the budget as opposed to 10%last year, it will then require cutting revenuelast year, it will then require cutting revenue(capital) expenditure by 10% from other sectors.(capital) expenditure by 10% from other sectors.What sectors and sub sector to go under cuts isWhat sectors and sub sector to go under cuts is

to be analyzed and agreed upon now. Costs andto be analyzed and agreed upon now. Costs andbenefits for such reallocation in favor of benefits for such reallocation in favor of agriculture and rural employment are obvious.agriculture and rural employment are obvious.

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For real application of ZBB in capital expenditureFor real application of ZBB in capital expenditureplanning we need much more serious considerationplanning we need much more serious considerationbecause it may involve not only cuts but abandonment of because it may involve not only cuts but abandonment of some on going projects for the time being as moresome on going projects for the time being as moreprojects will be taken in the agricultural sector and ruralprojects will be taken in the agricultural sector and ruraldevelopment for increasing production of grains anddevelopment for increasing production of grains andother crops to meet rising national demand in the comingother crops to meet rising national demand in the coming

years.years. On the other hand projects to reduce growth inOn the other hand projects to reduce growth in population in rural areas through better health and population in rural areas through better health and sanitation services must be given priority as growing sanitation services must be given priority as growing

population for a small country is a threat by itself. population for a small country is a threat by itself. TheTheMonga areas of Northern Bangladesh may have to beMonga areas of Northern Bangladesh may have to be

specially targeted for employment generation so thatspecially targeted for employment generation so thatpeople can buy food at higher prices. ADP must includepeople can buy food at higher prices. ADP must includea big shift to spend more money in related projects, sucha big shift to spend more money in related projects, suchas KBK and VGD etc.as KBK and VGD etc.

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Urban sector development should be financed fromUrban sector development should be financed fromthe private sector sources.the private sector sources.

It seems the urban sector as a whole has to see reducedIt seems the urban sector as a whole has to see reducedpublic investment for the next few years. It need not stoppublic investment for the next few years. It need not stopdeveloping however. Projects in water and sanitationdeveloping however. Projects in water and sanitationand power must also be undertaken in urban areas butand power must also be undertaken in urban areas butwith private sector funding.with private sector funding. T he city corporations likeT he city corporations likeDhaka and Chittagong should issue municipal bonds and Dhaka and Chittagong should issue municipal bonds and

raise money from the public directly at reasonable ratesraise money from the public directly at reasonable ratesof interest. T his is a common practice in most countriesof interest. T his is a common practice in most countriessince such local development benefits the residents insince such local development benefits the residents inmany ways including raising the value of their properties.many ways including raising the value of their properties.This will change the character of the city corporationsThis will change the character of the city corporationsfrom being depended on GoB fund to self financing of from being depended on GoB fund to self financing of capital expenditure on a project by project basis. Interestcapital expenditure on a project by project basis. Interestpayments on these bonds shall be paid from earnings of payments on these bonds shall be paid from earnings of the corporations from all sources including taxes.the corporations from all sources including taxes.

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T he policy to pour billions on DCC should beT he policy to pour billions on DCC should be

reconsidered as it is sucking people from all reconsidered as it is sucking people from all over the country and making lives uninhabitable.over the country and making lives uninhabitable.Why can¶t we take projects to build a twin cityWhy can¶t we take projects to build a twin citynear Gazipur/Sreepur by issuing bonds to thenear Gazipur/Sreepur by issuing bonds to theNRBs who are willing to invest? We may alsoNRBs who are willing to invest? We may alsonegotiate with large NGOs such as BRAC tonegotiate with large NGOs such as BRAC torelocate their offices in these new cities as theyrelocate their offices in these new cities as theydo not have much to do with government officesdo not have much to do with government officesin DCC. Do not pamper the residents of DCCin DCC. Do not pamper the residents of DCC

with more and more funds including donor fundswith more and more funds including donor fundsto improve infrastructure within greater Dhaka.to improve infrastructure within greater Dhaka.Let them invest their money and enjoy goodLet them invest their money and enjoy goodliving if they want to do that.living if they want to do that.

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Some other projects of lesser economic values and those haveSome other projects of lesser economic values and those havealternatives such as building bridges over roads and culverts,alternatives such as building bridges over roads and culverts,government offices etc may be postgovernment offices etc may be post-- postponed for the next twopostponed for the next two --three years. Instead of building roads and highways for buses andthree years. Instead of building roads and highways for buses and

trucks it is advisable to improve railway services network over thetrucks it is advisable to improve railway services network over thecountry to reduce pollution and make mass transit of goods andcountry to reduce pollution and make mass transit of goods andpeople cheaper. For that matter the unfinished rail link over JMPBpeople cheaper. For that matter the unfinished rail link over JMPBto Bogra and beyond should get priority this year over roads andto Bogra and beyond should get priority this year over roads andhigh ways. Controlling population growth is another priority tohigh ways. Controlling population growth is another priority toimprove food security in the long run as huge population in a smallimprove food security in the long run as huge population in a smallcountry is a threat to national security anyway.country is a threat to national security anyway.

Sine the first draft of the paper was published in the dailySine the first draft of the paper was published in the dailyIndependent on 18 April, 2008 I read many other papers from homeIndependent on 18 April, 2008 I read many other papers from homeabroad. The chart and the notes that we saw earlier was from aabroad. The chart and the notes that we saw earlier was from apaper published in the Daily Star on May 12, The Threat of Globalpaper published in the Daily Star on May 12, The Threat of Globalfood Shortages, by Prof. Peter Timmer an economist at Stanfordfood Shortages, by Prof. Peter Timmer an economist at StanfordUniversity. (Program on Food Security and Environment). On MayUniversity. (Program on Food Security and Environment). On May15, Subash Dasgupta of FAO Dhaka wrote ³How to solve the rice15, Subash Dasgupta of FAO Dhaka wrote ³How to solve the ricecrisis ³. His conclusion is the same that we presented in this paper,crisis ³. His conclusion is the same that we presented in this paper,i., e., divert resources. ³ What is important is to divert scarce subsidyi., e., divert resources. ³ What is important is to divert scarce subsidyresources for the benefit of producers to increase domesticresources for the benefit of producers to increase domesticproduction. Price support to the producers checks distress selling atproduction. Price support to the producers checks distress selling atthe time of harvests, and without support to the producersthe time of harvests, and without support to the producersproduction will go down making prices high´ he wrote.production will go down making prices high´ he wrote.

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Concluding remarks:Concluding remarks:

Finance is a man made resource and it hasFinance is a man made resource and it has

been possible to find many innovative ideas tobeen possible to find many innovative ideas toincrease investment in diverse fields to bringincrease investment in diverse fields to bringeconomic benefits to the people minimizing riskseconomic benefits to the people minimizing risksfor a given level of return. That is the ultimatefor a given level of return. That is the ultimateobjective in financial management in the privateobjective in financial management in the private

sector business. In the context of nationalsector business. In the context of nationalbudgeting high growth rates in GDP with morebudgeting high growth rates in GDP with moreequitable distribution of wealth are objectives toequitable distribution of wealth are objectives tobe pursued to reduce national security threats.be pursued to reduce national security threats.Food crisis bringing the specter of famine is aFood crisis bringing the specter of famine is a

recipe for national man made disaster. ZBB asrecipe for national man made disaster. ZBB asa tool that can reduce risk arising from fooda tool that can reduce risk arising from foodshortage in Bangladesh if applied in greatshortage in Bangladesh if applied in greatearnest.earnest.

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We have neglected agriculture and ruralWe have neglected agriculture and ruraldevelopment for long at the cost of the farmersdevelopment for long at the cost of the farmers

and the rural people. This time we are forced toand the rural people. This time we are forced toact under pressure from international markets.act under pressure from international markets.Markets are beneficial social institutions and theMarkets are beneficial social institutions and thedemand for rising food grains in the country atdemand for rising food grains in the country at

the time of bans by exporting countries requirethe time of bans by exporting countries requirethat we divert required investment funds by thethat we divert required investment funds by thedictates of the market not by any donor or dictates of the market not by any donor or foreign countries. In the past we have failed toforeign countries. In the past we have failed todo so for ignorance and political immaturity. Thisdo so for ignorance and political immaturity. Thistime ground realities have shifted from risingtime ground realities have shifted from risingprices of food items globally and we have to actprices of food items globally and we have to actaccordingly to avoid famine and chaos in theaccordingly to avoid famine and chaos in thecountry.country.

PB-005

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