View with images and charts “Development Planning In Bangladesh: During 1973--2003: A Critical Analysis” CHAPTER - I 1.1 INTRODUCTION The classical theory of ‘development planning’ envisages economic growth as a process of capital accumulation for investment. W Arthur Lewis descried the process of development as one of transforming a country from five- percent saver and investor to a twelve- percent saver and investor. It implies that a society does not apply the whole of its current productive activity to the needs and desires of immediate consumption, but directs a part of it to the making of capital goods, tools and instruments, machinery’s and transport facilities, plant and equipment – all the various forms of real capital that can increase the efficiency of productive effort. But the neo-classical & modern theory of ‘development planning’ envisages the term development something more than that of economic growth. A few statements would make it understandable to us. Development is fundamentally a process of change that involves the whole society, its economic, social, political & physical structure as well as the value system & way of life of the people (Weilz, 1971). Porter (1995) defines development as a complex of three important criteria: - (i) Economically sharp and sustained increase in national product, (ii) Socially redistribution of national income on an egalitarian basis, and incorporation of the marginalized masses into the economy, (iii) Culturally, emergence of a new national self image. Development has been defined as the process by which powerless people every where are free from all forms of dependency social, cultural and political, so that create a personal sense of history for themselves and thereby express their full potential as human being (Kim, 1973). Development encompasses wide ranging changes in techniques of producing, and distributing goods, in the sale and organization of production and in types of outputs and inputs (Richard, 1968). It embraces major shifts in industrial, occupational and spatial distribution of productive resources and in the degree of exchange basis and monitization of the economy. On the social and demographic side, it involves significant alterations in fertility, mortality, migration of residence, family size, structure, educational system, and in provision of public health. Its influence extends into the areas of income distribution, class structure, government organization and political structure. According to Schumpeter, “Development is a discontinuous and spontaneous change in stationary state which for ever alters and displaces the Equilibrium State previously existing”. Professor Bone says, “Development requires and involves some sort of direction, regulation and guidance to generate the forces of expression and maintain them.” Development may be conceived as a multi-dimensional process involving changes in social structures, popular attitudes and national institutions as well as the acceleration of economic growth, the reduction of inequality and the eradication of absolute poverty ( Todaro,). Thus, development means growth plus change viz. – improved performance of the factors of production, techniques of production, man’s growing control over nature, development of institutions and changes in values and attitudes, where distribution of income is more equitable, minimum level of consumption, calorie intake, housing, sanitation are ensured, composition of the consumption is desirable and balanced and minimum level of unemployment (Meier,).
Ursula Hicks and Schumpeter has opined that development planning refers to the problems of developing and ‘less developing countries’ (LDCs). That the problem of these countries are concerned with the development of unused resources, even though their uses are well known. With development and increase in per capita GDP, the structure of demand for goods and services changes. Though both agricultural and non agricultural sector develops, the higher demand for manufactured goods and services leads to the development of tertiary sector, migration of population from rural to urban and expansion of marketing activities take place. According to Albert Waterson, “Development requires social and cultural change as well as growth; that is, qualitative transformation must occur concurrently with quantitative increases. There is , in fact, a reciprocal relationship between the two; and neither process is likely to continue for a long or go very far without the other. Hence, development means change plus growth. The quest for development planning throughout the developing and ‘less developing countries’ has been predicted largely upon the formulation and implementation of development plan. The core idea of development planning is that the political process in a society is used in an intelligent way to allocate scarce resources to achieve certain goals and objectives. Waterson considers a country engaged in development planning if its government makes a deliberate and continuing attempt to accelerate the rate of economic and social progress and to alter institutional arrangements that block the attainment of such goals. According to W. Arthur Lewis, development planning may contain any or all of these elements: (i) A survey of current economic situations; (ii) A list of proposed public expenditures; (iii) A discussion of likely developments in the private sector; (iv) A macro economic projection for the whole economy; (v) A review of government policies; (vi) Proposals for improving the institutional framework of the economic activity; The plan normally begins reviewing progress in recent years, especially since the last plan was issued. Such information is merely a curtain raiser, suggesting the problems which must be selected for further attention. Changes are noted in population, national output, investment, saving, consumption, government expenditure, taxation, the balance of payments etc. The macro- economic projection is useful for testing the mutual consistency of the quantitative assumptions and proposals in the plan; and may also stimulate investment by revealing unsuspected relationships. Its usefulness depends on the quality of statistics that go into it. Given adequate statistics, it is useful in large complex economies, not useful in small and simple economies. The danger of the exercise lies in the possibility of being dazzled by an array of doubtful figures. Development plans in the developing and ‘Less Developing Countries’ basically seek to achieve the objectives: # Rapid economic growth measured in terms of GDP; # Expansion of employment opportunities for the unemployed underemployed by a suitable combination of projects and programs;
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# Distribute justice through effective fiscal and pricing policies and by opening economic opportunities for lower income groups; # Order into planning and execution of government expenditure, especially in capital sector; # Promoting an increase in savings both public and private; # Provision of adequate infrastructure( water, power, transfort, communication); # Provision for specialized training facilities as well as adequate general education thereby ensuring necessary skills. Mainly examining what is proposed under each of these heads (objectives/ policies) should test the quality of a development plan. The recent trends towards putting more figures into development plans have unfortunately tendered to obscure the fact that what matters in planning are not mainly figures but mainly policies. These objectives encourage the governments to seek to influence the activities of the private sector through Investment Schedule. The core of planning for the higher productivity in private sector lies in a set of policies, which induce private persons to employ their time and resources more productively. The quality of a plan depends on the quality of its policies rather than on quality or quantity of its arithmetic. Michael P. Todaro observed differential role of planning, that is, the concept of planning may be limited to the formulation of a few related capital projects or it may encompass the use of all resources, public and private, human and physical. In mixed economies, governments generally set target figures for output to each sectoral activity in different time frames. The development plans show macro economic projections and output targets and also indicate how government proposes to raise money and recruit people to carryout the objectives. The process of planning may be ‘top down’ to the extent that investment are planned and controlled by a single central planning organization. It also may be a bottom up planning process whereby participation of masses in the development activity is sought and devolution of planning functions to regional local governments. While the ‘top down’ approach has been widely practiced even in Bangladesh. But ‘bottom up’ approach is yet to be tried in a market economy. Tanzania is said to have been trying this for limited purpose. Development plans are conducted in different time frames: (a) Perspective plan (10 – 20 years); (b) Medium term plan (5 – 7 years); and (c) Short term plan (1 – 2 years). The perspective plan outlines the hopes and aspirations of the society on long time frame for social and economic development with predictions about mobilization of resources for attainment of these goals. The long-term goals are broken into phases through medium term plans, mostly five-year plan, on operational basis. Usually a medium term plan will proposes to take measures for three basic goals – life sustenance, self – esteem and freedom from servitude. These are again broken to a number of specific objectives. Usually, a medium term plan is annexed with a list of projects, which are expected to translate the plan objectives into realities. A short-term one-year plan is called Annual Development Plan (ADP). It is an operational plan of the medium term plan and typically integrated into the Annual Budget. ADP may also include economic policies, controls and directives that may extend beyond the budget. In ADP, specific allocations are made for economic development projects of public sector for the fiscal year concerned. In private sector activities, investment programs are outlined in ‘ Investment Schedule’.
Every long term and medium term plan would have built in strategy for achieving the stated objectives. I . G. Patel says, ‘strategy implies essentially a deliberate choice – a choice of the point and timing and manner of attack on the problem at hand.’ For example, the ‘First Five Year Plan’ of Bangladesh has been designed to generate a rate of growth, which would have a minimum consumption standard, expanded employment and socially desirable income distribution. The basic strategy was to concentrate on increasing output in those sectors of the economy which would use large number of labor and labor intensive techniques of production.Within the general strategy, it envisages to reduce dependence on imports of food grains and export promotion. The objectives of the development plan and the strategy adopted for attaining those objectives may not work as planned. The act of making priority choice in project selection and resource allocation may also cause failure in achieving plan objectives. Regional imbalance in development may lead to allocation of resources to less productive sectors. Social structure may also lead to injudicious resource allocation in a small elite group controlled society. Again, the governments may have their own political imperatives depending on their nature and character. Such imperatives are usually results of interest articulation. Too much donor dependency leads to their interruption in internal policy formulation. The ‘Medium Term’ five-year plan and its operational ‘Annual Plans’ are assemblages of development projects. According to Gittinger, a development project is a specific activity with a specific ending point intended to accomplish specific objectives. In a short, a project is a planned hypothesis with a starting time, a finishing time, a cost and a geographical location for achievement of purpose. The relationship between projects and development plans has been dramatized by Little and Mirrless by presenting the twin propositions that ‘plan require projects and project require plans’. The best economic appraisal of projects cannot, however, be made without a plan. Macro – economic planning in terms of figures aggregated for the whole economy, can be gradually improved in light of improvements in micro-planning, that is, planning at the sectoral level and project levels and vice versa. Professor Nurual Islam says, “ The plan, however, provides for adquate flexibility so as, to be able to incorporate, in terms of projects and programs, the results of subsequent analysis and additional statistical information, as soon as they are available. The annual plans are expected to provide necessary mechanism of adjustment and flexibility. It is said that projects are the building blocks of development plan. Project has three stages of cycle: (a) Design ( includes feasibility study and appraisal); (b) Implementation ( includes monitoring and on-going evaluation ); (c) Evaluation (post evaluation). Institutional arrangements are required to support the development planning process and the project cycle. In Bangladesh, the Planning Commission is the central planning organization, which through macro – model, makes macro economic projections and sets targets for each sectoral activity. The agencies or subordinate offices of the Ministries/ Divisions select the projects on felt need basis and design them for inclusion in development plan. Technical and Economic feasibility of development project is basically done by the respective Ministry/Division. The Planning Commission also undertake the preliminary evaluation as to
whether a project is technically and economically feasible & viable. The NEC is entrusted with the function of taking the ultimate decision on the basis of the Planning Commission recommendation. The Cabinet has the final authority to select from the list of viable project for inclusion in the ‘Annual Budget’. According to Planning Commission ‘Guide Lines’ the executive Ministry /Division and Department/Agencies, thereunder are responsible for the preparation, processing and implementation of the approved projects. The project implementation unit (PIU) is responsible for implementation of projects, and Ministry/Division is primarily entrusted to monitor the progress of its implementation, while ‘Implementation Monitoring and Evaluation Division’ is responsible for monitoring progress of projects against their pre – set objectives/ targets. History of planning in many countries indicates that a plan easily degenerates into an academic exercise, if political leadership and administrative machinery are not seriously committed to its implementation. An important prerequisite for plan implementation is the presence of speedy decision making process. The delegation of authority and fixation of clear-cut responsibility are recognized to be the best method of ensuring the growth of initiative and responsibility. Decision making ability improve with that of joint decision making process through consultation. In adequate coordination between different Ministries/Divisions are adversely affects the execution of development projects and smooth functioning of the economy. The difficulties of coordination increase in proportion to the number of Ministries/Divisions and Department/Agencies need to be coordinated. Plan evaluation works necessarily fall on the ‘Central Planning Agency’. The Planning Commission has to undertake the preliminary evaluation as to whether a project is technically and economically feasible and viable. It also collects information on the progress of a particular plan during the course of its implementation and uses this information as a feedback for the preparation of the next short-term plan. Usually, such evaluation results find place in the ‘macro- chapters’ as well as in the ‘sectoral - chapters’. In Bangladesh, no one medium/ short term plan was evaluated although a mid term review of the Third Five Year Plan and Fifth Five Year Plan was done by the central planning agency. This has created a communication gap between the planners and the people at large about, what is happening as a result of ‘development planning’. 1.2 STATEMENT OF THE PROBLEM Development Planning as a practice in Bangladesh has its roots in the pre- liberation days, when a Provincial Planning Board, constituted in the Mid- Fifties, was busy in pushing projects prepared by Parastatals or Ministries for securing larger share of available public resources in pursuit of parity in allocation. Because, lack of experience and political overtone, many projects were not properly formulated and analyzed. The proforma used for preparation, formulation, appraisal, monitoring and completion had bias towards budgeting the resources. The ‘macro consistency model’, which was used for the Second Five Year Plan of Pakistan, was basically for broad sectoral allocation. During Pakistan regime, planning strategy was for industrialization with the aspiration of ‘trickle down effect’ to the toiling mass. After the independence of Bangladesh, the Planning Commission was established by the ‘Presidential Order’ in January 1972. The development planning process has been started in Bangladesh through the initiation of the First Five Year Plan (1973 – 78). During the period of 1973 – 2003, Bangladesh has implemented five medium term (five year) plans and a short term (Two year) plan & also witnessed a two year ‘plan holidays’. The central planning agency carried out the mid-term
review of the TFYP and FFYP. But it did not carry out evaluation of any of the medium term or short term plan. Despite the country’s efforts at planned development for more than three decades, the economic scenario that obtains dismal one. Although there has been some modest growth in over all productivity since the initial disastrous years following the liberation war, the average standard of living in Bangladesh still remains pitifully low. There has been worsening of the distribution of income. The increase in impoverishment and pauperization is a part of the dynamic process linked to the pace and pattern of economic development in the country. Historical evidence shows that during the 20 th century development decades, in a wold bank study on ‘redistribution with growth’, H. B. Chenery has made the following statements. ‘In the development decade of rapid growth, under developed countries has of little or no benefits to perhaps a third of their population. Although the average per capita income has increased 50% since 1960, this growth has been very unequally distributed among countries and socio- economic groups. Thus the very idea of growth has increasingly being questions.’ International Labor Office reports on Columbia shows that growth took place but distribution is unequal, unemployment increased and number of persons below absolute poverty line also increased. The experience of development planning during 1950s and 1960s has made W. Arthur Lewis skeptic about efforts of governments of LDCs in planning for development. According to Lewis, ‘development in these countries were undertaken - to show that government is doing something, to obtain foreign aid and to distribute patronage to its elite clientele. In Bangladesh, though the growth rate is about 5% for the last three decades but poverty situation & also the socio-economic indicators did not improve as expected by the development planners. The number of households in the rural areas below the minimum calorie need increased from 53 per cent in 1962-64 to 59 per cent in 1975/76 and further to 76 per cent in 1981/82. The trend was undoubtedly on the increase despite that food grain import more than compensated the loss of crop. The per capita availability of food grain increased by 6 per cent over 1980/81, from 15 oz. a day to 15.9 oz. Against this increase in per capita availability of food, the increase in the proportion of households below the prescribed calorie intake the working of a complex set of socio-economic forces which have come to deny adequate food to an ever increasing proportion of households. Access to income and employment is undoubtedly necessary for access to food. Though, it itself is not adequate for probably three times as much man-days of employment was created in 1981/82 than in 1975/76 through the Food For Works Program which has come to constitute the fulcrum of rural employment since the 1974 famine. In Bangladesh, although growth takes place but income distribution was skewed. The deteriorating poverty situation against planned efforts in LDCs, likely to strengthen the heresy about planned growth. In fact growing poverty in the Third World led to reawakening of planners in 1970s and new ideas like equitable growth and basic needs flourished. There are some Pharisees who profess growth first, distribution later [Haq, Mahbubul, 1963]. In South Korea, where continued high growth rate, raised the real wages and standard of living of the common man. But the experiences of Sri Lanka in the last three decades show that the
high growth is not only the way of reducing poverty. During this period the index of ‘ Physical Quality of Life ’ increased from 65 to 80 ( Roemer, M & Stern, J.U , 1981), though GDP growth rate was around 4.5% a year between 1980 – 1982, about half of that of South Korea. This is possible because of the institutional developments beyond market mechanism. In Bangladesh, where poverty has remained a continued theme of development and growth has been considered as a necessary condition for poverty alleviation. 1.3 PURPOSE AND OBJECTIVES OF THE STUDY The major purpose of the study is to investigate the ‘development planning process’ followed in Bangladesh during the period of 1973 – 2003. The specific objectives of the study are as follows: (i) (ii) (iii) (iv) (v) (vi)
(vii) (viii)
To study the macro economic planning and policy implications used in development plans; To study the strategies followed to achieve the plan objectives; To study the development planning related to design, approval, implementation, monitoring and evaluation of projects; To study the level of coordination of intra and inter department projects at all levels; To asses the effectiveness of the role assigned to planning commission and the importance given to the process of planned development; To assess the deficiencies and possibilities of the institutional arrangements effected for accelerated social development through a local government system to identify the problems of coordination and integration. To have a comparative picture of development experience in other developing countries specially – India, Tanzania, Malaysia, South Korea, Srilanka; and To prescribe development perspective/ strategies/ models for Bangladesh.
1.4 JUSTIFICATION OF THE STUDY The need for ‘development planning’ for attaining growth plus qualitative change in developing and ‘less developing countries’ is a leading issue. In case of Bangladesh, emerging out of protest against economic exploitation and political & social decrepit, independence did not imply a stage of fully equipped onslaught on poverty and ill development of the national economy with a long term social philosophy for society – building with planning techniques. After the initial steps of dealing with ‘ enemy property’ and ‘alien industry/ business’, the new independent regime found the whole arena a clean state except the colouring of heritage of Pakistan ideas of development planning based on encouragement of capitalism. In that situation, the new constitution framed in 1972 provided for the establishment of ‘an exploitation – free society’ with five basic changes in the approach to a new identity of ideological choice within the broad frame-work of the 4 ‘State principles’: Democracy, Nationalism, Secularism and Socialism. These are: (i) Conditions are to be created to emancipate the toiling masses from all forces of exploitation; (ii) Every citizen is to enjoy the right to work;
(iii) (iv) (v)
All citizens are to be assured equal opportunity so that an egalitarian society can be established; Enjoyment of unearned income is to be discouraged; Limits to private ownership of means of production to be fixed by law.
The Government of the People’s Republic of Bangladesh has implemented five ‘Medium term’ and a ‘Two Year plan’ & also a two- year ‘plan holidays’ during 1973- 2003. Except the mid-term review on Third FiveYear Plan and Fifth Five Year Plan, the Planning Commission did no other evaluation. An indept critical analysis of the plans already implemented is necessary to identify the bottlenecks in plan formulation, implementation and their achievements during different political regimes to develop an appropriate perspective/ strategy for the future. The study focuses the intrinsic aspects of the future development planing in Bangladesh, which would be helpful for the policy makers. 1.5 HYPOTHESIS (i) (ii) (iii) (iv)
The strategies followed in development planning during 1973 – 2003, mismatch with that of objectives stated in the plan document; The lack of proper coordination of implementation of development projects/ programs at all stages led to the failure of plan development; Development planning during 1973-2003 led to growth but not over all development of Bangladesh. The Macro- Planning and policy implications thereof do not have a significant impact on actual development process in the country.
1.6 Assumptions (I) (II) (III)
The data and statistics available for its use and further reference. The continuity of political stable government will exist. There should be a national consensus on major social, political, and economic issues among the political parties. (IV) There exists continuous equilibrium in the market (factor and product market). (V) The government is capable of preparing and prioritizing the sectoral projects and is able to initiate appropriate policies, which influence the realization of public sector plans. (VI) There should be government intervention where market does not function well. (VII) The presence of democratic policy, accountable government and relative independence of ‘ planning machinery’ exists in Bangladesh. 1.7 METHODOLOGY OF THE STUDY The study is based on both primarily and secondary data available in Planning Division, Economic Relations Division, Finance Division, Implementation Monitoring and Evaluation Division, Local Government Division and in Donor Agencies. The Research Study Reports, Articles published in local and international Journals also are reviewed. The primary data through an ‘interview schedule’ of the Planners, Monitors and the Project Directors collected. Both primary and secondary data would be analyzed statistically by using mean values, standard deviation, and coefficient of variation, multiple correlation and trends of growth rates.
1.8 The Chapter Plan. Chapter I: Introduction, Statement of the problem, Purpose and objectives of the study, Justification of the study, Hypothesis, Assumptions. The Plan of the study. Chapter II: Review of relevant literatures, studies, and critique of earlier studies. Chapter III: Theoretical and Conceptual Framework of the Study. Chapter IV: Critical Review of Plan objectives, strategies, implementation and achievements. Chapter V: Methodological issues related to selection of sample, nature and sources of data. Techniques of analysis. Chapter VI: Analysis and interpretation of data, testing of hypothesis, major observations and limitations of the study. Chapter VII: The Planning experience of India, South Korea, Malaysia, Srilanka and Tanzania. Chapter VIII: Summary and Conclusion, Policy Implications. Bibliography. Lists of Appendices. CHAPTER - II Review of related Literature & Research Reports 2.1 Planning Commission (‘Handbook’, November 1983) defines the term ‘Development Planning’. Development Planning entails determination of long – term development perspective of priorities and objectives, goals and strategies of medium and short-term plans within the framework of the achievement of planned goals and targets. Translated in terms of functions, the above scope of development planning deduces to the following elements: (I) (ii) (iii) (IV) (V) (vi)
Policy Planning, i. e., determination of goals and objectives, priorities and strategies & policy measures for development plans; Selectoral Planning, i. e., identification of the role that the various sectors of the economy are required to play in the context of the goals and objectives set out under element (i); Program Planning, i .e., formulation of detailed sectoral programs to realize the sectoral plans identified under element (ii); Project Planning, i.e., preparation of projects embodying investment decisions for the implementation of the sectoral programs formulated under element (iii); Project Implementation and Monitoring, i. e., institution of appropriate management apparatus for supervision and efficient completion of projects adopted under element (iv); and Evaluation, i.e., review of effects of projects, programs and plans.
On reflection it will become apparent that some of the elements of planning stated above, taken individually, cannot be successfully implemented without being combined with some other element or elements. For example, element (i) i. e., policy planning cannot be performed without a combination of the macro aspect of element (vi) i. e., evaluation. Unless a policy planner has some sort of institutional link with macro evaluation activity, he will be at loss in the formulation of development policies. Again, it is impossible to implement element (ii) i. e., sectoral planning in isolation of elements (i)
i. e., policy planning. In fact, sectoral planning follows directly from the plan model formulated under element (i). Consistency requirement also dictates that sectoral planning i. e.; element (ii) should be combined with policy planning i. e., element (i). Need for appropriate organizational arrangements for development planning. 2.1.1 The Bangladesh Planning Commission Bangladesh Planning Commission assumed the characteristics of ‘Central Planning Agency’ since 1972 , under a unitary structure of government administration. The Commission was conceived to be a professional body at a very high level. The Deputy Chairman of the Commission was given the Cabinet rank and the Members were given the rank of State Minister. However, in recognition of the fact that planning is a political process the Minister of Finance was given in charge of the Ministry of Planning (Planning Commission). Subsequently, The Prime Minister became the Minister for Planning and later the Vice President took over the portfolio of planning. There was no separate Planning Division & one of the wings of Planning Commission looked after its administration as well as external resources mobilization. To start with the functions of Planning Commission also included monitoring of development projects. But subsequently, in order to accelarate implementation of projects the government felt the need for a separate agency for this purpose. Project Implementation Bureau (PIB) was established in 1975 as a Division under the Ministry of Planning. PIB later on upgraded as a Division and renamed as Implementation, Monitoring & Evaluation Division under the Ministry of Finance. The high status given to the Planning Commission created some peculiar problems in as much as it eroded the authority of the Ministers even though the country did not opt for complete Central Planning. A change was, therefore, brought about in 1975. The Planning Commission became a professional body once again, but its status was reduced by down grading the rank of the Deputy Chairman and making Members equivalent to Secretary to the government. A little later the function of external resource mobilization was entrusted to a separate Division & was placed under the Ministry of Finance. This Division was named as External Resources Division now days renamed as Economic Relations Division. Simultaneously, the Planning Division was created to look after the administration and executive aspects of the Planning functions thereby relegating the Planning Commission to a kind of advisory body. In actual operation, however, the unitary structure of the government led Planning Commission to perform advisories as well as an executive body & authentication of the executive orders. Under the new structural transformation of the Planning Commission, it became necessary to strengthen the technical capability of Ministries/ Divsions in order to enable them to discharge their enhanced responsibility of planning functions. With this purpose in view, Planning Cells were created in the Ministries/ Divisions and some of the ‘Autonomous Bodies’ in 1975. 2.1.2 The functions of the Planning Commission The Planning Commission has a three-fold involvement in development planning: (i) advisory, (ii) executive, and (iii) evaluation. Its advisory role is prominent in the element of policy planning. 2.1.3 Structure of the Planning Commission:
At the policy level the Commission consists of a Deputy Chairman and five Members. Below the Commission, there are six Divisions that are further sub-divided into thirty wings. Two of the Divisions deal with the general macro issues of the economy. These are (i) General Economics & Evaluation Division and (ii) Programming, Evaluation and Appraisal Division. The other four Divisions deal with the planning & policy issues of different sectors of the economy. The specific functions of the two macro Divisions and the four sectors Divisions are stated below: General Economics Division: Functions. (i) Evaluation of plans and policies. (ii) Review of macro economic situation covering national income, international economic relations, saving, investment, fiscal & monitory situation, employment & other macro economic aspects of the economy. (VI) Determination of macro economic policies. (VII) Co-ordination of plan preparation Perspective, Five Year & Annual. (VIII) Coordination of research on macro economic issues. Programming and Appraisal Division - Function (i) (ii) (iii)
Co – ordination of preparation of annual development programs. Authorization of development projects & release of funds for unapproved projects. Economic appraisal of development projects.
Sector Division. (i) (ii) (iii) (iv) (v)
Function
Formulation of sectoral plans consistent with the macro planning objectives. Coordination of sectoral development programs consistent with sectoral plans. Processing of development projects including project appraisal & serving as a secretariat of the sectoral Project Evaluation Committees. Preparation of the sectoral annual development programs in consultation with the sectoral Ministries/Divisions and Agencies. Formulation of sectoral development and planning policies.
The functions of the Commission stated above are discharged through a six tier structure of officials, namely Member, Division Chief, Joint Chief, Deputy Chief, Senior/ Assistant Chief. The working Units of a Division are Wings headed by a Joint Chief, Deputy Chief heads Branches. Senior/ Assistant Chief heads desks. 2.1.4 Linkage of the planning Commission with other government offices The Commission is invariably required to maintain close liaison with all other Ministries/Divisions and Agencies of the government. At first, in the field of policy planning, the Commission needs data support & advice on policy issues connected with sectoral plans. Secondly, in the preparation of the annual development programs it depends entirely on the allocation proposals of the Ministries/Divisions & other Agencies. Thirdly, its projectprocessing role starts after the preparation of those by the Ministries/ Divisions.
A part from these, the Commission has to depend for planning inputs on some specialized agencies of the government. It depends on, Economic Relations Division for quality & quantity of foreign aid & also for micro level project financing through project aid and authorization. Finance Division & Internal Resource Division advice the Commission in matters of resource availability and formulation of fiscal & monitory policies. The day to day involvement of Finance Division in project authorization is essential for the Commission’s work. The allocation of funds to individual projects in the ADP is guided by the progress reports of IMED. The field experience of IMED is also utilized in the project processing work of the Commission. The Bureau of Statistics meets the comprehensive data requirement of the Commission. 2.1.5 M. A. H. Khandkar (1988) in an article entitled “ Institutional structure for development planning in Bangladesh” stated the elements of ‘development planning’ in a more elaborate way. In the introduction he mentioned the form of Bangladesh government, degree of devolution of administration. Bangladesh posses a mixed economy with a unitary form of government. Although at the time of emergence as a free nation it had probably had some commitment for a socialist economy which, however, did not come into being & even lost its ideological mooring within a short period of time. During the 1980s, through a limited devolution of planning responsibility to the local governments, called Upazilas, a shade of federalism has been cast in the character of development administration. However, the degree of devolution is not high enough to style the country as yet a federation. The Upazilas have been given the responsibility of planning & implementation only of local level projects and programs, which in all probability will get dovetailed with the central plans. Thus, Bangladesh still retain the character of unitary form of government. Under a unitary form, the entire responsibility of administration falls on the central government. The central government, however, executes its administrative responsibilities through the creation of a number of institutions/agencies with specified tasks. The development planning function is also discharged in the same way. This is how planning function is performed in Bangladesh. It remains to be seen as to which element of the planning function is done by which institution/agency. He then agrees with the elements of ‘development planning’ as stated in the handbook of Planning Commission. In the following paragraphs, he narrated each of the elements of ‘development planning.’ (i)
Policy Planning
On the various functional elements, policy planning comes first. In this sphere, the National Economic Council (NEC) exists at the apex of the organizational hierarchy. The President (the then head of the government now the Prime Minister) of the Peoples Republic of Bangladesh heads the NEC and all members of the ‘Council of Ministers’ are its members. The Deputy Chairman of the planning commission (vacant) and the Governor of Bangladesh Bank attend the meetings of NEC on invitation. The NEC is the highest economic policy making body including policies on development planning and on it is vested in the country the authority to decide policy issues on matters of development planning. But NEC is not a permanent body in an organizational sense; it works as a committee. It needs assistance from a staff organization, which is to feed it with policy options. This staff function is performed by a central agency named ‘Planning Commission.’ In keeping with this functional responsibility, the planning commission, by its charter of duties, interalia, has been made responsible for the ‘preparation of national plans, annual, five year and perspective, for the economic and social development. In essence, the planning commission is the executive arm of the NEC and accordingly prepares policy papers and plans in consultation with other
agencies of the government and experts on various aspects of the economy. The range of consultation that the commission caries on in its that the policy planning work is so wide. It will not be wrong to state that the policy suggestions prepared by the commission represents the feelings of the entire nation. However, the commission is only a recommendatory body. The final decision on planning policy issues is taken by the NEC. (ii)
Sectoral program planning
The planning commission plays the major role both as initiator of ideas and coordinator of views received from the respective sectoral agencies. The Government of Bangladesh functions through a number of Ministries/Divisions, each of which has been entrusted with some Sectoral functions in the sphere of development. These Ministries/Divisions are the executive arms of the government so far as the implementation of plans, programs and policies concerned. It is quite obvious that these agencies should have an active role in the preparation of sectoral programs given the macro objectives. The planning commission in its technical wing has a number of sector Divisions, such as Agriculture, Industry, etc. These sector Divisions coordinate the program planning activities and finalize the programs for incorporation in the final plan. Specific panel of experts are also constituted to refine the program proposals prepared by the commission in consultation with the respective agencies. (iii)
Project planning
The entire responsibility of these remains with the executive Ministries/Divisions and the agencies set up under them. Each development Ministry/Division has one or more agencies under it, some of the character of para-statal bodies and some full-fledged government bodies. The para-statal bodies are called the corporations and pure government bodies are called the departments/directorates. These bodies are the executive arms of the Ministries/Divisions projects are invariably prepared by the agencies for further processing for approval. If the Ministries/Divisions become satisfied about the relevance of projects to the sectoral objectives, they then process it for approval. There exists a well-defined procedure for approval of development projects. Each development Ministry/Division has an inter-Ministerial Project Evaluation Committee (DPEC) for examining projects towards approval. The DPEC, after being satisfied about the techno- economic aspects of a project in relation to sectoral objectives submits its recommendation for approval of the project. The project is than approved by the Minister in charge of the concerned Ministry, if the costs of the project does not exceed 2 crores (1982). Projects exceeding the costs limit of taka 2 crores are submitted to the planning commission for further processing. Each sector, Division of the planning commission has an inter – Ministerial project evaluation committee, under the chairmanship of the Member planning commission in charge of the sector. Projects submitted to the planning commission, this evaluation committee examines for approval and is than submitted to the Minister in charge of Planning, to a subcommittee of the NEC called ECNEC. The Minister in charge of the Ministry of Finance with a few other Ministers as Members (composition of ECNEC has changed from time to time) usually chairs it. Since, the NEC can not find time to meet as frequently as it required to dispose of business like project approval and other day to day policy issues concerning planning and development, it has delegated some of its power to the ECNEC. The functions of the ECNEC are : (i)
Consideration and approval of development projects costing taka 2 crores.
(ii) Consideration and approval of investment projects in the private sector costing taka 15 crores. (iii) Review of progress of implementation of development projects. (iv) Consideration of proposals for investment companies as private or joint ventures or with foreign participation. (v) Monitoring of the economic situation and review of overall performance of the economy and related policy issues. (vi) Consideration of performance of statutory corporations specially their financial results. (vii) Consideration of rates, fees and prices of public utility service or products of public enterprise. In the ‘Hand book’ stated the procedure for processing of development projects in the public sector. It includes the time frame for processing by executing agency, concerned Ministry/ Division, Planning Commission, ECNEC &NEC; category of projects in terms of investment costs (APPENDIX-I). Project proforma is also stated in the Handbook (APPENDIX-II). The project proforma (PP) is the basic document, which is prepared for approval of project details by the competent authority. Four types of project proforma are used (1982) for processing of various types of project proposals for sanction. They are: (i) PC-II (ii) PPP (iii) TAPP (iv) PP PC-II forms were used for submission of proposals for feasibility study/survey for development of projects, which require preliminary feasibility study/survey before a project can be firmed up. The preliminary project proforma (PPP) is used as a project preview in situation, where negotiation for obtaining external assistance is required to be initiated well before formulation of a full pledged PP or a project required to be included in ADP on mandatory consideration, but it is not possible to prepare a usual PP for unavoidable reasons. TAPP is used for submission of proposals for technical assistance project. These projects include: (a) Transfer of technology and acquisition of desired knowhow by an organization in Bangladesh, which may include import of expertise and/or equipment’s for certain, duration of time within the framework of the development programs for unavoidable reasons. (b) Preparatory assistance for investment proposals/programs and utilization of expatriate experts therefor; (c) Imports of expertise for management improvement for organization or projects. (d) Overseas training of Bangladesh personnel in desired fields; (e) Institutional support. The project proforma are to be submitted for all projects other than Technical Assistance Project indicated above. The PPP is not a substitute for the project proforma that is in force nor it is intended to dispense with the requirement with a usual PP. Besides, there were other proforma, which are used for submission of reports to IMED in connection with implementation of projects. These are: (v) proforma for Progress of Development projects;
(vi) proforma for Annual Physical Progress of projects; (vii) Proforma for Completion Reports of the projects. Proforma for submission of progress reports are in two parts, Part-I deals with Monthly progress on financial matters, while Part-II deals with quarterly report on physical progress. Annual physical program of on-going projects is also submitted for each project to IMED and Planning Commission. These are submitted in IMED forms. Moreover, proforma for completion report is submitted on completion of a project. (iv)
Project Implementation & Monitoring
With the approval of a project starts its implementation phase. Once a project is approved, it is included in the annual development program (ADP). The ADP is the development budget of this country through which all development projects are financed. It is prepared on an annual basis by the planning commission in consultation with the concerned Ministries/Divisions and agencies under them. Since availability of resource is the prime factor, which determines the ADP, the Finance Division and the Economic Relations Division are intimately associated in the work of its preparation. It should be mentioned here that, notwithstanding the normal rule that no unapproved project should be included in the ADP, the ADP’s of successive years have contained many unapproved projects for historical as well as other extraneous reasons. With the financial backing from the ADP, a project becomes ready for implementation. All projects are implemented by the executive agencies i. e. the corporations, directorates and departments under the concerned Ministries/Divisions. Appropriate administrative set ups as required by the nature of the different projects are instituted for the implementation of projects. Lots of financial administrative powers are delegated to the project implementation authorities so that it can be implemented unhindered. The bottlenecks that may arise in the implementation of a project should be solved by regular reviews of progress of projects. This reviewing function is known as monitoring of projects. The higher tier of the project implementation authority does the most immediate level of monitoring. This type of monitoring is called internal monitoring (mostly the task of coordination). This comes first before the external monitoring. This level of monitoring is done by the administrative Ministries/Divisions. Higher level of monitoring at the national level i. e. at the NEC level is also regularly done to keep a strict watch over the state of affairs in the implementation of a particular plan. Since the NEC is not a permanent institutional agency, it has set up a permanent staff organization to prepare monitoring reviews of development projects. This is at present known as Implementation Monitoring and Evaluation Division (IMED) headed by a Secretary under the Ministry of Planning. The NEC and ECNEC periodically examine reviews prepared by the IMED. At these review meetings manifold problems in the way of project implementation are solved. (v)
Evaluation
Evaluation has two facts: (I) project evaluation i. e. evaluation of the impact of a completed project on the economy in relation to its stated objectives, besides an assessments of resource use compared to the estimates made in the project document; and (II) Plan evaluation, i. e. evaluation of the impact of the programs included in the short term plans compared to the objectives and targets of the plan. As per rules of business of the government, project evaluation work is under the IMED. However, nothing substantial has done in this respect by
IMED or by any other agency of the government prior to the vesting of this responsibility to IMED. Plan evaluation work necessarily falls on the central planning agency i. e. Planning commission. The planning commission collects information on the progress of a particular plan during the course of its implementation and uses this information as feed back for the preparation of the next short plan. Such evaluation results find place in the plan documents as a review of past planned development both in the macro chapters as well in the sectoral chapters. Annual review of progress of implementation of a plan are also published by the planning commission, though not as timely and as regularly as desirable. These reviews have been found mostly to be of statistical in nature, absolutely lacking of analytical materials explaining the background factors behind the statistics. The most disappointing vacuum that still exists in the field of evaluation is the evaluation of a complete plan. Absence of such evaluation has created a communication gap between the planners and the people at large about what is happening as a result of development plan. (vi)
Planning at local level
Devolution of some planning functions has been given to the local level authority i. e. Upazila Parishad. All the rural Thanas have been upgraded to Upazilas and made nuclei of administration of local affairs. The Upazilas would be administered by elected executive bodies. Being vested with the administrative responsibilities, these bodies will also be made responsible to under take planning and implementation of some specified development activities at local nature. The exact relationship of these local level development agencies is not very clear. It appears that these local agencies will be allocated some specific planning functions, which they will perform partly with the financial assistance from the central government and partly revenues collected by them. That is, all local level development would be delegated to these Upazilas including the functions of local development planning. (vii)
Economic Relations Division
Economic Relations Division under the Ministry of Finance has a very important place in development planning. This Division has been entrusted with the task of mobilization of foreign assistance and negotiation of assistance for specific development projects & programs. It provides the link between the government of Bangladesh & the donor agencies, both bi-lateral and multilateral. Foreign assistance plays a critical role in development planning in Bangladesh. So the procedures followed in external resources mobilization for development projects and plan have a strong bearing on what happens in the field of development. Through a period of experimentation during which the intricacies of internal and external coordination in matters of foreign aid mobilization and utilization has been appreciated. The modus operandi of the work of ERD vis-Ă -vis other agencies of the government and outside donors has been fully institutionalized. Under this dispensation, mobilization of aid remains the exclusive domain of ERD. However, the use of the available aid should have to the subjected to plan objectives and discipline. ERD should not under take negotiation for aid with any donor unless the project or program has been scrutinized carefully by the concerned agencies of the government & also by the planning commission. It has also been laid down that no definite indication of use of aid for a particular project/program to a donor should be given by ERD without getting the aid proposal examined by an inter ministerial committee including the representative of planning
commission & aid user agency. For this purpose, first a project profile in which the broad objective of the project for which aid is being considered is to be prepared and then the same is to be cleared by the said committee. After preliminary negotiation, an appraisal mission may be invited from the donor for a detailed feasibility study of the project/program. The donor agency is expected to conduct the feasibility study in collaboration with concerned department/agencies of the government. There should be a broader consensus among the donor and the government department concerned about the details of the project. It is only after the approval of the project by the competent authority, or at least cleared up by the Project Evaluation Committee that the aid lining up is to be finalized. In order to shorten the time for aid negotiation, the lists of aid worthy projects should be finalized through inter–ministerial committee meeting instead of planning commission alone. This at one stroke will give lists of projects which ERD or donor agency can consult for sponsoring aid negotiation for particular project. The lists for this purpose will besides the name of projects, contain information about the objectives of each of the projects. It may also include any other broad details that would be useful for understanding the nature and purpose of the individual project. In fact, a proforma has been devised for this purpose. With these measures of coordination, it is expected that the utilization of foreign aid for development will be rationalized and it would be utilized for the best needs of development. 2.1.6 Dr. A. H. Shahadatullah, in the summary of his article entitled “ economic development and planning in Bangladesh� states the need for economic development and rational development planning. The need for economic development in Bangladesh necessities comprehension of the overall situation existing in order to identify the future objectives and for preparation of policies & programs to implement such objectives. Though development planning in Bangladesh in the post independence period succeeded to eliminate certain biases inherent to the planning objectives and process; it also inherited certain conflicts and dilemmas in the formulation and implementation of a development plan, which are consistent with the set of basic/key objectives. Issues taken as priority objectives centered on the need for accelerated economic development and elimination of social disparity. With this in view, the First Five Year Plan was formulated within a socialist frame work by establishing public sector dominance over the administration of assets and resources management for fulfillment of the basic objective of equitable and appropriate distribution of gains from economic development. Failure to fulfil plan objectives since then has become a rule rather than an exception. The reason behind such repeated short fall of plan targets and poor performance in plan implementation involve problems originating from factors associated with the political body, domestic and international economic situation. Administration, management and evaluation of programs and policies designed to execute the plan. There is a lack of comprehensive awareness of the secondary effects at project level. The analytical framework used for selection and formulation of projects lacks the mechanism to quantify and accommodate for the socio -economic impact on the target population resulting evolving from the primary effects in through its implementation and consequences. The need for rational development planning calls for formulation of programs and projects based on eliminating poverty, administrative decentralization, rural based development programs, employment generation programs, etc. But the decentralization of the economy proceeded without accounting for similar changes in management of assets and resources,
which can bring about an accelerated economic development through elimination of poverty. The absence of labor as a determinant in the master plan results in bringing about the inevitable consequences of weak and inconsistent formulation of both national and project planning process. 2.1.7 Mohammad Sirajuddin in his article, entitled “ Rural Development: the Bangladesh Experience.” In planning process paragraph stated the procedure of processing of projects: The Planning Process The socio – economic development projects, both investment and technical assistance, are initiated by the executive agencies (Departments, Corporations, Boards etc) and appraised the primary stage by the Sector Ministries/Divisions of the government of Bangladesh. The projects are then processed with Planning Commission, the central planning organization of the country. The Commission relates the project proposal with objectives of the Five Year Plan, the Sectoral Program, and the national allocation of resources. When the answer to the three references found positive, then the Commission makes final appraisal of the project and processes with the Executive Committee of the National Economic Council (ECNEC) for approval. The project has two types of documents, namely, Project Concept Paper (PCP) and Project Proforma (PP). The ECNEC approves the PCP, whereas an Inter – Ministerial Committee approves the PP. With regard to technical assistance projects, the Planning Commission (Illustration 1-4) approves the document, Technical Assistance Project Proforma (TAPP). The PP incorporates an Implementation Plan or work plan, narrating the set of activities to be, undertaken with starting time and finishing time, for the whole of project duration. The executive agency, the sector Ministry, the Planning Commission and the IMED monitor the implementation status of projects and evaluate the performance. The donors are also involved in both monitoring and evaluation. 2.1.8 Professor Muzaffer Ahmad in an article entitled, “ Planning and Economic Development in Bangladesh” stated the planning process, implementation status including the socio-political milieu of plan formulation. The Socio-Political Milieu Bangladesh was liberated from Pakistani rule in December 1971. Economy at that time was described as poor, characterized by an under developed infrastructure, stagnant agricultural and a rapidly growing population. The framers of the constitution in 1972 identified four basic principles of and guidance of state policy i. e. democracy, nationalism, secularism and socialism. The first five year plan was formulated soon after the liberation. It was sensitive to these pronouncements, particularly the constitutional commitments, i. e. (a) conditions are to be created to emancipate the toiling masses from all forces of exploitation; (b) every citizen is to enjoy right to work; (c) all citizens are to be assured equal opportunity so that an egalitarian society can be established; (d) enjoyment of unearned income is to be discouraged; and (e) there will be limits to private ownership of means of production as prescribed by the law.
However, the scene started to change soon after the multiparty parliamentary system replaced by one-party system and later by military regimes that weakened the democratic political system & institution. That was vital for a participative egalitarian system. The issue of national identity thought to have been settled with the creation of Bangladesh was raised again to make consensus on national issues difficult. Secularism was omitted and has been put to naught by declaring Islam as the state religion. Socialism required containment of private ownership of means of production and removal of capitalist system of income distribution & of pre capitalist forms of production relation. Before the stage could be set for a socialist transformation, the turn around started. It was set for a capitalist growth process instead and under the supervision & guidance of international aid agencies and donor countries. However, none of the plans prompted the ruling social coalition to open a debate on hard policy choices. Planning has generally been viewed a technical -administrative device rather than an socio-economic document, which required political commitment for its successful implementation. Thus planning in Bangladesh has deteriorated as a policy & programming device to such a state by the military – bureaucratic alliance was quite significant. The violation of planning process and non-observance of plan discipline from the highest seat of power to the bottom layer of governance was a reality. The donor’s conditionality rather than development planning in the country have influenced the nature and direction of economic development in Bangladesh. In the absence of a meaningful participative politics in national policy making and a political framework to arrive at a national consensus, planning has never been an expression of a basic unity of purpose in Bangladesh. The dominance of donors along with the vested interested groups linked with them guided the development expenditure rather than a strategy realizing clearly defined set of rational objectives. But the reality of a deepening poverty is a fact that is hard to ignore. The necessity to create jobs forever expanding labor force just to maintain a minimum law and order situtation can hardly be kept aside. The migration of labor from rural to urban slums with increasing landlessness can not remain unnoticed. The deepening pressure on land of an increasing population has to be faced. And so on. Thus even in the absence of effective planning, the demise of a disciplined plan process and increasing centralization of decision making with growth of out of plan expenditure. One can not but judge the so-called development expenditure in the light of the basic socio-economic issues. Planning Process and Planning Machinery The planning process in Bangladesh, despite many changes, carries the bureaucratic legacy of the then Pakistan’s unscientific resource allocation for development purpose. It need to be mentioned here that multi- sectoral input – output model was used in preparation of the First and Second Plan. But it made technology, sources of supply and composition of final demand external to the planning model. The Third Plan used an ‘Applied General Equilibrium Model’, where social accounting has been used and final demand has been made endogenous. Despite, such technical improvement no impact on the effectiveness of planning is visible. Since late 1975, change in ‘State Principles’ and also the government liberalize the Bangladesh economy. The Planning Commission has lost its planning capability in respect of plan formulation, monitoring implementation and even evaluation due to increase in donor intervention in this respect. On the other hand, relief and rehabilitation measures have been
similarly misused. The machinery for public accountability has been ineffective due to rise of local overlords of muscleman. Thus, the basic perfunctory function of the central planning authority has become to prepare a macro economic models whose level of disaggregation and sophistication have increased over time. However, with the increase of involvement of outside consultants, the iterative character of plan preparation has become dormant. The function of the sectoral Division has become basically processing project proposals, often in a hurry, and the format has been simplified to make any scientific appraisal impossible. The monitoring function, having been separated, made the sector Divisions, largely ignorant of progress. The committee mechanisms for coordination seem to have functioned less effectively in recent years (1989), as decisions from above have become more prevalent. The Planning Commission has not prepared any meaningful ‘Perspective plan’ beyond certain projection of key variables. It has so far produced three (till 1989) five year plans and a two year plan. Each of it produces an annual development plan as part of the budgetary process. Before the formulation of five year or annual plan many inter and intra- ministerial meetings are held and a plethora of committees and sub-committees are assigned certain task. The planning commission and even donor agencies conduct many surveys and investigation. Since the macro planning is a donor dominated external functions and projects are donor promoted due to paucity of mobilized local resources, the entire exercise seem to be more of a game than a serious matter. 2.1.8a A recent( 1989) evaluation of planning process reached the following conclusions: (i) (ii) (iii) (iv) (v)
The macro-planning and policy implications thereof don’t have a significant impact on the actual development process in the country. The planning activity seem to be mostly concerned with approval or reapproval of projects; Project planning approval and implementation are adversely affected by bureaucratic complexities, lack of trained personnel and complex project program; Project proforma does not lend itself to appropriate cost-benefit analysis; and Annual development plan prepared on the basis of carry over projects, resource availability is more often violated than followed.
The study recommended, besides development of manpower for project planning at all levels. A greater coordination of inter project and inter sectoral programs for getting optimal benefits and appropriate attention to policy aspects and implications in the context of the objectives of the development plan. 2.1.9 PARHMARK ASSOCIATES LIMITED (September 1991), in their final report on ‘ Strengthening Planning Process in Bangladesh’ stated the following: “Development Planning aims at attaining social and economic transformation through a series of qualitative and quantitative changes. The process of change usually proceeds in the form of formulation of plan (medium term plan), setting of objectives and targets, determination of priorities and selection of alternative policies for realization of goals. The implementation of a plan is influenced by the feedback of information bringing out
discrepancies in the estimates and projections, unexpected events and new possibilities warranting changes in the original decisions. Thus, the main implications of planning are: (a) (b) (c) (d) (e)
Formulation of objectives & targets; Fixing targets to be achieved & priorities of production for each sector of the economy; Mobilization of the financial and other resources required for the execution of the plan; Creation of necessary organization or agency for the execution of the plan; and Creating machinery for assessing the progress made.
Planning as an image for the future has two distinct roles to play, first as a body of systematized information about what one expects in future and, secondly, as a system of control of what should be done for the future. Such factors as the importance of the role assigned to planning, the stage of development, the nature of the political and economic system and the existing structure of the government determine the nature of the machinery established to perform these planning function.” Planning experience “The First Five Year Plan (1973 – 78) was launched in July 1973 in the background of a considerable domestic strains on the war ravaged economy. The plan was designed to generate a rate and pattern of income growth, which would not only meet a minimum consumption standard but also expand employment opportunities and ensure a socially desirable pattern of income distribution. Within this general strategy, the overwhelming need to reduce dependence on imports by import-substitution and export promotion were the major factors in determining the pattern of growth envisaged in the plan. Because of the growing resource gap, the first plan ended with a huge number of unfinished projects. Against this overhang of the First Plan, the outlook of world aid situation made it abundantly clear that a Second Five Year Plan would have little flexibility in making investment decisions. So it was decided to a Two Year Plan (1978 – 80) with emphasis on finishing as many of the on-going project as were feasible within the limitation of resources. The strategies of the Two Year Plan were formulated in order to realize the potential existing in the economy and to achieve the objectives and targets set forth in the plan. Investment was determined on the basis of an analysis of the realizable production possibilities in various sectors. In line with the government policy, the Two-Year Plan gave emphasis of total mobilization of local resources, human and material and participation of local people in the development process. The draft Second Five Year Plan (1980 – 1985) was prepared in the light of development experience in the recent past and in response to socio-economic imperatives of the country. Major objectives of the plan were reducing poverty bringing about significant improvement in the quality of life in the rural areas and effecting a more balanced distribution of income, resources and employment opportunities through equitable growth. The implementation of the plan through the Annual Development Program during 1980/81 and 1981/82, however, suffered from shortage of inevitable resources compounded by unfavorable international trade and aid estimate.
In the backdrop of above situation, the Second Plan was revised. In revising the plan, efforts were made to protect the sectoral priorities envisaged in the Draft Plan. The revised plan aimed at an annual growth of GDP at the rate of 5.4% as against 7.2% in the original plan. Third Five Year Plan was launched in July 1985. The major emphasis of the plan was to develop infrastructure particularly energy and induce private investment in both agriculture and industry. It envisaged an average annual growth rate of 5.4% in GDP during the plan period against which a growth rate of 3.9% has been achieved. There was considerable fluctuation in yearly growth performance, especially in 1986/87 and 1987/88 due to severe floods and other natural calamities. However, there was significant improvement in growth performance in the terminal year with a GDP growth rate of 5.8%, mainly because of record harvest of Aman crop. The Fourth Five Year Plan (1990 – 85) has been prepared within the broad framework of the perspective plan (1990 – 2010). The plan’s main objectives are accelerating economic growth, reducing poverty and development of human resources. Specifically, the plan aims at an annual average growth rate of GDP of 5%, creation of employment opportunities per 50.5 lakh man-years, so as to bring about a substantial reduction in unemployment, reducing the dependence on foreign assistance and curbing the population growth. The Fourth plan aims at the initiation of the process of long-term transformation with emphasis on the following major elements: (a) (b) (c) (d) (e) (f) (g)
Integration of sector based planning with socio- economic group based planning; Achieving inter – sectoral balance in sectoral planning; Creation of an efficiency culture in the economy; Integration of structural adjustment with real sector growth; Bringing women in the mainstream of development policies; and Restructuring of the fiscal, monetary and commercial policies; Restructuring the administrative system.
As sometime will be required to initiate such changes, the sectoral components of the plan will not necessarily conform fully to the objectives of the plan in the beginning. Therefore, efforts would have to make continuously throughout the plan period to monitor and evaluate the process of change the economy envisaged in the plan. Approach to the planning process As the planning process involves decision making at various levels requiring flows of information, including the development of institutional framework, procedures, guidelines, etc. The study has attempted to evolve a framework for effecting improvements in the planning process in relation to the activities involved in the process. The systems and procedures of the framework pertain to the methods of carrying out the processess involved in different phases. The objective bases for a plan having been defined through review and evaluation as a feedback measure, the plan formulation procedures of the framework relate to securing consistency in planning and bringing out relationship between the objectives and targets for growth, private and public savings, exports and imports. The area also concerned with the process involved in the estimation of resources, identification of policy measures to achieve objectives and targets.
The realization of the objectives of the plan depends upon sound project planning including appraisal of projects; an integrated approach for development project planning and implementation has been defined. It consists of inter related phases of (i) project identification, (ii) project formulation, (iii) project appraisal, (iv) project approval, (v) project implementation, (vi) project monitoring, reporting and feedback and (vii) evaluation. Such an approach can help decision making process by enabling the planning authorities to explore and weigh courses of action in turning out well conceived and well prepared projects for their implementation through ADP. Resource Mobilization and Management The dependence on foreign aid should be reduced to mobilize domestic resources and efforts should be made to use resources. Since the main constraint on the development of the economy is the scarcity of resources, particularly domestic resources. Resource use should be pursued in both public and private sectors. Private sector measures should count of fiscal and monetary incentives and in the public sector the measures should cover subsidy reduction, price adjustments and fiscal measures. As the economy has become more market oriented than before. Investment decision has to depend on market conditions. For promotion of public and private savings both the fiscal and monetary instruments will have to be directed to broaden the domestic base through encouragement of household saving and to channel to financial market. In order to strengthen the domestic resources mobilization efforts should look into the following: (i) (ii) (iii) (iv)
Projection of likely receipts from existing taxes and other sources in the public sector after taking into account past behavior of various sources of revenue and likely changes; Determination of likely capital receipts and capital liability; Projection of demand on resources for non-development expenditure; and Indication of steps which can be taken during the years to mobilize additional resources for development.
Integrating the private sector into the planning process There has been significant change in the official policy towards private sector, particularly in the field of industries and trade where private sector will have greater role to play. This has called for greater emphasis on policy planning and use of indirect methods rather than direct control on investment and production program. Besides, government has taken many other fiscal and monetary measures in order to mobilize domestic resources, which affect the relative role of the public and private sectors and the relative share of public and private goods and income. The public sector maintaining a direct and close link between the plan objectives and their implementation. The private sector has to be stimulated through the provision of overhead facilities and infrastructures and by modifying the system of incentives and control. The fundamental task of planning the private sector is to remove the obstacles in the way of legitimate private initiative and by increasing the knowledge of resources and their potential utilization of economic activity (Lewis, 1966). This gives use to the need for a coordinate public and private sector planning and implementation, i. e., the private sector should be
integrated with the public sector program through arrangements for planning and policy making. The problem of coordination includes the following main consideration: (i) (ii) (iii)
Assigning relative roles to the public and private sectors and the ways of keeping these consistent with one another; Making realistic forecast relating to the private sector, and Devising appropriate policies towards fulfillment of private sector plans and targets.
The above objectives are to be achieved through the mechanism of annual planning within the framework of a medium term plan. The drawing up of the annual plan for the private sector, like that of public sector, should be based on the following: (i) (ii)
(iii) (iv)
(v)
Assessment of the past performance in the private sector, both physical and financial in relation to the plan targets; Estimation of resources that can be mobilized for use in the various fields of the private sector, such as agriculture, industry, transport, house building, etc. in terms of (a) foreign assistance (b) government resources and (c) private sector resources; Setting the targets; Appraisal of the operation of policies – fiscal , monetary, commercial, lending policies of financial institutions in effect and bringing out modifications essential for stimulating the growth of the private sector in desired direction, and Assessment of the organizational and management framework and its further improvement.
Institutional arrangement is to be made for planning of the private sector and establishing a rapport between the public and the private sector industries with regards to the objectives and targets – overall and sectoral. Arrangements should be made for drawing the various decision – making groups in the private sector into the plan formulation stage either through participatory and/ or consultative means resulting in coordination and agreement reached at various stages towards implementation of the plan. Project implementation process The project implementation process should provide for programming of projects and their effective monitoring and supervision. A detailed time- schedule is important because it serves as a pacing device for the project administrators and it can provide the basis for taking corrective action in time. Lags in implementation and the consequent prolongation of the gestation period are due to unsatisfactory phasing, either at the programming stage or during implementation. Work scheduling should be undertaken, by the implementing agencies by dividing the projects under implementation into component activities. Not only the activities of the projects should be divided into parts, but along with them the specific time schedules and cost estimates should be set maintaining consistency with the procurement of the materials. Such scheduling of activities would serve the purposes of progress reporting and identifying the specific reason regarding the progress of projects. Critical path analysis should be applied to development projects towards separating them into basic components for facilitating both control and reporting functions. Such improved techniques for work scheduling and monitoring the progress of the projects would make it possible to tackle the
projects during their life- cycle and supply data for comparing the expected results with sectional performance. Monitoring is concerned with progressing of project i. e. the supervision of implementation to assure that progress is on schedule. Its importance lies in fact that it provides timely information of predictive nature to managerial action which prevent bottlenecks from disrupting and delaying the whole projects. The reporting system in terms of quarterly, annual and periodical progress reports and fact-finding inspections. These would provide for follow up of development projects through the review of their progress, ensuring continuous assessment of performance and bringing out the current weakness and /or anticipated problems which require actions at different levels. It would institute an information system within the individual implementing agencies for meaningful assessment of performance, establishing a linkage within the budgetary process and helping in defining policy measures. Which facilitates decision-making directed at increased effectiveness through evaluation of the performance of projects. Ex-post evaluation of development projects is the most neglected area in Bangladesh. Neither the executing agencies nor the planning commission seems to have paid any attention to this vital aspect of plan implementation. A system of ex-post evaluation is not only lacking, even the concerned agencies do not maintain records of the completed projects. In such a situation, very little is known to us as to how far the completed projects have come up to the expectations in terms of producing output and creating employment. Appropriate measures should be taken to strengthen the ‘Planning Cell’ of the executing Ministries/Divisions, sector Division and IMED in order to have an evaluation system. A system of ex-post evaluation becomes critically important as the size and content of development program is vastly expanding in all sectors of the economy. Ex-post evaluation system, besides monitoring help to overcome the problems involved in project implementation. Introducing modern management techniques such as CPM, and programming evaluation and review technique (PERT) in project implementation is expected to enhance effectiveness of planning process. In the formulation and implementation of the plan, coordination from Ministerial level to Agency level should be achieved together with inter ministerial coordination in matters of major issues of development, such as, (a) money and prices, (b) public finance etc. High level machinery for coordination should be set up. The committee should include representatives from the principal policy making agencies, Planning Commission, Ministry of Finance and from the Central Bank. To facilitate the work of the coordination committee, it should be assisted by the planning cells located in the development Ministries/ Divisions/Agencies. The planning efforts in Bangladesh have focused on socio-economic development goals of the country through complementary and balanced expansion of the public and private sectors. Both in long term and Medium term plan should address pertinent issues as policy planning, operational technical framework, macro and sector planning, and implementation, monitoring and evaluation of projects. A comprehensive approach to planning should be ensured through integrating macro and micro planning in term’s resources, investment. The statistical information and progress reporting system should be strengthened to ensure a rapid flow of required up to date information on which decisions are based. The quality, quantity and timeliness of the statistical data through flows of information and establishment of dialogue between the Planning Commission and Statistical Division. It would be necessary to build up a system of collection, analysis, interpretation and dissemination of data and
information within the operating Ministries/Divisions and Agencies for incorporation in project proforma, plan preparation, monitoring and evaluation. Integration of macro and micro planning should be done. Implementation process through instituting the links between the Five Year Plan, ADP, and ad hoc decision pertaining to capital expenditure should be strengthened. Integration of national and local level planning: Multi- level planning involving national, regional and local levels may be adopted in Bangladesh with necessary linkages with the politico- administrative structure of the country. The planning inputs from the local level would form the preparation of regional and national plans. Regional plans will highlight and coordinate regional needs and regional priorities. At the local level, local bodies will be responsible for project formulation and implementation. Implementation of development activities of local nature within the national framework and guide line. Coordination and linkages among various levels are important and essential. Institutional mechanisms such as Councils/Committees etc. may be established at different planning levels for multi level planning coordination by taking representation from the people and government officials. 2.1.10 M. RAIHAN SHARIF (1981) in an article entitled, “The Perspective of Development: Social, Economic and Political Factors” defines the concept of perspective. According to him, it usually, is the form of future expectations based on the study of the lessons of history, often blended with norms of social desirability. An image of the expected future becomes the soul of perspective, at least for development planning in the context of poverty in the contemporary Third World countries. Economists or economic historians studing history have, in the past, adopted various approaches to base their vision of the future on the analytical blocks of premises built by them with the crude materials mined from the depths of history. To Adam Smith, the analytically but easily found stages of hunting pastoral operation, agriculture, and manufacturing as a logical sequence served as the foundation for developing wealth and capitalism. Karl Marx applied his vision differently and supported his vision with the philosophy of Hegelian thesis, antithesis and synthesis so that the stages can become feudalism, capitalism and socialism. W.W. Rostow looked into history, rather modern economic history, and discerned such other stages: traditional society; preconditions for take-off; the take-off, the drive to maturity; and the age of High Mass consumption. When the perspective is not systematically built up through hard work as an evolutionary process, even fragmentary. The socio-economic factors and political roles involved in the development experience of the country reveal the presence or absence of development perspective and are prospective effects. The pre-independence development process in the subcontinent of India, and to a lesser extent in some other countries in Southeast Asia, was substantially following the rationale of a Planning Ideology. In this ideology, elements of socialism were operating as instruments of public discussion and private benefit, especially in India. Pakistan’s development process was responsive to talks of similar vision for building future society. But Pakistan’s a basic mistake of making rapid progress on the basis of colonial exploitation of the present Bangladesh region and political deception led to the emergence of Bangladesh as an independent sovereign country. And Bangladesh, after a radically unrealistic academic start on the course of socialism, faced tremendous problem of readjustment politically and economically and continued to drift on the paths of socially purposeless ad hoc planning under the officially called pragmatic approach.
But after 5 years of pragmatism (1976 - 1980), continuation of drifting has invited intensification of the social contradictions and running the race of opposite character away from building the steps in logical sequence of one well-conceived perspective. The more government efforts are being made for pushing the considerations of the logic of a social perspective out of sight, the more potentially dangerous the social contradictions do appear. First, the wide gap between political decision making and the technical work of planning has been making the documents hollow and credibility in all levels of national life. The aiming of establishment of an exploitation free society with the mobilization of the people hang in the air in absence of technical preparation, appropriate legal action and national political approval. Second, the philosophy of Bangladeshi nationalism is no substitute for a perspective . To be meaningful, this emphasis on nationalism should counteract neocolonialism in all directions (including economic development and cultural development). In reality, the opposite trends are being encouraged by it. Identification of exogenous and endogenous factors and support of endogenous ones for promoting development are being discouraged. Third, the vicious effects of overall contradictions have been producing other dependent contradictions in the form of (I) corruption and inefficiency in development administration; and of (ii) dangerous deterioration in law and order, cultural debasement, violence and unprecedented crimes and indecencies, especially among the youth, the future leaders of the nation. This trend is appearing more and more appalling in face of the pronounced Revolution in education and also in administrative structure. Fourth, planning methods and procedures are tending to produce forces of indiscipline rather than discipline that the planning process needs for its success. Resource-relevance is disregarded because of the charms of foreign aid and foreign technology in project planning; this discourages development in indigenous technology. The planning of production and distribution systems permit the people to be addicted to resource-irrelevant consumption and is pushing savings potential and resource-generation down to near-absurdity levels. The tax system is also supporting this anti-savings trend. And Rural Development, treated as the core of the Second Plan, has not been made productivity-based with the organization of allocation of physical and capital resources to the land less and marginal farmers, including distribution of surplus land beyond an approval ceiling. It necessary to develop an appropriate perspective for our future plan. The very nature of normal planning process demands it, as is implied in the following word: “ Planning is a multidimensional activity and ought to be integrative, embracing social, economic, political, psychological and technological factors. The universe within which we structure the tasks of integrative planning comprises man, society, nature and technology. ” (9) Edgar A. Rose, “ Philosophy and Purpose of Planning ” in Michael J. Burton edited, The Spirit and Purpose of Planning, Hutchinson, London, 1974, p.26 2.1.11 MD. MAHMUD KHAN (1981) in his article, “Socio-economic Constraints to Development- Bangladesh Case” tried to identify the structural constraints to long-run growth in Bangladesh. He said that the development of an economy must always be associated with the increased supply of material wealth. The long-run growth or creation of structure appropriates for long-run growth is only indicators of development. Economists often complicate the definition of development, predominantly on short-run distribution considerations. It is argued that these definitions are basically concerned with the preservation of present social structure and thus lacks development perspective. The theories of political economy start from material production and ends with material production.
Material production and the productive forces in operation explain the whole history of human society. Prospect and the process of growth of an economy is very intimately related with social classes and interest groups within the country that they’re economic behavior and foreign relations as well as the interclass conflict and alliance. This is not contrary to our earlier contention of primary importance of growth. Relations may not be conducive to growth at a particular point in time is a well-known result of the theory of political economy. These obsolete relations (relations inhibiting growth of an economy) points to the historical necessity of replacing the relations by new ones as any economy must grow for its longrun existence. Therefore, historical necessity of structural change, primary contradiction within the economy must be identified by looking into the process of material production, This paper attempts to identify the contradictions as well as the classes which must be resolved or replaced from the point of view of future growth of the economy. The landlords do not represent the most important contradiction of national economy. The major classes (or class) working against long-run growth of the economy are (is) not located in rural areas. However, There are some obvious contradictions between the surplus farmers and below self-sufficient farmers, which can be resolved for attaining limited growth and political stability. STATE STRUCTURE The state tends to depress the price of food even if the surplus landowners prefer a higher price? The major benefit of trade with agricultural goods accrues to urban business group. All these point our attention to urban groups and their relationship with the state machinery. Government servant and other fixed income groups in urban areas demand a low price for food items, these groups are politically vocal and they have very close links with outside world. Their importance in not due to their control of means of production but a sizeable backs of foreign aid. These resources are heavily committed to various urban groups. Government servants, intelligentsia, businessmen, almost every body form associations to enjoy a part of the state fund. The remainder, although quite small compared to the resources enjoyed by urban groups, goes to rural areas. Rural leaders are most benefited by the fund and nobody in government is seriously concern with the productive use of the resource. The use of these resources is more political than economic, buying the support of village leaders. The vast rural majority is controlled by only at a small fraction of total resources through these powerful leaders. Clearly the rural leaders are not equal partners with urban business group and bureaucracy. To satisfy the urban vocal groups another step adopted is the urban industrialization program. Urban industries are usually of high technology and therefore little articulated with other sectors. A close connection with outside world must continue for the industries spare parts, raw materials etc. This connection brings a few foreign trips and some illegal commission for some urban privileged persons. This group strongly opposes the development of local industries, which offer them no benefit and tend to reduce foreign connections. The commodities, which are not, produced by these modern industries seldom gets a protected market even of small-scale local production of the commodities is quite widespread. Therefore, the state structure we inherited created a vicious circle, the urban educated class seek economic benefit for each and every move and whether a commodity will receive protection or not depends upon the relative bribing strength of the two opposing groups. As
Bangladesh have no strong national capitalist group, govt. policies are directed against them, which in turn destroys other national capitalists. Indian capitalist group, because of their relatively more strength effectively barred penetration of certain commodities. In the conclusion he also mentioned that the major classes against long-run growth of the economy are the urban classes. Most of the educated urban groups can be identified as constituting the growth-inhibiting group. The only way of long-run growth is a close articulation of farmer-artisan group and mutual enrichment in the process. Only such a process can create employment opportunities large enough to reduce dependency on land, large effective demand of both agricultural and non-agricultural commodities and better income distribution. This requires control of imports; aid and technology transfer who the then politically vocal classes of urban areas will be least interested to pursue. 2.1.12 “Some Thoughts on the philosophy of the Development Planning”, M. RAHAN SHARIF (1986). Need for a philosophy The experience of planning the development process for the people of Bangladesh is only for a relatively brief period since 1971. But in fact the techniques and skills of planning were available since 1974. It is a tragic irony that we have not been able to establish so for even the basic premise of the sense of direction of movement of positive and meaningful character for man society and economy. The FFYP started from July, 1973 with romantic ideas of moving to a socialist society with little readiness in execute and soon had to be wrapped up as wishful thinking. The salvaged programs could only be used for active on an ad hoc basis and certainly isolated from any philosophy of planning a trend of political disharmony and economic confusion prevailed, and a Two-Year grace period was allowed for enabling the leadership in charge of political and economic affairs. Then the SFYP (1980-85) was formulated ambitiously and realities slashed the size of investment and ambitions into manageable proportions. The Revised SFYP published in may 1983, has gone straight to the specific objective and targets as well as strategies with only a general reference to the syndrome of poverty and the needs to confront it through growth of income and employment that is through employment oriented economic growth strategies and policies. This is in fact an attempt at brushing aside any need for a philosophy or choice of ideology altogether is there any need for such things for the formulation of the Third Plan (1985-90) which is supposed to have in operation already since July 1985? The question is now made to dangle before economists and other thinking professionals as a mere arena of athletics . The athletics is intended to be performed in stardom set out with a total investment of Taka 386 billion with 65% for public and 35% of private sectors aiming a 5.4% annual growth rate. And as such , the intention does not seem to carry any credibility . The Nobel Prize winning economist Paul Samuelson once said “we are like highly trained athlete who never run a race probably” at this stage when the plan has already been finalized. The athlete have been asked to enter the stadium and see around and appreciate its beauty as designed by the planning commission has been supported by foreign expertise fed sophisticated models like macro economic model, energy model, trade and industry programming model, crop pattern model and what not. No philosophy need be attached to all these trappings. Development Economics and Development Philosophy
The world outlook for development of the LDCs, since the development Decades were started by the UN and Partnership in Development between foreign aid givers and receivers. That was suggested has tended to deteriorate in a pronounced manner with increasingly marked class of professional skilled workers have been dealing with the development diseases of the third world of developing countries in the wake of the increased handicaps and setbacks imposed by the inequitable external environment. Because of the predominance of foreign aid arrangements of the environment the western brand of development economists have been tinkering with ideas concepts tools techniques and gadgets towards their practitioner service to these countries in course of their grappling with the massive problems of poverty and unemployment which in fact, were created by the donor countries as colon powers in preceding peri8ods Naturally conditions of dependency have been firmly established so that independent approaches by the newly emerged peoples were and had to be rendered almost impossible in terms of knowledge of appropriate philosophies and methods . Of the distinguished development economists drawing lessons from the experience of planning in the developing countries, have frankly acknowledged little insight and wanted more and more research about the new theories, concepts and techniques for testing application of the cases. This has also tended to perpetuate dependency as a double-edged weapon-dependency on financial assistance and dependency on planning knowledge. The latter’s on planning knowledge has deprived the planners of the concerned countries of the consciousness about; The need for any ideological choice or philosophy
The need for self –reliance as a many sided integrated strategy as well as objective; The need for development of innovations and technologies suited to the condition and national objectives of the country ; and The need for development of a nationally suitable system of education which can produce different –value-oriented socially and ethically elevated manpower that will work as agents of change in right directions, despite formidable constraints,
Western development economists are aware and concerned about current trends of serious distortions and misallocation policies on resources due to narrow nationalism and militarism as manifest of the developed economies, especially due to protectionism to industry and excessive unproductive planning of nuclear and other armament race between the superpowers, USA and USSR They take these new factors for granted and provide technical assistance advisory services to the developing countries on policies and measures or economic policy reform with adjustments and innovations as an offset to the negative effects due to external factors of distortion fluctuation and inflation in 1968. Jan Timbered could use ‘only such a world policy, or, as a second best a stronger international policy can prevent us from sliding into a complete failure of development policy. All the political consequences of such a failure at the moment, the development policies of the various national governments are much less coordinate than that is desirable from the point of view of all concerned both poor and rich countries’. But who or which agency will coordinate without the establishment of that kind of mechanism, even to ensure the performance of the ‘second best’ responsibility?
The developed nations themselves assume that responsibility and use the role only for their own political and economic interest forcing the dependent poor developing countries to depart from the station of seeking the second best optimum. The fragmented economies had to rely on ad hoc piecemeal approach to development resulting in distorted policy framework, which is third or fourth, or the best. It is also acknowledged by development economists that development planning techniques can not be adequately effective unless socio-cultural and other noneconomic variables are also taken into account, we are saddled with the compulsions of economic planning and have to strive so hard to develop the art of economic planning with all the ornamentation of mathematical econometric models and sophisticated tools and techniques as policy of development. We all know that leaving out functional relationships among economic and non economic factors, and their quantitative significance as well as interaction between economic and non economic variables are of utmost importance for using the forces of change towards desirable development which is not GNP growth along. To seek knowledge about development of an underdeveloped economy and society the planner has to equip himself with all the analysis and understanding of the none economic variables with a view to designing objectives, strategies and programs to develop all the potentialities of man, society and economy and to do that statistics, economics and ad hoc approaches to apply gadgets and techniques on trial and error basis are not only poor guides but dangerous deviators from the path of correct planning. To study man and his attitudes society and social institutions culture and cultural change value and value systems political institutions and political change, welfare for man and for society welfare for short life and long life in the present world and life in the here after the planner must enter philosophy use correct rationale for choices of goals and evaluate objectives and programmers of development not simply on the basis of cost benefit analysis in terms of economic opportunity costs and economic monetary or shadow priced benefits. In ability to take care of no passport for freedom of entry into a narrow economic lane along while man and society need comprehensive multi –dimensional development for their peace, progress and happiness? Dangers and fallacies of narrow economic planning (a) First and foremost, the economics that drives planners, industrialists entrepreneurs to organization of enterprises for legendary success or material prosperity in conditions of abundance of resources and opportunities is not the appropriate type of economics for the poor developing countries like Bangladesh, where factor conditions are radically different. The danger is to forget man and his be heavier as well as his problems because of material and nonmaterial wants or economic and none economic needs of development as a developed entity capable of contributing to the progress and prosperity of himself, of society and of mankind. The whole of man [with his physical, mental, moral and spiritual elements in integrated synthesis is important, not simply his behavior in relation to earning and spending of income along, nor his behavior in relation to maximization of profit. (b) Second, if man is forgotten, the purpose of man’s living in society is also in danger of being forgotten in western conceptualism, goods and markets are so, important that society can well be by passed by the market mechanism: and social values are lost in
the midst of the craze for success in business in terms of amassing wealth and enjoyment of life in all conceivable ways right or wrong. legal or illegal. (c) Third, because of irresponsibility beyond obligations of business deals problems or poverty, unemployment and skewed distribution of income are considered natural outcome of temporary disequilibrium corrections are considered often natural through restoration of equilibrium; that happens in due course and state intervention may help when necessary with some support only. Laissez faire, transferred into capitalism, worships capital, as the most important factor while treating labor as nonhuman quantity subjected to subsistence wages or more depending on the intervention of the state and /or bargaining power of trade Union . And capitalism, by virtue of owning capital, becomes the hero with all the power to exploit labor and society. (d) Fourth, as a reaction to the miseries produced by the capitalist private enterprise system radical approaches appeared as Socialism and communism based largely on the writings of Kari Marx and subsequently of Lenin; and the system was introduced in soviet union with a violent revolution in 1917. This was intelligently founded on competent criticism of classical economics , especially Ricadian economics. This system is founded on socialization of all means of production including capital, in the interest of economic benefit for all workers as a radical extreme approach, this alternative intends to provide economic benefit to workers. But at the cost of all noneconomic values, social values ethical values, cultural values, political values etc, which are very important for meaningful human life. Hence such an alternative does not satisfy the requirements of better and fuller life with values that can improve the situation of failure of greed and envy based capitalism. Counter reactions to western capitalistic and envy based capitalism appeared in the form state responsibilities for the socially disadvantaged and social security measures, unemployment, insurance etc improved the image of older capitalism to a large extent. (e) Fifth, economists and development economists assessed the whole situation and wanted to explore the possibility of working towards an ideal socio-economic system. Jan Tinbergen stated in 1967 that lot of thinking researching and experimenting would be necessary before one could indicate precisely what the ideal socio economic system was and added: ‘my own hunch is that it characterized by central planning for the main measure of policy by the coexistence of a public and private sector with some more emphasis on the private sector than in the east by decentralized decisions on the production of individual on profit and wealth taxes than in the west and perhaps a tax also on innate personal capabilities [4,149-50] This appears to be a mixed system idea rather than ideal; and most of the developing countries including Bangladesh, in South east Asia and south Asia are trying this approach with variations; and the crux of the problem is; Does this involve any development philosophy?
In the case of Bangladesh, it certainly does not involve any philosophy, simply because ad hocism or pragmatism does not need any. The philosophical sophistication needed for a system can be understood with in the framework of a ‘system analysis in which a master system controls other necessary included subsystems for a consistent integrated operation for coordinated results Have we thought of integrating a network of systems to take care of the essential economic and non- economic segments as systems under a controlling master system to meet the requirements of The people of Bangladesh? Our pragmatism-propelled mixed system is in fact a No system containing id bits of things here and there and very often of odd things the evidence of this nature can be examined and assessed in the following directions. The approach to socialistic planning started in 1973, had government commitment and support and yet could not be implemented and the radically new system of socioeconomic and political change; The predominance of the public sector continued to exist as a surface value to the lost ideal but without the official or popular willingness to use the public sector for restoring the lost image; The public sector corporations were used as sheltered institutions for neglecting efficiency in management and indifference to discipline resulting in many cases to heavy losses to government; utility services; Utility services under the government (e.g. water, electricity, gas and telephone) were subjected to malpractice of illegal supply with illegal gains for employees, often with undue harassment of genuine law-abiding customers: Proposals of disinvestment of Government capital to private hands in pursuance of encouragement of efficiency and private investment have been resisted by employee unions/ associations on grounds of fear of retrenchment of workers; Manipulation by private businessmen to create scarcity problems for abnormal pricing to earn abnormal profits; Widespread corruption in distribution, procurement and provision of supplies of services, farm inputs, credits etc. is reported by the press about the operations relevant agencies and institutions; Widespread erosion of human value and social value, demonstrated in increased crimes of daylight robbery, armed attack and extortion, snatching of valuables, oppression and murder for dowry on women, acid throwing, abduction and killing of class fellows etc. has also received public attention and civil resistance by women has been organized; Public expenditure budgets annually prepared in any case, as finally approved, led to a situation of (i) emphasis on urban facilities, and (ii) support of heavy programs of unproductive expenditure, and hence led to continuing annually increasing inflation exceeding 10 p.c., setting in a continuing process of monetary and economic instability. Despite the blessings of large foreign exchange earnings remitted under WES and substantial increase in non-traditional export earnings, balance of payments deficits have
been increasing, largely for deficiencies in import budgeting in a sound manner; import budgeting supports increasing consumption; Foreign aid dependency oriented development process has been reflecting only economic planning based on Western approaches, such planning has neglected and need of self-reliance in food and also in general; Important non-economic factors, say socio-cultural ones, have not been receiving any tangible attention towards contributing to self-reliance in terms of consumption habits and permission of luxuries for production and import; Public sector lost the significance and respect of any socialistic contribution, either ideologically or popularly. Private sector, now enlarged with prospects of further enlargement, reflects attitudes of greed-oriented profit-grabbing; working of the public and private sectors together do not represent a synthesis of any ideological blend not even of sound elements of capitalism; Resemblance of capitalism is discernible with the absence of countervailing capitalism-supported security and unemployment insurance programs; Objective strategies and programs are usually lacking the necessary linkage with any logical follow-through for reduction of dependence on foreign aid and increased generation domestic resources through consumption planning and cultural rationalization; Political weakness has continued to influence the overall situation of planning and implementation of planned programs for quite a number of years. Observations Within the constraints of the situation in the transition period before restoration of democracy through election, the difficulties of systematic planning or of applying the systems analysis approach need of course be understood in right spirit. Yet speaking it should be recognized that our planning experience has been marked by (a) ad hocism which has no relationship with any philosophy or ideology (b) resources-irrelevant consumption-promoting planning, and (c) lack of commitment to any ideological aim as a long-range goal for the nation, partly because of political weaknesses of a prolonged transition. Can we prolong the transition so long if this is a transition at all. No positive announcements are forthcoming yet about the significance of the current transition if the stage is intended to serve the purpose of providing an opportunity to develop a consensus on the national choice of an appropriate ideological choice in relation to which the philosophy, objectives, strategies and the main directions of development planning in this country can be contemplated and constitutionally provided for. Our current practices of development planning are not lacking the necessary anchor of national fundamental assumptions about the hopes and aspirations of the people, but are marked by dangers, of fallacies and contradictions. If such trends are permitted to continue the present generation is likely to be blamed for deliberate waste of time for inviting manmade disasters. The people themselves cannot articulate the concrete means and methods of reflection their hopes and aspirations. That is why, the kind of consensus needed on the choice of ideology and the relevant philosophy, objectives, strategies and main directions cannot be a matter for a decision by general election or referendum. The realities before the people are: (a) the warmly-acclaimed ideology of socialism has proved itself inapplicable for many reasons; (b) both capitalism and socialism hold an image of materialism-based ideals and capitalism with its worse than western version of it is very much tarnished; (c)
Islamic ideology has been holding a strong plea for acceptance on plausible grounds of comprehensiveness (materialism- non-materialism synthesis) and moral support of 90% of the people for whom the choice is to be considered. Suggest a recommendation to the government for an immediate appointment of a National Commission with a welldesigned terms of reference, to study in depth the relevant fields with professional assistance where needed and to formulate the action program in the whole area for enabling the Government and the Planning Commission to work towards self-reliance with national decision in this regard. 2.1.16 Md. Muinuddin Khan authored an article on “Implementation of Development Projects in Bangladesh: Existing Challenges and Future Strategies�. He mentioned that in a developing country like Bangladesh, where resources are scarce and where the private sector is still in its infantry, efficacy in managing the projects is proportionately and directly conjoined to her growth and well being. Delayed implementation of projects, which is a regular phenomenon in our country, distorts the very objectives of the projects and diminishes the benefits of the projects. As such effective implementation of projects in time and within the budget is vital. In this context the author makes an attempt to identify the problems of project implementation in Bangladesh and recommended measures for improvement. In view of the problems of implementation on development projects in Bangladesh especially the problems of costs and time overruns, some strategies have been suggested. In Bangladesh we seek to mobilize scarce resources for obtaining the desired rate of growth through formulating national development plans. Allocating available scarce resources to their most productive use, which is of obvious importance and requires estimation of social costs inputs that they are deployed to produce. The estimation of social value of output produced. Serious distortions in factor and product markets in Bangladesh make market prices quite inadequate indicators of actual scarcities. Therefore, the social opportunity costs of investment should be based on the overall return of capital. That is why, the exercises of economic appraisal of development projects have become a real tough job. At the same time the selection of appropriate technology in low wage countries like Bangladesh also requires a serious thought. The question of choice of technology is of much more importance when the issues like cost and time overrun are considered. In our environment mistakes are costly. In order to avoid mistakes, planning must be very effective. There are always uncertainties as to what lies ahead and because of these uncertainties, some mathematical modeling may be resorted to. On the other hand, the effects of inflation on projects have not been easily identifiable with any degree of accuracy. Therefore, this problem has also frustrated the planners and managers in our country. Effective project implementation would improve aid utilization and results in an increase in long term economic growth. It is expected that the findings of the study would create awareness in the minds of the policy planners & the personnel involved in formulation and implementation of development projects. This helps them to take appropriate measures so those projects are successfully implemented in future. The following measures may be suggested in order to overcome the problems of implementation as identified by the author: (I)
Develop indigenous skills for the project implementation;
(II)
Develop technicians sensitive to national needs, constraints and opportunities instead of imposing a well developed system suitable for developed countries; (III) Reinstate the Project Evaluation Committee for proper verification and scrutiny of the projects from the macro point of view; (IV) Project approval procedures should be simplified and shortcut so that valuable time is not wasted and thus time overruns saved; (V) Recruitment of project staff and foreign consultants should be made in time; (VI) Procurement of foreign goods should be done timely; (VII) There must be appropriate budget provision so that fund can be released smoothly; (VIII) Customs formalities should be simplified for quick clearance of the goods from the port; and (IX) Periodic review and evaluation should be done so, that inter agency coordination can be achieved. 2.1.17 Sultan Ahmad wrote an article on “Local Level Planning for Rural Development in Bangladesh”. He found that for successful preparation and implementation of ‘local level planning’ the following are the requirements: (1) (2)
(3) (4)
(5)
Comprehensive data on resource availability, development potentials and priority needs must be collected. A proper formal preparing the plan should be designed keeping in view of the objectives of the plan e. g. production, employment generation, social services, welfare activities, etc. Obviously if the plan is envisaged to cover different sectors then multi-sectoral plan format on a micro- level will be necessary. Targets in the plan should be related to the resources, human and material, that may be expected locally and from outside. For local level plan needing integration in a hierarchy of plans under a multilevel planning framework. Appropriate linkages should be established between the planning units of the Agencies or local bodies concerned to facilitate mutual consultation leading to adjustment of the micro-plans of different tiers. This will be relevant for local level plan undertaken by the local bodies at village to the higher levels. To build up planning expertise, local bodies at various levels
(Subject to their resource jurisdiction and volume of work) should set up planning units with full time experts. Considering the present resource position and volume of planning works of these bodies, such units in Bangladesh may be setup at ‘Upazila’ and ‘Districts’ levels with arrangements to assist the lower tiers i. e. Union and Village in their planning work. And in the matter, on necessity, of integration of local plans into sectoral ones in a hierarchical pattern. Ensuring that plan prepared by the local bodies (Union and Village) do not only satisfy the criteria of growth but also equity. The power and functions of these local bodies should be clearly spelt out and the bodies themselves strengthened both in terms of manpower and resources. Where the local bodies are not truly representative of different interest groups, particularly the poor, one of the objective of local level plan may be to devise an institutional
mechanism to bring the disadvantaged groups into the main stream of development activities. Local – level plan can provide the continuing basis for participatory development and will be ideal type, if it is prepared, considered and implemented by the local bodies managed by elected representatives of the people. If the local bodies are not truly representative of the different interest groups, particularly the poor, one of the objectives of the local plan may be devise an institutional mechanism to bring the disadvantaged groups into the main stream of development activities. Local level planning in Bangladesh is a relatively new concept in the field of development planning. Operationally, it is still in the formative stage and characterized by certain degree of experimentation. But its surging popularity has already made it a cause celebrant it is being credited with the potential for providing corrective to the sins of conventional planning, particularly its esoteric top-down approach. 2.1.18 Masuda Yasmeen had an important article, “ Estimating Shadow Prices in Developing Countries: Comment on the Little – Mirrless Model”. Her observation indicates that in developing countries, because of the imperfect operation or absence of many markets (in particular factor and risks market) and the nature of the government involvement in the economy, market prices of commodities may not reflect their true social value to the economy. When evaluating government policies and investment decisions, it is necessary to take account of this divergence between social & market prices. It is often argued that in developing countries, use of economy wide ‘shadow prices’ can correct these distortions. The author aimed to assess the intellectual contributions of the economic profession to the economic analysis of the calculation of ‘ shadow prices’ in developing countries. Although the rate of absorption and dissemination of advances made in the profession in areas of techniques for social cost-benefits improved over time, these techniques were fully applied in a systematic manner. It seemed to have been allocated low priority – a situation, which is hard to justify especially for developing countries. Inspire of the substantial increase in public sector investment in LDCs from the Mid – 1970s, the economic evaluation of these were inadequate. Indeed many attribute a substantial part of the slow growth of LDCs of the 1970s and the inability to react quickly to the oil crisis to the deficiency. The purpose of the paper was to provide a framework for the analysis of these questions for developing countries. They should provide the practitioner with a structured and productive way of thinking about the problems of how market distortions influenced proposals for reform. To identity the empirical questions which should be checked and the judgements which need to be made before settling definitely on a particular line of policy. The calculation of set ‘ shadow prices’ will require considerable knowledge of the economy. In order to make sensible judgements as to how it will react to extra unit of public supply, particularly in regard to whether or not goods are properly deemed to be traded and to the degree to which an extra demand for non-traded goods implies extra output. But just as careful monitoring of the macro economic system can be built on the study of national accounts information, so can be same information provide a basis, with experienced knowledge of the economic system, for a broad set of shadow prices. This is not something that could be constructed in a brief mission but could be created, maintained at the desk of an international organization or in M/O Planning. If used critically, it could provide valuable checks on, or inputs to the
recommendations of missions in terms of price and tax reform, their implication for the value of expanding output in different sectors and so on. While we think such calculations of ‘shadow prices’ are likely to be helpful. We would not press them as being necessarily the main contribution of theory. We would rather stress its importance as providing a set of guiding principles and questions for thinking about the real policy problems. Although the rate of absorption and dissemination of advances made in the profession in the area of techniques for social cost –benefit analysis improved over time, these techniques were never fully applied in a systematic manner and appear to have been allocated low priority. Given the focus in the developing countries on project financing and evaluation, the recent importance attached to pricing; this is particularly unfortunate and hard to justify. It is therefore in the area that the performance has been most disappointing, especially given the range of benefits associated with the systematic application of these techniques. It also took a long time for the World Bank to recognize the implications, which the myriad of government induced distortions and the imperfect operation of factor markets had for the inefficient allocations of resources in developing countries. These had been identified by the professionals in the late 1960s and through out the 1970s. But were only incorporated into ‘structural adjustment’ packages in the late 1970s and the 1980s. However, it is possible to provide counter examples to the most of the propositions. This does not mean that nothing can be said, that anything goes, that there are no rules and that we can cast systematic analysis aside. We have tried to show in this paper how structured argument can define social values, provide rules for their calculation, integrate cost-benefit analysis and the theory of policy and finally guide the thinking and judgement on immediate policy problems. CHAPTER - II Theoretical and Conceptual Framework of the Study 3.1.1 Development economics is about the big issues: how economies and society grow and change. They are issues that were at the heart of the work of Classical Economists – in particular, Adam Smith, David Recardo, and Carl Max. The pioneers of development economics writing soon after the World War II, were firmly aware of these intellectual connections and roots. They initially recognized the heritage of classical growth economics. The pioneers are also directly concerned with the role of changing behavior and institutions in the process of development, issues that those working in development economics have emphasizing strongly in recent years (Nicholas Stern, Chief Economists, World Bank, in foreword of the book Frontiers of development, 2002). 3.1.2 W. Arthur Lewis, in preface of his book, ‘ Development Planning’ made the following statement, “ The economics of development is not very complicated; the secret of successful planning lies more sensible politics and good public administration”. This can be seen in case of South Korea, Singapore, and Malaysia and also in India. The implication of this statement is that the major problems of development planning center upon implementation – that the secret of successful planning lies essentially in political stability i. e. political leadership and competent & effective public administration policy instruments by which the goals of development can be reached. Before, placing so much
emphasis on the implementation, we should ask the logical question: whether economists really know what is wrong and how to put it right. 3.1.3 A major difficulty with development planning has been the economists’ inadequate understanding of development process. That, the secret of successful planning is not only – nor even mainly – a matter of implementation. Three areas need fundamental understanding. If we may refer to a characteristic style of development planning, three types of bias have been prominent: (i) (ii)
(ii)
A bias toward macro-economic models in plan formulation to the relative neglect of the micro aspects of planning ( such as project analysis); A bias toward the quantitative aspects of planning to the relative neglect of other development forces that are not quantifiable but are crucial importance (i. e. many aspects of human resource development, socio –cultural and political changes for which no data exists). A bias toward concentration on the formulation of a development plan without due regards for its implementation (even though formulation and implementation are inseparable).
3.1.4 G. M. Meier (in his book, Leading Issues in Development,) mentioned four important strategies that the developing countries may take into consideration in their development planning : (I) (II) (III) (IV)
The need for mobilization of domestic and external resources. Promote agricultural development. Encourage foreign trade. Investment in human capital.
It has been increasingly recognized that the comprehensive ‘heavy type’ of central planning is still premature for most of the LDCs. The plan is not, however, for a reversal of Laissez Faire – but a plea for competent planning. To achieve this, students of development planning must devote more research to determining the appropriate range and forms of planning for developing countries (i. e. indicative Vs central, etc.). That is, the problem is to identify and institutionalize the most appropriate way of planning for a particular country at a particular period. An evaluation of planning approach itself would, therefore, be expected as the country develops. More immediately, some major revisions of development planning can be suggested to remove the biases and secure more benefits from planning in future. These revisions amount, on the one side, to making greater use of the market mechanism as an instrument of development policy within the domestic economy, while encouraging multinational planning in the international economy. 3.1.4 According to Albert Waterson, “ Accelerated economic growth and structural change are the two main expressed or implicit aims of development planning. But the emphasis given to the second aim varies from country to country. In a few countries with mixed economies, institutional change also takes precedence over economic progress i. e. as in Indonesia. But in
most of the mixed economies, the degree of structural change is generally less prominent and more gradual.” 3.1.5 Mahbub UL Haq (1986), [in his book, “ The strategy of economic planning”] stated the rational of planning decision. Decisions on capital allocation In view of the paucity of capital, efficiency in allocation of resources is usually given a central place in most plans. If the planner only cares to define his objectives in the form of maximization of certain outputs and minimization of certain inputs, economists will rush to his help with the liberal supply of ‘Linear programming models’. This is very encouraging but there still are many problems. Problems related to social sector projects where outputs can not be measured quantitatively. Here economic theory is uncomfortably silent. To illustrate, about 66% of the public sector investment and 60% of the total investment in Pakistan’s First Five Year Plan was earmarked for such sectors i. e. water and power development, transport and communication, housing & settlements, education and health. It was also 60% in the Second Five Year Plan in Pakistan. These economic and social overheads confronted the planners with the problem of immeasurable outputs that the theory usually ignores. The picture is not very different in other LDC’s development plan. In the above situation, whether the economists should rely on ‘ Act of faith’. Secondly, growth philosophy demands that the expenditure on provisions of social services should be given less emphasis. This applies to housing, health, and social welfare services. Education is in a more privileged position. Thirdly, more attention should be paid to projects, which yield ‘genuine’ external economies. Development of suitable technology and ambitious labor training schemes will yield higher external economies than the indiscriminate inclusion of so many expenditures under this head. Finally, it needs to be reorganized that, even when different overhead facilities are believed to yield external economies, it is wise to concentrate expenditure on a few fields where visible results can be obtained quickly and where there is a possibility of a snowballing effect. Historically, growth has never been balanced. The allocation of capital to industry and agriculture is concerned; the planners can count on more help from economic theory. 3.1.5b Economists have been developed various criterion, ranging from the ‘Rate of Turnover Criterion’ of J. J. Polak, to ‘Social Marginal Productivity Criterion’ of A. E. Kahn, to the ‘Reinvestment Criterion’ of Galenson and Leibenstein for efficient allocation of resources. There is a general agreement that capital- output ratios offer a good test of social profitability. Various projects in countries having ‘surplus labor’ with the proviso those planners should not lose sight of reinvestment possibilities of alternative outputs and techniques. There is also an agreement that ‘Shadow Prices’ of factors of productions should be taken into account. Generally, the long run objectives are to maximize output and employment and to get rid of the dependence on foreign aid, and to achieve these objectives, ‘shadow prices’ should be used in planning exercises for capital, foreign exchange and unskilled labor.
Economic control and policies Economic controls are inherent in national planning; the aim of which is to change market preference infavour of a higher rate of growth than the free market would otherwise provide. It was also used in guiding private sector investment in Pakistan’s plan. In doing so they must make it clear: (a) The primary emphasis of government controls should be on growth. (b) Ideas of social justice, in so far as they are to be accomodated, must be carefully defined and allotted some definite weight. (c) Administrative resources are scarce and have a high opportunity costs. (d) Only the administrators, leaving the minute details of allocation to the market should take the strategic decisions. (e) Market preferences should be altered more by indirect controls, like taxes and subsidies, than by direct administrative interventions in the market. 3.1.6. I. G. Patel says, “ Strategy implies essentially a deliberate choice – a choice of the point and timing and manner of attack on the problem at hand”. It is, therefore important that the strategy adopted in India and the alternatives that were rejected along side the related matters. The First Plan of India did not mention any strategy although projects were taken for implementation. Although, the long term perspective and basic strategy governed the Second Five Year Plan of India. The strategy laid great emphasis on machine building and metal industries to achieve self- sustained growth in a given period of time. Misra [in preface of his book ‘ Strategy of development planning’,] stated that the strategy of development planning usually covers the followings: (a) (b) (c) (d) (e)
Improvements in levels of living, including employment, education, heath and nutrition and a variety of social services. Methods and techniques to bring about such improvement. Integration of different sectors of the economy with a view to attaining some desirable social and economic norms. Role of social attitudes to economic changes and factors contributing to such change. and Institutional set up which is relevant for the harmonious growth.
3.1.6b The pattern of development planning very often depends upon political ideologies. ‘ A sophisticated and pedantic analysis with plenty of equations, tables and statistics, but probably without any proper appreciation for the need of planning particularly by those for whom the whole process of planning is designed’. J. M. Keynes said that the idea of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. The evolution of ‘Development thought’ is stated below: 1. Goals of Development: GDP
Real per- Noncapita GDP monetary indicators
Mitigation of poverty
Entitlements capabilities
Freedom of Sustainable choice development
2. Macro Economic Growth Theory: Harrod- Domar Growth Model Solow Source of Growth
New Growth Theory
3.Capital Accumulation: Physical capital Human Capital 4. State and Market: Market Failures No Market Failures 5.Government Interventions: Programming & Planning
Knowledge Capital
Social Capital
New Market Failures
Minimalist Government
Institutional Failures
Complementarity Government & Market
of
6. Policy Reform: Poor because Poor
Poor because Poor Policies Get all Prices Right get Price Right
Get Institutional Right
Source: “Frontiers of Development”, G. M. Meier & Joseph Stigliz (edited) September 2002 , page3.1.7 Development economists have throughout the last 50 years, been strongly involved with issues of policy. This implies that the role of the state must be at center stage. On this stage, there has been a fundamental change in development thinking. In the early years, following World War II, there was broadly speaking, mistrust of markets, including world markets, influenced in large part by the experience of ‘Great Depression.’ There was also confidence in the ability of government to take effective and productive role in directing investment. The experiences of the 1950s and 1960s did not support this confidence and those of 1970s & 1980s saw strong move to liberalize and privatize. Again, the experiences at the end of 1990s show that market reforms can be, and on the whole have been, an engine of growth. But if sound institution and good governance do not support them, they can stall or fail. The centrality of policy to development economics also requires specificity on goals. Here the subject has broadened its perspectives. More broadly, still development is increasingly seen as expanding freedom of choice and action. More broader perspective on goals of development and the return of interests. 3.1.8 The relevant theories of economics of development are: (i) (ii) (iii) (iv)
The Classical Growth Theories. The First Generation Development Economics (1950 – 1975). The Second Generation of Development Economics (1975 to the present). The ‘Next Generation of Development Economics’.
The Future development economics should be from the ‘Perspective of the development record’ and ‘development thought’. No formula exists for development. Aid alone can not yield development. ‘ Knowledge Gap’ between the rich and the poor countries is as significant as the ‘saving gap’ or the ‘ foreign exchange gap’. World development report 1998/99 was devoted to the theme of, “ Knowledge for development”. The ultimate objective is for appropriate ideas on development to be absorbed and implemented in developing countries. These ideas include both concepts of development policy, in macro sense, and in a
micro or enterprise sense. The ‘ New Growth Theory’ emphasizes the role of ideas in promoting growth through aggregation of advances at micro level. Within a developing country, the implementation of ideas is essential for raising total factor productivity. 3.1.9 Schumpeter’s (1939) emphasis on innovation is highly relevant for development. He distinguishes between ‘inventions’, that is, ideas or concepts – and ‘ innovations’. For development to occur, ideas have to produce “ new combination of productive means” i. e., innovations. These include the introduction of a new good or a new quality of a good, the introduction of a new method of production, the opening of a new market, the introduction of new sources of supply or the carrying out of new organization of an industry . 3.1.10 W. W. Rostow attempted to generalize the sweep of modern economic history in a set of stages of growth: (I) Traditional society; (II) The Pre-condition for Take-Off; (III) The Take-Off; (IV) The Drive to Maturity and (V) The Age of Super-mass Consumption. Rostow identified certain ‘leading sectors’; the growth of which is thought to be instrumental in propelling the economy forward. A sequence of optimum patterns of development can postulated from a set of optimum sectoral paths determined by the level of income, population, by technology, by the quality of entrepreneurship, and by the empirical fact that duration is the normal optimum path of each sector. The actual course of investment , however, generally differs from the optima in as much as they are influenced not only by private as they are influenced not only private choices, but also by the policies of government and the impact of Wars. The ‘Take – Off’ is meant to be the central notion in Rostow’s schema, and it has received the most critical attention. The ‘ take – Off’ is interpreted as, “ a decisive transition in a society’s history’ – a period – “ which scale the scale of productive economic activity reaches a critical level and produces changes, which lead to a massive and progressive structural transformation in economies and societies of which they are part, better viewed as changes in kind than merely in degree”. The Take –Off is defined “as requiring all three of the followings: (i) (ii) (iii)
A rise in the rate of productive investment from, say 5% or less to over 10% of national income (or net product). The development of one or more substantial manufacturing sectors, with a high rate of growth; The existence or quick emergence of a political, social and institutional framework that exploits the impulses to expansion in the modern sector and the potential external economy effects of the ‘ take –Off’ and gives an on going character.
The drive to drive to Maturity and the age of super mass consumption can be observed in history of development of developed countries. 3.1.11 A Big Push or ‘Critical Minimum Effort’ was believed necessary to breakout of “ low level of equilibrium trap”. An increase in the proportion on national income invested above 10% was advocated for a take-off with industry as a leading sector. ‘Balanced Growth’ – the synchronized application of capital to wide range of industries, was advocated by Ragner Nurkse. Hirschmen, Advocated ‘Unbalanced Growth’ in order to maximize induced decision-
making and to take advantage of forward and backward linkages in the production process [Albert O Hirschmen, The Strategy of economic Development, 1958]. During the late 1960s and 1970s came a second phase of development, which focussed more directly on poverty and inequality i. e. Development equals growth plus change. The most substantial change in the content of development economics came during 1970s and 1980s – decade marked by resurgence of neoclassical economics [I. M. D. Little, Economic Development, 1982, chapter-9]. There was increasing criticism of policy -inducted distortions and the non-market failures associated with the implementation of public policies. This led to a criticism of comprehensive and detailed administrative controls. Beyond the removal of price distortions, neo-classical economics advocated getting all policies right. Markets, prices and incentives become central. Inward looking strategies of development were to give way to liberalization of foreign trade regime and export promotion. Inflation was to submit to stabilization programs. State owned enterprises were to be privatized. A poor country was now considered because of inappropriate policies, and good economics, that is, neoclassical economics was good for the developing country. Analysis moved from highly aggrgative growth models to disaggregtive micro models. More emphasis was placed on applied research that was country – specific, based on empirical data and on the application of neoclassical principles to policy issues. In an increasing number of countries, these changes in development thought produced an improvement in agricultural policies, a liberalization of the foreign trade regime, and a professionalism in project appraisal [G. M. Meier, “ on getting policies right” in Frontiers of Development, 2002]. 3.1.12 Nations are poor because their citizens do not have access to the ideas that are used in industrialized nations to generate economic value (Roemer 1993). Meier distinguishes between Neo-Classical Analyses of development and a more comprehensive approach that looks to operation at large, innovative changes and to political economy issues in development policy making. All these are applied graded economics or whether there is a need for special development theory to supplement general economic theory. 3.1.16 On the new goals of development: beyond simply increasing the rate of economic growth – are applied by moving toward ‘ Human Development’ or ‘ Comprehensive Development’. But can these larger social and political goals be given more precise meaning, let alone be subjected to measurement and some operational metric for purposes of evaluation. This question receives prime attention [G. M. Meier, in preface of ‘Frontiers of Development’ 2002]. According to him, the tasks of New Generation are: (1) Beyond income, growth: Patterns of growth and income distribution. (2) Employment creation. (3) Understanding the sources of growth. (4) The influence of institutions. (5) Catching up: The role of technology and social capability. (6) The Evaluation of Financial Institutions. (7) The Implication of Globalization. (8) Complementarity of State and market.
3.1.17 Defining Social Capital Collier (1998) characterizes, ‘Social Capital’ to the sources of growth. It is as the internal social and cultural coherence of society; the norms and values that govern interactions among people, and the institutions in which they are embedded. ‘Social Capital’ has an economic payoff when its social interaction that yields externalities and facilities collective action for mutual benefits outside the market. Trust, reciprocity, interpersonal networks, cooperation and coordination can be viewed as “ Civil Social Capital” that conditions the interactions of agents and yields externalities. Government ‘Social Capital’ can incorporate the benefits of law and order, property rights, education, health, and ‘good government’. To the extent social capital reduces transaction costs and information costs, and makes physical capital and human capital more productive. It could be interpreted as a source of ‘Total factor productivity’ (the Solow residual). These are: # The evolution of financial institutions (banks, insurance. Stock market, etc. # The implications of globalization. # Complimentarity of government and market. # Policy making and economic advice. 3.1.18 Complimentarily of government and market That the respective role of the state and the market in reducing poverty. But there will be new perspectives in the role of government/ of the State. The issue will not be market failure or government failure as viewed from the neoclassical perspectives. The new (neoclassical) political economy provides a beginning in helping economists understand the policy making process, endogenize government and identify the conditions that may be conducive to policy reform (Basu, 1997. Dixit, 1997). But the new generation will have to go beyond a neoclassical type of analysis of political resources and constraints as applied to political markets. A deeper theory of politically constrained welfare analysis is necessary to support future empirical work. 3.1.19 Measurement of Economic Development “No single measurement of economic development completely describes an intricate and subtle process. At the same time, however, most economists follow the spirit of Lord Kelvin’s assertion that we are unlikely to know much about a subject unless we can measure it some way.” [ Kindleberger & Herrik, 1977]. “The challenge of development---- is to improve the quality of life, especially in the world’s poor countries, a better quality of life generally causes for higher incomes – but it involves much more. It encompasses as ends in themselves better education, higher standards of health and nutrition, less poverty, a cleaner environment, more equality of opportunity; greater individual freedom and a richer cultural life” [World Development Report, 1991]. No one has identified the goals of economic development, as well as Amartya Sen, perhaps the leading thinker on the meaning of development. 3.1.20 Sen’s ‘Capability approach’
Amartya Sen, the 1998, Nobel Laureate in economics, argues that the ‘ Capability to function is what really matters for status as a poor or non poor person’. As Sen put it, “ Economic Growth can not be sensibly treated as an end itself. Development has to be more concerned with enhancing the lives we lead and freedom we enjoy.” Infect, Sen argues that poverty can not be properly measured by income or even utility as conventionally understood. What matters is not the things a person has or the feelings these provide but what a person is or can be, and or can do. What matters for wellbeing are not just the characteristics of commodities consumed, as in the utility approach, but what use the consumer can and does make commodities. For example, a book is of little value to an illiterate person. The point is that to make any sense of the concept of human wellbeing in general and poverty in particular, we need to think beyond, the availability of commodities and with the commodities of given characteristics that they came to possess or control (or can do with them). Freedom of choice or control one’s own life, is itself a central aspect of most understandings of wellbeing. Sen identified 5 sources of disparities between measured real incomes and actual advantages: (1) Personal heterogeneity’s, such as those connected with disability, illness, age or gender etc.; (2) Environmental diversities, such as heating and clothing requirements in the cold, infectious diseases in the topics or impact of pollution; (3) Variations in social climate, such as, the prevalence of crime and violence; (4) Social Capital: differences in relational perspectives meaning that the commodity requirements of established patterns of behavior may vary between communities, depending on conventions and customs; (5) Distribution within the family: Economic statistics measure incomes received in a family, because it is the basic unit shared consumption, but family resources may be distributed unevenly i. e., girls get less medical or education attention than the boys in LDCs. Thus looking at even real (purchasing power parity adjusted) income levels or even the levels of consumption of specific commodities cannot suffice as a measure of wellbeing. One may have a lot of commodities, but these are of little value if they are not what consumer desire. Sen defines ‘capabilities’ as “ the freedom that a person has in terms of choice of functioning, given his personal features (conversion of characteristics into functioning) and his command over commodities ……”. 3.1.2.1 Policy making and economic advice Although, the new generation may focus mainly on these policy issues, their efforts will be of little avail that the governments do not heed their normative conclusions. The government can do to facilitate and accelerate development The government action will ideally include maintaining favorable institutions, providing appropriate education, opening channels of information, countering the biases of the market, and complementing it by government operation of enterprises. All of these actions will have important purposes other than promotion of economic development. With respect to economic development, firstly, there will be aimed mainly though not solely at maximizing the rate of innovation, and the last two at achieving the optimum magnitude and allocation of resource use. The term ‘development planning’ is usually used to include not only the planning but also the execution of relevant measures. The full use of resources is the
assumption and their allocation is the problem. The essential elements of good development policy are: (I)
(II) (III) (IV) (V)
The government maintains institutions, which will make it as easy and as rewarding as possible for men interested in increasing the productivity of their sector of economic system to achieve their aim. The relevant policies include: (a) maintaining law and order; (b) enforcing or including the use of convenient devices such as uniformity and clarity of weights and measures. To make available to the people of the society the full measure of relevant education to which they are receipts. To arrange contacts and open channels of information among the elements of the society and with the rest of the world. Low interest rate and tight fiscal policy. The individuals of a society may prefer a higher rate of saving than otherwise, if each knows that all others are being required to contribute their margin [ E.E.HAGEN, The Economics of Development,1968, page 480-85]
3.2 Development Of Maco- Economic Framework And A Long Term Growth Model 3.2.1 MACRO –Economic framework The preparation of the medium term plan is generally undertaken two years before it is finally launched for implementation. The process starts with the formulation of guidelines by the planning commission. The planning commission within the framework of NEC decisions prepares the guidelines. The targets suggested by the NEC are important and may be programmed in parts such that the planning commission may be able to chose on priority basis if the resource constraints or material balancing is so require. In preparation of guideline, commission formulates a set of objectives based upon the past performance of the economy. The set of objectives is placed before the NEC for approval. The NEC approved objectives are then circulated by the commission stating tentative targets in overall terms for national income, consumption, savings, investment, tax, exports, broad policies and strategies and undertakes the preparation of a macro-framework. The Ministries and Agencies participate indirectly in the technical works carried out by the planning commission as a source of information. 3.2.1.1 The preparation of a medium term plan is based on a long term ‘vision’ of a society, which the framework of a perspective plan has passed through several stages. The prepared plans thoughts on perspectives of Bangladesh for the period 1980-2000 as per directives of NEC. The booklet was published in September 1979. The outline contained the following objectives: (i) (iii)
Freedom from hunger and poverty; Employment opportunities for all in the labour force at a living wage;
(iv) (v) (vi) (vii)
Equality of opportunity and an egalitarian distribution of income; A self-reliant economy; Peoples participation in the development process having decentralized pattern of administration with suitable local level institutions; and An appropriate balance between the public and private sectors in the economy as a whole.
The “preliminary thoughts,” was issued to elicit a consensus on the broad socio-economic objectives, policies and strategies as a preview of a formal ‘Perspective Plan’. But the changes in the world economic conditions and their effect on the domestic economy, particularly the experiences of the Second Plan with international trade and aid and balance of payments problem, economic growth etc. called for a more critical examination of the macro economic parameters of goals, a perspective plan and its socio-economic goals. 3.2.1.2 In 1983, the work on the preparation of another ‘Perspective Plan’ was undertaken. Poverty alleviation and equitable distribution of income were identified as the main objectives. Population control and removal of illiteracy formed part of the objectives. The preparation of a more detailed perspective plan was under preparation so that the realistic strategies can be worked out for promoting sustained growth of the economy over the perspective plan. The Fourth Plan (1990-1995), as a part of the Twenty Year Perspective Plan (1990- 2010) has been prepared with the following objectives: (I) Accelerating economic growth. (ii) Poverty alleviation through employment generation and human resource development. (iii) Increased self – reliance. 3.2.2 TECHNICAL FRAMEWORK OF THE PLANS Prior to independence, a few multi-sectoral models of varying details were formulated in aggregate forms for the whole of Pakistan. The first of such models was prepared in 1965 to provide a consistent framework of the Third Five Year plan ( 1965-70) of Pakistan. It was a 7-sector consistency model consistency model, which made projection for the Pakistan economy in aggregate form without taking into account the regional state of affairs. The comparative static framework did not provide for inter- temporal consistency. The ‘Second Consistency Model’ was formulated in 1968 for the erstwhile Pakistan ‘Fourth Five year Plan’ (1970-75). It was also a terminal year comparative static model. The model was regional i. e. only for the erstwhile East Pakistan in so far the projection was made for two regions of ( East and West ) Pakistan. After the liberation of Bangladesh, the first multi-sectoral model was developed in 1973, for the First Five Year Plan. It was based on input – output model. The model distinguished 33 production sectors; in addition it identified four special programs viz. education, health, family planning and flood control. This was a terminal year comparative static model. The resources need for 33 production sectors were determined endogenously; whereas those for the four special programs were determined exogeneously. Under the technical framework of the four alternative plans were developed combining alternative set of targets and resource availability’s.
In 1976-77, a new input – output table with 47 sectors was prepared to provide technical guidelines for the Second Five Year Plan as a means of checking consistency between final demand , sectoral outputs and sectoral allocation of investment resources. Of the 47 sectors, 9 were in agriculture , 21 in industry, 8 in construction, 3 in energy and 8 in service sector. Several innovations were, however, incorporated in the model to accommodate the objectives of the Second Five Year Plan. These objectives are, provision of basic needs, rural development, increased production of agriculture, setting up agro-based and labor intensive industries and also small and cottage industries. The model was designed to ensure terminal year balance between supply and demand in each sector of the economy. It also specifies the various elements of supply ( domestic production and imports) and demand ( intermediate consumption, investment including working capital and exports). The solution of the model determined the sectoral output expansion and investment allocation during the plan period as well as indicated the overall saving requirements and the balance of payments situation. In general, the macro-model endogenously determined the sectoral investment allocation by linking investment demand with capacity expansion. However, in some sectors where output expansion during the plan period could be achieved partly by improving the efficiency of capacity utilization alone, Where the investment were lumpy, discontinuous and involved long term gestation period, investment could be related with output expansion and was determined exogeneously. The investment demand function of the model, however, took into account various peculiarities arising from particular situation of a sector. A distinct feature of the second plan model was the basic needs sub-model. It emphasized the provision of the basic needs bundle both consumer essential (food grains, cloths etc.) and essential social consumption (e. g. Mass literacy, basic heath care etc.). Closely related with the basic needs approach was the plan objective of achieving maximum feasible employment growth which was incorporated into the macro-model. The formulation of the macro model required a great deal of statistical information regarding structural and behavioral relationship in the economy and the base year levels of the variables. In order to generate basic data for the model, planning commission undertook certain studies, which served as the basis for the numerical application of the model. The model used for both First and Second Five Year Plans reveals that they were constructed using the principles of Leontief input – output model. The accounting framework of the said model as such constituted the input – output table tracing the transaction between the procedures with exogenous treatment of the final demand. However, the input-output model for the First and Second Five Year Plans had same weaknesses. The model took care of inter sectoral consistency and material balances of the economy. These models, however, did not provide any analysis on price, wage set. In the absence of information, it is very difficult to estimate the sectoral growth rate as a result of particular investment made in the sector together with the incremental value added ratio of the sector and differences among the inter sectoral efficiency of production. In view of this, the investment planning cannot be undertaken simultaneously with the project planning. The World Bank has focused attention on this deficiency of planning through their recent ‘Public Expenditure Survey Report’. In order to provide proper integration of macro and micro planning, an ‘Applied General Equilibrium Model’ was formulated for the Third Five-Year plan (1985-90). The model incorporated 39 commodities, 67 sectors and sub-sectors. Focusing on the two primary resources of the country, land and labor, and realizing the need for the technological and
manpower development. Third plan pursued an employment led growth policy. The objectives of the policy were to ensure the poor greater opportunity for productive employment through accelerating development of the rural economy. For reduction of poverty and unemployment, the target group oriented program was expanded so as to reach of larger number of the poor directly. For this reason the whole social framework of the Third plan was elaborated into a ‘social accounting matrix’ of 10 socio-economic groups in order to evaluate the impact of the development programs and policies on income, consumption, and employment of various social groups. The groups are : (i) Ladles agricultural labor. (ii) Small farmers ( 0.0 – 1.5 acres of land ). (iii) Medium farmers : owner cum tenants ( 1.5 – 5.0 acres of land ). (iv) Medium farmers : owner cultivators (5.0-10.0 acres of land ). (v) Large farmers : ( 5.0 – 10.0 acres of land ). (vi) Very large farmers ( above 10.0 acres of land). (vii) Rural informal households( mainly poor engaged in the nonagricultural sector). (viii) Rural formal households ( mainly poor. Engaged in non-agricultural sector). (ix) Urban informal households ( mainly poor, engaged in non-agricultural activities ) and (x) Urban formal households, mainly rich engaged in the non-agricultural sector). The Third Five Year Plan Model covered a wide range of government policies viz. , public sector investment, subsidies, exchange rate bonus, foreign aid, tax and tariff rates, price supports, food rationing and so forth. The ‘Social Accounting Matrix’, however, did not have any provision for the analysis of qualitative policies and desegregation according to geographic regions. Because of the limitation, most of the policies and strategies for the development of Bangladesh economy were fixed up from outside the framework of the planning model. As a result, the integration of micro planning with macro planning did not receive proper attention in the development plans. The Third Plan Model incorporated rural informal sector and urban informal sectors representing activities of small establishment that however, needs to be expanded to include forward and backward linkages. This calls for up dating of the input-output table and its augmentation with rows for imports and employment by skill categories. However, an augmented input-output table , 1986/87 with rows for imports and employment by occupation and/or skill categories has been prepared to reconstruct the ‘Social Accounting Matrix’ for the ‘Applied General Equilibrium Model’ in formulation of the Fourth Five Year Plan. This has all the more given rise to the needs for integrating macro and micro planning. 3.2.1 “MACRO ECONOMIC MODELLING AND DEVELOPMENT PLANNING for the Third Five Year plan” [A. H. SAHADATULLAH, 1985] Bangladesh has acquired quite a long history of development planning. Its basis was first laid down in 1968 in the form of a regional planning model [Khan, A. R. 1968] and its core was defined by a multi-Sectoral input-output relationship. The economy was broken down into 29 commodity and service sectors to establish their relationships in respect of both current output and capacity expansion. Such a planning models, generally knows as a consistency model, and has its primary objective in growth and emphasis on material balances. The model
continued to weave through the First and the Second Five Year Plans with the number of sectors expanded to 33 and 47 respectively. Experience of Planned Development. Bangladesh has experiences a reasonable growth rate for the last three decades though poverty scene did not improved as desired by the development practitioners. The question in issue is not whether growth is divorced of poverty in planning but why they coexist in reality in spite of planned efforts for poverty alleviation. Kuznet’s hypothesis postulates a U-shape income distribution curve as growth proceeds [Kuznets, S, 1955,page-28]. This U-curve hypothesis tested by Prof. Kuznets and other both on time series and crosssection data tells that income inequality grows in the early stage of development but it does not explain why the poor become poorer in the process of growth though their relative position worsens. The question is hence one of Pareto efficiency in economic development. As the malady lies not in relative poverty but in deterioration status of poor households the answer must be found in the growth process. The experiences of other countries point at two plausible answers. First, that some countries with high growth rate have been able to substantially reduce poverty in absolute sense though inequality has increased leads to the conjecture that a high growth may lead to poverty reduction as it helps quickly approach the threshold income along the U-shape curve. The example in point is South Korea where continued high growth rate raised the real wage and standard of living of the common man. If this were the only way then for Bangladesh and many other countries in the Third World the prospect of overcoming poverty will be bleak because of limited growth possibility in a highly differentiated world economy. Luckily, experiences also tell that high growth is not the only way of reducing poverty. This alternative possibility is indicated by the experiences of Sri Lanka in the last 3 decades. During this period index of physical quality of life increased from 65 to 80 [Roemer, M & Stern, J.J, 1981,page-237]. Though her GDP growth rate was around 4.5 per cent a year between 1980 and 1982, about half of that of South Korea. This experience of Sri Lanka and those of centrally planned economies hold the hope that at relatively low level of income poverty can be meaningfully overcome through institutional developments beyond the market mechanism. In Bangladesh that led to the target group approach during the second half of the last decade along with the emphasis on the development of rural institutions. Though it is only over a short period that the experiment is in existence to allow any serious evaluation of this approach, yet deteriorating poverty situation cannot stop a critical reflection on the approach as an instrument of development under the Third Plan. The issue that led to the formulation of the technical framework of the Third Plan: 3.2.2 Input-Output Model, used in the FFYP & SFYP of Bangladesh The technical framework of the earlier plans was cast in the mould of the Input-Output (I-O) model. This model is based on technological relationship with autonomous decisions about growth and some essential targets; such a model will be utterly inadequate for various reasons even though it is strapped with poverty- oriented programs. First, an input-output model is basically an investment-output model. It cannot itself directly address the distribution problem except in terms of output vector. The classical case of such output-oriented development plan is the Sen.’s celebrated concept of boom-famine [Sen, A.K. 1977.]. It has been already mentioned that in spite of increase in per capita availability of food in 1981/82
proportion of rural households below the minimum standard of calorie intake increased. In a way, from the point of view of distribution the I-O model subsumes wicksellian distribution system though the case of a poor, developing country is the mirror image of J.S Mill’s Stationary State where desired distribution is institutionally achieved [Mills, J.S: Principles of Political Economy]. Secondly, because of its thrust on growth the I-O model collapses the market into the material balance equation. There are obvious reasons for exclusion of market mechanism. as an allocative process. Because of the concern of growth of real income prices have no role to play in the I-O model as incremental demand follows from incremental income and incremental output has the constant production coefficient in terms of both intermediate and primary inputs. Given such static input-output model prices remain invariant and income going to any factor will thus depend on the volume of such factor use. With surplus labor constraint of capital thus not only constraints growth but also the level labor income. So I-O model explain declining inequality in income distribution, except for the population growth. The model is in fact a comparative static model and assumes that the market will be in continuous equilibrium. This is a very strong assumption for a mixed economy, particularly with factor supply imbalances in the labor and capital markets. Exchange market cannot be simply subsumed in the constant technical relationship in a mixed economy. The I-O model has no exchange market for the final demands. Finally, such a model is extremely weak from policy planning point of view. The only instrument that it has to affect distribution is the transfer mechanism through taxes. This together with its emphasis on institutions makes the I-O model rely on what may be called a transfer in substitution of an exchange market. 3.2.3 Alternative Model for the Third Plan .
It is in the context of these limitations of the traditional I-O model that the Third Plan has adopted and alternative approach. The model used for the Third Plan belongs to the class of General Equilibrium Model. It focuses on the microeconomic principles within an economy-wide mathematical simulation model. The cornerstone of this model is therefore the concept of economic agents who express their economic preferences given their initial endowments- land, labor and capital. The behavior of an agent is looked on as the outcome of conscious considerations of alternatives to satisfy his preferences not just as statistical relationship. In planning as abstraction of reality each agent representing an socio-economic group is taken as more or less homogeneous in terms of some dominant characteristics. Since most households are located in rural areas depending overwhelmingly on land, the rural households have been divided into 8 socio- economic groups and urban households into groups, giving altogether 10 socio-economic groups. In addition to these 10 socio-economic groups as economic agents, there is one more important actor in the economy i.e. the government. Thus there are 11 actors in the economy who have preferences and resources. In this simplified set-up the functioning of the economy as a whole could in theory be looked at as the outcome of a complicated network of all bilateral interactions between the socio-economic groups and the government. The organizing concept is underlying this complicated network the concept of equilibrium. Instead of specifying the network, certain laws of nature such as commodity balances are imposed on the system, thus determining the level of variables which individual actors react but cannot set on his own. This brings in the price formation process in the model. Although the model is called macro model, it has 39 commodity and service sectors
describe their supply, demand and price formation. Because of the overwhelming agrarian character of the economy and the existence of growth potential, 18 of the 39 sectors are located in the agriculture, 12 in industries and rest 9 sectors consist of construction, utilities and services. The focus is overwhelmingly on food reflecting the concern for basic needs. The main problem with such ‘General Equilibrium Model’ is that all agents and all commodities must be incorporated in some to ensure commodity and financial balances. It thus requires a comprehensive account of each agent (socio-economic group) of all income and expenditure. This system of accounts is represented in the Third Plan macro-framework as a Social Accounting Matrix (SAM) which serves as the date base to initialize the general equilibrium model. For the Third Plan, a SAM for the fiscal 1977 was initially and then updated for 1984/85. It is recognized that there is severe data limitation on developing a reliable SAM. The ten socio-economic group are : (a) Farming Groups : (i) Landless agricultural workers (ii) Small farm holding below 1.5 acres (iii) Medium farmers (owner-cum-tenants) between 1.5 acres and 5 acres (iv) Medium farmers (owners) between 1.5 acres and 5 acres (v) Large farmers between 5 acres and 10 acres (vi) Very large farmers, above 10 acres (b) Non-farming Groups : (vii) (viii) (ix) (x)
Rural informal defined as poorest 60% of the households in areas of less than 5000 people Rural formal defined as the upper 40% in the same areas Urban formal defined as the poorest 60% in areas of over 5000 in habitants Urban formal defined as the richest 40% in the above areas.
Model Character The model is broadly divided into two components, a supply component and an exchange component. The mode is solved sequentially every year. Supply is generated at the national level and a distinction made between commodities and factors. There is a supply function for factors Such as labor and capital and essential commodity is produced under constant returns to scale in which the producer minimizes the unit costs. As a consequence all product prices can be expressed as function of factor prices. But the quantities are determined on the demand side. For given levels of factor prices the income of each socio-economic group is determined. As commodity prices have been determined on the supply side, commodity demand as well as derived demand for factors also become determined. Factor prices are then adjusted factor demand equals factors supply. In the presence of factor price rigidities such as wage the level of factor employment will be affected. The general equilibrium approaches thus permits inclusion of supplies constrained and demands constrained sectors in one
consistent model. Import-export switches have been allowed to make the model open. When a commodity is imported its price directly depends on the border price and determines import volume. When the import volume reaches zero level, the price becomes disconnected from the border price and varies to clear the domestic market while net import is fixed at zero level. If the price drops until it reaches the export price the commodity will be exported. Thus market switches indicate change in effective constraints. Similar switches occur when production reaches a capacity constraint (e.g. food) when buffer stock depleted or when imports reach a quota. Demand and Price Adjustment The macro model is a dynamic simulation model with a year time lag between supply and demand. Because of this time lag the model has two components, namely the supply and exchange component. The supply component describes how at given prices production and investment plans are made in the economy. Given these plans, at the end of gestation period production capacity is generated. The exchange component describes what happens then. Thus the supply component contains the lagged relations of the model while the exchange component describes. the economic interactions within the year. The owners of the commodities and of production capacities are the ten socio-economic groups plus the government. Each agent buys consumption and investment goods, which vary with income (or taxes), earned and prices of commodities. The excess (or deficit) of demand over supply is imported (or exported) as long as it is permitted and profitable for the trader. This is the case for imports as long as the retail price can cover the cost of import, tariff and transportation. The reverse holds in case of export. If neither export nor import is profitable an autarky is established in which a price adjustment takes place to restore the balance between demand and supply. Such price adjustment in turn affects the revenue of the socio-economic groups and the government. The exchange component leads to the final outcomes of consumer demand, nutrition, investment and government revenue and expenditure. Supply Capacity Supply capacity is the main determinant of long term growth. In the short run growth can be stimulated by rise in effective demand . When the Supply capacity reaches the upper bound because of lack of capacity . then the price will rise. Such a constrained short-run supply adjustment to effective demand has been specified for domestic non-agricultural commodities, which are not tradable internationally. Such commodities have been defined as input-output commodities requiring an input of internationally tradable commodity. Thus any demand stimulus for domestic goods has its cost in terms of foreign exchange. This combination of supply constrained and demands constrained regimes into one single market makes it possible to explore the scope of macro-economic stabilization policies through effective demand management. Government Policies The model does not limit itself to the macro-economic stabilization policies. It also represents government operation on commodity markets and income distribution policies. On the commodity markets, quota on international trade can be imposed and buffer stocks kept for selected commodities. These market policies are strongly related to
redistribute policies, since most of these serve the purpose of effecting income distribution. Besides these and public sector investment allocation food rationing, subsidies, exchange bonus, taxes and foreign aid etc. are few important policy instrument which will be available to the government for effecting the desired changes in the income distribution. Use of National Resources The Plan recognizes that the growth prospect in Bangladesh is severely constrained by the limited availability of land and water and of skilled labor. Land and labor are also the two primary resources of the country and the economic growth will crucially depend on the increased productivity of these two resources; both land and labor quality needs to be improved. This will involve increased investment in land (and water) development, education and health. As land absorbs the main labor force, an investment in land will lead to higher productivity and higher real wage, while an investment in health and education is also needed for higher labor productivity. The present level of poverty is in fact the result of low investment, inferior technology and low productivity. This trap cannot be broken unless the level of technology in both farm and non-farm sectors improved and corresponding skill is formed. Integration of Macro and micro planning The planning process involves evaluation of possibilities and determination of objectives, the formulation of policies, preparation of projects and program of action, and implementation of the action plan and follow up of the same to attain the plan objectives. All these activities can be categorized under the main components of planning; namely (I) resource planning (ii) investment planning and (iii) project planning. Effective development planning is a function of the effectiveness of the components resulting in integration of the macro and micro planning. CHAPTER – IV Critical Review of Plan Objectives, Strategies, Outlay, and Implementation 4.0. In the three decades of development since July 1973, Bangladesh has implemented 5 ‘Medium Term’ ( Five Year) Plan & a ‘Two Year’ Plan and ‘Two Year Plan Holidays’( 1996/97-1997/98). The ‘First Five Year Plan’ was launched in July 1973 and the Fifth Five Year Plan was completed in June 2002. In order to a have clear picture of implementation results, the study period extends up to June 2003. A Five Year Plan is implemented through 5 ‘Annual development Programs (ADP)’. ‘Social sector development’ and ‘Poverty Alleviation’ have been the core issues of ‘Development Planning ’ in Bangladesh. This study is a critical review of Objectives, Strategies, Outlay, Implementation and Evaluation of the plans during 1973 – 2003. 4.1 The First Five Year Plan (FFYP) was formulated to provide a sense of direction and set an order of priorities for integrated economic policies and programs within a medium term framework. The Plan was formulated with the following main objectives: (i)
To continue and complete the work of reconstruction of the war- torn economy and to raise the output of major sectors of the economy particularly in agriculture and industry.
(ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii)
To reduce poverty through creation of employment opportunities, accelerating GDP growth, as well as effective fiscal and monetary policies. To increase the rate of growth of GDP by 5.5% annually over the planning period for an annual increase of 2.5% in the per capita income. To expand output of essential consumption items with a view to provide the minimum consumption requirements of food, clothing, edible oil, kerosene and sugar for the masses. To arrest the rising trend in the general price level and to stabilize and reverse the rising trend in prices of essential commodities. Generation of employment opportunities of 41 lakh for absorbing new entrants to the labor forces well as for reducing existing unemployment and underemployment. To reduce the dependence of foreign aids over time through mobilization of domestic resources and the promotion of self reliance. To transform the institutional and technological base of agriculture with a view to attaining self- sufficiency in food grains, widening employment opportunities. To reduce the population growth rate from 3% to 2.8%. Human resource development. A more equitable distribution of income and employment to ensure better social justice. And To consolidate the gains of socialist transformation of Bangladesh made so far.
The basic approach for alleviation of poverty was generation of employment, through higher growth and using monetary & fiscal policies for equitable distribution of basic goods to make them available at reasonable prices to the poor. In order to reduce unemployment the plan strategy suggested concentration of investment in labor intensive sectors like, Agriculture, Rural Infrastructure, and Small scale Industries. 4.1.1. The plan provides for a total development outlay of taka 44550 million at 1972-73 prices. Out of which taka 39520 million was earmarked for the public sector and the remaining taka 5030 million for the private sector. Over and above this, an investment of taka 5850 million was expected in the non-magnetized sector particularly to achieve through mobilization of surplus labor. It includes such items as subsidy and distribution costs of fertilizer, pesticides and seeds, cost of land acquisition, wages, salaries and interest and payments during the period of construction. About 89% of the total plan outlay are in the public sector and 11% in the private sector. External capital as percent of total development outlay was 62.2% in 1973-74. It was expected to decline from 62% to 27% in 1977-78. Table – 1 Development outlay of the FFYP (1973-78) in million taka Public 39520 Investment 32980 Non- Investment 6540 Private 5030 Investment 4310 Non- Investment 320
Total Development Outlay 44550 Investment 37690 Non-investment 6860 Source: table II-1, FFYP document, and Page- 13. Strategy of the Plan The plan designed to generate a rate and pattern of income growth, which not only meet a minimum consumption standard but also expand employment opportunities and ensure a socially desirable pattern of income distribution. With this end in view, the basic strategy in the plan is to concentrate on increasing output in those sectors of the economy, which use large amounts of labor and to use labor intensive methods of production. Within this general strategy the overwhelming need to reduce on imports of food grains. To improve the balance of payments by import substitution and export promotion have been the major factors in determining the pattern of growth envisaged in the plan. The Plan was implemented during 1973-78 in two different political regimes. After the change in government, in August 1975, a hardcore public sector Program was fixed at Taka 37000 million at 1975-76 prices, though it was taka 39520 million at 1972-73 prices. But the development expenditure during 1975-76 and 1976-77 was estimated taka 18560 million. The implementation of the program of taka 12030 million in 1977-78 together with expenditure during the preceding two years (1973-75) will add up to a total of taka 30590 million during the hard core period. This is 76% of the plan outlay but 83% of the hardcore allocation. The State Principle secularism was replaced by religion Islam; similarly Socialism replaced to an exploitation free society. Break-up of Sectoral allocations in the FFYP and the Hardcore Program is shown in Table -2 TABLE - 2 Sectoral Allocation of the FFYP at 1973-74 prices and the Hardcore Program at 197576 prices in Bangladesh. Name of Sector
FFYP(at 1973-74 prices) Hardcore Program(at 1975-76 Sectoral Allocation in million prices) Sectoral Allocation in taka & percentage million taka & percentage
Agriculture, water resources & rural development Industry Energy & natural resources Transport Communication Physical planning housing Education, manpower and Training Health & Social welfare Family Planning and Population Control Miscellaneous
10410 ( 26%)
11000 ( 29.72%)
7380 (19%) 5220 ( 13%) 5280 ( 13%) 1140 ( 3% ) 3150 (8%)
7540 (20.38%) 5680 (15.36%) 5000 (13.51%) 1280 (3.46%) 2150 (5.81%)
3160 (8%) 2200 ( 6%)
1830 (4.95%) 1270 (3.43%)
700 (2%) 880 (2%)
900 ( 2.43%) 350 (0.45%)
Total
39520 ( 100%)
37000 ( 100%)
Source: Table- 1.1 of FFYP document, page-5. 4.1.2. Actual GDP growth rate, Per capita income growth rate, Population growth rate consequently fell below the targets: Table – 3 Actual and Achieved Targets in FFYP (1973-78) ITEM Target ( in %) GDP growth rate 5.5% Per-capita income growth 2.5% Agricultural growth rate 4.6% Population growth rate 2.8% Source: SFYP document page- 2-4.
Actual/Achieved (in %) 4.0% 1.1% 3.7% 3%
The process of economic development in Bangladesh since independence can be viewed as consisting of two distinct phases. The first phase lasting for nearly three and a half years up to mid-1975 was mainly concerned with rehabilitation and recovery of the economy after the war of independence. The Second phase following it was characterized by a number of economic stabilization measures leading to the consolidation of the economic foundation of the country and creating conditions for economic progress. A comparative performance of the economy under the two phases with respect to the growth of GDP and other major economic indicators are shown in table –4: TABLE- 4 Comparative Growth Scenario under the Two Phases of the FFYP (1973-78) Item
First Two Years 1973-75
Last Three Years 1975-78
Average Annual Rate ( %)
Growth
Terminal Year Position Gross Investment as % of GDP at current prices Net Capital Inflow as a % of GDP at current Market prices Gross Domestic Savings as % of GDP at current market prices Tax revenue as % of GDP at current market prices Current Budget Surplus ( in Crore taka) Foodgrains Production ( in Lakh Tons)
5.70
6.40
6.3
13.45
7.24
8.82
….
4.63
4.34
7.93
125.14
367.42
112.24
131.00
Source: SFYP Document, Table-1.1, page-3. The Gross Domestic Savings as a Percentage of GDP increased 2.58% in 1973-74 to 3.49% in 1977-78. This was against the assumption of the Plan of an increase of 4.3% in 1973-74 to 14.2% in 1977-78. That is Domestic resources could not be mobilized to finance 31% of the Plan expenditure. It was only 22% and the external capital inflow, instead of declining, increased about 78%. A study by the ‘Project Implementation Bureau (PIB)’ Now Implementation Monitoring and Evaluation Division (in PIB Staff Paper, 1979 ) enlisted the following problems relating to resource mobilization and resource use: # Allocation of fund short of investment scheduled in the project proforma and /or in accordance with project work plan; # Shortage of local currency/Counterpart fund, and lack of contingency fund to meet unforeseen requirements; # Short release , non-release or delayed release of fund from the government ( Ministry of Finance and Administrative Ministry) to the Executive Agency, and from the Agency to the Project (PIU); # Unauthorized reappropriation of fund from one project to another by the executing agency; # Inability to utilize and wastage and misappropriation of fund by the agency/project management; # High overhead and administrative expenses; # Centralization of Financial powers, especially in respect of purchase at home and abroad and in tender formalities; and # Delay in lining up/allocation and reimbursement of project aid/ foreign exchange. 4.1.3. Implementation of Projects
The FFYP started 1973-74 with a portfolio of 1385 projects and over the years the ADPs included more and more projects until Financial Year 1977-78. At that time the ADP contained 1519 projects. The total portfolio of projects increased from 1385 in 1973-74 to 1671 in 1977-78. During 1973-78 only 286 projects could be completed out of a target of 652 projects. This is shown in Table- 5. Table – 5 Project Completion during 1973-78 FFYP Years Total Projects 1973-74 1974-75 1975-76 1976-77 1977-78 Total
1385 1352 1359 1477 1519 1671
Targeted Completion 10 21 55 175 391 652
for Actually Completed 3 12 41 85 145 286
Source: Table – 1, Page-89.” Institutional support for Planning & project Management”, Sirajuddin, Muhammad (1982). During 1873-78 institutional arrangements for economic planning and policy making for program/projects implementation was not adequate. The PIB study (1979) grouped problems relating to policy planning and project management as follows: • Selection of projects without strict application of ‘Social Profitability Criterion’; • Faulty formulation of projects; • Inclusion of projects in the ADP far in excess of resource availability, thereby spreading the butter too thin; • Delay in submission of project proforma and in approval of projects by the appropriate authority; • Violation of Plan discipline; • Absence of implementation plan in the Project proforma (PP) in a ‘Network Analysis’; • Absence of evaluation plan in the PP for on-going/ ex-post evaluation of programs/projects; • Shortage of managers and skilled workers for project implementation; • Delay in selection and appointment of project personnel. Including expatriate consultants; • Absence of fixation of responsibility at various management levels, delegation of authority commensurate with responsibility at these levels, and supervision by higher management levels; • Provision for inputs for and supply of inputs to projects in time according to project work plan; • Corrupt practices and wastage in project material management; • Absence of accountability in public services; • Lack of inter organizational coordination; and • Rules, regulation and procedures not conducive to good administration of development activities.
These problems created conditions for project time over – run and consequent cost over-run. Coupled with these problems was added price escalation of imported items and project cost revision upward even many more times. The inefficiency in the nationalized sector, development management, and inefficient use of foreign aid prevented the achievement of ‘full employment’ during the First Five Year Plan period. 4.2.
Two Year Plan ( 1978- 80 )
Although by the end of FFYP the country acquired greater stability and development management improved, a Second Five Year Plan could not be meaningfully undertaken because of the existence of a large number of incomplete projects which have severely restrained the plan’s choices. Therefore, a Two Year Plan ( TYP) was formulated to complete as many of the ongoing schemes as possible within the available resources. 4.3.1. The major objectives of the Two Year Plan was attaining a 5.6% annual growth of GDP allowing a average per capita income increase at 2.8% per year. To have a greater selfreliance through mobilization of domestic resources for financing development program ( 26% of the plan outlay). To move towards self- sufficiency in food grains by producing 144 lakh ton and import target of 13 lakh tons in 1979-80. Reducing population growth, improving provision of basic needs such as food, clothing, and drinking water and to create of 23 lakh new employment opportunities during 1978-80. Strategies The strategies for the Two Year Plan have been followed in order to realize the potentials existing in the economy to achieve the objectives and targets. These are: (i) Investment strategy: A total development outlay of taka 38610 million. It also emphasizes the role of private sector by enhancing the ceiling of investment from taka 3 crore to taka 10 crore. (ii) Domestic resource mobilization strategy: A domestic financing of 26% of total development outlay was envisaged. It postulates an average rate of saving of 4.2% in1979-80. This will necessitate raising the marginal rate of saving by a substantial degree. (iii) Employment strategy: It is estimated that employment generated during the TYP period about 23 lakhs. The employment strategy in the plan emphasizes employment creating sectors i. e., sectors having high employment – capital ratio and labor intensive technology. (iv) Balance of payments strategy: The main elements in the strategy on the Balance of Payments be faster increase in export earnings and import substitution in some import items. The import of food grains target was 13 lakh tons in 1979-80. (v) The Strategy of on-going projects: The priorities have been established keeping in view the objective of the TYP. Provision of new components of work in old projects, whose inclusion and exclusion would not affect the efficiency of expenditures already incurred. The number of new schemes purposely kept to a minimum providing only 15% of the public sector allocation to such projects.
(vi)
(vii)
Strategy for Improvement in Planning & Implementation Capacity: Strengthening of the Planning Commission, Planning Cells of the Ministries/Divisions and Agencies, undertaken necessary study and surveys, improvement in data collection. Training of administrative personnel, streamlining of decision making process and strengthening of executing agencies. Use of Local Resources and Mass Mobilization: For better utilization of local resources and expansion of physical and economic infrastructure through mass mobilization, undertake increased number of ‘Ulshi- Jadunathpur’ of Jessore type projects throughout the country. This is by active support from government and participation of local people in human as well as material in spirit of self-reliance in the development process.
The TYP placed top priority on the growth rate, rather than on poverty alleviation. Recognizing of agriculture as the lead sector for promoting the growth, emphasize was given to expansion of ‘high yielding crop cultivation’ through extension of seed, water- fertilizer and credit facilities and higher cropping intensity. Rapid growth of agriculture was expected to stop deterioration of rural poverty through employment generation. The TYP of Bangladesh was aimed to increase GDP by 5.6% and per capita GDP by 2.8% per year. Sectotal allocation of the TYP (1978-80) is shown in Table-6. Table-6 Sectoral Allocation of Development Outlay of Taka 38610 million in TYP ( 1978-80) Sectors Public Sector Private Sector ( in million taka) (in million taka) Agriculture, Water resources and Rural Institutions 8980( 27%) 700 (12%) Industries 5700(17%) 2460( 41%) Power, Natural Resources and STR 4710( 14%) …. Transport and Communication 5800(18%) 1260(21%) Physical Planning and Housing 2500(8%) 1400(23%) Education , training and Public Administration 1800(6%) …. Health , Population control & Family Planning 2500(8%) …. Development Board and Others 620(2%) 180(3%) Total 32610(100%) 6000(100%) Source: Table-4.1, page-44, TYP document. An important feature of the TYP was the increasing orientation of industrial policy towards private investment. The Private Investment ceiling was raised from taka 3 crore to taka 10 crore and a ‘Concurrent lists’ was created to allowing private investment in ‘Joint Ventures’ with the public sector. Industrial credit was made available in increasing quantity, while ‘Abandoned Enterprise’ was disinvested. As a result, private investment picked up. The disbursement of loans by the financial institutions to the private sector rose from taka 124 crore in 1977-78 to taka 516 crore in 1979-80 in the terminal year of the TYP. During the FFYP, the manufacturing industries were striving for recovering its 1969-70 level of output, which was reached in early 1976-77. The recovery was lower than planned. During the TYP period, industrial output in value added terms increased an average rate of 2.3% only, The
financial position of the Public Corporations with the exception of ‘ Jute and Textile’ showed improvement as a result of upward change in output prices to compensate for increased cost but there was still idle capacity in most sectors. Project implementation position is shown below: Table- 7 Project Completion during TYP (1978-80) TYP Years
Total Project
1978-79 1979-80 Total
1458 1403 1522
Target Completion 261 513 774
for Actually Completed 116 375 491
Source: Table-1, page-89 in ‘Institutional Support for planning and project Management’ ‘Muhammad Sirajuddin, 1982. As an interim Plan, about 83% of plan allocation were against the incomplete projects of the FFYP. There has been considerable shortfall in the realization of targets of the TYP. The GDP rose by 4.0% in 1978-79 and by 2.9% in 1979-80. Average growth rate was 3.5% compared with the planned growth rate of 5.6%. The total food grain production during 197879 was 130.29 lakh tons, a little less than that of 1977-78. In 1979-80, the food grain production went up to 133.5 lakh tons. During this two year period economic growth was affected by unfavorable weather condition, besides the world oil price shock of 1979. The GDP growth rate of 3.5% had a little impact on poverty alleviation. Structure of the Economy over the period of 1973-80 There have not been any major changes in the structure of the economy of Bangladesh over the period of 1973-80. Though during the period GDP has risen and the shares of the agriculture, manufacturing and other sectors in GDP have somewhat changed, agriculture still remained the dominant sector of the economy. Share of agriculture sector declined from 57.6% in 1973-74 to 54.9% in 1979-80 over the period. As a growing economy, the share of manufacturing did not increase with the fall of agriculture. During the period agriculture got 30.08% and industry got 15.24% of investment. The remaining investment got by other sectors, which grew faster than the combined growth rate of agriculture and industries. The growth of industries were slowed down , due to diminishing scope for utilization of idle capacity and delay in completion of on going projects. The faster growth (35.70% of the incremental output) of the trade and other sectors can be explained by the fact that there was massive increase in the external trade, particularly import trade. It rose taka 740crore in 197374 to taka 3951 crore in 1979-80 at current prices. Another sector that gained in share is construction sector. There has been a considerable increase in gross investment over 7 times as high in 1979-80 as that of 1973-74.Investment as a % of GDP increased to 16.51% in 1979-80 compared with 9.32% in 1975-76. A major part of it was financed by the foreign aid. The total net foreign assistance received to taka 7867 crore against the investment of 10,774 crore in the economy. The net capital inflow is estimated to have increased from 6.17% of the GDP in 1973-74 to 12.17% in 1979-80. Domestic saving has thus financed only a small fraction of the total investment. Though the saving ratio raised from 0% in 1973 to merge 4.34% in 1979-80. The recovery of the manufacturing sector was very slow. The index of the manufacturing
production ( 1969-70=100) which stood 81 in 1973-74 , reached the pre-independence level in 1976-77 and rose to 112 in 1979-80. The increase in labor force was estimated at 0.39 crore man-years as against the planned 0.54 crore man-years. According to the 1974 population census, unemployment figure was o.54 million in a population of 76.4 million. The figure was 0.08 million against population of 50.8 million. Though the employment target in the TYP period was 18 lakh man-years to alleviate existing underemployment and unemployment situation, indications are there that unemployment situation worsened and in the rural areas the number of landless people to appear to have gone up. Given the internationally accepted minimum nutritional requirements, the monthly-required income at 1963-64 prices was estimated at taka 37 per head to ensure minimum nutritional intake. The 1974 household expenditure survey showed a significant deterioration in the poverty level. The 1975-76 Nutritional survey of rural areas arrived at an extreme poverty level is 35% of households, while the absolute poverty level [at 90% of nutritional requirements] was estimated 46% of the households. 4.3. The Second Five Year Plan (1980-85) The Second Five Year Plan (SFYP) was prepared within a broad framework of Twenty Year ‘Perspective Plan’ taking into consideration of objective realities obtaining within the country & outside and the development experience of the recent past. At the beginning of the plan, even after 7 years of effort, the country was beset in abject poverty, chronic unemployment and social inequality. Only an intense desire and determined efforts to overcome them in a planned way could make things change. The SFYP ( 1980-85) was formulated with a total outlay of taka 172000 million ( at 1979-80 prices) – taka 111000 million in the public sector and taka 61000 million for the private sector. The Plan envisaged an annual growth of 5.4% compared to 6.1% in the FFYP and 3.5% in TYP. The SFYP’s objectives were determined by the socio-economic imperatives on endemic poverty, unemployment, and malnutrition, alarming growth of population, illiteracy and above all dependence on foreign aid. The objectives of the SFYP were as follows: (I)
To ensure an equitable growth in order to bring about a noticeable improvement in the standard of living of people by ensuring adequate supplies of the basic needs; (II) To reach self-sufficiency in food in the shortest possible time; (III) To expand opportunities for gainful employment so that people have access to income and resources for their basic needs and to benefits of growth; (IV) To eliminate illiteracy and achieve universal primary education as steps for comprehensive human resource development; (V) To reduce rate of population growth; (VI) To promote participation of peoples in development activities through devolution of administration and development of local institutions; and (VII) To attain a higher degree of self-reliance through domestic resource mobilization effort and improvement of ‘balance of payments’ position. The main focus of the SFYP was on the reduction of poverty through growth of income and employment. The reduction of poverty by a significant extent and creation of such conditions as would help completely eliminate it in an objective way by the end of twentieth century. The ultimate purpose is to improve the quality of life of the masses. Growth with equity
through expansion of employment was expected to raise the purchasing power. For poverty alleviation, planners provide incentives to agricultural support and agro- process industries, as these would contribute to the development of the rural economy. SFYP Strategies The strategies followed in the SFYP were as follows: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
Rural Development Strategy; Agricultural production Strategy; Institutional framework for Local Level Planning Strategy; Regional and Spatial planning strategy; Industrial development strategy; Balancing Public and Private sector strategy; Population strategy; Education strategy; Employment strategy; Human Resource Development strategy; Resource mobilization strategy;; and Price stabilization strategy.
SFYP Outlay The sectoral allocation of the SFYP outlay of taka 172000million is stated in Table - 8: Table – 8 Sectoral Allocation of SFYP( 1980-85) at 1979-80 prices. Sectors
Public (in million taka)
Agriculture, Water & Rural Development 38020 Industries and Minerals 13900 Power and Energy 20520 Transport and Communication 15240 Physical planning and Housing 5740 Social Economic Sectors 17580 Total 111000
Private ( in million taka)
Total (in million taka)
22570
60590
17690 ----
31590 20520
9760
25000
10980
16720
---61000
17580 172000
Source: SFYP document, Table – 3.2, page 41. The planned outlay was taka 172000 million at constant prices or taka 250600 million at current prices. It is estimated that the actual utilization through revised ADP taka 139290 at current prices against taka 160600 million envisaged in the plan. ADP revised allocation was taka 152930 million, 95% of the planned outlay. The actual utilization was 86.7% of the planned outlay. Of the total Plan outlay, taka 70910 million was expected to receive from
‘Foreign Aid’. Amount of foreign aid received was taka 97080 million, out of the actual outlay of taka 152970 million. 93.1% of the public sector allocation was utilized. Project Implementation The development impact of public sector outlay was diluted as the limited resources were spread over a large number of projects. The number of projects in ADP in 1980-81 was 1520. Total number of schemes including aided Technical Assistance project was 1948 and the highest number of projects in execution was 1675 in 1981-82. In view of the continuing financial stringency 298 projects were dropped or deferred during the SFYP period. In all 1037 projects were completed during the plan period, while 613 projects have been carried forward to the TFYP as compared to 1054 projects inherited from the TYP. Besides, the reduction of 298 projects, ADP were divided into Core AND Non-core , so that the projects in the core category could be protected against unexpected resources shortfall. Both these changes were intended to reduce the intensity of competing claims on limited resources and accelerated project implementation with adequate funding. As a result the number of completed projects increased from 160 in 1980-81 to 323 in 1984-85. The Financial performance of the private sector suffered more seriously than the public sector due to poor recovery of loan by the development financial institutions (DFIs) which led to the freezing of their lines of credit. GDP increased annually by 3.8% against the target of 5.8%. Population growth rate was 2.4% as against the target of 1.9%. The terminal year ( 1984-85) was 4.2% as against the target of 7.4%. The differential rate of growth in agriculture, industry and other sectors was not substantially enough to effect any significant change in the structure of the GDP Consequently, there was limited impact on poverty alleviation. The SFYP was interrupted by the Assassination of President Ziaur Rahman and its implementation marred by political uncertainty. Review of Planned Development during 1973- 85 The important feature of the ‘Development Planning’ is that all the three plans Bangladesh has implemented during 1973-85 remained overwhelmingly dependent on foreign aid. Share of foreign aid was 71.9% in FFYP, 76.8% in TYP, and 63’5% in SFYP. An important trend characteristic of aid inflow was its unevenness rising in the terminal year. In general, two types of external dependence i.e. on foreign aid and dependence on nature characterized the economy. The table-9 shows the development outlay and foreign assistance of the successive plans during 1973-85. Table –9 Size of the successive plans, actual outlay and foreign aid taka) Plans FFYP(1973-78) TYP (1978-80) SFYP ( 1980-85)
Plan Size 44550 38610 172000
Actual Outlay 20740 33590 152970
Source: TFYP document, Table – 1.1, page- 1.
inflow (in million
Gross Aid Inflow 14910 25810 97080
ADP Growth Trend ( 1973-85) The annual growth rate of ADP was 7.3% between 1973-74 and 1984-85. The rate , however, varied significantly from plan to plan. During the FFYP , annual development program grew at 12.3%, growth mainly occurring after 1975-76. During the Two year Plan ADP grew at twice at this rate i.e. 25.6%. But in the terminal year of the second plan it declined in real terms. Private Investment Trend (1973-85) The place of the private sector in the economy began to change with a greater role to play in the national development efforts since the mid 1970s. During the SFYP , under increasing strain on limited public resources and management capability, a more pronounced role was assigned to the private sector. This is reflected in larger investment allocation ( over 35%) for the private sector in the plan compared with 16% in TYP and 11% in FFYP. But in spite of this rapid growth of private investment total planned outlay ( public plus private) increased at the rate of 9.9% a year from 1972-73 to 1984-85 at constant prices of 1972-73. Development outlay was 7.8% of GDP in 1973-74 rising to 11.3% in 1977-78 and to 17.2% in 1979-80. But in 19874-85 it declined to 15.7%. New Industrial Policy In continuation of the government policy for greater market orientation of the economy and greater reliance on the private sector, the major changes during the SFYP were: (i)
(ii)
(iii)
A new industrial policy( NIP) was declared in June 1982. Salient features of the NIP consists of (a) denationalization of Jute and Cotton Textile mills ( by June 1985, 33 Jute mills with 9578 looms and 27 cotton textile mills with 4,97 installed spindles and 4771 looms were transferred to the private sector); (b) expansion of the Free Lists of Industries and (c) Simplification and decentralization of investment approval and loan disbursement procedures including reduction of administrative layers. The NIP also laid greater emphasis on foreign investment. The Foreign Private investment Promotion and Protection Act of 1980 was introduced to promote foreign private investment either directly or incollaboration, particularly in the ‘Export Processing Zone’ at Chittagong. A number of institutional changes were also effected during the plan period. These consisted of (a) setting up of ‘Private Banks’ and ‘Insurance Companies’ in the private sector, Industrial Leasing Company for procurement and Leasing of Equipment to Potential Investors, Saudi-Bangladesh Industrial and Agricultural Company, etc.
A National Council for Industrial Development has been constituted to undertake, inter alia, periodic review of the fiscal and other incentives for private investment and formulation of policy recommendations. Macroeconomic Changes in the Economy (1973-85)
Inspite of reduced outlays and debilitating external conditions, the economy made progress slowly. By 1976-77 the economy reached its pre-independence level of GDP though it suffered severe damages and dislocation during the war of liberation. The ‘Macro Economic Changes in the Economy’ is shown in table-10: Table- 10 Macroeconomic Changes in the Economy Macro-Indicators FFYP(1973-78) TYP (1978-80) SFYP(1980-85) GDP Growth(%) 6.1 3.5 3.8 Export Growth(%) 1.8 -3.2 4.9 Import Growth(%) 0.5 12.3 4.5 Foreign Aid Growth(%) -2.1 2.3 3.3 Investment % of GDP ( 1977-78) 13.5 15.5 17.3 Saving % of GDP ( 1977-78) 4.5 4.2 4.2 Tax – GDP Ratio ( 1977-78) 7.5 8.0 8.2 Source: Table- 1.3, page-5, TFYP Growth and Sectoral Contribution to GDP (1973-85) During the 1973-85 most significant achievement was in food sector, where output has increased from 10.0 million tons in 1972-73 (11.9 million tons in 1969-70) to 15.8 million tons in 1984-85. This gives an annual growth of 3.9%. In general, agricultural sector achieved a significant progress due to rural development strategy. On the other hand, industries sector contribution to GDP was 6.2% during 1973-85. It rose to 7.3% in 1972-73 to 8.6% in 198485 at 1972-73 factor cost. The rest of the economy grew at 5.8% per year. Its increasing share in GDP from 32,6% in 1972-73 to 37.1% in 1984-85. The following table gives the growth and changes in the structure of GDP in a simplified way, from 1972-73 to 1984-85. Table –11 Growth and structure of GDP ( sectoral contribution) at 1972-73 factor cost (In million taka) Sectors
GDP 1972-73
GDP 1984-85
Annual
Share of GDP (%)
Agriculture Industries Others Sectors Total
27220 3298 14782 45300
42486 6768 29036 78290
3.8 6.2 5.8 4.7
1972-73 60.1 7.3 32.6 100
1984-85 54.3 8.6 37.1 100
Source: TFYP document, Table –1.6, page- 6. 4.3
The Third Five Year Plan ( 1985-90)
4.4.1. Despite the successive efforts of planned development of the economy, the continued poverty unemployment, malnutrition, illiteracy and rapid population growth remains the
endemic problems of the country. The Third Five Year Plan ( TFYP), therefore takes an integral view of development in a ‘long run perspective’ and has formulated the following objectives: (1) Reduction of population growth; (2) Expansion of productive employment; (3) Universal primary education and human resource development; (4) Development of technological base for bringing about a long term structural change; (5) Food self-sufficiency; (6) Satisfaction of minimum basic needs of the people; (7) Acceleration of economic growth; and (8) Promotion of self-reliance. As the ultimate goal of planned development is alleviation of poverty and all planned objectives emanate directly or indirectly from the uniqueness of the goal of planned development, they cannot be viewed as mutually exclusive. The TFYP has to ensure proper and concurrent emphasis on individual objectives; that is, a minimum achievement in each of the areas of objectives will need to be ensured. The second feature of the TFYP lies in its strategies. It is to emphasize that the critical difference between plans in a poor country like Bangladesh does not lie in their objectives rather on the strategies they follow to achieve the objectives. 4.4.2. The Strategies of the TFYP (1) Population Control; (2) Employment Creation; (3) Development of Education; (4) To ensure food, Nutrition and Basic Needs; (5) Growth through Productive Employment; (6) Self-reliance and Resource Mobilization; The plan will also vigorously pursue macro-economic policies to realize the ‘New Industrial Policy’ in making the private sector a dynamic partner in development. 4.4.3 Plan Size The total outlay of the TFYP was taka 386000 million. Public Sector Allocation was taka 250000 million ( 64.8 % of the total outlay) and the Private sector Outlay was taka 136000 million ( 35.2% of the total outlay). Out of the Public sector outlay taka 77970 million was foreign aid (---% of actual outlay). ‘Uazila Block Allocation’ was 15306.3 million. Out of that taka 4970 million was the expenditure as against the total ‘Development Grant’ of taka 7800 million. Table –12 Development expenditure in the Public sector in TFYP Sector
Plan Allocation (Million taka)
Total Expenditure (Current Prices)
% of Plan target achieved
Agricuture, Water Resources & Rural Institutions Industries Power, Gas & Natural Resources Transport Communication Physical planning & Housing Education & Religious Affairs Labor & Manpower Public Administration SCYSWARM & STR Health Population control & Family Planning Others Total
70600
36081.1
51
26000
20436.2
78
56750 26370 3880
39774.3 18535.8 3447.1
70 70 88.8
5500
6318.8
104.8
12200
66258.5
51.89
930
204.9
22
650
381.4
58.68
3670 5500
1772.3 3429.4
48.30 42.35
8700 29250 250000
5007.7 29645.6 171293.4
57.50 101.38 68.57
Source: Table- 3.11, page-III-6, Fourth Five Year Plan Document. 4.4.4 Project Implementation and ADP Inspite of substantial increase in outlay, implementation of development projects suffered from a number of problems during the TFYP period. Certain measures were initiated in order to help quick implementation of projects. These are: (a) simplification of fund release; (b) delegation of authority to project directors; (c) introduction of core programming system; (d) simplification of procedures for procurement of goods and supplies and hiring of project personnel; (e) specific provision for CDST in the development budget; ( f) strengthening of IMED and periodical review of progress by line Ministries and ECNEC regularly for overcoming implementation bottlenecks. In addition efforts were also made to rationalize the total number of projects included in the ADP. In the terminal year of the SFYP, the number of forward projects to the TFYP was 615. Implementation Performance about projects and ADP’s is stated below: Table-12 Implementation Performance of projects and ADP’s ( at current Prices) Year 1985-86 1986-87 1987-88
ADP allocation(revised) Million taka 40960 45130 46510
ADP Actual Expenditure Million taka 36280 44390 41500
No. of Schemes No of Schemes Undertaken Completed 816 842 880
103 108 99
1988-89 1989-90
45950 51030
46220 57170
929 925
88 198
Source: Table- 3.10, page –III-6, Fourth Five Year Plan Document. A Planning Commission Study showed that the end of the first three years of the TFYP only about 43.5% 0f the planned expenditure had infact taken place against the target of 60%. Such delays in project completion, according to one estimate, increased costs by roughly 35% and extended time of completion by more than 60%. In an study of 28 completed projects , Professor Salauddin Aminuzzaman showed that about 65% of the projects were delayed more than two years. Table-16 Distribution of Time Over runs Projects and delays in implementation Time Delayed < 6 months 1 year < 2 years 2 year < 3 years 3year < 4years 4years + Total
No. of Projects 1 9 11 6 1 28
Percentage 3.57 32.15 39.28 21.43 3.57 100
Source: Aminuzzaman , Salauddin, “Project Management in Bangladesh: A critical review”, In ‘Development Review’ 1990. The distribution of costs overrun of a sample of 82 projects ( Chadha. S 1989 : 221) are shown in table -18 . Table –18 Distribution of Costs Overrun of 82 Sample Projects Cost Overrun NO. of Projects Percentage 100 – 200% 57 69.51 200 – 300% 7 8.54 300 – 400% 6 7.32 400 – 500% 1 1.22 500 – 600% 2 2.44 600- 700% 3 3.66 Over 700% 6 7.32 Total 82 100 A comparative rank order presentation of major causes of delays in project implementation in Bangladesh is presented below: Table – 19: Rank Order Causes Project Implementation Problems World Bank (1987)
Development Alternative Incorporated
IMED ( 1989)
World Bank ( 1989)
Skylark Chadha ( 1989)
(1988) 1.Delay due to 1.Discontinutity insufficient between macrofund. planning & project cycle. 2. Delay in 2. Delays in Approval due Phases. to staffing constraints in Planning Commission. 3. Delay in 3. Shortages of approval due to local resources micro( Financial & management Human). review at the Planning Commission. 4.Fund release 4.Inadequate Procedure. data throughout all phases of the project. 5. Land 5.Lack of Acquisition. flexibility & delegation of authority.
1.Insufficiant allocation money.
1.Procurement of Delays.
2. Delay in project 2.Local approval. Currency Shortage.
1.Lack of Time Concept in Project Preparation. 2.Centralization of authority delays decision at every point.
3. Frequent 3. T..A. 1.Procedural transfer of project Consultants. rigidities. Director.
4. Delay in tender 4.Recruitment formalities & of staffing. work order.
4. Lack of Project Management Skills.
5. Delay revision projects.
5. Lack of Technical Skills at project implementation phase. 6. Lack of accountability system.
in 5.Land of acquisition.
6. Delay in 6.Existing 6.Delay in land appointing Key bureaucratic acquisition. Officials. culture & over centralization. 7. Procurement. 7.Procurement. 7. Delay in arrangement of project funding. 8. Recruitment 8. Coordination 8. Delay in of Consultant. of allocation of Implementation building . materials, goods & machinery. 9.Project 9. Monitoring 9. Delay in Management. & Evaluation. accomplishing Delegation contracts with issues donors.
6.Project Monitoring. ___________
___________
___________
______________
____________ __
_______________ _
Source: Table-7,â&#x20AC;?Prroject Management in Bangladesh: A critical Reviewâ&#x20AC;?, Aminuzzaman in .Development Review, 1990.
Salauddin
It is estimated that about 3.93 million man-years of employment were generated during the TFYP as against the target of 5.1 million man-years. The TFYP achieved a growth rate of 3.8% instead of the target of 5.4%. Population growth rate was 2.2% against the target of
1.8%. As a result there was no appreciable fall in poverty and development of the social sector. There were considerable fluctuations in annual growth performance, especially in 1986-87 and 1987-88 due to severe floods and other natural calamities. However, there was significant improvement in 5.8% GDP growth performance in the terminal year for good harvest of Aman Crop. 4.4.5. Structural Change in the Economy (1985- 90) is shown: Table-14 Structural Change in the economy & Sectoral Contributions Composition of GDP Contribution to Sector __________________ Incremental GDP 1984-85 1989-90 Agriculture 43.32 39.15 18.83 Industry 9.07 9.63 9.63 Electricity, Gas & 0.60 1.09 3.54 Natural Resources. Construction 4.75 5.55 9.41 Transport & 10.41 11.50 16.90 Communication Trade & Other 20.11 21.20 26.54 Services Housing Services 8.33 8.14 7.04 Public Services 3,41 4.20 8.11 Total 100 100 100 Source: Table – 3.3, Page-III-2, Fourth Five Year Plan Document. 4.4.5. Major Macro – Economic Indicators (at current prices) Although various measures have been adopted to encourage private saving and investment, the rates of these were declined over the TFYP period. Macro- Economic Indicators are stated below: Table-16 Macro – Economic Indicators (at current prices) As a % of GDP 1984-85 1989-90 Investment 13.00 12.33 Foreign Aid (net) 7.91 5.93 Gross Domestic Savings 4.21 3.80 Source: Table-3.4, Page-III-3.Fourth Five Year Plan Document. 4.5. Fourth Five Year Plan (1990- 95) The Fourth Five Year Plan with a total outlay of taka 689300 million was approved by the NEC in October 1990. However, because of the change of the government in December 1990, the official communication regarding approval was delayed. The Fourth Five Year Plan had been recast in light of the progress made in investment program both in public and private sectors since 1990-91. The imperatives for reflecting the objectives of the ‘New
Development Perspective ( i. e. , NDP of 1991-92 having 8 goals) of the government in power. The Revised Fourth Five Year Plan with a total outlay of taka 620000 million was approved by the NEC on March 7, 1993. The plan Placed emphasis on poverty alleviation and meeting the basic needs of the people with particular focus on human resources development, women in development and environmental sustainability. The main objectives of the plan were: (a) (b) (c)
Accelerating economic growth to achieve an overall annual GDP growth rate of 5%; Poverty alleviation and employment generation through human resource development; and Increased Self- reliance.
Major Strategies of the Fourth Five Year Plan The Vision for the future Socio-political and economic development of the country leads to the formulation of” New Development Perspective (NDP)”, which accord top priority to accelerated and sustainable economic development. The main thrust the democratic government was on the human resources development, ge3neration of productive employment and alleviation of poverty. The major strategies of the NDP would be generation of productive employment particularly to meet the basic needs of the lower 50% of the population, thereby raising savings, investment and purchasing power of the community. Emphasis would be given on local level participation and Women’s participation in the process of socio- economic development of the country. Export led growth and promotion of private investment would be the main focus of the development perspective and the government will scale down its operators to play a supportive role in accelerating the process of development. General Strategy (1) (2) (3) (4) (5) (6) (7) (8) (9)
Export – led Growth Strategy; Integration of Sector Based Planning with Group-based Planning; Achieving Inter-Sectoral Balance in Sectoral Planning; Creation of an Efficiency Culture in the Economy; Integration of Structural Adjustment with Real Sector Growth; Bringing Women into the Mainstream of Development Planning; Reduction of the rate of population growth; Restructuring of the Fiscal, Monetary and Commercial Policies; Restructuring of the Administrative System.
Specific Strategies (1) (2) (3) (4)
Public Sector Investment Programs; Private Sector Investment Programs; Community Participation through Non-government Organizations; and Local Level Planning and Resource Mobilization.
Financing of the Fourth Five Year Plan
The total domestic resources in the revised plan outlay plan outlay amount to taka 345500 million i.e. , about 56% compared to that of projected target of 48%. As regards to the domestic sector Outlay, domestic resources were estimated to finance 34% as against the target of 26% in the original plan. The total outlay in the private sector is estimated to exceed the original outlay by taka 3000million with domestic and foreign finance remaining unchanged in the ratio 87 : 17. This is shown in table –19. Table – 19 Financing of the fourth Five Year Plan( at 1989-90 prices) ( In Million Taka) Financing Plan Size Domestic Resources External Resources ( Net)
Total Original Revised 689300 620000
Public Original Revised 419300 347000
Private Original Revised 270000 273000
333650
345500
109500
119000
224150
226500
355650
274500
309800
228000
45850
46500
Source: Table – 4.3, Page- IV, Fourth Five Year Plan Document. The revised allocation for the public sector was 56%, while that for the private sector was 44%. The share of the private sector was kept higher than that in the TFYP (35%) and the SFYP (16%) in view of the expanding market economy and public resource constraint. To meet the resource requirements, The plan aimed at raising domestic saving rate to an average of 8.60% to achieve an investment rate of 14.80% and Tax/ GDP ratio of 9.30% in the Terminal Year of the Plan. Growth Performance The average annual growth rate during the Fourth Five Year Plan period was 4.15% against the target of 5%. The low growth was due to almost stagnant agricultural production. The growth of the agricultural sector was only 0.98% compared with that of the plan target of 3.42%. Agricultural growth suffered due to problem of fertilizer distribution and lack of adequate public procurement of food grain at support prices. The manufacturing sector showed a modest growth rate of 7.05% against the target of 9.02%. The energy sector, however, accounted for an accelerated growth rate of 15.31%, while its target was 9.28%. The Public service sector showed some shortfall in attaining the target. The housing and other services, however, had marginally higher growth rates. This is shown in Table-20. Table-20 Structural change in the economy & Annual Growth Rate During 1990-95
Sector
Agriculture Industry
Composition of GDP (at 1984-85 Annual Growth Rate (%) prices) Target Achievement 1984-85 1989-90 199495 41.77 38.27 32.77 3.42 0.98 9.86 9.91 11.36 9.02 7.05
Electricity, Gas & Natural Resources Construction Transport & Communication Trade & other Services Housing Services Public Services Total
0.58
1.12
1.86
9.28
15.31
5.53 11.22
5.98 11.86
6.33 12.17
5.86 5.39
5.34 4.68
19.82
21.13
22.98
5.00
5.92
7.97 3.25 100
7.64 4.09 100
7.45 5.08 100
3.62 10.65 5.00
3.63 8.74 4.15
Source: Table â&#x20AC;&#x201C;1.2 & Table- 1.3, Page-3, Fifth Five Year Plan Document. A major objective of the Fourth Five Year Plan was to improve domestic resource mobilization both in the public and private sectors. Because of strong reform measures, both Tax and Non-Tax revenues exceeded their respective plan projections. As a result, total revenue receipts during the plan period was taka 471570 million at 1989-90 prices exceeding the plan projection of taka 45790 million. However, current expenditure overshot its target by about 3.7% so that revenue surplus barely exceeded the plan expectation by 0.7%. While there was a food budget deficit, it was offset by higher net capital receipts. As a result, domestic resource generation in the public sector exceeded the planned amount by more than 33%. The Fourth Five Year Plan provided taka 347000 million at 1989-90 prices for the Public sector development outlay. Total development expenditure in the public sector during the plan period was estimated at taka 322440 billion, realizing about 93% of the target. Sectorwise distribution of development expenditure is presented in Table-21. Sectoral performance of the Fourth Plan showed that there was under spending in some sectors. In Industry, actual development expenditure stood at taka 5030 million as against taka 16840 million earmarked for the sector. The short fall was attributed to the government policy shifts towards encouraging private sector investment in industry. Development Expenditure in Health & Family Welfare, Labor & Manpower and Public Administration sectors lagged behind the targets. There was, however, over-spending in rural development, transport and education. This was also due to policy shift of the government towards public investment for infrastructure development and for human resource development. Public Sector Performance during the Fourth Plan Period is presented in Table-21. Table â&#x20AC;&#x201C; 21 Public sector Performance during 1990-95 (at 1989-90 prices) ( in million Taka) Sectors
Allocation
Agriculture 23260 Rural Development & Institution 16500 Water Resources 38290
Realized Expenditure 18820
Realized Expenditure as % of Allocation 80.91
17930 26730
108.67 69.81
Industry 16840 Oil, Gas & Natural Resources 23980 Transport 46530
5030
29.87
15320 51260
63.89 110.17
Communication Physical Planning & Water Supply Education Sports & Culture Health Family Welfare Mass Media Social Welfare, Women & Youth Development Public Administration Science , Technology & Research Labor & Manpower Sub-total Others Total
6520
12130
186.04
18420 26580 1460 10600 15980 1230
13780 29050 1510 9830 15160 1190 2020
74.84 109.29 103.42 92.74 94.87 96.75 85.96
2010
710
35.32
540
490
90.74
850 297300 49700 347000
180 263020 59420 322440
21.18 88.47 119.56 92.92
2350
Source: Table-1.5, Page-4, Fifth five Year Plan Document Government investment during the Fourth Five Year Plan Period was 93% of the target. GDP increased at 4.15% instead of 5.0%. Comprehensive Program for structural reform was initiated, with safety net provisions for the poor. Greater emphasis, compared to the past, was put on ‘Social Sectors’ like education and health. 4.6. Review of Performance during ‘Two Year Plan Holidays’ (1995- 1997) The government of that time could not draw up a new plan after the Fourth Five Year Plan. ADPs in the public sector in 1996-96 and 1996-97 on an ad-hoc basis. Private investment could not be projected in a framework of facilitation package. But the Public Sector Outlays through ADP allocation during the financial year 1995-96 were taka 12100 million. Due to resource constraint it was reduced to 10447 million (i.e., 13.70% less than the original outlay). Actual expenditure was taka 10016 million. ADP in the financial year 1996-97 were taka 12500 million. The contribution of domestic resources to the financing of ADPs of 1995-96 and 1996-97 were taka 4414 million ( 42.30%) and Taka 5926 million (47.40%) respectively. 4.6.1. Growth Performance During this period, the overall GDP in real terms attained modest gains. It registered a growth of 5.40% in 1995-96. The growth in agriculture was 3.70% in 1995-96 compared with a negative growth of 1.04% in 1994-95. The growth of industry declined from 8.64% in 1994-
95 to 5.29% in 1995-96. The contribution to GDP was 32.24% in agriculture, 11.34% in industry, 6.25% in construction, 1.94% in power, gas and water resources and 48.21% in other services. GDP grew by 5.70% in 1996-97 over the period of 1995-96 respectively. The growth in agriculture was due to significant increase in major crop production. The decline in the growth of industry sector was due to short fall in production of both large and medium scale industries. 4.6.3. Saving and Investment During 1995-96, the rate of domestic saving was 7.27% and that of national saving was 11.85% of GDP. Domestic and national saving rates in 1996-97 were 7.70% and 14.63% respectively. The rate of investment rose from 16.63 to GDP in 1994-95 to 17.0% in 1995-96 and to 17.37% in 1996-97. In 1996-97, public sector investment was 6.52% and the private sector was 10.85% of GDP. 4.6.4.
Balance of Payments Situation
The country’s Balance of Payments came under strain in 1995-96. A steep rise in imports coupled with slower aid disbursements triggered a rundown in the country’s foreign exchange reserves. By the end of the fiscal year, the reserves stood $2.04 billion, equivalent to 3.6months imports as on June 30 1996. The trade deficit widened by more than 27% to $3.00 billion after imports jumped up by 18% to $6.88 billion against as 11.80% growth of export to $3.88 billion. Several key imports like cotton, POL , rice and wheat suffered from rises in prices in the world market, significantly rising the import bill. The rise in imports came largely from a 15% increase in non-food imports led by textiles, cement, POL and capital goods and a 37% escalation in food grain import. Gain in exports in knitwear and readymade garments, mainly contributed to overall export growth during the year. But inflow of foreign remittances from overseas workers leveled off at $ 1.2 billion. As a result, the current account deficit widened to $1.6 billion. Aid disbursements also declined by around 17% to $ 1.44 billion. All these led to the draw down of the foreign exchange reserves. The strain experienced in the external balances in 1995-96 albeit marginally, in 1996-97. Faster growth of exports, aided and strengthened by a turn- around in the flow of remittances, narrowed the account deficit to an estimated amount of $860 million ( 3.40% of GDP) compared with $1.64 billion ( 5% of GDP) in 1995-96. With the rise in food grain output in 1996-97, the import demand in food grain was estimated to decline substantially by more than 67% to $212 million. Therefore, total imports were estimated to grow at a slower rate of 1.70% and reach $ 7.0billion. On the other hand, estimated higher export earnings from garments, knitwear, frozen food, tea and raw jute led to a 13.30% rise in export earnings $4.40 billion in 1996-97. 4.7. Fifth Five Year Plan ( 1997-2002) Keeping in view the changing structure of the global economy, the Fifth Plan places market at the center and also attach due importance to the appropriate role of the government, the public sector and the private sector. Further, a comprehensive policy package has been presented in the plan which is expected to attract much needed ‘Foreign Direct investment (FDI)’. The government will promote, guide and develop markets. The greater part of the GDP during the fifth plan is expected to come from the private sector. The role of the government will be limited mainly to the establishment of the educational, technological,
financial, physical, environmental and social infrastructure of the economy. The governments will also provide utility services where private sector is not forth coming. A major focus of the Fifth Plan is ‘Local Level Participatory Planning’ and ‘integration of the local level development projects/programs with those at the national level. The Fifth Plan envisages an active coalition of the government and the NGOs on the development front. It also tried to accommodate the political commitments of the party in power. 4.7.1. Development goals and objectives of the Fifth Plan are stated below: (a) To alleviate poverty through accelerated economic growth, on an average of annual GDP growth of 7% to bring about a noticeable improvement in the standard of living of people by raising their level of income and meeting their basic needs. (b) Generation of substantial employment opportunities and increase in productivity through an optimal choice of labor intensive & new capital intensive technologies. (c) Improvement in the quality of life of the rural population through mobilization of the rural masses and resources at their command to accelerate growth in the rural employment and income. (d) Transformation of the rural socio-economic structure int6o a more equitable, just and productive one and employment of the rural poor through access to resources. (e) Attainment of food production beyond self-sufficiency level in the shortest possible time. (f) Human resources development with emphasis on compulsory primary education, vocational training and foundation laying of a knowledge based society. (g) Development of necessary physical infrastructure conducive for private sector development ventures. (h) Development of hitherto neglected areas like the North –West Region. Chittagong Hill Tracts and Coastal Areas. (i) Achievement of lower population growth rate ( 1.32%) by the terminal year of the plan, coupled with the provision of necessary health care and improved nutrition of mother and child. (j) Strengthening of the country’s scientific and technological base with emphasis on research and development of new generation technologies, including areas such as electronics and genetic engineering. (k) Protection and preservation of environment by putting in place adequate regulatory regimes and effective institutions. (l) Closing the gender gap, giving priority of women education, training and employment and special support for education of the girl child. (m) Establishment of social justice through equitable distribution of income, resources and opportunities and creation of effective safety nets for the disadvantaged groups. (n) Putting in place effective Local Government Institutions, at the Union, Upazila, District levels and devolution of local level planning to these institutions. 4.7.2. Strategies of the Fifth Five Year Plan The Fifth Five Year Plan of Bangladesh considers alleviation as a synonymous of with development. For this purpose, development strategies were to accelerate economic growth,
enforce higher investments in basic services and social sectors, restructure institutions and administrative framework, enhancement of poorâ&#x20AC;&#x2122;s crisis coping capacities and build up their asset base and promote target oriented approach of income and employment generation. The Plan aims to Promote a structure of economic growth that has a high capacity to reduce poverty by strengthening the channels through which benefits of growth reach the poor and increasing the efficiency with which the sectoral linkages cater to the need and demands of the poor. The Fifth Plan aimed at a reasonably high agricultural growth rate. A high agricultural growth creates the synergy necessary for diversification of the rural economy and development of the rural non-farm sector. Such a diversification benefits the poor through greater demand for labor and greater linkages with processing transported other services. The Fifth Plan has successfully utilized the strategy of higher agricultural growth contributing to faster national growth. The average Annual Growth Rate of GDP has increased to 5.5% during the 1996-99 periods (from around 4% in the earlier periods). Similarly, the growth of agriculture accelerated to an annual 4.3% after a period near stagnation during the early 1990s. The strategies followed to achieve the above goals and objectives are shown below: (h) Poverty alleviation and rural development; (i) Accelerated agricultural production; (j) Local Level Institutions for Participatory Rural Development; (k) Population; (l) Human Resources Development; (m) Education; (n) Private Sector- Dominant Player; (o) Export Led- Industrialization; (p) Employment and Income Generation; (q) Micro-credit; (r) Good Governance; and (s) Resource Mobilization. 4.7.3. Plan Total Outlay The composition of Public Outlay has been used as a powerful vehicle to achieve pro-poor economic and social objectives. During the recent years, there has been a significant shift in public expenditures toward social sectors and infrastructure. In the case of education, development expenditure increased by nearly fourfold between 1991-1999 period in constant price. Similarly, Annual Development expenditure doubled in health sector in real terms. Not only that per capita public expenditure at constant price increased by 68% for education and 53% for health in 1998-99 compared to 1990-91. In an study it showed that between 1992-93 and 1999-2000, whereas annual development program size has increased by 58%. The Fifth Five Five Year Plan total outlay was taka 1959521 million. Public Sector Outlay was taka 858939 million (43.83%) and the Private sector outlay was taka 1100582 million (56.17%). Public Sector Allocation with share of individual sub-sectors are shown in Table22: Table-22 Public Sector Outlay for the Fifth Plan (1997-2002) at 1996-97 prices. Sectors
Allocation in million taka
& ( % of share of total outlay) Agriculture 42299.08 ( 5%) Rural Development 87002.48 ( 10% ) Water Resources 56197.62 ( 6% ) Ganges Barrage 17175.50 ( 2% ) Industry 11793.70 ( 1% ) Energy 88361.00 (10 %) Oil, Gas & Natural Resources 26039.60 (3 % ) Transport 109955.51 ( 13 % ) Bhangabandhu Bridge 11800.00 (1 % ) Communication 23784.00 ( 3% ) Physical Planning & Housing 49816.00 ( 6 % ) Education 128931.50 ( 15 % ) Health 62272.40 ( 7 % ) Population & Family Welfare 28590.00 ( 3 % ) Sports and Culture 5738.50 ( 1 % ) Social Welfare, Women & Youth 14313.70 ( 2 % ) Development Mass Media 4845.70 ( 1 % ) Science and Technology 5051.10 ( 1 % ) Labor and Manpower 1390.20 ( - ) Public Administration 9674.30 ( 1 % ) Block Allocation 73906.51 ( 9 % ) Total 858939.00 ( 100 %) Source: Table- 3.10, Page-64. Fifth Five Year Plan Document. Along with higher allocation for social sectors, the Fifth Five Year Plan provides for increase in the benefits of the poor from such expenditure. Since human capital requirements of the poor are of the types of public goods with positive externalities, the market and the private sector are unlikely to provide them to the required extent. In the development plan, efforts are targeted to provide adequate quantity and quality of these services so that the poor do not remain victims of both market and government failures. Expenditure for development of education can be cited as an example of integration of poverty alleviation and social sector development in the planning process of Bangladesh. Education was consistently given the highest allocation in the annual development program. Several steps had been taken to make public education expenditure more pro-poor. More than 55% of the development budget for education is devoted to primary and non-formal & mass education. About 48% is devoted to primary education alone. One study showed that poor received 48% of the benefits of public primary education spend in the rural areas compared to 26% for secondary and 15% for higher education. To ensure universal primary education and eradication of illiteracy by 2006, projects were being implemented to increase enrollment and reduce drop out areas, increasing primary education cycle completion rate, improve the quality of education and increase the literacy rate. Consequently, the gross enrollment rate has increased to 96% in 1999 from 76% in 1991 and the completion rate of primary education cycle had increased to 65% from 40% during the same period. The government in collaboration with NGOs and other Voluntary organizations was implementing the non-
formal education programs. Of late, a post literacy and continuing education project had been undertaken for the new literate for sustained human resource development. Development projects were being implemented to cope with increased demands for secondary and higher education. Infrastructure and other facilities are being expanded. Since January 1994, a female stipend program at secondary level had been taken up for ensuring secondary education to the girls. Under this program, girl’s students of grade 6-10 are provided with stipends to cover their educational expenses and enjoy free tuition. The number of beneficiaries under this program was nearly 4 million in 1999. It has created such a rush of female students those boys-girls ratio at secondary level was 54: 46 in 1999, whereas, it was 67: 33 as late as in 1994, before this secondary stipend project. For getting this stipend, a girl student must be present at least 75% of school days, must have satisfactory performance in examinations and must be unmarried. Food for education project was an innovative effort, which was started in 1992 to boost ‘Universal Primary Education’. This project was designed to support poverty- stricken families to send their children to primary schools by giving income entitlement through food. This enables the poor families to release their children from livelihood obligations to ensure regular primary school attendance. The target groups include distressed widows, day laborers, insolvent groups and landless. It covered approximately about 28% of area of Bangladesh. The Remaining 72% was under ‘ Primary Education Stipend Project’ started in April 2002. Later on, the whole area of Bangladesh was covered under this project by dropping food for education project. The Fifth Five Year Plan had taken up a reform based ‘Sector-wise Approach’ under Health and Population sector Program to improve the health and family welfare status of the most vulnerable groups i. e. , women, children and the poor. One study indicates that public health expenditures are considerably pro-poor; about 52% of the rural households, who are poor receive 57% of benefits of public health spending in the rural areas. In addition to health and education, the growth propelling impact of rural infrastructure is substantial in creating income and employment for the poor. Another example of the integration of poverty alleviation and social sector development in the planning process is the gradual transformation of food assistance from pure relief to linking with poverty alleviation and social sector development. Food for works program provides grain to the worker. Vulnerable group feeding development also provides food to the destitute women. The other safety net programs are targeted to the poor and old. Rural infrastructure development program is another example of integrating poverty alleviation with development. It includes development of roads, bridges and culverts, small-scale irrigation structures, development of trading facilities in rural markets and creation of trading net work by linking the hierarchy of trading centers. During 1997-99, about 110 million person days of employment were created through the construction of 3530 kilometers of rural road, 67600 bridges and culverts and development of 336 growth centers. 4.7.
Economic Trends of Bangladesh during 1973- 2003, OR
[ Development Performance, Constraints and Challenges in 1973-2003] The objective of this study is to trace the development progress in Bangladesh during the period of 1973-2003, look at emerging constraints and challenges, and draw lessons for the way forward. The three decades constitute a rich experience and important lessons can be
gained, both positive and negative. As well, an effort will be made to draw on equally rich international experience, especially lessons from the South and South- East Asian countries. Hopefully, this review will make a modest contribution to the debate on policy options for Bangladesh. After the overview, trends in relevant quantitative indicators of performance are presented and compared, wherever possible, with performance in South Asia and other Developing economies. At first, we summarize the development outlays during 1973-2003 and relative shares of public and private sectors and Estimated expenditure, growth targets and achievements in Table- 24. Table-24
( in million taka)
Plans
Plan size at respective base Actual expenditure at GDP growth year prices respective base year prices Target Actual Total Public Private Total Public Private In % In % FFYP 44550 39520 5030 20740 16350 4390 5.5 4.00 1973-78 (100%) (88.71 (11.29%) (100%) %) TYP 38610 32610 6000 33590 24020 9570 5.60 3.50 1978-80 (100%) (84.46 (15.54%) (100%) %) SFYP 172000 111000 61000 152970 103280 49690 5.40 3.80 1980-85 (100%) (64.53 (35.47%) (100%) %) TFYP 386000 250000 136000 270110 171290 98820 5.40 3.80 1985-90 (100%) (64.77 (35,23%) (100%) %) Fourth. 620000 347000 273000 598480 274083 324397 5.00 4.15 FYP (100%) (55.97 (44.03%) (100%) 1990-95 %) Two Year 508760 217160 291600 Plan (100%) (42.68) (57.32%) holiday 1995-97 Fifth. FYP 195952 858939 1100582 7.00 1997-2002 1 (43.83 (56.17%) (100%) %) TOTAL Source: Table-1.1 & Table-3.1, page 2 & 53, Fifth Five Year Plan Document. It appears from the above table that the share of public development outlay in the subsequent plans is decreasing trend. While that the share of private development outlay is an increasing trend. The growth of GDP is an increasing trend since 1990 (from the Third Five Year Plan). It requires knowing the share of foreign aid in development outlay in plans and the rate of GDP achieved. Table â&#x20AC;&#x201C;25 shows the dependence of foreign aid( external resources) and GDP growth rates in each plan. Table-25 Share of External Resources and GDP growth rates
Plan
FFYP(1973-78) TYP(1978-80) SFYP (1980-85) TFYP (1985-90) FFYP (1990-95) ADP 1995-96 ADP 1996-97 FFYP (1997-2002) ADP 1997-98 ADP 1998-99 ADP 1999-2000 ADP 2000-2001 ADP 2001-2002 ADP 2002-2003
Share of external Share of domestic GDP growth resources ( %) resources(%) rate( %) Target Actual 72 28 5.5 4.00 77 64 64 62 59 51 23 49.45 46.99 48.72
23 36 36 38 41 49 77 50.55 53.01 51.28
5.6 5.4 5.4 5.0 6.0 5.7 7.0 6.0 6.3 6.8 7.6 8.3
3.5 3.8 3.8 4.1 5.3 5.9 5.6 5.2 5.4
Source: Table- & table – It appears from the above Table that no one Plan had achieved the target growth of GDP. During the period of study the dominance of external resources in financing the development plans was prominent. It also reminds the likely impact of structural dependency of the Aid recipient country on the donor country, which is effected through the process of aid flow. Three types of manifestation of danger inherent in the structural technological dependency may be seen. These are - (a) The aid recipient country may be forced to adopt technologies that are not consistent with their factor endowments; (b) The technological dependency may be used by the donor countries even after the cessation of capital inflow to extract political and economic favors from the aid receivers; and (c) The aid recipient country may be forced to follow the same cycle of technological obsolescence as the developed country at a very high resource cost [ Jahangir. A. K. M. (1992:127]. Dilip Kumar Nath (1981:36-38) showed that there had been deterioration in the standard of living of the masses during 1973-74 to 1978-79. He used the per capita supply of essential consumer goods and trend in real wage index. These tables along with the consumer price index standing at 486 and 465 in 1978-79 for middle class in Dhaka and working class in Narayangonj showed the deterioration of the condition of the masses. The draft SFYP (Draft SFYP, page:1-15) also acknowledges that ‘the decline in real wages against an overall GDP increase of 29.6% between 1969-70 and 1979-80 ( at constant prices) necessarily leads to the conclusion that during 1970s, the absolute decline in the working class position had taken place, when the rest of the society improved their position’. It is not clear whom the planners meant the rest of the society. They may be the rich farmers, Mercantile Capitalists, a segment of the bureaucracy and the ruling clique. Table- 26 shows the ‘Trend in Real Wage Index’ (1969-70=100): Table –26
Trend in Real Wage Index Years 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79
General Wage Index 67.6 64.5 57.4 66.9 71.2 66.7 75.7
Agricultural Wage Index 66.5 63.2 60.7 76.6 75.6 74.3 81.0
Source: SFYP document, page 1-15. He also stated that the deterioration in the living standard of the masses took place during a period when foreign capital inflow increase from year to year. The net Commitment of net project aid up to June 1990 was $14031.4 million and the utilization was $90088.4 million. The percentage of utilization over the commitment was 64.8%. It was observed that the project aid utilization during the TFYP period was increasingly steadily, particularly in the terminal year. Although project aid utilization during the TFYP had increased gradually, the rates of project aid utilization were always much lower than those of food aid and commodity aids. This is shown in Table-27. Table –27 Utilization of Aid over the opening pipeline( US $ in Million) Fiscal Year 198586 198687 198788 198889 198990
Food Aid Openi Utiliza g tion Pipel. 194.4 202.7
Commodity Aid % of Openi Utiliza Util. ng tion Pipel. Pipel. 104.3 374.7 393.4
Project Aid % of Opening Utiliza % of Util. Pipel. tion Util. Pipel. Pipel. 105.0 4061.7 709.8 17.5
323.8
225.4
69.6
460.4
402.5
87.4
4632.8
967.2
20.9
207.4
300.4
144.6
604.1
504.4
82.8
4390.1
830.5
18.9
299.3
226.9
75.8
451.5
537.7
119.1
4699.0
903.9
19.2
231.7
187.5
80.9
499.6
456.7
91.4
4601.2
*1165. 22.0 4
Source: Table –1, Page-107, “Utilization Procedure of foreign Aid” Md. Zakir Hossain, 1992. This flow of foreign aid had neither been any use in eradication of poverty nor helpful in increasing production. According to Mohammad Ali Akbar, “The rate of return on aided projects should be higher than the international service charges. The savings out of newly generated income must be sufficient to enable the economy to finance an increasing
proportion of our investment requirements out of the domestic resources. The plough back of profits if high enough so that at some point domestically generated savings exceed domestic investment requirements and thus give surplus to meet service paymentsâ&#x20AC;? (Akbar, M.A. 1985:240). The composition of GDP during 1973-2002 is shown in Table-28 Table-28 Structural Composition GDP during 1773-2002 in percentage
Sector
Composition of GDP At 1972-73 prices 1973- 1977- 197974 78 80
Agricu ture Indust ry Elect ,Gas, & N.R. Constr uctin Transp ort & Comm u. Trade & Other Serv. Housi ng Public Servic es Total 100 Source: Table-
100
100
Composition of GDP At 1984-85 prices 1984- 1989- 199485 90 95 41.77 38.27 32.77 9.86
9.91
11.36
0.58
1.12
1.86
5.53
5.98
6.33
11.22
11.86
12.17
19.82
21.13
22.98
7.97
7.64
7.45
3.25
4.09
5.08
100
100
100
Composition of GDP At 1996-97 prices 1996- 2001- 200397 02 04
100
100
100
& Table-
Employment Situation The Labor force had almost doubled since independence growing at a rate faster than the population. Against this, employment on man-year basis had more than doubled resulting in a reduction of unemployment rate (including underemployment) from 38.78 % in 1972-73 to 31.23 % in1994-95. During all the Five Year Plans, unemployment rate slowed a decline, faster during the FFYP than during Others. However, it suffered a setback during the TYP (1978-80), when unemployment rate increased. As the domestic employment increased at an
annual rate of 3.30%, GDP grew at 3.90% a year. There was some marginal gain in the overall average productivity of labor. Table-29 Labor Force Employment and Unemployment during 1972- 1997 ( million person-years) Employment Year
Labor Force Domesti c 13.09 16.04 16.09 18.97 22.82 26.88 28.18 29.62
Foreign
Unempl oyment
Total
Unemplo yment rate %
1972-73 21.38 13.09 8.29 38.78 1977-78 24.10 0.05 16.09 8.01 33.24 1979-80 25.29 0.05 16.14 9.15 36.18 1984-85 29.50 0.32 19.29 10.21 34.61 1989-90 34.80 0.43 23.25 11.55 33.19 1994-95 40.47 0.095 27.83 12.64 31.23 1995-96 41.70 1.14 29.32 12.38 29.69 1996-97 42.97 1.34 30.96 12.01 27.95 20012002 20022003 The rate of unemployment covers underemployment.[ Table-1.10, Page-9: Fifth.FYP] Poverty Reduction, Human Development and Gender Bias One common approach is to measure development progress in terms of performance with poverty reduction. A commonly used approach is to define poverty in terms of ‘consumption and income’ and ‘human development indicators’. These indicators of poverty are well understood as they are quantifiable, and progress over time can be measured. Tables 1a, 1b, 2 and 3 below show Bangladesh’s progress with poverty alleviation, human development and reduction in gender bias (Ahmed, Sadiq, 2001: 1-26). Poverty incidence data compiled by World Bank Staff and National Researchers show that there was a substantial deterioration in the poverty in the poverty situation in the 1970s, followed by rapid progress during 1978-86 (Table –30). There was again worsening of poverty situation in the 186-92 period (Tables 30 and 31). More recently (1992-96), there has been an improvement in the poverty reduction effort (Tables 30 & 31). Given the high concentration of the poor in the rural areas, the national poverty outcome is determined by the situation in the rural areas[ Sen, 2000 and World Bank,1999). Table –30 Bangladesh Poverty Incidence, 1973-92 Head Count based on distribution Head Count Based on distribution data ranked by per household data ranked by per capita expenditure expenditure Years Rural Urban National Rural Urban National 1974 60.3 52.0 59.4 71.3 63.2 70.4 1977 78.9 67.7 77.4 n. a. n. a. n. a. 1978 77.4 68.4 75.4 n. a n. a n. a 1979 65.8 54.9 64.1 n. a n. a. n. a
1982 1984 1986 1989 1992 1996 1999* 2003*
55.3 46.3 37.3 43.4 n. a. n. a.
45.5 37.1 26.4 37.4 n . a. n. a.
54.2 45.1 35.9 41.2 n . a. n. a.
65.3 53.8 45.9 49.7 52.9 51.1
48.4 40.9 30.8 35.9 33.6 26.3
63.3 52.1 47.9 47.9 50.4 46.4
Source: Table- 1a, page-3. Sadiq Ahmed, 2001, Bangladesh Journal of Political Economy. Vol. XV, No. 1, December 2001. Although, the two time series poverty estimates are not comparable because of definition and other measurement differences, some broad conclusions can be made [ Sen,2000]. First, overall, Bangladesh have made an impressive reduction in poverty since independence. Both the rural poor and the urban poor have benefited from this effort. Second, the reduction in poverty seems to have considerably since the mid-1980s, due to stagnation in progress with reduction of rural poverty. Table-31 Bangladesh progress with Poverty Reduction, 1984-96 Years 1984 1986 1989 1992 1996 1999* 2003*
Poor ( Head Count Index) Rural Urban National 60 50 59 53 43 52 59 44 57 61 45 59 57 35 53
Very Poor ( Head Count Index) Rural Urban National 43 28 41 36 20 34 44 22 34 46 23 41 40 14 36
Source: Table-1b, page-3,Sadiq Ahmed, 2001. BEA Journal, Vol.XV. No. 1, 2001 &. [ World Bank-1991] Urban poverty reduction, however, has continued to make good progress with the incidence declining to around 35% in 1996, as compared with rural poverty incidence of over 50%. Fourth, the fluctuations of the rural poverty incidence suggest the vulnerability of the rural poor. The picture regarding progress with human development ( Table-32) shows that, since independence, Bangladesh made rapid strides from its low base levels in improving primary school coverage, reducing the population growth rate, improving access to safe water, reducing infant mortality, and raising life expectancy. The performance in the area of population management is truly remarkable, resulting in a rapid reduction in the rate of population growth from a high of 2.8% per annum in 1970s t0 1.6% per annum in the 1990s. Table-32 Bangladesh Progress with Human Development 1975-97
Life Expecta ncy
Infant Mortalit y rate
Total Fertility rate
Access Adult to Safe Literacy water rate
Years
(per 1000)
%
47 51 60
130 118 60
6.5 5.5 3.1
% of % populati on 35 26 46 33 84 51
Years 1975-77 1985-88 1995-97 200203*
Primary school Enrollm ent %
Secondar y School Enrollme nt %
83 59 96
14 17 29
Source:Table-2, page-4, Sdiq Ahmed.BEA Journal,Vol.XV, No.1, 2001& World Bank-2000a There is a remarkable Progress in Gender discrimination ( Table-33). Apart from the rapid progress made in increasing enrollment of girls in primary schools, the increase in the ratio of female to male from a pretty low level to around the same level as in advanced Western countries in an indication of the strength of the progress in reducing the anti-female bias in the country [Dreze and Sen,1995]. This is particularly notable because of the overall difficult social environment for women in South Asia. Table-33 Bangladesh Progress with Reduction in Anti-Female Bias Indicators Female-male Ratio Female Literacy( % of Male) Female Primary School Enrollment( % of Male) Female Secondary School Enrollment( % of Male)
1972 0.93
1980 0.94
1990 1.06
1997 1.06
33
40
46
71
50
62
85
87
30
38
50
54
2003*
Source: Table â&#x20AC;&#x201C;3, Sadiq Ahmed, BEA Journal,VOL. XV, No. 1. & World Bank 1997-1999; World Bank2000b Human Development Index
Bangladesh Human Development Index an International Perspective Despite past progress, human development indicators in Bangladesh still leg substantially behind the levels achieved in Sri Lanka and the East Asian Economies. She has among the lowest life expectancy in the South Asia Region, Falling even behind the average of the ‘Low Income Countries.’ Table-34 Bangladesh’s Social Indicators in the Internal Context, 1996-97 Regi on / Coun try
Bang lades h India Nepa l Pakis tan Sri Lank a Sout h Asia Low Inco me Midd le Inco me East Asia High Inco me
Life Expe ctanc y
Popu lation grow t-h rate
Prim ary Scho ol enrol lmen t
Ratio of fema le to male prim aryp upils %
Yout h Liter acy( Male )
Yout h Liter acy Fem ale
Infan t Mort ality Rate
Unde r-5 Mort ality Rate
Mate rnal mota lity Rate
Acce ss to mort ality rate
%
Seco ndar y Scho ol enrol lmen t %
Year
%
%
%
Per 1000
Per 1000
% of Popu latio
1.6
96
29
87
58
37
Per 1000 live birth 60
60
104
850
84
62 57
1.2 2.0
101 113
49 42
82 67
73 73
56 38
71 83
88 117
440 1500
85 59
64
2.3
81
30
47
69
39
95
136
340
62
73
1.0
109
75
96
97
96
14
19
30
70
62
1.4
96
44
80
75
52
77
100
480
81
63
2.3
103
50
N. A.
77
59
82
118
-
69
-
0.9
105
70
99
96
94
34
43
-
79
-
.9
121
69
100
98
96
37
47
-
77
-
0.3
104
107
100
100
100
5
7
-
100
Source: Table-4, Sadiq Ahmed, Page-5. BEA, Journal, Vol.XV, No.1, 2001.& World Bank,1997-99. Overall, The Health Standards are poor, reflected not only in low Life expectancy, but also in high infant, child and maternal mortality rates. Nutrition is a serious problem, with over 50% of the children suffering from malnutrition (World Bank: 1999a). The adult literacy rate is still very low and secondary school enrollment is the lowest in the region. There are major concerns about the quality of basic services, including education (World Bank: 1999b). Progress With the Enabling Environment, 1973-98 It is universally acknowledged that long-term economic growth is necessary for poverty reduction [Dollar and Kraay :2000]. Table â&#x20AC;&#x201C;5 shows the progress with the enabling environment for poverty reduction. Some expiation of the choice of variables is in order. The importance of saving and investment rates for supporting rapid growth is well recognized. However, the efficiency of investment is also important. A commonly used indicator is total factor productivity (TFP). Lack of necessary data, particularly reliable estimates of the capital stock, prevents this. A proxy for efficiency is the openness of the economy, measured as the share of trade (exports and imports) to GDP. Admittedly, this measure is a considerable body of empirical evidence, which suggests that openness to trade is good for economic growth [ Dollar and kraay,2000]. A direct measure of labor intensity of production ( capital / labor ratio) is similarly not possible due to in adequate data. A proxy for this is the share of exports in GDP. This is useful proxy, given the strong weight of agricultural based exports and labor intensive garments in the export basket. Finally, inflation is a direct determinant of poverty. There is substantial international evidence that high inflation hurts the poor more because of their weaker ability to protect against the decline in real income resulting from higher inflation [ Dollar and Kraay,2000]. Table-35 Bangladesh Progress with the Enabling Environment, 1973- 98 Indicators Growth of GDP ( % per annum) Growth of Per Capita GDP (% p.a) GNP Per Capita ( $) Growth of Agricultural GDP(%p.a.) Investment Rate( % of GDP) National Saving Rate(% of GDP) Domestic Saving Rate(% of GDP) Exports ( % of GDP) Imports(% of GDP) Inflation Rate (% p.a.)
1973 110 12.9 13.7 7.5 5.0 10.2 -
1998 4.7 2.5 350 2.3 22.2 20.8 16.8 13.8 18.9 11.1
*2003
Source: Table-5, page-6,Sadiq Ahmed, BEA Journal, Vol. XV, No. 1 2001 The results of Table-35 show that Bangladesh made good overall progress in increasing per capita income based on expansion in the rate of investment and supported by greater openness to international trade. Exports grew faster than the GDP, fueled by a rapid expansion of labor intensive garment exports. Importantly, an increasing share of this expansion in investment was financed by an increase domestic and national saving rate. As
against these positive developments, negative factors have been a much slower pace of expansion in agricultural value- added and an average inflation rate than that has much exceeded the international inflation rate. Additionally, the expansion in per capita income lagged significantly behind the growth of per capita income of Sri lanka ( $% per annum) and the average of East Asian economies ( 6% per annum). Not surprisingly, there has been much better progress with poverty reduction in these countries as compared with Bangladesh, The aggregate results, however, hide some of the dynamics of the growth experience in Bangladesh. A disaggregated picture is important to understand why poverty reduction progress has slowed down since mid â&#x20AC;&#x201C;1980s. The pace and pattern of growth, corresponding to the various poverty progress periods is shown in Table-36. Table-36 Bangladesh growth pattern Growth Pattern
197377 per 2.0
Growth of capita GDP(%) Growth of 2.3 Agricultural Value -Added Growth of ---garments exports($)
1977-86
1986-92
1992-96
2.6
2.7
3.1
2.7
1.8
2.4
210 (Wodon:199 9)
20
16
*19962003
Source: Table-6, Page-8, Sadiq Ahmed, BEA, Journal, Vol. XV , No.1, 2001 A number of important points emerge from the breakdown. First, the early years of independence (1972-77) which saw a considerable increase in the incidence of poverty also witnessed slow overall per capita income growth and slow growth of agricultural incomes. In the second phase (1978-86), when a sharp reduction in the incidence of poverty in both rural urban areas happened, overall per capita growth improved notably, the pace of growth of agricultural value added increased and there was a rapid expansion in the exports of garments. In the third phase ( 1987-92), rural poverty increased despite an increase in the rate of overall per capita GDP. This happened partly due to a significant reduction in the pace of expansion of agricultural incomes. Urban poverty, however, continued to show a decline, benefiting from the continued good rate of expansion of urban incomes of urban incomes and the contribution of buoyant garment exports. Finally, in the fourth phase ( 1992-96), poverty declined in both rural and urban areas, supported by an increase in the rate of growth of overall per capita GDP, an increase in the rate of growth of agricultural GDP, and the continued strong contribution of garment exports. The breakdown of growth also shows a very important result. The impact of per capita income growth on poverty reduction has varied over time. Table-37 shows this result. The responsiveness of poverty to growth has been most buoyant in the 1977-84 period and least robust in the 1984-96 period ( Sen, 2000). Table-37 Years
Bangladesh Poverty Responsiveness to Growth Per Capita GDP Reduction in Poverty
growth rate (% p.a.) 1977-84 1974-92 1992-96 1984-96 1996-2003*
2.5 1.7 3.1 2.4
Poverty ( % p.a.) 7.4 1.9 4.3 1.0
Responsiveness 3.0 1.1 1.4 0.4
Source: Table-7, page-8, Sadiq Ahmed, BEA, Journal, Vol. XV, No. 1, 2001. Overall, the responsiveness of poverty reduction to growth has fallen sharply since the mid1980s. In the differential pattern of growth, whereby the participation of the poor in the growth processes has varied over time. Again, evidence suggests that there has been disturbing outcome of rising inequality in both urban and rural consumption in Bangladesh (Table-38). The incidence has been higher in urban areas than in rural areas. Table-38 Distribution of Consumption in Bangladesh Years 1984 1986 1989 1992 1996 1999* 2003*
National coefficient 0.26 0.26 0.28 0.27 0.31
Gini- Rural Coefficient 0.24 0.24 0.27 0.25 0.26
Gini- Urban Coefficient 0.29 0.30 0.31 0.31 0.36
Source: Table-8, Page-9. Sadiq Ahmed, BEA, Journal, Vol. XV, No. 1, 2001.
Gini-
Macroeconomic Management This was a problem area in the early years of independence, but to a large extent became an area of strength since the late 1970s. However, there were some worrisome signs of strain on the macroeconomic balances in the late 1990s. After the difficult first few years of independence, macroeconomic management has generally been prudent allowing Bangladesh to reduce the pace of inflation, preserve the competitiveness of the real exchange rate, maintain positive real interest rates. But without driving them too high, maintain low debt servicing ratio, and keep the fiscal cost of debt to a manageable level. The main problem areas though have been the very low tax effort and the poor quality of public spending, both having adverse implications for poverty reduction. Over the longer term, the management of the exchange rate has been a positive aspect of Bangladesh economic management. In the 1970s, the management of monetary policy was a problem area. Rapid monetary expansion, much in excess of the growth of real GDP, along with structural problems associated with a war-ravaged economy fueled a rapid pace of inflation in the early to late 1970s which hurt the poor considerably over the years and the pace of monetary expansion became more disciplined. Along with the sharp improvement in food supply, good monetary management contributed to a substantial slowdown in the pace of inflation to a single digit in the 1990s.This is shown in table-39. Table-39 Money, Growth and Inflation Indicators/ Years 1 Rate of Growth of GDP ( In %) Rate of Monetary Growth ( MI) Rate of Inflation (CPI)
1972-80
1980-90
1990-98
4.6
4.8
4.7
15.8
12.5
12.1
19.3
10.4
5.1
1998-2003*
Source: Table-9, Page-11, Sadiq Ahmed, BEA, Journal, VOL. XV , No. 1, 2001. The management of fiscal policy has been more problematic (Table-40). This is perhaps the Achilles Heel of Bangladesh’s macro-economic management. Problems are reflected large fiscal deficits, a low tax to GDP ratio, and poor quality of spending. The relative priority given to social spending has served Bangladesh well and maintained a good balance between military & social spending. Although Bangladesh contributed to the notable progress made in human development over the past years. Yet, the level of public spending on health and education ( 3.1% of GDP) is low by international standards and given the country’s needs. While there has been some growth rising from a very low level of 2% of GDP in 1972. The increase in public spending on health and education to levels necessary to address the remaining substantial gap in human development noted earlier has been prevented by the very low level of tax effort (only 7% of GDP – the lowest in the region). Table-40
Indicators of Fiscal Management in Bangladesh Indicators 1972 Defence spending 0.5 ( % of GDP) Social Spending (% 1.9 of GDP) Fiscal Deficit 0.8 (% of GDP) Interest Cost 0.2 (% of GDP) Tax Revenue 4.3 (% of GDP)
1980 0.9
1990 1.5
1999 1.4
1.8
2.4
3.1
1.6
5.8
4.8
0.5
1.0
1.3
5.7
5.7
7.2
2003*
Source: Table-10, Page-11, Sadiq Ahmed, BEA, Journal, VOL. XV, NO.1, 2001 Tax compliance is a serious problem in Bangladesh estimated at only 6%, the lowest in the region. Large fiscal deficits in the 1990s were also a worrisome development. While the interest cost of debt is still small, this is because of past dominance of concessional foreign assistance, the continued availability of which is by no means assured. The growth of debt to GDP ratio, rising from 6% in 1977 to 47% in 1988 is an indication of creeping effects of large external borrowings to finance the fiscal deficits. In addition to the inadequacy of the level of public spending on human development, there are some serious concerns about the quality of public spending. These relate to the efficiency of public spending as well as to the equity of such spending. A number of World Bank Studies suggests that the efficiency of public spending can considerably improved in health, education, irrigation and water supply (World Bank, 1997 & 1999). Similarly, there is evidence that the equity of public spending can be substantially improved. Macro Objectives of the Development Plans Implemented The Chart-1 below provides a summary of the major macro level objectives of all development Plans implemented in Bangladesh. CHART-1 Macro Objectives of all Development Plans FFYP (197378) 1 OBJECTIV ES
TWOYEA SFYP R PLAN* (1980-85) (1978-80) 2 3
TFYP (1985-90)
FFYP 1990-95)
4
5
FFYP (19972002) 6
1. To 1 Reduce Poverty 1 a. expansion of employment opportunity b. 1 acceleration of rate of growth 1 c. effective fiscal & pricing policy 1 d. strengthen institutions for local level mobilization e. Strengthen rural
4 2
3
4
5
3
-
-
economy to the development of agriculture. 2. To complete reconstructi on of major sectors 3.Toexpand Output of essential Consumptio n goods 4.To arrest rising trend in general price level 5.To Increase Per Capita Income. 6.To consolidate gains of Socialist transformati on. 7.To transform institutional & technologica l base for the economy a. Self-sufficiency
in
food
CHART – 3 PREPARATION & IMPLEMENTATION OF DEVELOPMENT PLANS UNDER DIFFERENT GOERNMENTS PLAN.CO MPONAN TS PREPAR ATION IMPLEM ENTATIO N
FFYP
TYP
PLANS & GOVERNMENTS SFYP TFYP FFYP
FFYP
1. AL
1.BNP
1. BNP
1. JP
1. AL
1. AL 2. BNP
1.BNP
1.BNP 2 .JP
1 .JP
1. JP 2. BNP 1 .JP 2. BNP
1. AL 2. BNP
SOURCE: RESEARCHER. CHART-4 CATEGORY OF PROJECTS, CEILING OF APPROVAL & APPROVAL AUTHORITY PROJECT CATEGORY/YEAR CATEGORY-A
CATEGORY-B
CATEGORY-C
YEAR/INVESTMENT CEILING 1973. All Projects/Scheme costing upto taka 25 lakhs*. 1982. All projects / schemes costing up to Taka 2 crore.
APPROVAL AUTHORITY
MINISTER INCHARGE OF THE CONCERNED MINISTRY 0N THE RECOMMENDATION OF DPEC 1973. All projects/Schemes MINISTER INCHARGE more than taka 25 lakh and OF PLANNING ON THE upto taka 2 crore*. RECOMMENDATION OF 1982. All Projects/Schemes PC/PEC cost above taka 2 crore up to taka 5 crore. 1973. All Projects/Schemes ECNEC ON THE costing more than taka 2 RECOMMENDATION OF crore*. PC/PEC AND MINISTER 1982. All Projects/Schemes INCHARGE OF THE above taka 5 crore. CONCERNED MINISTRY.
Source: Planning Commission ..(*The final cost of a project will be added 10% to met unforeseen changes in prices & such expenses not included at the time of project design.) CHART-5 CATEGORY OF PROJECTS INTERMS OF APPROVAL & DELEGATION OF RELEASE OF ADP FUND CATEGORY OF PROJECTS
YEAR / RELEASE QUARTE
1ST QUARTE R
2ND QUARTE R
3RD QUARTE R
4TH QUARTE R
REMARK S
INTERMS OF R APPROVAL APPROVED REVISED UN APPROVED UNAPPROV ED
ADP
ADP
ADP
ADP
SOURCE: PLANNINIG COMMISSION CHARTER-6 DELEGATION OF FINANCIAL POWERS INFAAVOUR OF PROJECT DIRECTORS & MINISTRIES YEARS
EXECUTING MINISTRY
PROJECT DIRECTOR
REMARKS
1973 1976 1980 1985 1990 1995 1997 2002 SOURCE: MINISTRY OF FINANCE. CHAPTER-V Development Planning Experiences of Developing Countries 5.1. Thailand’s Experiences of Development Planning. Thailand is a South Asian Country having population of 55.8 million in Mid 1990 with an area of 513000 square kilometers (World Development Report:1992). The rapid economic growth of Thailand over the last four decades is viewed as a phenomenal success. Since 1961, when the country has experienced rapid economic growth, and has emerged as one among the very few countries which have sustained a high, long-term non-inflationary growth of GDP of an average 7-8 % per annum, and with average low inflation rate of 5% or below per year. The real economy has grown from its predominant agricultural base to one in which industry and external trade constitutes major components. Thailand is regarded as an up and coming industrializing nation, and the course has been set for her further advance as an international trading country (M. Khorshed Alam: 118-27). Thailand’s economy has undergone a lengthy planned development process lasting over 40 years. The challenge of development was initiated in 1961 through a systematic development planning. 'Lassies- Faire' or Free Market approach was adopted as an economic philosophy. In this line, First Six Year Plan (1961-66), Second Five Year Plan (1967-71) and Third Five Year Plan (1972-76) were formulated to boost industrialization by adopting a policy of
import substitution, encouraging production of manufactured items. The country had formerly imported from abroad and also to develop basic physical infrastructure, which formed a base for the impressive growth of the economy (ibid.). Development Plans and government policies over the last forty years have produced a bright macro-economic picture. The country’s economic growth rate has averaged 7.7% Per annum since the First Plan. Gross Domestic Product has grown roughly twenty folds and per capita income seventeen folds. Income per capita increased tremendously from 2200 Bath in 1961 to 17250 Bath in 1981 and 35000 Bath in 1990. During this period Thailand has changed from a backward agricultural country to one that is on the threshold of becoming a newly industrialized country. 5.1.2. Diversification of production One of the leading factor is the country’s policy measures that have led to a satisfactory degree is diversification of production. Thailand has been able to diversify both its agriculture and manufacturing. Its agricultural sector recorded spectacular growth during the last four decades. The rate of growth in agriculture was 4.5% during 1961-90. The government incentive given to the farmers has been instrumental in boosting farm production. From a mono-crop country, it is now a producer of 5 major crops plus another half-dozen secondary items and an impressive list of smaller farm products. Thailand is now the largest rice exporter in the world. In the area of manufacturing, the result of diversification has been even more dramatic, as practically all-light industrial products are now made locally. The country has more over developed basic and heavy industries. Production Technology has risen from the stage of assembling imported parts to the fabrication of locally produced parts. It has advanced further to the stage of design improvement and creation of its own brand names. A phenomenal structural change has taken place in the Thai economy since the 1960s. The relative importance of agriculture has declined over the years. The rate of decline is much higher than any other South Asian developing countries. Agricultural share of GDP declined steadily from about 53.0% in 1965 to 24.9% in 1980 and to 22.6% in 1986, despite its respectable annual growth of 4.6% & 4.1% respectively during 1965-80 and 1980-90. This does not imply that agricultural output failed to rise during the period. Rather it increased by about 4.5% per year. This is primarily due to the rapid expansion of other sectors of the economy. Although its relative importance has declined, agriculture would continue to be the dominant sector of the Thailand’s economy for several years to come. On the other hand, the contribution of industry and manufacturing to GDP has increased as desired in a transitional stage of development. The manufacturing sector expanded very rapidly, increasing its shares of the national income from 11.9% in 1960 to 20.7% in 1986. Its manufacturing sector has surpassed since 1979. The share of manufacturing production in the country’s GDP in 1990 was 26.2% compared to that of agricultural of 13.1%. It indicates that a more consistence economy persists since that in Thailand. 5.1.3. Promotion of Private Sector Thailand had succeeded in developing a strong private sector. This has been basically the result of generous incentives given to private investments since the early sixties. Government was forced to reduce its role in the economy. In the process, it pushed the private sector into the lead. Public/Private sector cooperation was also concomitantly stepped up. The strong
government support was instrumental in the wide spread development of private sector. Private enterprise consequently developed and waxed strong. In this regard Industrial Estate Authority of Thailand (IEAT) is playing a vital role. Under the jurisdiction of the Ministry of Industry, IEAT was established in 1972. The main task of IEAT is to develop industrial estate all over the country to support the systematic and orderly industrial development. An industrial estate resembles an industrial city. Basically an industrial estate is divided into two zones, a general and an export-processing zone. A general industrial zone is for the location of industries manufacturing for export and domestic consumption. An export- processing zone is for the location of industries manufacturing for exports only. The main benefit for the entrepreneur to locate their industry inside an industrial estate is the ability own land, which is complete with basic infrastructure and amenities at a very reasonable price. In addition, the entrepreneurs are granted many types of privileges. 5.1.4. Development of Infrastructure Successful development based on private initiatives was not possible without adequate and basic infrastructure. The government through the First and Second Economic Development Plan made vigorous investment to improve the country’s social overhead facilities such as irrigation, transport and communication, banking, education and other social reform. Thailand has accorded high priority of the development of its transport and communication system. The country has also developed an efficient system of land, Sea, and Air transport. The modern Airport & Sea port facilities and the vast network of roads & highways all over the country reflects the phenomenal advances the country has made in all the sectors of the economy. 5.1.5. Political Stability Thailand changed from ‘Absolute Monarchy’ to a ‘Constitutional Monarchy’ in 1932 through a coup. Since then the country has been ruled by dictatorial military regimes, with a few years lapse of semi-democratic governments. Thailand during the period from 1958to 1973 was marked by political stability under the leadership of Field Marshal Sari Thanarat ( 1958-63) and Field Marshal Thanom Kittikachorn ( 1963-73). During this period, Thailand’s economy expanded at an unprecedented growth. In 1992 the country after a bloody upsurge has for the first time experienced a free and fair election and a democratic government. Though the government in power changed every now and then through coup d’etats, the country’s economic development policies have not been changed. The basic economic development rational remained almost unchanged over the years. It indicates the continuity of government plan and policies and secure to both local and foreign investments. Although the political turmoil, military intervention were frequent in Thailand’s politics for the last few decades, but labor force is disciplined and almost free from unrest and violence, than that of other developing countries of South Asia. Export Growth Strategy Thailand has followed an outward looking policy since the early Seventies. Although the industrialization process initiated during the 1960 was geared toward import-substitution, it was succeeded in 1970s by a drive to produce export-oriented items. Export-growth strategy was adopted instead of import-substitution to link up the markets abroad. Governments encouraged export oriented industries. As a percentage of GDP, exports increased from 10.9% in 1970 to 30.9% in 1991. During the last four decades, total value of exports increased about 15%. There have also been some structural changes in the export structure in this period. Traditionally, Thailand has been an agrarian economy, where the
agricultural sector has accounted for a significant proportion of the country’s export earnings. Agricultural export declined from 84.38% in 1960 to 34.3% in 1986. On the other hand, Manufactured exports, which constituted only 2.4% of the total value of exports in 1960 increased rapidly to 54.9% in 1986. Since 1989 the value of manufactured exports has exceeded the value of agricultural exports. In this respect Thailand has successfully emulated Japan and the Asian New Industrialized Countries (i. e., South Korea, Malaysia etc). Indeed a combination of factors has been responsible for unprecedented rapid economic development in Thailand. They include a very liberal investment policy coupled with generous investment incentives, a policy giving the private sector free play and an export promotion policy that aim diversification. 5.2. Experiences of Planning and Development in Sri Lanka 5.2.1. The Initial Efforts at Planning 1947-56 At the time Sri Lanka gained her independence, The government was already making efforts to plan the government current activities and investments within a time- frame, which mobilized resources for achieving certain development goals. The United National Party (UNP) was conservative in orientation, advocated the change within the democratic system, clearly favored private enterprise but envisaged a major role for the State in development and social welfare. They implemented a series of far- reaching welfare measures, which included free education, free public health and subsidized food. The First attempt at the preparation of an investment program for government activities was the document entitled “ Post-War development proposals for 1946.” The document assembled a number of government programs, both on - going as well as those, which could be undertaken in the future in the various sectors of the economy. It provided a large inventory of projects and programs on which the government that followed were able to draw, when formulating their investment programs. The First Two Budgets that were presented after the independence were published as a “Six Year Plan.” The Six Year Plan identified several broad areas of action: (1) (2)
(3)
(4)
The wet zone crops---- tea, rubber and coconut. The attention was given to the plantation and export sectors were limited. The emphasis on import substitution in both agriculture and industry. In agriculture, the massive investments made on the rice sector had far reaching consequences for the pattern of development. It raised productivity and income of the small-scale peasant farmers. It effectively altered the dualistic character of the economy. In industry, it emphasis two objectives. It underscored the need to develop the capacity “ to supply as far as possible the goods that are imported.” It provided a broad target for import substitution, which was in the region of 100 million rupees as against 400 million imports of textiles and manufacturing items. Government also defined mixed economy, which in the context of development must contain a major component of state enterprise. State welfare in government outlays. Free mass education, food subsidies and free public health services comprised the most important components of the welfare package. During 1950-53 the welfare component absorbed an annual average of 47% of the total government current expenditure.
(5) (6)
(7)
(8)
(9)
The development of the economic infrastructure, power, Posts, transport and communication were also given a due place in the capital outlay of the government. The government program during this period broadly covered the main sectors of the economy. It attempted to provide some balance between investments in the commodity producing sectorsâ&#x20AC;&#x201D;agriculture and industry on the one hand and social and economic infrastructure on the other. The main thrust on the commodity producing was in the direction of import substitution i.e. , food production and selected industries that will substitute imports. At the same time, the high proportion of resources devoted to social welfare were a matter of concern to the policy makers. The need to balance the competing claims of welfare and growth was being stressed. The absence of well formulated macro economic frame- work meant that the tasks of economic management were carried out on somewhat ad hoc and pragmatic basis. Policy responses were therefore, a short-term character to problems as they arose. The national income data available was neither adequate nor reliable for constructing a macro-economic framework. That could have been useful for policy analysis and for macro-economic forecasting. The analysis of trends in the period 1950-60 indicates that capital formation in the private sector was relatively low. Attempts to reconstruct the impact of tax policies, the volume of corporate profits and retained earnings during the period are fragmentary and not very reliable. The national plan in its analysis of government revenue in 1950, however, had estimated the proportion of 30% and concluded that it was already reaching the feasible limit. The government programs during this period is that despite the lack of a National Plan with clearly disaggregated sectoral components, the broad commitments and the objectives were adequate to ensure a system of resource allocation. A program of implementation, which produced substantial results in selected areas in physical progress as well as broader socioeconomic indicators.
5.2.2. Six Year Program of Investment (SYIP) 1954-55 to 159-60 A formal planning organization in the form of Planning Secretariat was established in 1955 and attached to the Cabinet. The SYIP was prepared by the â&#x20AC;&#x2DC;Planning Secretariatâ&#x20AC;&#x2122; and published in July 1958 could not be implemented in the form in which it was contemplated, as the government changed in 1956. The preparation of SYIP, however, took the process of national planning a step further. The program also for the first time required Ministries and Departments to undertake a disciplined exercise of phasing its on-going projects and future investments over a period of six years. This compelled all government agencies to make fairly realistic estimates of the total capital resources required over a six- year period and to plan implementation of such a program. A well-formulated public sector investment program was, therefore, expected to give the lead to economic growth and facilitate the development of the private sector. But the government is still the major actor in the development scene. The broad approach and the techniques continued to influence some of the planning exercises that were to follow. 5.2.3. The New Ten Year Phase in Planning (1956-65)
A New left- oriented government was voted to power in the general election held in 1956. The SLFP could be regarded as a party of the center, with economic policies, which favored a mixed economy having State a dominant role. The government included smaller parties, which were Marxist in their approach and wanted the country to move more decisively in the direction of a socialist system. The coalition, however, short-lived. Policy differences aggravated by other personality conflicts led to the withdrawal of the Marxist group from the government in 1958. The period immediately following the change of government marked a major change of direction in national planning in Sri Lanka. The government made it clear that it was firmly committed to the formulation of a comprehensive national Plan, which was to be main instrument for guiding and directing the development of the country. A ‘National Council’ was established by an Act of Parliament with the Prime Minister as Chairman, the Finance Minister as the Deputy Chairman and Ten Members drawn from different professionals both in public as well as private sectors. It was serviced by a Planning Secretariat manned by economists and other professionals, who were for the preparation of ‘Six Year Program of Investment.’ The Head of the Planning Secretariat under the previous government continued to the head of the new secretariat. The ‘National Planning Council’ was conceived essentially as the agency for formulation of the National Plan. The formulation and preparation of the plan took three years. The Council undertook its work as a scientific professional body, examining the problems of the economy in a manner, which would be lasting value to whatever government was in power. Planning was therefore, defined primarily as a intellectual and technical task. The process of Plan preparation itself was intensive and the methodology included most of the elements, which were absent in the earlier exercises. The ‘ Ten Year Plan’ has been internationally recognized as a professionally competent document and in many ways a pioneering for small developing economies[ Mydral, Gunnar:112]. It undertook the various steps, which are part of the conventional techniques of national planning. It started from the demand side, examining population growth, the expansion of the workforce and the future demand for productive employment. Then it examined the prospects and potentials of the economy in relation to those needs. It then went on to develop the macro-economic framework which defined the overall magnitudes of national income consumption and investment, the resource mobilization in terms of domestic resources and the government budget, as well as external resources and the balance of payments. It also apportioned the contribution expected from the public and private sectors. The plan then went on to work out in detailed disaggregated form, the sectoral composition of the investment in the public sector in terms of programs and projects and the phasing of the investment year by year for the period of 1959-68. With the assassination of the then Prime Minister in 1959, shortly after the plan was presented in parliament. The parliament was dissolved in 1960 and after a brief tenure of power of the UNP, the SLFP returned to power in July 1960. Later on, the National Planning Council was replaced with a National Planning Department under the Prime Minister. With the establishment of planning department, the planning process became more actively associated with the choice of investments in the public sector and the approval of programs and projects for inclusion in the government budget. Government prepared a three- year implementation program for 1962-64. During this period, the country’s effort s to cope with its balance of payments crisis led to an elaborate system of exchange controls and resulted in the rationing of foreign exchange. This activity became crucial for any meaningful development planning. The Key problem of planning, however, was not adequately conceptualized in either Ten Year Plan or the Three Year program. Planning was perceived as an exercise, which had not to do principally with investment in the national economy.
There was no specific effort in the plan itself, which was directed at a strategy and ‘sub-plan’ for management of this key variable. The Three comes out tolerably well on the macroeconomic indicators. The average annual growth rate for the three program years was 4.6% compared to the target of 4.8%. Imports and exports remained at levels, which had been forecast on the going trends and had not improved to reach to the program targets. The export earnings fell short of the targets and imports were lower. Total investment, however, reached the level, which had been expected, with marginal variations. The performance in relation to output targets was a mixed one. 5.3.3. Macro- Economic Management and Selected Plan 1965-70 In 1965, the UNP was voted back to power. The National planning activity both in organizational form and content under went major changes and adaptations. The head of Planning Organization during 1954-1960 was brought back as the professional head of the newly created Ministry, which took over the portfolio for National Planning and Economic Affairs. This change in the structure was a response to the changing character of the economy and the new complex problems that had emerged in the first –half of the Sixties. The main elements of the planning activity during this period comprised the mobilization of foreign aid, the management of foreign exchange budget, preparation and supervision of the government capital budget in terms of sectoral programs. To perform this function, the Ministry of Planning and Economic Affairs took control of a few key decision – making livers. The subject of foreign aid & foreign exchange budgeting was transferred from the Ministry of Finance to the Ministry of Planning and Economic Affairs. The Ministry of Planning was actively involved in obtaining as well as allocation of key resources of the economy on a continuing basis. Ministry of Planning set up a Division for ‘perspective planning.’ It attempted to prepare an input-output matrix for the economy and develop a planning model. But this remained at the experimental level and never became an instrument for application and decision making. The division and its work had little influence on the central concerns of the Ministry. It also introduced new disciplines of project evaluation for improving the efficiency and productivity of the public sector investment programs and systems of progress control monitoring plan implementation. Some of its sectoral Programs were quite successful— particularly in agriculture. The organizational changes transformed the planning activity from the advisory functions that had been envisaged for it in the ‘National Planning Council,’ to one, which actively involved in resource mobilization as well as allocation. The 1965-70 government established a Cabinet Planning Committee, which became the apex institution for discussion and decision making in economic matters. A large part of the economy both in services and production was managed by the State enterprises, which were against the nature of a mixed economy. 5.3.4. The Alterations in Planning Process in the 1970s In 1970s, a coalition of parties with the SLFP as the dominant partner assumed the power. The Planning Ministry continued as a separate portfolio under the Prime Minister, with all the functions it had assumed in 1965, but under the designation of the Ministry of Planning and Employment. The government prepared a Five Year Plan ( 1970-75). It mobilized the entire government machinery for the purpose through sectoral committees and working groups. Unlike in the past these groups were informal in character; the main task of preparing the sectoral programs fell on the Planning Secretariat.
By 1970, the unemployment rate had risen to nearly 15% and large proportion of the new entrants to the workforce, who were coming out of the free education system were unemployed. The plan had therefore, to give a central place to employment creation. The other central problem to the plan strategy was that of foreign exchange. For the first time export diversification became a major objective and an export promotion plan was included as major component. The Five Year Plan, therefore, was in many ways more problem oriented than previous plans. In many respects, the Five Year Plan resembles that of the Ten Year Plan. The outcome of the development effort during this period was far short of plan expectations due unsettled conditions of the world economy and the inadequacies in the plan itself. Unemployment to rise about 24% by the Mid â&#x20AC;&#x201C;seventies. Growth rate was 2.4% against the target of 6.1%. It lacked a well-defined policy component for macro economic management in changed international conditions. In 1977, the political pendulum swung to the right and the UNP returned to power. Soon after it assumed office, the government began rearranging the planning organization to bring it in line with their plans for liberalizing the economy. A series of policy measures were taken to restore the functioning the market mechanism. Exchange controls were dismantled with few exceptions, the rupees were devaluated, the dual exchange rate was replaced with a unified rate, which was allowed to float against the basket of currencies, subsidies were reduced and a whole range of administered policies were aligned to market prices. Market forces were allowed to work freely, and monopoly in number of public sector enterprises was removed. These policies of liberalization were supported by a major effort at mobilization of external resources, which significantly increased the countryâ&#x20AC;&#x2122;s import capacity. Amount of aid receipts during the period 1978-81 averaged approximately 9% of GDP. Within this framework, the planning process itself had to undergo considerable adaptation. The tendency of the government is to decentralize decision making to enable Ministries and Agencies to assume greater responsibility. A committee of Secretaries of Development Ministries and a Committee of Cabinet Ministers became the coordinating agents within the government for evaluation and approval of development programs and policies. Within this set- up the role of planning apparatus was considerably reduced. The planning activity became part of the Ministry of Finance and planning. The Planning activity and government budget was taken under one Ministry. The main instrument of planning prepared in the post 1977 period was the Five Year Public Investment Program, which was revised annually. Five Programs have been prepared for the period 1979-83, each for a Five Year Span, and each revising the previous plan taking it one year forward. The government was able to mobilize resources to embark on a public investment program of massive proportions and to set up the total investment in the economy to levels which rose to as much as 31% of GDP. The public investment program, therefore, had an impact on the total economy more than ever before. The public sector program concentrated to three lead projects, which absorbed the bulk of the investible resources. The implementation of the major river diversion project, Mahaweli was accelerated. A free trade zone was established and foreign investment mobilized. A large urban development and housing program was undertaken. The rate of growth of GDP rose to an average of approximately 6.5% in 1977-81. Unemployment fell to 13% in 1980 from 24% in 1976. This performance was possible due to the massive flow of external resources combined with the liberalization of the economy and steep increase in the volume and rate of investment. This, however, was not the outcome of an elaborate planning exercise, but rather of a package of policies designed to stimulate the economy and release the market from the rigidities, which the regulatory system imposed. But the experiences of the 1978-82, however, brought to a
number of shortcomings and imbalances both in the investment program as well as in the management of the economy. These had serious macro-economic consequences in the government budget and balance of payments. Despite considerable adaptations of the planning machinery and planning process, the present system of decision making has not been able to evolve the right mechanisms, which would impose the disciplines of planned development in a mixed economy in which the market is expected to play a dynamic role. This is a recurrent problem, which faced planning both in UNP & SLFP governments. The evolution of Planning process in the changing conditions of the Sri Lanka’s economy, as it moved from budgetary and foreign exchange surpluses in its current transactions to massive budgetary deficits and widening resource gaps in its external account. It also provides an overview of the political setting within, which the planning activity underwent modifications [ Gunatilleke, Godfrey: 1988, page27-49, BEA Journal, Vol. VIII, NO.2, 1988]. ECONOMIC INDICATIONS AND PLAN PERIODS FROM 1947-86 OF SRI LANKA IS SHOWN IN APPENDICIES-----. BIBLIOGRAPHY 1. Lewis, W. Arthur: Economic Development with unlimited supply of labor. The Manchester School, May 1954. 2. Waterson, Albert: Development Planning, Lessons of experience, John Hopkins press, and 1965. 3. Todaro , Michael P : Development Planning, Oxford University press1975 4. Lewis, W. Arthur: Development Planning. The essentials of Economic Policy. George Allen And Unwin, Seventh Impression, 1979. 5. Islam, Knurl. Development Planning in Bangladesh. A study in Political Economy. University Press Limited. Second Impression, 1993. 6. Hagen, E. E (Edition): Planning Economic Development, Homewood, Billinois, 1960. 7. United Nations: Planning for Economic Development. 8. Haq, Mahbubul: The Strategy of Economic Planning, A study of Pakistan. 9. Timbergen, J And Bruce, H. C: Mathematical Models of Economic Growth, Newyork, 1962. 10. Misra, Baidyanath: Strategy of Development Planning. The Modern Book Depot, 1994. 11. Kindleberger, Chales. P.Burce Herrick: Economic Development ( third edition) M. C. Graw Hill Kogakusha, Ltd. 1977. 12. Alamgir, Mohiuddin Khan: Development Strategy for Bangladesh. Center for social Studies, June 1980. 13. The Macro – model for the Second Five Year Plan, Some Preliminary Results (Volume – III), Planning Commission, GOB. ! 980. 14. Final Report, Strengthening Planning Processes in Bangladesh, September, 1991.PATHMARK ASSOCIATES LIMITED, 21 DIT Avenue, Dhaka. 15. Background Papers of the Second Five Year Plan of Bangladesh, 1980. The Structure of Bangladesh Economy: Input – Output Analysis. Planning Commission, GOB. 16. Instructions and Guidelines on Processing and implementation of development projects. Planning Commission, April 1984. 17. Mid Term review of the Third Five Year Plan (1985-90), Planning Commission, February 1989. 18. Mid term Review of the Fifth Five Year Plan 1997- 2002, Planning Commission, December 2000.
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101. Rose, E. A: “ Philosophy and Purpose of Planning” in Michael J, Bruton edited, The Spirit and Purpose of Planning, Hutchinson, London, 1974. 102. K. C. Alexander, “ The process of Development and Transformation”, Sociology, NIRAD, Rural Development, Vol. – 9(1), 1990. Hydarabad, India. 103. The Constitution of the Peoples Republic of Bangladesh.