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LESSONS:

Public Expenditure Support Facility Program and Countercyclical Support Facility Support Program

sector: Agriculture, Natural Resources, and Rural Development, Finance, Industry and Trade, Public Sector Management | country: Bangladesh

The program’s implementation yielded important lessons. Most importantly, policy actions and reform measures need to be integrated into the government’s own development agenda to ensure commitment and continuity beyond the program period. Additionally, effective coordination and high-level alliances will likely ensure the successful completion of a project or program. For this program, assigning the Ministry of Finance (MOF) as the executing agency and forming a steering committee chaired by the Finance Secretary were crucial steps that allowed for the efficient allocation of resources and the spearheading of diverse reforms across 10 ministries and agencies.

Despite the presence of conditions (as in the public expenditure support facility or PESF), capacity constraints need to be taken into account to set an achievable target within the stipulated timeframe. Alternatively, the program should have included a piggyback technical assistance (TA) in areas where capacity was lacking and implementation weak.

For better monitoring of implementation and evaluation of outcome, particularly for poverty reduction through social safety net programs (SSNPs), a TA for developing an instant poverty survey would have been more ideal than relying on the low-frequency (updated every 5 years) household income and expenditure survey (HIES) to establish poverty reduction achievements and SSNP coverage. The lack of a rigorous monitoring mechanism and dedicated survey to collect required information and data hindered a systematic measuring of program’s impact on poverty reduction and gender equity.

The program, in particular the countercyclical support facility (CSF), met all three core criteria for effective delivery of countercyclical measures: it was targeted, timely, and temporary. The program was directly targeted at the poor and the vulnerable whose livelihoods were affected by the global economic crisis. Income support and employment generation programs not only directly benefited the poor, but also increased aggregate demand through multiplier effects. The program also enabled the government to implement fiscal stimulus to support crisis-affected sectors and strategic sectors. In addition, policy actions under the PESF pinpointed sectors that could generate employment and higher growth, such as small and medium-sized enteprises (SMEs), the annual development program (ADP), and the private sector. The program was timely and was provided when it was most needed and when adverse impacts were widely felt. The government announced the countercyclical programs in June 2009 and requested ADB assistance in August 2009. The business processes were streamlined to ensure fast processing and quick disbursement. From Board approval to disbursement, the entire CSF and the first tranche of the PESF took only 3 weeks (from 13 October to 6 November 2009). Despite ADB having expedited the entire processes, capacity constraints in spending ministries and agencies caused delays in the effective and timely utilization of allocations. The CSF was a temporary, one-off lending instrument used to fund the government’s key countercyclical measure. Its temporary nature was discussed with the government and it was therefore earmarked to support the quick disbursement nature of SSNPs. The temporary nature of the CSF is consistent with the process of fiscal consolidation in Bangladesh over the medium-term. In this regard, the CSF benefited from PESF support. Reforms made under the PESF helped strengthen the policies and public accountability mechanisms necessary for the more efficient use of public resources and a more sustainable budget.

Both support facilities were critical to the crisis response of Bangladesh as no other development partners provided any crisis-related assistance or program support during the program period. However, the pricing (interest spread of 200 basis points above the London Interbank Offered Rate or LIBOR) and maturity (5 years) of the CSF loan makes it is less suitable for a poorer country like Bangladesh. While the higher pricing and the fixed 5-year tenor of the CSF took into account various considerations including containing the demand and rationalizing the allocation to each of the selected developing member country out of the limited CSF pool,17 it may be too hefty for Bangladesh with growing financing gaps and given the safety net nature of the program. A blend of higher borrowing costs to support policy actions that generate higher economic rates of returns on the supply side (such as SME development and public-private partnership or PPP investment) may be more desirable.

Effective coordination between the Bangladesh Resident Mission and ADB headquarters and optimal delegation of responsibilities were important for achieving program outcomes. The resident mission, with its knowledge of local conditions and access to government and nongovernment agencies, contributed to effective monitoring and implementation, enabling the program outputs to be achieved.

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