Fiscal administration 2 ppt

LOCAL GOVERNMENT ADMINISTRATION
Presented by:
LOUIE A. MEDINACELI & DAVID GOLLA
DR. LOURDES G. BANDOY
Professor
Republic of the Philippines
EULOGIO “AMANG” RODRIGUEZ
INSTITUTE OF SCIENCE AND TECHNOLOGY
Nagtahan, Sampaloc, Manila
GRADUATE PROGRAM
MASTER IN PUBLIC ADMINISTRATION
TOPIC: PUBLIC FISCAL ADMINISTRATION

PUBLIC FISCAL ADMINISTRATION defined
 Refers to the
 Formulation
 Implementation
 Evaluation
of the
Policies
and
Decisions
on
 TAXATION
 REVENUE
ADMINISTRATION
 RESOURCE
ALLOCATION
 BUDGETING
 PUBLIC EXPENDITURE
 BORROWING
 DEBT MANAGEMENT
 ACCOUNTING
 AUDITING

 FISCAL = refers to
 ADMINISTRATION = refers
to the
Closely linked with other policy
instruments of the government
such as MONETARY, PRICE and
TRADE POLICY, INVESTMENT
and WAGE.
FISCAL
POLICIE
S
NGAs
GOCCs
GFIs
LGUs
Government
Sector
people whom the
government serve
beneficiaries,
voters,
taxpayers,
youth, farmers,
urban poor
Formulation
Implementatio
n
Evaluation
Government’
s
FISCAL
POLICIES

 Administration of FISCAL POLICIES actually takes place
within a Political System
 Public Fiscal Administration and Political Process are
interrelated and influence each other
ADMINISTRATION
referring to carrying out or implementing that
collective will of the society
Formulate and recommend
urgent policy measures for
congressional deliberation
and approval
POLITICS
referring to formulating of laws and policies as
expression of the collective will of the state
Legislature
Rule Making
Also engaged in POLICY
implementation thru their
PORK BARREL funds

(1)
Department
of
Finance
Bureau of
Internal
Revenue
Bureau
of Custom
Bureau of
Treasury
 Implementation
of policies on
TAXATION and
TARIFF
Custodian of
Government Funds
(2)
Department of
Budget and
Management
leads the formulation
of expenditure policy
as well as borrowing

central planning body
formulate, review, and assess fiscal policy
prepares / prescribes the programs, projects and
activities of government and how these prioritized and
finance
(3)
National
Economic
Developmen
t Authority
(4)
Bangko
Sentral Ng
Pilipinas
major actor in the fiscal policy process to ensure
that monetary policies are in consonance with
fiscal policy decisions
(5)
External
Forces
International Lending
Institutions both
influence
the fiscal
policy
adminis-
tration
Government giving
agencies
( e.g. IMF, WB, ADB )
give advise on fiscal and
other
policies of the
government

Composition
Bangko Sentral Ng Pillipinas
Governor - Member
Department of Budget
and Management Secretary –
(Chairman)
Department of Finance Secretary -
Member
 formulates the policy framework for the
National Budget
 determines the level of deficit establishes
the priorities and the amount of allocation for
the sectors
Office of the President –
Representative – Member
(6)
Development
Budget and
Coordination
Council
National Economic Development
Authority
(Director – General)

The Major Functions of DBCC
1. Establishment of the level of annual government expenditure program and ceilings of
government spending in economic and social development, national defense, general
government and debt services;
2. Determination of the proper allocation of expenditures for each development activity
between current operating expenditures (COE) and capital outlays (CO), allotting not
more than 85% of total government expenditures to COE and at least 15% to capital
outlays.
3. Allocation of the amount set for capital outlays under each development activity for the
various capital infrastructure projects;
4. Assessment of the reliability pf revenue estimates;
5. Recommendation of appropriate tax or other revenue measures and extent and type
of borrowings;
6. Conduct of periodic review and general examination of costs, accomplishment, and
performance standards applied in undertaking development projects, including the
review of a mid year and annual budgetary performance;
7. Approval and recommendation to the President of general policy guidelines in the
preparation of the national budget; and
8. Approval and confirmation of various requests of the Ministry of Finance for bond
floatation.

NGAs
General Appropriation Act
= called the national government budget
= contain subsidies, transfers, and/or
allotments
to GOCCs, GFIs, and LGUs
GOCCs
GFIs
LGUs
Have their own distinct
and separate budgets

PUBLIC FISCAL
ADMINISTRATION
PUBLIC FINANCE
= closely related
= both talk about revenue and expenditures
Also talks about government revenues and
expenditures and their impact in the economy
 a subject area or branch in economics
which deals with the revenues and
expenditures patterns of the government and
their various effects on the economy
 concerned with the implementation and
practicalities of these concepts
 has always been considered part of
economics
 Economics – Deals with the utilization of
scarce resources that have alternative uses to
satisfy human wants.
 Encompasses the practical aspects of fiscal
governance such as:
> revenue collection
> preparation of budgets
> budget allocation and spending
> management of debt
> auditing of account
 deals with certain
at a rather broad
conceptual level
financial
issues
e.g. real problems as economic
incentives , aggregate employment, &
inflation

PUBLIC FISCAL
ADMINISTRATION
PUBLIC FINANCE
Deals with, but is not restricted to the
more limited issues covered by public
fiscal
In recent times, however, with the
emergence of the field of public
administration, much interest has been
directed towards the political
administrative and management aspects
of formulating, implementing and
evaluating fiscal policy-hence, the term
public fiscal administration
Is centered on the determination and
analysis of fiscal policies starting from
their formulation to their implementation
and evaluation.

FISCAL POLICY MONETARY POLICY
 refers to the combination of policies on:
TAXATION
EXPENDITURES adopted by the
BORROWING government
BUDGETING to achieve
ACCOUNTING objectives
AUDITING
 concerned with the control of the aggregate
supply of money (cash in pockets and balances
in bank accounts) in the economy and is
monitored and shaped primarily by the Central
Bank
 tight and easy money regimes are simply its
effects
 End product of fiscal administration  its major objectives are price stabilization, full
employment, and economic growth
 Serves as tools to achieve general welfare
objectives, and shape and influence by the
POLITICAL PROCESS
 its conduct is an art, involving a delicate
balancing act, the use of appropriate tools, the
sending of proper signals to the market on its
broad intentions
Note: Have no dividing line as to the impact of fiscal and monetary policies in
the economy
Example:
a decision to incur a budget deficit ( a matter of fiscal policy) will
require domestic borrowing thru the issuance of treasury bills which
affect the money supply (monetary policy).

Fiscal Policy Functions
Allocation  It is the process by which total resource use is divided between private and
social goods and which the mix of social goods is chosen.
 In the performance of allocation function, fiscal policy is expected to
regulate the balance in making available both private goods, merit goods, and
social goods. The government intervenes through subsidies, price regulation,
and direct provision of social goods.Distributio
n
The distribution of income and wealth is shaped by the distribution of the
factors of production.
 Fiscal policy is directed toward correcting this income and wealth.
ex. high tax for rich, and low tax for poor; favorable public policies
on agrarian reform, wages, labor and employment, among
others

Fiscal Policy Functions
Stabilization  instability may be due to changes in prices of major imports, cost of
foreign borrowings, and the availability of foreign borrowings which lead to
huge deficits in the budget and balance of payments and trade.
 Using expenditure and tax policies for stabilization in developing
countries may be more difficult. An increase in expenditures may entail
either additional taxes or more borrowing. The low tax base and inefficient
tax administration makes a case of public borrowing.
 A country aspiring to achieve growth and development may have to
experience instabilities and suffer chronic balance of payments deficit,
severe inflation, high levels of unemployment and underemployment and
the like.
Developmen
t
(in developing
countries)
 Development is an expensive endeavor. For it to be achieved by
developing countries, a radical shift in revenue and expenditure priorities is
called for.
 Human development – process of enlarging the range of people’s
choices; increasing their opportunities for education, health care, income
and employment, and covering the full range of human choices from a
sound physical environment and political freedom.
 Sustainable development – is a process of change in which the
exploitation of resources, the direction of investments, the orientation of
technological development, and institutional change are made consistent

TARGETS OF MONETARY POLICY – given the effect of MP on the inflation rate,
interest rates and levels of output and employment, and growth, monetary authorities try to target some
variables in order to achieve a certain inflation rate or GNP growth
Monetary
Aggregates
 Refer to the different measures of money. As per the Quantity Theory of Money,
money supply increases do tend to raise the inflation rate
Interest
Rates
 It does not directly target. Rather, BSP uses the policy interest rates for
Repurchase Agreements (Repos) and Reverse Repos (RRPs) to signal to the
market their intention to tighten or loosen monetary policy or simply maintain the
status quo. These are made by the MB.
Inflation
Targeting
 The government’s inflation target is defined in terms of the average
year-on-year change in the consumer price index (CPI) over the calendar year

Price Index – an average of prices of commodities
in relation to their prices in a specified base year
COMPUTING AN INDEX
Price of Rice (per kg) Price Index (Rice)
2000* 14.00 (14/14) X 100 = 100.0
2003 15.40 (15.40/14) X 100 = 110.0
2004 16.17 (16.17/14) X 100 = 115.5
Annual Increase (%)
2003 – 2004 = (16.17 – 15.40)
15.40
= 5.0%
Annual increase (%)
2003 – 2004 = (115.5 – 110)
110
= 5.0%

 Three elements in the construction of an average
price index
1. the items in the market basket
2. the weight of each item
3. the base year used as the point of comparison.
Inflation yardsticks:
1. GNP deflator -
2. Producers Price Index (PPI)
3. Consumer Price Index (CPI)

INFLATION YARDSTICKS:
1. GNP deflator - a measure, which shows the general
price level of the final output of goods and services by
Philippine nationals for a given period.
2. Producers Price Index – measures the price changes
of finished goods, intermediate materials and crude
materials at the level of the factory or production unit.
3. Consumer Price Index – is a measure of the changes
in prices of consumer goods and services.

TOOLS OF MONETARY POLICY
(monetary policy instruments used by the BSP to ease and tighten credit in the economy thus
promote price stability, and increase or reduce liquidity in the financial system)
(1) Tools Aimed at Monetary Aggregates ?
a. Purchase / Sale of Foreign Exchange in the FOREX Market
 in order to ensure that banks are able to provide ample liquidity in the market but,
at the same time, conduct their business in a sound manner, and guard against
speculative activity, limits on their “net open foreign exchange position” are
instituted.
 “Open Foreign Exchange Position” shall refer to the extent that banks' foreign
exchange assets do not match their foreign exchange liabilities
 An open position may either be:
o "positive", "long", or "overbought"
(i.e., foreign exchange assets exceed foreign exchange liabilities) or
o "negative", "short", or "oversold"
(i.e., foreign exchange liabilities exceed foreign exchange assets).
 Allowable Open Foreign Exchange Position. Banks' allowable open foreign

Any excess of the allowable limit shall be settled on a daily basis.
 Penalties on excess overbought and oversold positions of banks when PDS
trading is suspended shall be waived.
b. Open Market Operations - are a key component of monetary policy
implementation. These consist of repurchase and reverse repurchase
transactions, outright transactions, and foreign exchange swaps.
i.Repurchase and reverse repurchase
 In a repurchase or repo transaction, the BSP buys government securities from
a bank with a commitment to sell it back at a specified future date at a
predetermined rate. The BSP’s payment to the bank increases the latter’s
reserve balances and has an expansionary effect on liquidity. In a reverse repo,
the BSP acts as the seller of government securities and the bank’s payment has
a contractionary effect on liquidity

ii. Outright transactions
 refer to the direct purchase/sale by the BSP of its holdings of government securities
from/to banking institutions.
 In an outright transaction, the parties do not commit to reverse the transaction in the
future, creating a more permanent effect on money supply.
 The transactions are conducted using the BSP’s holdings of government securities.
 When the BSP buys securities, it pays for them by directly crediting its counterparty’s
Demand Deposit Account with the BSP.
 The transaction thus increases the buyer’s holdings of central bank reserves and
expands the money supply.
 Conversely, when the BSP sells securities, the buyer’s payment (made by direct debit
against his Demand Deposit Account with the BSP) causes the money supply to
contract.
iii. Foreign exchange swaps refer to transactions involving the actual exchange of
two currencies (principal amount only) on a specific date at a rate agreed on the deal
date (the first leg), and a reverse exchange of the same two currencies at a date further
in the future (the second leg) at a rate (different from the rate applied to the first leg)
agreed on deal date.

(2) Tools Aimed at Influencing the Multiplier or Interest Rate
a. Reserve Requirements - refer to the percentage of bank deposits and deposit
substitute liabilities that banks must keep on hand or in deposits with the BSP and
therefore may not lend.
Money multiplier is inversely related to the required reserves percentage.
If the required reserves are low, banks can lend more of their deposit and the
multiplier is high. If it is increased, banks can lend less and the multiplier
goes down.
Changes in reserve requirements have a significant effect on money
supply in the banking system, making them a powerful means of liquidity
management.
 Reserve requirements apply to peso demand, savings, time deposit and deposit
substitutes (including long-term non-negotiable tax-exempt certificates of time deposit or
LTNCTDs) of universal banks (UBs) and commercial banks (KBs) and may be kept in
the form of cash in vault, deposits with the BSP and government securities.

 Required reserves consist of two forms: regular or statutory &
liquidity reserves
- Deposits maintained by banks with the BSP up to 40 percent of the regular
reserve requirement are paid interest at 4 percent per annum
- Liquidity reserves are paid the rate on comparable government securities
less half a percentage point. The use of liquidity reserves help to reduce bank
intermediation costs since they are paid market-based interest rates.
- In March 2006, the Monetary Board began to require banks to keep liquidity
reserves in the form of term deposits in the reserve deposit account (RDA) with
the BSP instead of government securities bought directly from the BSP.

b. Rediscounting
 The BSP extends discounts, loans and advances to banking institutions in order to
influence the volume of credit in the financial system.
Rediscounting is a standing credit facility provided by the BSP to help banks
meet temporary liquidity needs by refinancing the loans they extend to their clients.
The rediscounting facility allows a financial institution to borrow money from the
BSP using promissory notes and other loan papers of its borrowers as collateral.
There are two types of rediscounting facilities available to qualified banks: the peso
rediscounting facility and the Exporters’ Dollar and Yen Rediscount Facility
(EDYRF) which was introduced in 1995.
 If the BSP wants to constrict deposits and money supply, it simply
reduced the amount of funds it makes available and/or raises the
rediscount rate.

Differences between Developed and Developing
Countries in FISCAL SYSTEMS stems from the
following:
 Level of Economic Development
 Historical Experience
 Scars and Traumas of Wars
 Process of Colonization
 Politico – Economic Relationships
Developed Countries = goals are more concerned
with maintaining growth and economic stability
Developing Countries = its goal is to achieve
DEVELOPMENT, or narrowly,
INDUSTRIALIZATION

Fiscal administration 2 ppt

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Fiscal administration 2 ppt