The purpose of financial management in public sector is to deliver for the benefit of the population as a whole the best possible value for money ( economy,efficiency,effectiveness) in the mobilisation allcation of resources and delivery of services , based on policies established by the lagisature. This is achieved through an interaction between the planning and budgeting processes and subsequent implementation management , expenditure monitoring and control and performance measurement. In effect , a budget is a financial statement of the priorities in a plan.
Application of Financial Management in Public Sector of
Bangladesh
Prepared forDr. H. M. Mosarof HossainCourse Instructor, FIN 501:
Financial Management
Prepared byNameID
Mashrura Rahman Aurchi13164091
Md. Ripon Hosen12264022
Reaz Rahman13164111
Shiuli Biswas12264077
Binoy Sarker12364049
Tazul islam12364034
MBA ProgramBRAC University, Dhaka August 13, 2014
IntroductionA survey of senior government officers in Australia
in 1983 found that 94% saw financial management as spending no more
no less than their budget allocation. This perception would almost
certainly be reflected by government officers in Bangladesh today,
in so far as they had any concept of financial management. The
purpose of financial management in public sector is to deliver for
the benefit of the population as a whole the best possible value
for money in the mobilization and allocation of resources and
delivery of services, based on policies established by legislature.
In the commercial world, hence the financial management has become
dominant because it provides a complete input-output model of the
equity. This contrasts with the situation in the public sector.
Public sector financial management is the process of using the
available resources, measured in money, to achieve the optimal
service delivery outputs. The first step toward sound financial
management in the public sector, as in any other enterprise, is the
setting of both short- and long-term goals. Once leaders are
elected, they must set goals that they hope to achieve within their
official terms. This is in addition to the established governmental
responsibilities, such as security, healthcare, infrastructure and
welfare. When public officials know their plans, they will then
have a framework for the allocation of finances toward the
realization of those plans. This further instills a sense of
responsible spending in the officials and also makes it easier for
the public to hold them accountable for their spending when it
falls short of the plan. Sound financial management in the public
sector includes the development and management of any assets
inherent in a country. For example, if a country has natural
resources, such as crude oil, it is the duty of the public
officials to develop the resources and to manage the revenue from
such resources to the benefit of the society in general. In the
case of crude oil, this might include the building of refineries
and the allocation of the revenue from the crude oil and related
products to needed areas.Financial Objective of Public SectorThe
purpose of financial management in public sector is to deliver for
the benefit of the population as a whole the best possible value
for money ( economy,efficiency,effectiveness) in the mobilisation
allcation of resources and delivery of services , based on policies
established by the lagisature. This is achieved through an
interaction between the planning and budgeting processes and
subsequent implementation management , expenditure monitoring and
control and performance measurement. In effect , a budget is a
financial statement of the priorities in a plan.Public sector
organizations are established by statute or a similar vesting
document passed by the government or other law making bodies.
Therefore, managers cannot change them according to the changing
conditions.
Financial Management Cycle
Public sector financial management has three components:i. The
resource allocation decisions involved in budgetingii. The
monitoring and control of the implementation of budget
decisionsiii. The feedback or reporting to management.In the
commercial world, the accounting model, financial management has
become dominant since it provides a complete input output model of
the entity. This contrasts with the situation in public sector. In
the public sector most outputs are service delivery and therefore
unmonitored.
Commercial and public sector accounting models
Commercial Accounting Model
In the commercial accounting, the financial model leads to the
widely accepted concept of profit maximization. It also provides a
complete and simple input-output model for all the commercial
activities. This is why the accounting model has become widely
accepted.
Public Sector Accounting Model
In the public sector accounting model measures only work for
inputs, since there are generally no financial outputs. Concepts of
profit do not apply as historically public sector accounting and
budgeting has focused on input control. Modern public sector
financial controls systems typically involve attempts either to
monetize outputs or relate monetary inputs to non-monetary outputs
(e.g. Cost per patient per day at a hospital).
Budgeting and Resource allocation Budget decisions are based on
resource allocations to achieve optimal outputs. Budgets are linked
to a planning process, which should provide a medium term framework
of policy objectives to be operational in the budgets.
Traditionally budgets have been incremental based on an annual
cycle, because that is the easiest way to estimate expenditure and
also annual based since it fits with the parliamentary and
accounting timescales. Both approaches have come under significant
criticism for increasing allocation efficiency.Disadvantage of
incremental budgeting is that it is essentially orthodox and the
existing expenditure patterns become entrenched. As a result new
activities are always an addition rather than an alternative to
expenditure. Under the incremental budgeting, attention is focused
on few activities and expenses which are visible and the major part
simply carried on without any obligation.
Development and Revenue budget
The development budget approach in Bangladesh is to some extent
an attempt to implement these approaches. This recognizes that
there is a mass ongoing activity of government to which the
application of the budgeting approaches. The disadvantage of the
development and revenue budgets is that the latter becomes
entrenched and incremental based. Further programs would be
completed and transferred to revenue budget and the latter will
increase sources. Revenue budget will always tend to increase as
the programs are transferred into it as a part of the normal
recurrent expenditure without any overall review of the budget in
program terms ever being carried out. Further problem of the
segregation of the two budgets is the failure to recognize clearly
the resource allocation decisions being made between them.
Financial implementation of public sectorsThe financial sector
in Bangladesh is continuously involving towards a more modern and
efficient system of finance which is supportive of greater
investment and inclusive economic growth. The financial system of
Bangladesh consists of The Bangladesh Bank, scheduled banks,
non-bank financial institutions, micro finance institutions,
insurance companies, co-operative banks, credit rating agencies and
stock exchange.Health Care: Government-provided services play a
minor role. Almost half of the rural population visited quacks and
village doctors. The health sector has been allocated Tk 93.55
billion in the annual budget for the fiscal year (FY) from July
2012 to June 2013, which is seen as the penultimate budget of the
government that is set to complete its term in June 2014. Per
capita health expenditure US$16 (2007), $27 (2011). Budget analysis
shows that the national budget as per cent of GDP has increased
from 14.5 percent in FY 2008-09 to 18.4 per cent in FY 2012-13..
The health sector budget per child has been estimated to be BDT 606
in the provisional budget of FY2012-13, implying on average, 14.3
per cent increase per annum from actual expenditure of FY2009-10.16
On the other hand, per capita national budget rose from BDT 6,836
to BDT 12,458. It is important to assess the health sector budget
to comprehend how far the sector commitments and programs are being
translated into fiscal measures, from the perspective of the most
deprived children population.Education Sector:The Government of
Bangladesh has demonstrated strong commitment to education since
independence by formulating relevant national policies, strategies
and laws, and ratifying relevant conventions and declarations at
regional and international levels. Education gets the second
largest allocation after public administration with 11.16 per cent
of total budget in 2012-13 while public administration received
12.6 per cent. Primary education is the most important investment
for consolidating the foundation of child education, after
pre-schooling. But analysis reveals that the share of primary
education budget witnessed fluctuation and ranged from around 42 to
46 per cent of total education budget from 2009-10 to 2012-13, with
a negative growth in 2011-12.
Off-Farm Extension Services: Animal husbandry services are
largely provided by the private sector (52%), and the government
(43%). Over 35% of the users are dissatisfied with government
services compared with 13% for the private sector. Poultry rearing.
In the urban areas, 70% of the people received these services from
the government and 34% from the private sector, as opposed to 33%
and 45%, respectively, in the rural areas sector.Banking Sector:The
government's encouragement during the late 1970s and early 1980s of
agricultural development and private industry brought changes in
lending strategies. Managed by the Bangladesh Krishi Bank, a
specialized agricultural banking institution, lending to farmers
and fishermen dramatically expanded. The number of rural bank
branches doubled between 1977 and 1985, to more than 3,330.
Denationalization and private industrial growth led the Bangladesh
Bank and the World Bank to focus their lending on the emerging
private manufacturing sector. Bangladesh Bank is also responsible
for planning the government's monetary policy and implementing it
thereby.Implementing an Effective Dairy Development Planning
Process:The financial resources commonly deployed by developed
countries to support their heavily subsidized dairy industries are
not available in developing countries. This absence of significant
resources highlights the necessity for forging an enabling
environment that is supportive of sector development through
carefully crafted and focused policy interventions. These
interventions should ensure engagement of the private sector
through innovative partnerships, cost-sharing arrangements and
meaningful participation of smallholders. In Asia, where the
majority of milk is sourced from smallholders with two to five
cows, this requires a deliberate and creative development vehicle
generated and endorsed through a carefully organized planning
process. Transportation and Communication: Modern transport and
communication infrastructure play a significant role in the
socio-economic development of a country. Among all infrastructure
systems, a well-knit transport and communication system is crucial
for the advancement of a developing country. In FY2009-10, growth
in this sector and its contribution to GDP at constant price were
about 10.79 percent and 7.69 percent respectively. These rates were
10.91 percent and 7.93 percent respectively during FY2010-11(BBS
estimation). The Government has identified regional and
international transport connectivity and started linking the
country with the connectivity network for ensuring socio-economic
development of the country. RHD is currently operating about 153
ferry boats in 60 ferries on its road network throughout the
country. The road network under roads and highways division
combining different types of roads built over a period from 2001 to
2011. A total number of 152 development (or investment) projects
including 6 JDCF projects has been included in the Annual
Development Program (ADP) of Roads and Highways Department for FY
2010-11. An amount of Tk.2, 063.61 crore is allocated for a total
of 152 investment projects. The Government is committed to
transform BR into a feasible and market oriented organization with
managerial, financial and administrative autonomy to meet its
objectives.Insurance Corporation:The insurance sector is regulated
by the Insurance Act, 1938 with regulatory oversight provided by
the controller of insurance on authority under the Ministry of
Commerce. A separate insurance regulatory authority is being
established. A total of 62 insurance companies have been operating
in Bangladesh, of which 18 provide life insurance and 44 are in the
general insurance field. Among the life insurance companies, except
the state-owned Jiban Bima Corporation foreign owned American Life
Insurance Company, and the rest are private. Among the general
insurance companies, state-owned Shadharan Bima Corporation is the
most active in the insurance sector. A total of 31 insurance
companies are listed in the capital market, of which eight offer
life insurances.Potential Sectors
:AgribusinessCeramicsElectronicsFrozen FoodsGarments and
TextitlesICT and Business ServicesLeather and Leather GoodsLight
EngineeringPower IndustrryLife Science
MONITORING OF PUBLIC SECTOR FINANCIAL MANAGEMENTImplementation
Monitoring and Evaluation Division, Image commonly known as IMED,
is the central and apex organization of the Government of the
Peoples Republic of Bangladesh for monitoring and evaluation of the
public sector development Projects included in the Annual
Development Program (ADP). As per Allocation of Business among the
Different Ministries/Divisions, the IMED also deals with the
matters relating to Central Procurement Technical Unit (CPTU) and
administration of The Public Procurement Act, 2006 and The Public
Procurement Rules, 2008. The CPTU of IMED acts as a central organ
of the government for policy formulation, coordination, monitoring
and improvement of the public procurement process in Bangladesh.
The prime function of IMED is to monitor and evaluate the
implementation of development projects in order to enable the
ministries and executing agencies to ensure their proper
implementation. Through monitoring, it points out to the project
implementing ministries and other appropriate authorities the
progress of implementation and problems, if any, relating to the
quality, time, cost for taking remedial measures.The Rules of
Business of the government allocated the following functions to the
IMED: Monitoring and Evaluation of the implementation of
development projects included in the Annual Development Programme.
Collection and compilation of project-wise data for preparing
quarterly, annual and periodical progress reports for information
of the President, NEC, ECNEC, Ministries and other concerned.
Rendering such advisory or consultancy services to
Ministries/Agencies concerned on implementation of projects as and
when necessary. Field inspection of projects for on the spot
verification of implementation status and such other Co-ordination
works as may be necessary for the removal of implementation
problems, if any, with the assistance of related
Ministries/Agencies. Submission of project inspection reports to
the President and Ministers concerned when attention at such levels
are considered necessary. Matters relating to Central Procurement
Technical Unit (CPTU). Matters relating to The Public Procurement
Regulations, 2003. Such other functions as may be assigned to the
Division by the Prime Minister from time to time.
How It WorksMED is involved in the whole gamut of activities in
a project cycle - from project preparation (pre-project) to project
completion and even impact evaluation. Following is a brief
description.
a) Pre Project Phase: During this phase IMED examines the
following:Rationale of project cost estimates and implementation
schedule, duplication/overlap with other projects, consistency with
the Five Year Plan objectives, comparison with experience of
similar projects implemented earlier, size of project manpower and
sustainability of institutional framework for project
implementation. It suggests improvement as member of the project
approving committees of the Planning Commission and Departmental
Project Evaluation Committees (DPEC) of the Line Ministries.b)
Implementation Phase: During implementation, IMED monitors progress
to ensure timely and quality implementation. It has evolved a
system of information flow from projects, agencies and ministries
for effective monitoring. The instruments for information
generation consist of: (a) periodic reports, (b) procurement
reports, (c) field inspections, (d) monthly coordination/review
meetings, (e) special meetings with the Project Directors.
Information so collected are processed and analyzed on a monthly,
quarterly & annual basis to review implementation performance
of Ministries/Divisions which is followed by macro reviews at the
NEC, the ECNEC and by the Honble Prime Minister.c)
Post-Implementation Phase: Terminal evaluation reports are prepared
by IMED on all projects immediately on completion. It contains an
analysis of the project progress with recommendations. It also
commissions ex-post evaluation of selected projects for assessing
their impacts on the community and the lessons learned are used in
future project design and implementation. Output of IMED
IMED monitors more than 1200 projects of the ADP and evaluates
around 200 projects on an annual basis. IMED output consists of :
monthly performance evaluation of projects of the
Ministries/Divisions, quarterly performance evaluation reports of
ADP included projects, annual review report on ADP implementation,
annual project evaluation reports, project directors' profile, and
Such other special reports prepared at the direction of the Honble
Prime Minister, Planning Minister, the NEC and the ECNEC. The main
thrust of IMED's monitoring activities is identification of
implementation problems and their timely resolution to accelerate
project progress. All the reports prepared by IMED contain
identified implementation problems and suggestions for action.
These are discussed in review meetings held at the Ministry, the
NEC and the ECNEC. The process helps resolution of project problems
in time. ConclusionThe basic tenet in financial management is that
costs should be incurred only if by so doing, the community or
organization can expect to move toward agreed-upon goals and
objectives. Determining whether the commitment of governmental
resources improves conditions in the broader community can get
complicated, however, particularly when no basis exists for
assessing the value to individuals of such actions. The Pareto
criterion suggests that the welfare of a community is improved if
some members are made better off while no one is made worse off.
This criterion has no logical flaws and does not require
interpersonal comparisons of utility. Not all members of the
community are likely to benefit equally from a given government
action. Therefore, many public choices are still open to political
decision. Despite the best efforts to achieve rigor and
sophistication, scientific analysis cannot provide definitive
answers to many of the questions involved in the allocation of
government resources. Nevertheless, a continuous search must be
maintained for more productive ways to operate public organizations
and to assess their capacity to meet changing conditions and
demands for the delivery of services. The common denominator among
the various resources of any organization is the cost involved in
their utilization. The production of public goods and services
requires the acquisition and allocation of relatively scarce
resources, the values of which are measured and compared in the
common unit of money.
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