Budget and Accounting Classification System in Bangladesh:

Evolution and Development

The new budget and accounting classification system adopted by the Government of Bangladesh in 2018
has a rich legacy of the past practices of managing public finance in undivided India. Promulgation of
Government of India Act, 1935, in fact, brought about many changes in the public finance landscape of this
subcontinent. Most of the rule books, codes and manuals on government financial procedures that are still in
use were originally framed and adopted immediately after the promulgation of this piece of legislation.

The List of Major Heads and Minor Heads of Accounts for Central and Provincial Receipts and Disbursements
issued in 1938 as Appendix -2 of Account Code Volume-1 by the then Comptroller and Auditor General of
India is a precursor of today’s budget and accounting classification system being pursued in this part of world.
In Bangladesh, the Government followed this framework till 1983 when the first spell of revisions were brought
in the list of major heads only to make it consistent with the government operations having new orientation
of development as well as with the growth of public expenditure. In 1988, another spell of revision took place
under which both major and minor heads of accounts for receipts and disbursements were included to make
it comprehensive. One of the main features of these revisions was the introduction of Arabic numerals
replacing roman numerals in the list to make it more user-friendly.

Despite these revisions, the weaknesses in the existing list of major and minor heads began to be apparent
and found to be inadequate to generate required data for financial analysis and financial decision making.
In addition, it was not robust enough to provide data and analytics for international comparison as well as not
suitable for penetration of information technology (IT). These inadequacies mainly prompted the Government
to take an initiative to replace the existing classification system with a more comprehensive structure.

As part of reforms steered by a flagship project of Finance Division called Reforms in Budgeting and
Expenditure Control (RIBEC) taken up on the recommendations of Committee on Reforms in Budgeting
and Expenditure Control (CORBEC), the Government introduced in July 1998 a 13-digit all numeric budget
and accounting classification structure with four distinct components to enable analysis of data in different
ways and at different levels – legal, functional, operational and economic.

While the 1998 classification structure helped in many ways in streamlining the process of gathering financial
data for budgeting and financial reporting, it was found to be inadequate in an evolving context which called
for another revision to make it more comprehensive and at par with the global best practice. The major
weaknesses that came to the fore during implementation of this structure for more than a decade included,
among others, the following: its inability to report the government’s spending programs by location, financing
source and function and it did not support the automated monitoring of cash flows, funds control and
expenditures throughout government; it did not meet the modern reporting requirements as set out in
International Public Sector Accounting Standards (IPSAS), Government Finance Statistics Manual (GFSM)
2014, Classification of the Functions of Government (COFOG) etc. and it was not capable of reporting on
‘Whole of Government Accounts’ (WGA), i.e. producing reports covering central government, local
government, government agencies and state owned enterprises.

Under another flagship project called Deepening Medium Term Budget Framework and Strengthening
of Financial Accountability (DMTBF) of Finance Division, the Government engaged a group of experts to
study extensively the whole structure and identify the areas where further improvements are required. In
tandem, the Finance Division approached the Fiscal Affairs Department (FAD) of International Monetary
Fund (IMF) to advise it on developing a new budget and accounting classification system and to provide
guidance to meet its implementation challenges. In order to steer the process, the Government also engaged
a high-level taskforce with representation from various departments and agencies.

After an extensive work for over 5 years, a new 56-digit budget and accounting classification structure with 9
segments was proposed. The proposal was broadly structured around three parts, namely, core part,
additional part and reporting part. It was finalized by taking on board suggestions from different groups of
stakeholders both within and outside the government. While finalizing the structure, it was made flexible to
be expanded both vertically and horizontally to accommodate new and emerging requirements. Developed
in line with the key principles of sound budget management, the new classification system will meet the
requirements of providing accurate information to policymakers, government managers, the legislature, and
the citizens at large.