What is ZBB?

1. Zero Based Budgeting (ZBB), a concept whose time has come for application in GoB Budgets for FY 2008 and FY 2009. Prof. M. Shamsul Haque, Ph. D.*

2. An opportunity is there for the care taker government (CTG) to adopt the concept of Zero- Base -Budgeting and divert resources for agricultural and rural development to avoid food shortages and increase employment. A paradigm shift is necessary for a sound strategy for economic development and reducing national risks in Bangladesh.

3. What is ZBB? • Efficient allocation of resources being an overriding objective in good governance, budgeting for expenditures is done every year both for revenues and capital expenditures in the ADP. Usual practice in budgeting is known as incremental allocation on what was budgeted or spent last year or so. In this system existing lines of expenses get some money allocated every year without any critical analysis of the items. Given the fact politicians tend to use budgetary allocations to maintain their support base, corruption side, money gets allocated in certain projects even if there are better expenses or projects within an area of interest or outside.

4. “With zero-based processing one can forget about last year, pretend that the program is brand- new and see if one can provide a detail of expenses for what one would need to fully accomplish the program.”

5. Rising prices of food items in Bangladesh and the world over are permanent. • The spiraling upward movement of prices of essentials, food items mainly has created a near panic condition among the people. Although sky rocketing prices for rice, wheat and edible oil in the international markets are largely the cause for rising prices in Bangladesh, there are allegations that there might have been delays in decision making in the government agencies to procure food items from abroad with our own FC reserves. It is known that rising prices create incentives for hoarding as sellers gain more by that action. Many house holds with surplus grains are also afraid of selling stocks until the next harvest is nearly certain. Besides importers also have had incentives to stock up as that led to larger gains from one or two shipments. • The trend for rising prices of food grain, of course started two years back. That is the year 2006 was critical to plan for meeting the short fall and arrange imports during 2007.

6. So the crisis had its manifold causes and the current CTG among other things is trying to make the best of the situation against tougher international markets as most of the rice exporting countries has put restrictions on export to avoid shortages in their domestic markets. It is a commonly known problem in governance that we can only see the actions and outcome of the present government without having no way to see what would have been the situation if there were the so called elected government, failure of which brought the CTG and its prolongation for two years instead of three months. This is a government by ten technocrat advisors and by definition this government was expected to perform better than the horrendously large cabinet of ill prepared politicians.

7. As the information goes we are expecting a bumper crop within a month. Potatoes and wheat are being harvested and we are expecting some relief from rising prices. However we must also be aware that prices of essentials have a tendency to be sticky downwards. Even if we get a bumper harvest we may not get adequate supply for government procurement at much lower prices this year. Surplus farmers have tested higher prices for the first time in Bangladesh and they will be reluctant to reduce prices significantly as they have gained holding power from high prices from the last season. After all there is a structural shift upward in world grain prices after a decade of low and stagnant prices.

8. Why ZBB for FY 2008 and FY 2009? • What we have to do is to recognize this permanent and beneficial upward shift of rice price to farmers and act accordingly. Market prices give signals to producers to increase production and this years high prices will do that. In this budget we have to make provisions for huge fund needed to procure rice at higher prices( close to international prices), to include cost of food subsidy to the poor in larger numbers, include higher costs for agro-inputs for next year etc. This is a short term measure to reduce threats from food shortages this year as imports may not be possible at all, given that most rice producing countries have already banned export of rice.

9. The concept actually involves taking a fresh look at over all priorities and allocate resources keeping future requirements in view and ignoring the smaller base or zero bases that we might have had for last years. Let’s assume that such diversion to food and related aid sectors will require 20% of the budget as opposed to 10% last year, it will then require cutting revenue (capital) expenditure by 10% from other sectors. What sectors and sub sector to go under cuts is to be analyzed and agreed upon now. Costs and benefits for such reallocation in favor of agriculture and rural employment are obvious.

10. For real application of ZBB in capital expenditure planning we need much more serious consideration because it may involve not only cuts but abandonment of some on going projects for the time being as more projects will be taken in the agricultural sector and rural development for increasing production of grains and other crops to meet rising national demand in the coming years. On the other hand projects to reduce growth in population in rural areas through better health and sanitation services must be given priority as growing population for a small country is a threat by itself. The Monga areas of Northern Bangladesh may have to be specially targeted for employment generation so that people can buy food at higher prices. ADP must include a big shift to spend more money in related projects, such as KBK and VGD etc.

11. Urban sector development should be financed from the private sector sources. • It seems the urban sector as a whole has to see reduced public investment for the next few years. It need not stop developing however. Projects in water and sanitation and power must also be undertaken in urban areas but with private sector funding. The city corporations like Dhaka and Chittagong should issue municipal bonds and raise money from the public directly at reasonable rates of interest. This is a common practice in most countries since such local development benefits the residents in many ways including raising the value of their properties. This will change the character of the city corporations from being depended on GoB fund to self financing of capital expenditure on a project by project basis. Interest payments on these bonds shall be paid from earnings of the corporations from all sources including taxes.

12. The policy to pour billions on DCC should be reconsidered as it is sucking people from all over the country and making lives uninhabitable. Why can’t we take projects to build a twin city near Gazipur/Sreepur by issuing bonds to the NRBs who are willing to invest? We may also negotiate with large NGOs such as BRAC to relocate their offices in these new cities as they do not have much to do with government offices in DCC. Do not pamper the residents of DCC with more and more funds including donor funds to improve infrastructure within greater Dhaka. Let them invest their money and enjoy good living if they want to do that.

13. Some other projects of lesser economic values and those have alternatives such as building bridges over roads and culverts, government offices etc may be post- postponed for the next two -three years. Instead of building roads and highways for buses and trucks it is advisable to improve railway services network over the country to reduce pollution and make mass transit of goods and people cheaper. For that matter the unfinished rail link over JMPB to Bogra and beyond should get priority this year over roads and high ways. Controlling population growth is another priority to improve food security in the long run as huge population in a small country is a threat to national security anyway. • Sine the first draft of the paper was published in the daily Independent on 18 April, 2008 I read many other papers from home abroad. The chart and the notes that we saw earlier was from a paper published in the Daily Star on May 12, The Threat of Global food Shortages, by Prof. Peter Timmer an economist at Stanford University. (Program on Food Security and Environment). On May 15, Subash Dasgupta of FAO Dhaka wrote “How to solve the rice crisis “. His conclusion is the same that we presented in this paper, i., e., divert resources. “ What is important is to divert scarce subsidy resources for the benefit of producers to increase domestic production. Price support to the producers checks distress selling at the time of harvests, and without support to the producers production will go down making prices high” he wrote.

14. Concluding remarks: • Finance is a man made resource and it has been possible to find many innovative ideas to increase investment in diverse fields to bring economic benefits to the people minimizing risks for a given level of return. That is the ultimate objective in financial management in the private sector business. In the context of national budgeting high growth rates in GDP with more equitable distribution of wealth are objectives to be pursued to reduce national security threats. Food crisis bringing the specter of famine is a recipe for national man made disaster. ZBB as a tool that can reduce risk arising from food shortage in Bangladesh if applied in great earnest.

15. We have neglected agriculture and rural development for long at the cost of the farmers and the rural people. This time we are forced to act under pressure from international markets. Markets are beneficial social institutions and the demand for rising food grains in the country at the time of bans by exporting countries require that we divert required investment funds by the dictates of the market not by any donor or foreign countries. In the past we have failed to do so for ignorance and political immaturity. This time ground realities have shifted from rising prices of food items globally and we have to act accordingly to avoid famine and chaos in the country.