FY23 ADP outlay to be 5.58% of GDP – lowest in 8 years

The annual development programme (ADP) outlay is getting lower as percentage of the gross domestic product (GDP) for the upcoming fiscal year despite a surge in demands from different ministries. 

The Finance Division, in a recent meeting, set the ADP size at Tk2.46 lakh crore for the FY2022-23, which is only 5.58% of GDP – the lowest in eight years.

The ADP allocations are hovering around 6-7% of GDP since FY2014-15. In the current fiscal (FY2021-22), the original ADP outlay was 6.5% of GDP. However, it reduced to 5.71% as per calculation under the new base year. 

The next fiscal year's ADP outlay is going to be 0.13 percentage point lower compared to that of the current fiscal. However, the demand for the upcoming fiscal's development programmes was Tk38,500crore higher.

The 17 April meeting of the Budget Monitoring and Resource Committee, while setting the main objective of the next budget, said the key focus would be checking inflation and increasing people's earnings by generating employment. "The projects that may fail to contribute to increasing people's income will not be approved this time,"  Finance Secretary Abdur Rouf Talukder told the policy-level meeting also attended by Finance Minister AHM Mustafa Kamal.

Discouraging new projects, he said the current development projects would take up to seven years to be completed. "In such a situation, launching new projects will hamper the existing ones."

The finance secretary suggested designing projects in compliance with the medium-term budgetary framework.

According to the finance ministry, the draft budget for the next fiscal is 12.29% higher than the current one, and the ADP is 9.26% higher. 

In FY10, the ADP was 19.14% higher year-on-year and in the next couple of years it increased up to 38% – 20% on average. In 2020-21 fiscal during the pandemic, the ADP growth was only 1%. In the current fiscal (FY22), the ADP growth was 9.84%.

The draft budget for FY23 allocated 14.09% for the non-development sector, while it projected an 11.31% increase in revenue collection and 11.91% in GDP.

Economists believe the development works of the government will be interrupted if the expected allocations against ongoing projects will not be made.

A number of megaprojects were about to be complete, while many projects just witnessed field-level work, they said, adding a shortage in funds would cause an additional delay in the project implementation, and increase costs.

"Shortfall in revenue collection impacts development works," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

"The government is now struggling to manage its operating costs with the collected revenue. So, development projects become dependent on loans," he told The Business Standard.

"If the government fails to allocate adequate budgets, implementation of the development projects will not see momentum. It will also delay returns from the projects." 

The economist fears that new development projects amid the fund shortage will create a backlog.

Share of foreign aid falls

In the current fiscal's  ADP, the government funds Tk1.37 lakh crore on its own, while the remaining Tk88,024 crore or 39% is supposed to come from foreign development partners. For the next fiscal, foreign partner aid has been cut to 37.77%. External sources are expected to provide Tk93,000crore in the next fiscal.

"Some $50 billion foreign aid remains in the pipeline, but we fail to utilise that at expected rate. In the meantime, we need to pay extra money as commitment fees. Besides, decreased foreign funds increase pressure on internal resources," the finance secretary told the resource committee meeting, also attended by Economic Relations Division Secretary Fatema Yasmin, and Planning Secretary Pradeep Ranjan Chakraborty,  among others.

The finance secretary emphasised using at least $5 billion every year from the pipeline aid.

ERD Secretary Fatema Yasmin said many projects could not be started due to various complexities, despite loan agreements with foreign partners. "The delay ends the grace periods of the loans. As a result, we need to pay loan interests and the principal [without project progress]," she added.

Pointing out the complexities, she suggested completing preliminary work well before signing loan agreements or project approval.

Pressure of new projects mounting

According to the Planning Commission, the total cost of the 1,819 projects approved under the ADP had been estimated at Tk18.5 lakh crore, while some Tk5.71 lakh crore had already been spent, as of June last year. 

After minusing the current fiscal's allocation, the projects need more Tk10.70 lakh crore.

Planning Secretary Pradeep Ranjan Chakraborty said despite the severe fund crunch, the ministries and departments had sought approval for 1,475 more projects. 

Ministries were advised to avoid new construction projects, but each of the ministries demanded more allocation than the medium-term budget framework ceiling, the planning secretary said. "Yet, most projects proposed by the ministries are on infrastructure development."

The planning secretary said projects which aim at recovery from the pandemic, job creation, poverty alleviation and, in particular, those close to completion would get priority.

Some ministries seeking additional allocation

The revised ADP for the Secondary and Higher Education Division for the current fiscal year has been increased by about 70% from Tk8,259 crore to Tk14,000 crore. 

Even after this, Md Abu Bakar Siddique, secretary of the division, demanded a further increase in the allocation at the meeting of the Budget Monitoring and Resources Committee.

Helal Uddin, senior secretary of the Local Government Division, also demanded an increase of ADP allocation for his division from the allocated Tk41,707 crore, saying that his division works on a wide range of issues, including water and sanitation in rural and urban areas, which were important for achieving SDGs.

Secretary of the Power Division Md Habibur Rahman also demanded the same.

According to a source present at the meeting, Finance Minister AHM Mustafa Kamal rejected the proposals of increasing ADP to three ministries.

"No one can foresee the future of the Russia-Ukraine war, which has already shot up spending in many sectors," the minister said and called for focusing on the implementation of existing projects.

Big cut in ADP revision for current fiscal

Although the government kept the target of revenue collection the same in the revised budget, it cut ADP allocation.

The FY2021-22 budget, presented at the meeting, revised down to Tk5,93,500crore, which was Tk10,181 crore less than the original.

The revised budget cut Tk17,774crore ADP allocation to Tk2.07 lakh crore.

On the other hand, an additional Tk7,593crore has been added to the revised budget without any reduction in operating expenses. 

Economists emphasise successful implementation

Even with the allocation cut, projects under the ADP can be successful if the efficiency implementation is increased, said Akhtar Mahmood, former lead private sector specialist at the World Bank in Bangladesh, told TBS.

"In Bangladesh, ADP implementation is evaluated based on spending which is not expected at all," he said, adding that the ultimate progress of the projects should be considered.

Besides, social impacts and people's benefits from the projects are needed to be evaluated, believes Akhtar.

"There is no wrong with increasing outputs by spending less. However, the reality is that all are focused on project spending, as those can be shown up easily. With such a culture, the chance of corruption increases."

He suggested agencies concerned to increase their capacity in implementing annual development projects.