Assessing fiscal health of local governments in Bangladesh: evidence from some southwestern municipalities

Abstract

Status of fiscal health of local governments helps in determining planned budget and realistic action plan for citizens’ wellbeing. This paper aims to assess the fiscal health of local governments in Bangladesh. Design/methodology – Using data from 18 south-western municipalities of Bangladesh during the fiscal year 2018–19, this research measures fiscal health by applying Wang, Dennis and Tu’ s solvency test and Brown’ s Ten-Point Test. Findings – The result shows that one-tenth of the entire municipalities are endowed with better position, whereas almost 39 percent of municipalities are in the worst situation and nearly 50 percent of municipalities are in the average category. Because of having limited liabilities, the municipalities are endowed with more than enough cash solvency and reasonable level of long-run solvency. The key problems are that budgetary solvency of all municipalities is not satisfactory, and service expenses are more than their revenue generation. This study suggests improving the financial capabilities of the municipalities through properly using their resources, generating loans, and claiming a need-based budget from the central government. Originality – The paper investigates the status of fiscal solvency of local governments in Bangladesh in a new dimension. The findings might be helpful to policymakers in budgeting for development initiatives of local governments in Bangladesh so that citizens’ better wellbeing is ensured.