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PUBLIC EXPENDITURE MANAGEMENT

Allocative Efficiency, Forward Estimate, Public Programs and

PrioritizationPRESENTED BY :

SHAHRIL BUDIMAN| 810089MUHAMMAD HAFEEZ BIN ZAKARIA|

811824

The process of :

COLLEGE OF LAW, GOVERNMENT AND INTERNATIONAL STUDIES

PREPARED FOR : PUBLIC FINANCIAL MANAGEMENT CLASS | Dr. SALIHU ABDULWAHEED ADELABU

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CONTENTS

General Overview of Public Expenditure Management

The process of allocative efficiency

PEM : Forwards estimates

Public Programs

Managing prioritization

PEM

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Public expenditure management (PEM) is one instrument of government policy.

Public expenditure management is a basic means of government policy distributing utilizing sources

productively, effectively and sensitively (Allen, Tommasi, 2001, p.19).

GENERAL OVERVIEWOF PUBLIC EXPENDITURE MANAGEMENT

-

THE OBJECTIVES OF PUBLIC EXPENDITURE MANAGEMENT

Technical efficiency

Allocative of

effective, efficient

Aggregate of

Fiscal Disciplin

e

Worldbank:1999

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PUBLIC EXPENDITURE MANAGEMENT (PEM) O B J E C T I V E S

A g g r e g a t e o f f i s c a l

d i s c i p l i n e

Pertainsto all key measures of fiscal performance:total revenue, the financial balanceand the public debt, in additionto total spending

Capacity of government to distribute resources on the basis of the effectivenessof public programs in meeting itsstrategic objectives.

Ratio of the resourcesexpended by governmentagencies to the outputs produced or purchased by them

A l l o c a t i v e o f e f f e c t i v e a n d

e f f i c i e n t

Te c h n i c a l E f f i c i e n c y

Allen, Tommasi, 2001,

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ALLOCATIVE EFFICIENCY

Unified Budget

Forward Estimates

Performances Based Budgeting

That is capacity to establish priorities within the budget, to distribute resources on the basis of the government’s priorities and the program is effectiveness.

Moreover, is to shift resources from old priorities to new ones, or from less to more productive activities, in correspondence with the government’s objectives

(Allen & Tommasi : 2001)

1 STRATEGY

DEFINITION

Consolidation

Rolling plan budget

Efficiency & effective

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Allocative Efficiency Problems of Some Developing Countries

Practice ProblemsShort-term Budgeting

Government budgets one year at a time, without considering medium-term implications, such as the recurring operating costs of new projects.

Escapist Planning Planning is politically important but the government promises in the plan what it cannot pay for in the budget.

Distorted Priorities Scarce resources are spent on showcase projects that produce meager social return while the budget underspends on human capital (health, education, etc.).

“Enclave” Budgeting

Efforts (often by international organizations) to protect certainpriorities by establishing special funds, separate investment budgets, social (or physical) investment programs, andother devices that wall off the "enclaves" from the rest of the budget.

Source: Allen shick : 1999: 39

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FORWARD ESTIMATES

Structured of budget work during periods of program expansion as well as during periods of contraction, and it have to survived against several changes in government leadership.

(Allen Schick:1998)

2DEFINITION

Cont: Public Programs

Application of the forward estimates in the medium-term perspective to create certainty of funding for ministries / agencies.

The assurance gives opportunities in ministries / agencies in planning expenditure / spending in subsequent years in accordance with the principles of efficient allocative efficiency.Indonesia the National Development Planning Agency

FUNCTION

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Public programs is implement policy.“Programs are ongoing service or activities…programs authorized by policies, are directed toward bring about collectively shared ends. These ends, or goals, include the provision of social and other public services and implementation of regulations designed to affect the behavior of individuals, businesses, or organization.”

Source: Laura Irwin Langbein, Public Progrm Evaluation : A Statistical Guide , Second ,Edition,United States:Library Materials, pg 4

PUBLIC PROGRAMS

Government final consumption expenditure

Intended to create future benefits (investment)

Transfer payment

3

In What Programs

government expenditure

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“Government final consumption consists of expenditure, including imputed expenditure, incurred by general government on both individual consumption goods and services and collective consumption services”

Source: Set: National Account of OECD Countries Volume II, 2010, OECD, pg 904

Government final consumption expenditure

Food ClothingWater,

Electricity, Gas

Health Transportation

Communication Education

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“…Capital expenditure decisions, therefore, involve a current outlay or a series of outlay over a period of time in return for future benefits.”

Source: Banerjee Bhabayosh, (2008)Fundamentals of Financial Management.. New Delhi: PHI Learning Private Limited. Pg 256.

Intended to create future benefits (investment)

Building RoadsAirports, Railway, Bridges

Machinery For

TechnologyTransport Equipment

PERLIS

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Transfer payment

Transfer Payments. Payment made by government to an individual that are not in exchange for good or services, have important implications for the alleviation of poverty and distribution of income.

Payments can be either in cash or in kind

There’s two type, Means-tested transfer and social insurance programs

Transfer paymentE x a m p l e o f Transfer payment

Social security

Welfare

Source: John B. Taylor, Akila Weerapana: 2007

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PRIORITIZATION IN PEM

The government need to arrange the public programs expenditure starting from high –priority category until the low priority category.

budget allocations would reflect the government’s considered and reasonable judgment on prioritiesSources : David Bevan 2007,Promoting and Protecting High-Priority Expenditures, pg2

What is public expenditure Priorities

4

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1. Look at our budget and make sure it is as complete

2. Look at each programs and assign it a letter

3. Now give a number to all programs starting from high –priority category until the low priority category based on the situation in the country

4. Now you have them in priority order

STEPS TO PRIORITIZE EXPENDITURE

Sources : Lyman Rose 2012, 4 Step to prioritize expenditures, pg1

4

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LET’S WE DO ONE EXERCISE TO UNDERSTAND

PUBLIC EXPENDITURE PRIORITIES

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FURTHER READING

Allen, Richard and Daniel Tommasi (2001), Managing Public Expenditure A Reference Book for Transition Countries, SIGMA, OECD

Banerjee Bhabayosh, (2008)Fundamentals of Financial Management.. New Delhi: PHI Learning Private Limited.

David Bevan 2007,Promoting and Protecting High-Priority Expenditures,

Laura Irwin Langbein, Public Program Evaluation:A Statistical Guide , Second ,Edition,United States:Library Materials,

Lyman Rose 2012, 4 Step to prioritize expenditures, Retrieved November 16, 2012, from www.imf.org/external/pubs/ft/expend/guide3.htm

Minister of Finance Malaysia(2012),Retrieved November 16, 2012, from www.treasury.gov.my/.../2012/.../FGDE20122013...

Set: National Account of OECD Countries Volume II, 2010, OECD, Susan Grant Chris, Chris Vidler, , Andrew Ellams, Heinemann Economics A2 for Edexcel, Uk: Scotprint.

Schick, Allen (1999), A Contemporary Approach to Public Expenditure Management, World BankInstitute, Governance, Regulation, and Finance Division, Second Printing, (April).

THANKS FOR YOUR AT T E N T I O N