Public Financial Management (PFM) is the backbone of effective governance, ensuring transparent and efficient use of taxpayer money. In Bangladesh, the landscape of PFM is undergoing a significant transformation, driven by technological advancements and a renewed focus on accountability. A recent compilation of lectures by Mohammad Muslim Chowdhury, the Comptroller and Auditor General (CAG) of Bangladesh, offers invaluable insights into the evolving architecture of PFM, its historical context, and the challenges and opportunities ahead.
The core message emphasizes the urgent need for public managers to reorient their skill-sets to leverage technological interventions that have revolutionized manual tasks within PFM, paving the way for innovation and value addition. This shift is not about job displacement but about enhancing efficiency and allowing human judgment to focus on higher-value areas.
Table of Contents
The Four Pillars of PFM
The lectures conceptualize PFM through a framework of four interconnected panels, each with distinct responsibilities that are nevertheless interdependent, especially the first three in processing daily transactions:
- Executive (Budget Holder) Panel: This panel comprises any person or organization (including the Judiciary and Parliament) that spends the budget to render public services. Key figures include the Principal Accounting Officer (PAO), who is accountable to Parliament for the regularity and propriety of expenditure, and various Controlling Officers (COs) at different hierarchical levels. Their responsibilities are guided by crucial legal documents such as the Constitution, Rules of Business, General Financial Rules (GFR), Public Procurement Act (PPA), and Public Procurement Rules (PPR). A significant emerging issue highlighted is the erroneous mixing of policy and implementation functions within ministries, often leading to deviations from legal frameworks like the Upazila Parishad Act, where central government subordinate offices operate at the Upazila level instead of being placed under local governments.
- Pay and Accounts Panel: Led by the Controller General of Accounts (CGA), this panel is responsible for pre-audit before payments and comprehensive accounting after payments. Historically, the Accountant General (AG) was not directly involved in payment processes across the subcontinent before 1983, with the treasury system handling payments and initial accounts. The conversion of district treasuries into District Accounts Offices (DAFOs) and Upazila Accounts Offices (UAOs) after 1983 centralized the initial accounts preparation under the AG’s function, significantly improving the system by placing payment, accounting, and supervisory control under the same authority. This panel now utilizes the Integrated Budget and Accounting System (iBAS++) modules for streamlined operations.
- Treasury (Bank) Panel: This panel, represented primarily by Bangladesh Bank and its agents (like Sonali Bank historically), manages the government’s cash, receipts, and disbursements. The evolution from non-bank treasuries to bank treasuries, and now the reduced reliance on agent banks due to Electronic Fund Transfer (EFT), Magnetic Ink Character Recognition (MICR) Cheques, and A-Challan, has made the system more efficient. The Treasury Single Account (TSA), maintained with the central bank, serves as the single bank account for the entire budgetary central government, improving cash management and reducing borrowing costs by minimizing idle funds.
- Statutory Audit Panel: As the external audit body, the Office of the Comptroller and Auditor General (CAG) is tasked with independent audit of government accounts and transactions, reporting results to Parliament. The CAG is recognized as a Constitutional Monocratic Body, whose appointment, jurisdiction, privileges, and removal are protected by the Constitution. This panel performs compliance audit (regulatory and propriety), financial audit (correctness and reliability of accounts), and performance audit (economy, efficiency, and effectiveness). The ultimate goal is to shift from mundane, manual “ticking and checking” to system-based, holistic audit that focuses on strategic issues and overall PFM effectiveness.
Legal and Constitutional Underpinnings of PFM
Bangladesh’s PFM is deeply rooted in its Constitution. All executive and financial powers originate from the President, who then delegates them to various government functionaries through mechanisms like the Rules of Business. Key financial procedures are enshrined in Chapter II, Part-V of the Constitution, which defines terms like the Annual Financial Statement (AFS) (the budget statement) and distinguishes between Money Bills and other financial legislation.
The Constitution mandates two primary funds: the Consolidated Fund (CF) and the Public Account of the Republic (PAR). The CF receives all government revenues, loans raised, and loan repayments, from which expenditures are made only after parliamentary approval through the Appropriation Act. The PAR, on the other hand, holds moneys for which the government acts as a custodian or trustee, such as provident funds and savings certificates. Crucially, withdrawals from PAR do not require parliamentary voting.
A significant challenge highlighted is the unplanned borrowing through savings certificates under PAR, which often exceeds planned borrowing for budget deficits. This not only inflates borrowing costs due to high fixed interest rates but also violates principles of prudent public finance, as funds intended for small savers are used for general budget financing. Audit reports are urged to highlight such policy mismatches.
The Technological Revolution and IFMIS
The advent of iBAS++ is at the heart of PFM redesign. This integrated system features Budget Preparation, Budget Execution, and Accounting modules. The goal is to facilitate centralized payment systems and real-time record-keeping, enhancing accountability and efficiency. Innovations like A-Challan, a web-portal system, allow tax and non-tax revenues to be deposited through any bank branch, directly crediting the TSA daily, eliminating time lags in revenue recognition and improving cash management. Similarly, EFT and MICR cheques are revolutionizing payments, enabling direct credit to beneficiaries’ accounts and eventually replacing physical cheques, which will significantly reduce reconciliation efforts and audit costs.
A major reform area is pension payment. The development of centralized employee and pensioner databases linked with National IDs has enabled better tracking, reduced anomalies (like “ghost pensioners”), and facilitated electronic payments via EFT or Mobile Financial Services (MFS) directly to beneficiaries’ chosen accounts, minimizing manual processes and harassment for pensioners. This centralization of record-keeping, even with decentralized service delivery, aims to restore the integrity of accounts and improve audit efficiency.
Fiscal Prudence and Debt Management
Sound fiscal management requires a clear borrowing plan tied to cash flow forecasts. The government’s borrowing instruments include Treasury Bills (tenor less than 1 year) and Treasury Bonds (tenor more than 1 year), primarily used for deficit financing. A crucial principle is the “golden rule” of public finance: capital expenditure should ideally be financed by long-term debt (bonds) to match asset and liability tenors, avoiding asset-liability mismatch. The practice of financing long-term investments with short-term treasury bills is problematic and should be flagged by auditors.
The Ways and Means Advance (WMA) from Bangladesh Bank is a temporary borrowing facility to cover day-to-day cash mismatches, not budget deficits. Auditors are urged to ensure WMA protocols are observed and that borrowing is planned and not automatic, as was the case before 2010. The current challenge of cancelled treasury bill/bond auctions due to surplus cash from excessive savings certificate sales highlights a policy mismatch and unplanned borrowing.
Institutional Landscape and Governance
The government comprises policy units (Ministries/Divisions) and implementation units (Departments/Directorates, Subordinate Offices). There is a continuous effort to clarify their roles and ensure adherence to mandated functions.
Beyond the central government’s budgetary sector, the General Government Sector includes Statutory Public Authorities (SPAs) / Autonomous Bodies and Local Government Institutions (LGIs). These entities often have their own funds and corporate governance structures, distinguishing them from traditional government departments. While they receive grants-in-aid (tax-financed, non-marketable services), their expenditures are not fully reflected in the central government’s Finance and Appropriation Accounts. The future vision is for these entities to also adopt iBAS++ and BACS, allowing for consolidated financial statements for the entire General Government, enhancing transparency and comprehensive reporting.
A key issue with LGIs is the practice of receiving grants-in-aid via cheques upfront, leading to unspent funds lying outside the TSA and increasing central government borrowing costs. The proposed remedy is to revert to the Personal Ledger (PL) system, where LGIs would access funds from the TSA only upon incurring expenditure, similar to historical practices.
A Vision for the Future
The journey of PFM reform in Bangladesh is dynamic and continuous. The ultimate goal is to achieve centralized accounting with decentralized service points, allowing for real-time insights into government finances. This involves leveraging advanced technologies, continually refining the Budgeting and Accounting Classification System (BACS), and broadening its scope to encompass the entire public sector, eventually moving towards accrual-based accounting to provide a comprehensive view of assets and liabilities. This will not only make the PFM system robust and reliable but also enable audit to focus on higher-level strategic issues, adding significant value to public service delivery and accountability. The CAG emphasizes that this transformative journey requires sustained effort, professional development, and a proactive approach from all involved in public service.