- June 11, 2020
Managing Financial Resources in the Public Sector
ManagingFinancial Resources in the Public Sector
Financialmanagement in the public sector is depicted by the governmentinitiating a budget statement which becomes a policy to guide theusage and acquisition of money. The budget plan could be in the formof a stimulus, restraint or a neutral budget paper. Though there arerules that guide to have a stimulus budget that it should betemporary in the sense that implementation should be done during therecession, should be timely such that execution time should be doneat the time when the recession is at best and should target the mostvulnerable people in the society. The target should be to those whoare in the low-income households who are usually affected byinflation and the real income adversely affected by the recession. Inthis case, we seek to understand the process of budget policyformulation for the provincial government while dwelling on the casestudy provided by the tutor. Further, the paper shall analyze theprocedure, identify weaknesses of the process and answer any querythat emanates from the process.
Everyprovince has a way or a procedure through which it follows in thebudget formulation process. The system may vary from one governmentto the other, and at the same time could change from one year to theother within the same provincial government. It is however noted thatin all governments, the essentials of a budget remain universal (Sun,242). The process of the budget formulation is overall budgetstrategy development projecting future revenues and determining taxlevels to fund the budget and allocation of resources among thecompeting segments of the economy. The segments are economic, socialand political sectors, among which programs and projects reflect thepriorities the government has set. In the process of coming up with abudget paper, some areas may receive a larger allocation whileanother could get a less share than it did in the previous financialyear. That is regarded as a cut in budget allocation. Further, newprograms may be introduced, and others may be done away with (DiFrancesco, Michael, and John Alford, 232). Relationships amongvarious programs and departments may be altered so as to accommodateparticular development projects or a segment of a governmentoperation entrenched in the budget. In this case, we are guided bythe process that was once followed in developing an initial fiscalframework by New Brunswick Government.
Theprocess starts when the ministers in the provincial governments arepresented with the tentative global view of the budget policy ineconomic and financial terms. That gives the basis of an economicframework within which real decisions may be made regarding revenuesand expenditure priorities. All that happens before the prioritiesare set, before resources for the fiscal year are allocated, andbefore vigorous completion for scarce resources begin (Zhang, Si etal., 63). The process continues with the budget officers looking atthe global view of the budget to expect, and review, updates andchanges according to the priorities that are set, and according tothe dynamics of the social, economic and political situations. Theglobal statement gives the glimpse of the final budget discussionsand negotiations among the politicians and bureaucrats on the revenueand spending choices (Guinn, David, and Jeffery, 264). The paper willbe seeking to study the variables to be considered to be harmonizedwhen arriving at an initial budget strategy. That would be done bycritically analyzing the case and identifying the point of weaknesswith recommendations in the offing.
Thestructure of which the scarce resources are allocated withconsiderations of global constraints or boundaries, which requirereal decisions to be made before the detailed budget statement isformulated. The fiscal framework should consider the rate at whichgrowth in the public sector occurs with emphasis broadly placed oneconomic and social programs, whether the budget should be stimulus,restraint, or neutral, taxation, whether the control should beexercised regarding reduced expenditure, or increased tax. Further,the fiscal strategy should show the net debt and whether it should beincreased, and by what magnitude, and finally, how much can andshould be borrowing considering the province`s credit rating, and thecontext of national and international capital market conditions(Cole, Neil et al., 37). The process of budget making within thecontext of fiscal framework is clear, and it is explained as follows:
First,the future economic outlook is prepared to assess the strengths andweaknesses of the economy which may be expected in the future. It isnoted that establishing provincial economic performance could bedifficult, but such is done to aid formulation of short-run economicstrategy, and revenue projections which are reasonably accurate. Theassessment will then on establishing the ultimate strengths andweaknesses provide crucial information for the formulation of amid-term policy that addresses the ways in which the problems couldbe subdued. To defeat the economic problem will be throughestablishing the extent to which stimulus or restraint may beimplemented in remedying the weakness by spending or tax changes.
Secondly,forecasting expenditure growth by major development programs, whereit analyses the magnitude by which spending growth is likely toexceed the future increase in revenue for at least the next threeyears. The analysis informs the minister of the shifts in publicexpenditure priorities as it identifies the point where pressureemanates to spending trends and patterns in the future for botheconomic and social programs.
Thirdly,revenue projections including those that the federal government wouldinject into the provincial coffers would provide the basis foreconomic mechanisms that set outside limits to future spending inoperations shielding the government from revenue or deficit policychanges.
Thefourth step is reviewing the ability of the province to raise fundsin the world`s capital market to help in giving indications todecision makers on the future borrowing capacity of the region. Outerlimits on total spending on capital projects and non-budgetaryallocation loans and advances are determined by the informationemanating from the decisions.
Thefifth step involves assessing the future behavior of importantfinancial ratios like debt to gross revenue ratio. The projectionsare important as they give the picture of the financial health of theprovince and the capacity of borrowing given the credit rating.
Thesixth and the final step is to understand the policy environmentwithin which the budget policy is formed. It is worth noting thatfederal cost-cutting measures would have significant consequences onthe transfers to the province, mostly on equalization and establishedprograms, and funding which is independent of the provincial budgetand spending decision-making. Rural policies on tax or changes inrevenue must be declared, and their spending programs weighed toassess their effect on projected income and expenditure levels.
Havingconsidered all the steps of budget preparation, the one dimension ofpresent policy environment fronted is the public and governmentattitude towards government spending and an increase in taxes. Thatis because there has been resistance against the expansion of thepublic sector, coupled with an understanding that government spendinghas to be refocused to changing long-term priorities in the recentyears (Cole, Neil et al., 37). A case in point is where the nationsand provinces are adjusting to a lower growth period, and a strongemphasis is being given to those measures that contribute less toinflation, let alone those Endeavour in reducing unemployment andincreasing productivity. With this challenging task, three issuescome into being that is options to make to have a sound decision.They are: there is less money for the growth of existing spendingprograms than the departments and agencies, and their clients maylike. Less money for new development projects could be available inthe future than has been in the past and reduction in spending may bethe trend than expansion or maintenance of existing programs.However, initial framework problem is a global allocation of money tohelp achieve broad government objective. Therefore, conclusions mustbe reached that will determine the shape of the economic, financial,and social landscape of a provincial government.
Itwas found out that the financial performance of the Canadian provincewas high as foreign exports mostly supported it. Pulp and paper andmining strength did offset the weak service segment of the economy.Nominal GDP grew by 8.8% while in real terms it rose by 4.8% net ofinflation. The growth is projected to reduce to 5.5% in thesubsequent year due to slowed growth, but on recovery, the GDP or GPPis expected to rise to 6% and 7% in the next two and three yearsrespectively. Revenue outlook is projected to have slowed growth inthe next one year but expected to be back on track for the subsequenttwo years thanks to continued growth of labor force, increasedconsumer demand, and declining inflation.
Spendingoutlook was realized that it would slow down in the next one year,which will in the succeeding years rise sharply depicting economicdevelopment. The volume growth represents 2.7% of total growthforecast for the year, 3% of wages, and 4% growth in the non-wagesector. On financial constraints, the ratios depict decline as therevenues grow. That is predicated on declining revenue growth coupledwith rising interest rates, continued borrowing to finance thesustained deficit, and increased foreign exchange costs shown bydeclining dollar value. The changes in net debt to revenues ratiodepict the change in capacity for the province to cover or meet itsobligations to pay the dead weight debt. The borrowing plan is seento increase year after another so as to finance the deficit in thebudget. However, it shall be favorable and sustainable as takenrelative the growth in the Gross Provincial Product (GPP). Further,Investment House noted that borrowing 30-40% above the forecast levelcould be absorbed in the next one or two years.
Oneconomic, fiscal and other policy considerations, it was expectedthat major industrialized economies of the West would experience slowgrowth for two to three years and as such will follow restraintmonetary and fiscal policies to counter the massive deficits incurredin the recent years. Also, the provincial government is underpressure to stimulate growth with some quotas arguing that selectivetax cuts should be introduced so as to reduce unemployment as well asrespond to other economic weaknesses being experienced.
Havingconsidered all the options of the budget presented option three wouldbe recommended, as it would involve real spending increase which ispossible to accommodate expansion of existing, economic or socialprograms or a start of new ones. Provision for volume growth andinflation has been made, deficit rises, and tax increase. That wouldgive the government the impetus to broaden the tax base to financedevelopment agenda they have set. Further, the provincial governmentofficials could negotiate with the federal government for aconditional grant so as to meet the deficit they already haveaccumulated.
Inconclusion, the budget formulation is an exciting process as thevariables to be harmonized are quite broad and voluminous. That makesone consider too much in making a sound decision for the economy. Itis, therefore, important for one to know when to apply restraint orstimulus strategy in the course of the budget review. Budget policyis an exceptional tool to run an economy and could either build orkill the economy of a nation.
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