The Financial Express

Govt-owned assets and liabilities: Accounting and governance

Dhiman Chowdhury | Published: April 01, 2019 21:19:19

Govt-owned assets and liabilities: Accounting and governance

Government has land, natural resources such as oil and minerals, forests, ports, lakes, rivers and oceans, infrastructure like roads, motorways, highways, and bridges, public firms (SOEs) like airlines, railways, numerous service organisations like post office, police, fire service, passport office, financial assets such as pension funds, national parks, government guest houses, and numerous other assets.  Its liabilities are salaries and benefits to government employees, pension to retired employees, vulnerable and old-age benefits, public health care, government bonds, and borrowings. 

An International Monetary Fund (IMF) estimate in 31 countries put the value of government assets as $101 trillion or 219 per cent of GDP (gross domestic product) of the countries (The Economist, October 20, 2018, p. 67). If public assets are managed better, government coffers would enjoy a much-needed boost.

MARKET-BASED SERVICE CHARGES: A government's land management has, among other things, to plan and implement land reform, selling unused land at competitive price, and distributing surplus land among the downtrodden. Government user charges in Bangladesh are too little compared to our neighbours. Circuit house room rent for government officers is around Tk 100 a day, market price of similar facilities is around Tk 2000. Car registration charge is Tk 1000 to Tk3000. It is 10 per cent to 12 per cent of the value in Vietnam, Rs30000 to Rs176000 in Chandigarh. Gas, electricity charge per month for a small house is Tk 1800 or $22, it is $54 in Vietnam. A Bachelor degree in a public university costs around $200 in Bangladesh whereas $800 in Vietnam.  The list is unending. One study finds that increasing the return on public assets by 2.0 per cent would enable governments to double investment in basic infrastructure.

REFORM IN SOES: Continuous losses in state-owned enterprises (SOEs) weaken the government's balance sheet, decrease assets, increase borrowing and deficit. There are rooms for reforms in this sector. Subsidies to 11 SOEs (BJMC, BIWTC, RDA, BIWTA, BSCIC, BSB, EPB, BADC, BWDB, NHA, BSRTI) were TK 21.9 billion during 2016-17. Dividend from 112 SOEs was TK12.3 billion in 2014-15 and TK 18.4 billion (provisional) in 2015-16. BCIC incurred a loss of TK 2.2 billion from its 8 enterprises during 2014-15. None of the companies' annual reports are available online. Bangladesh Jute Mills Corporation (BJMC) incurred a loss of TK4.8 billion during 2016-17 from its 23 enterprises. BSFIC incurred a loss of TK 4.6 billion from 15 enterprises. Bangladesh Shipping Corporation incurred a loss of TK 1.0 billion (and accumulated loss of TK 23.4 billion). Bangladesh Biman Airlines has made yearly average profit of TK 13 billion from 2015 to 2017 but still has 80.7 billion accumulated loss. Bangladesh Railway made a loss of TK 8.7 billion in 2016.

TAX AND NONTAX REVENUE (RECEIVABLE) ARE THE HIGHEST ASSETS: Government and its agencies must keep keen eye on liabilities (debt to GDP ratio). Otherwise, they will feel extra pressure on revenue generation and repay liabilities. Tax received and tax receivable is the biggest asset of the government. Other nontax revenue like sale of its unused properties through competitive bidding, and market-based charging of various services will strengthen the balance sheet of the government and various departments and agencies. Bangladesh's general government revenue to GDP estimated up to 2035 (around 10.7 per cent) is above only Nigeria, Sudan and Somalia among the low-income developing countries where the average is 20 per cent (IMF).

PENSION AND CONTRIBUTORY PROVIDENT FUND: Government can no longer afford free pension. Like in other developed countries government should rather encourage contributory provident fund both in the public and private sectors. Provident fund in most of the South Asian countries, not to speak of the OECD (Organisation for Economic Coperation and Development) countries, is contributory that is contributed by the employers and employees. Provident fund is mandatory by government regulation in South Asia except in Bangladesh. Accrual rate of civil servant pension in Bangladesh (3.2 per cent) is the second highest in the world after Iran (3.3 per cent). But there is no pension and even almost no contributory provident fund in the private sector. In OECD countries it is less than 2.0 per cent (World Bank 2006).

NBR, CAG AND MISSING FINANCIAL STATEMENTS: NBR (National Board of Revenue) does not prepare its financial statements such as income statement, balance sheet and cash flow statement. CAG (Comptroller General of Accounts) however prepares income and expenditure account, receipts and payments account and appropriation account (Annual Report 2016) but not balance sheet and cash flow statement. NBR prepares statistics for budgeted and actual tax collection. Their UK counterparts HMRC (HM Revenue and Customs) and NAO (National Audit Office) prepare the above financial statements like in the corporate sector. In corporate sector assets minus liabilities is called equity and in the government it is called consolidated fund. Like HMRC and NAO, NBR and CAG have revenue receipts and expenses and assets and liabilities and therefore preparation of financial statements is essential. HMRC Annual Report 2016 showed statement of revenue and expenditure with total taxes, duties and other revenue BPS536b, total expenditure including appropriation accounts of BPS146b and net revenue for the consolidated fund of BPS 390b. Its balance sheet (statement of financial position) showed total assets including revenue receivable BPS 116b, liabilities BPS 61b and ending consolidated fund of BPS55b. NAO's 2017-18 balance sheet shows current assets of BPS 8.0m, noncurrent assets of BPS 91m, current liabilities of BPS 8.0m, noncurrent liabilities of BPS 0.018, general fund of BPS 31m and revaluation reserve of BPS 60m. HMRC and NAO also disclose remuneration of executive leaders in detail like in the corporate sector. Detailed disclosure of remuneration of executives both in the public and private sectors is a basic requirement of governance all over the world. But our NBR and CAG office do not disclose any information on this vital public resource.

INDEPENDENT NON-EXECUTIVES IN THE BOARD OF GOVERNANCE: Nowadays strategic institutions both in the public and private sectors around the world are governed by executives (insiders) and independent non-executives (outsiders) who are celebrated citizens of their countries (in USA they are coined as 'idea men'). Importantly, chairman of the institutions is a non-executive. This system of governance is absent in most of our government organisations. And where there are non-executives they are not independent rather are strongly affiliated with the ruling party. If celebrated experts are not present in the board then efficient utilisation of assets and liabilities, their valuation, pricing, and records are at stake. Our strategic government organisations like NBR, CAG, BSEC (Bangladesh Securities and Exchnage Commission), and ports do not have a single non-executive in their board whereas their counterparts in the developed countries have majority members as independent non-executives. Even in South Asian countries, there are non-executives.

Dr Dhiman Chowdhury is Professor of Accounting, Dhaka University


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