What Reforms Will Occur in the Proposed Government Financial Management Reform?

Public Financial Management (PFM) plays a crucial role in Bangladesh's journey towards economic growth. While the nation's economy has expanded rapidly over the past decade, progress in financial management reforms has been much slower.

Although national revenue is rising, transparent and accountable records of how and where this money is spent remain inaccessible to the public. Over the last thirty years, the country has achieved significant successes: reducing poverty, an average GDP growth of 6.51%, and export growth of 10.25%. However, inefficiencies and a lack of transparency in the public sector are holding back this progress. In this context, the proposed PFM reform strategy for 2025-30 could unlock new opportunities.

This strategy builds on lessons learned from previous initiatives (2007-12 and 2016-21), extending beyond technological reforms to encompass policy, institutional, and political aspects. Yet, the absence of clear priorities, phased implementation, and a detailed change management framework raises serious questions about its effectiveness. Comparing Bangladesh's challenges and potential with those of other developing countries highlights this more clearly.

The proposed PFM reform strategy for 2025-30 is based on six interconnected objectives, including increasing tax revenue, managing debt, improving budget effectiveness, and supporting climate-conscious budgeting. In November 2024, workshops and expert discussions took place to address existing limitations. While it mentions expanding the iBAS++ system and addressing cross-cutting issues such as gender-responsive and youth budgeting, the strategy lacks clear guidance on how climate-supported or gender-responsive budgeting will be effectively incorporated into routine budget processes.

The main weakness of the strategy is that it recognizes political will as vital for PFM reform but offers no specific roadmap showing how this will be reflected in implementation or strategy. The need for political will and leadership in this reform process cannot be overstated; all stakeholders must understand and act accordingly.

According to the PEFA (Public Expenditure and Financial Accountability) 2023 assessment, Bangladesh's overall PEFA score remains below 'C+'. Although the country scored a B in policy-based budgeting (Pillar V), it received D/C in asset management (Pillar III), revealing weaknesses. The tax-to-GDP ratio is only 7.3% (2023, OECD), dropping further to 6.6% in the 2024-25 fiscal year -- the lowest in the Asia-Pacific region and highlighting the need for reform. By comparison, South Asia's average tax-to-GDP ratio is 10–12 per cent.

According to the OECD Global Revenue Statistics (2023), middle-income countries have an average tax-to-GDP ratio of more than 15%. This strategy aims to address these weaknesses; however, without adequate political will and resources, it risks remaining on paper. The low tax-to-GDP ratio mainly results from tax evasion, over-reliance on indirect taxes, and limited capacity in tax administration. While the new strategy emphasises expanding the tax base and improving taxpayer services, achieving these goals will be difficult without fundamental reform of the tax department.

Our problem is not technical -- it is political. We tend to give as much importance to allocations during budget preparation as we do to accountability in spending -- or rather, we neglect both. Parliamentary oversight and audit culture remain weak. For reform to succeed, we must confront powerful interest groups, particularly those who benefit from inefficient subsidies and political patronage. Therefore, reform is not merely technical; it is a political endeavour that requires support at all levels. Moreover, to develop a professional cadre for public financial management, it is crucial to transform the Institute of Public Finance into an internationally recognised centre by guaranteeing its legal and financial independence.

Bangladesh can learn from the experiences of other developing countries. In Vietnam, World Bank-supported PFM reforms in the 2010s strengthened the central role of the Ministry of Finance. In the 2024 PEFA assessment, their overall score was B (4 A, 8 B/B+, 8 C+), with a tax-to-GDP ratio of 15.5% (2023, World Bank)- more than double that of Bangladesh. Digital transformation and e-procurement were key to this success. Bangladesh's iBAS++ initiative is similar to Vietnam's model; however, long-term political stability and institutional capacity deficits remain significant barriers to its success.

Kenya, a PFM leader in Africa, enhanced its legal framework during the 2010s. In the 2022 PEFA assessment, their 'A' scores increased from 3 to 4, and B scores from 6 to 8. Their tax-to-GDP ratio stands at 16% (2023, IMF) -- significantly higher than Bangladesh's. Stakeholder coordination and e-governance underpin their success, although corruption and budget discipline remain ongoing challenges. Corruption (CPI 24/100, 2023) and lack of budget discipline are common issues in Bangladesh as well. Much like Kenya, Bangladesh needs to strengthen its Supreme Audit Institution (CAG).

Indonesia's PFM reforms succeeded through stakeholder coordination via the World Bank's PFM MDTF. Their PEFA score is B/C (2022), with a tax-to-GDP ratio of 11.8% (2023, CEC). Compared to South Asian neighbours -- India (11.7%), Pakistan (9.3%), Sri Lanka (13.1%) -- Bangladesh's 7.3% reveals an incapacity in domestic financing. Like Indonesia, Bangladesh needs to strengthen public-private partnerships (PPP). Bangladesh's informal economy (40%) and corruption complicate this process.

Transparency International's Corruption Perceptions Index 2024 places Bangladesh at 151st out of 180 (score: 23), indicating how deeply entrenched institutional and governance weaknesses remain. But the experiences of these three countries teach one key lesson: the core conditions for reform are political stability, corruption control, administrative continuity, and public trust.

Global PEFA assessments of 120 countries show that those linking budgeting with auditing experience revenue growth averaging 2.5 percentage points higher. Bangladesh has yet to follow this approach. Inefficiencies and corruption in state-owned enterprises lead to losses of 1.5-2% of GDP in this country.

Although the strategy is based on 31 stakeholder conferences and political economy analysis, several challenges remain in implementation. Political instability in 2024 affected PFM reforms, creating obstacles to achieving IMF programme targets. However, the PFM Action Plan 2024–28 is strengthening financial discipline and resource allocation. Leadership changes, lack of institutional coordination, and reform fatigue were key reasons for the failure of previous strategies. To succeed like Vietnam and Kenya, Bangladesh must establish a reform cell under the Ministry of Finance to provide sustained leadership. Additionally, strengthening the monitoring and evaluation framework and introducing a KPI-based digital dashboard are essential.

The audit commission must be made fully independent and effective. Parliamentary committee recommendations must be made binding. To improve scores in the Open Budget Survey, all budget documents should be published online for the public.

The 2025-30 strategy will open doors for Bangladesh to achieve upper-middle-income status. However, it depends on the Finance Minister's strong leadership and the government's political resolve to tackle bureaucratic and vested interests. Without sufficient investment, it will remain merely a paper plan. The time has come to turn hope into reality.

Bangladesh faces simultaneous pressure from the IMF program and revenue reforms. Currently, effective PFM reform is not just a development strategy -- it is essential for economic stability. The question is: are the political class, bureaucracy, and civil society genuinely prepared to lead the way together?

Sources: PEFA Reports 2021–2024, OECD Revenue Statistics 2023, World Bank Data, Transparency International CPI Index 2024, Government PFM Action Plan 2024–2028, Draft PFM Reform Strategy 2025–2030, Bangladesh Ministry of Finance "Annual Revenue Estimate Proposal (2024–25)"

Subail Bin Alam writes on Economics and Sustainable Development. He is a member, Bangladesh Research Analysis and Information Network and Citizens' Coalition. Email: [email protected].