Public Resource Management
Report No: ; Type: Report/Evaluation Memorandum ; Country: Bangladesh; Region: South Asia; Sector: Public Sector Management Adjustment; Major
                                            Sector: Public Sector Management; ProjectID: P009464


    The Bangladesh Public Resource Management Adjustment Project for US$150 million equivalent,
supported by Credit 2361-BD was approved in FY92. The Credit closed in FY97, following two
extensions from the original closing date in FY94. A balance of about US$50 million scheduled for third
tranche release was canceled. The Implementation Completion Report (ICR) was prepared by the South
Asia Regional Office. The Borrower's contribution is included as an appendix.

    The objective of the Public Resource Management Adjustment Credit (PRMAC) was to support the
Government of Bangladesh's efforts to improve macroeconomic management and the balance of
payments sustainability. The focus was key fiscal policy and institutional arrangements to improve public
resource management, public savings and the Government contribution to the Annual Development
Program (ADP). Policy reforms were targeted at improving revenue mobilization by broadening the tax
base, improving tax administration and reducing tax arrears. These reforms were complemented by
measures designed to improve the management and prioritization of public expenditure, both current and
investment spending, so as to improve the efficiency of project implementation and aid utilization. Other
measures were intended to strengthen institutional capabilities, institute budget and accounting reform,
and improve internal debt management of the larger State Owned Enterprises (SOEs).

     Initial progress (FY92 to FY94) in the achievement of the above objectives was good but was less
satisfactory in the following two years. There was a strong improvement in the budget's revenue surplus
from 0.9% of GDP in FY91 to 3.3% in FY95, which reduced one of the key constraints on the growth of
public investment. This was achieved by augmenting revenues and containing current expenditures. A
notable achievement was a strong improvement in revenue mobilization from 9.3% of GDP in FY90 to
12.2% of GDP in FY94, due largely to the introduction of a Value Added Taxation system.
Disappointingly, this trend was not maintained, and Government revenue declined to 11.5% of GDP by
FY96. Progress was also made in improving the quality of the ADP by introducing a rolling three year
investment program and enhancing the rigor of project monitoring and evaluation. Again, the impetus for
administrative reform weakened and the third tranche was not released, owing to the Government's failure
to maintain the revenue performance targets specified under the Credit.

     The ICR rates project outcome as satisfactory, sustainability as uncertain and institutional
development as substantial. The Operations Evaluation Department (OED) rates the project outcome as
marginally satisfactory, institutional development as modest and concurs with the sustainability rating.
OED believes that positive progress has been made in improving public resource management in
Bangladesh despite the doubts about sustainability, and that this project contributed to this improvement.
Less satisfactory were the achievements made in bringing about a fundamental improvement in
institutional performance and capabilities. Both the ICR and OED rate Bank performance as satisfactory.

    The main lessons drawn from this project include the following: (a) the need for strong Government
commitment and resolve in improving public resource management is especially crucial when there are
many conflicting interests among potential beneficiaries; (b) in fiscal adjustment operations such as this,
tranche release conditions should be limited in number, but sharply focused on key issues and constraints,
and take realistic cognizance of the existing institutional limitations;
(c) speedy improvements in revenue mobilization can be accomplished by broadening the tax base, in a
transparent manner, buttressed by an appropriate and efficient collection and enforcement system; (d)
donors need to work collectively to improve the quality and efficiency of public investment programs.

    The ICR is satisfactory but has a number of omissions. There were a number of cofinanciers for this
project, but while their comments were solicited, none was received. Furthermore, the standard table
showing mission schedules during the life of the project was missing. There are a number of positive
features, however. The Aide Memoire of the completion mission, together with the detailed Government
comments, suggests that a productive dialogue resulted from the project completion and evaluation
exercise.

    No audit is planned.