INTRODUCTION TO

FISCAL MANAGEMENT
GILBERT R. HUFANA
Professor
 WHAT IS FISCAL MANAGEMENT?

• Zeros in on the management of financial resources

and those activities and operations to generate
revenues, make those available, and see to it that
funds are intelligently, lawfully, effectively and
efficiently spent.
• It is the act of managing incoming and outgoing
monetary transactions and budgets for
governments, educational institutions, nonprofit
organizations, and other public service entities.
 WHAT IS FISCAL MANAGEMENT?

• It refers to formulation, implementation, and

evaluation of the Policies and Decisions on
taxation, revenue administration, resource
allocation, budgeting, public expenditure,
borrowing, debt management, accounting, and
auditing.
• It encompasses the practical aspects of fiscal
governance such as revenue collection, preparation
of budgets, budget allocation and spending,
management of debt, auditing of account.
 WHAT IS FISCAL MANAGEMENT?

• It also refers to:

• systems,
• processes,
• resources,
• officials and personnel, and
• the policy environment governing the inter-
governmental and inter-local fiscal relations.
 OVERVIEW
PUBLIC FISCAL MANAGEMENT

• It starts with what you want to achieve and the

strategies on how you are going to achieve this.
• More often than not, it requires monetary
consideration. The ultimate question would be where
will funding come from for the realization of this
programs and projects.
• Evaluation of resources and proper allocation of this
comes into play because resources are scarce.
• This is where a decision to increase tax comes in to
increase revenues for funding purposes.
 OVERVIEW
PUBLIC FISCAL MANAGEMENT

• The administration of finances is an intrinsic

component of management responsibility.
• There is an intimate linkage between administering
and funding. An administrative act has a financial
implications.
• To implement social amelioration programs
creates a charge on revenues earned while at the
same time distributes and disperses social benefits.
• The management of financial resources becomes
therefore a very important administrative
responsibility.
 OVERVIEW
PUBLIC FISCAL MANAGEMENT

• Government needs to collect sufficient revenues and

ensure the sustainability of its borrowings and debts
in order to have enough resources for development
spending.
• On the other hand, each peso must be spent properly
and with maximum impact.
 OVERVIEW
PUBLIC FISCAL MANAGEMENT

• It talks about government revenues and

expenditures and their impact in the economy
• It is concerned with the implementation and
practicalities of these concepts.
• It is centered on the determination and analysis of
fiscal policies starting from their formulation to
their implementation and evaluation.
• It is the political administrative and management
aspects of formulating, implementing and
evaluating fiscal policy, hence, public fiscal
management.
 ADMINISTRATIVE AGENCY

• the term used generally to describe an

agency exercising some significant
combination of executive, legislative and judicial
powers
• It is a government body charged with administering
and implementing particular legislation.
• Under the Administrative Code of 1987, the term
agency of the government is used to refer to any of
the various units of the government, including a
department, bureau, office, instrumentalities, or
GOCCs, or LGUs.
 PUBLIC FISCAL MANAGEMENT

• It refers to the whole government sector:

• the NGAs (National Government Agencies),
• GOCCs (Government owned and Controlled
Corporations),
• GFIs (Government Financial Institutions), and
• LGUs (Local Government Units)
 PUBLIC FISCAL MANAGEMENT

• Fiscal activity is present in all levels of the

organization, whether line or staff; top management
level through middle management; the rank and file.

• Top management is most interested in it; middle

management is deeply involve in it; the rank and file
is affected by whatever results from it.
 THE PRINCIPAL AGENCIES TASKED WITH
FISCAL FUNCTIONS

• Congress, especially the

Lower House,
• Department of Finance
• Department of Budget
and Management
• Commission on Audit
 HOUSE OF REPRESENTATIVES

• Congress is responsible for revenue and expenditure

policies.
• Article VI, Section 24 of the 1987 Philippine
Constitution provides:

“All appropriation, revenue or tariff bills, bills

authorizing increase of the public debt, bills of local
application, and private bills shall originate
exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.”
 DEPARTMENT OF FINANCE

• Revenue generation and collection

• Fund custody
• Disbursements
• Keeping of accounts
• Principal agencies under the DOF:
• Bureau of Internal Revenue (BIR)
• Bureau of Customs (BOC)
• Bureau of the Treasury (BTR)
• Bureau of Local Government Finance (BLGF)
 DEPARTMENT OF BUDGET
& MANAGEMENT

• Review of estimates and fiscal policy studies

• This is done in close coordination with the National
Economic Development Authority (NEDA)
• It is tasked to promote the sound, efficient and
effective management and utilization of government
resources as instrument in the achievement of
national socioeconomic and political development
goals. (Mandate)
• They lead public expenditure management to ensure
the equitable, prudent, transparent and accountable
allocation and use of public funds to improve the
quality of life of each and every Filipino. (Mission)
 COMMISSION ON AUDIT

• A constitutional commission – created by the Constitution.

• It conducts fund and performance audit to see to it that
expenditures are in accordance with the Appropriation law
and other implementing laws.
• The Commission on Audit shall have the power, authority,
and duty to examine, audit, and settle all accounts
pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or
held in trust by, or pertaining to, the Government, or any
of its subdivisions, agencies, or instrumentalities, including
government-owned or controlled corporations with
original charters. (Sec 2, Article IX-D, Phil. Const.)
 FISCAL POLICY

• It refers to the measures employed by

governments to stabilize the economy, specifically
by manipulating the levels and allocations of taxes
and government expenditures.
• Fiscal Policy in the Philippines is characterized by
continuous and increasing levels of debt and budget
deficits, though there have been improvements in
the last few years.
• Fiscal measures are frequently used in tandem with
monetary policy to achieve certain goals.
 FISCAL POLICY FUNCTIONS
ALLOCATION

• Allocation
• Distribution
• Stabilization
 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.
 FISCAL POLICY FUNCTIONS
DISTRIBUTION

• 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.
• Examples:
• 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.
 FISCAL POLICY FUNCTIONS
STABILIZATION

• 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.
 FISCAL CONTROL MECHANISMS

1. Prevent misappropriation of funds

2. Control to implement prospective policy
3. Ensure the wisdom and proprietary of the
expenditure
4. Prevent deficits
 FISCAL CONTROL MECHANISMS
PREVENT MISAPPROPRIATION OF FUNDS

•It requires review and approval by the

administrative official of the line or operating
agency, of all requests for money releases and
budgetary allotments, vouchers and similar
papers before payments are made so that
expenditures are in accordance with policy and
law and not irregular, unnecessary, excessive,
extravagant and unconscionable.
 FISCAL CONTROL MECHANISMS
CONTROL TO IMPLEMENT PROSPECTIVE POLICY

•Proactive administration inhibits governmental

units from directly transacting and negotiating
money matters.
•Such kind of transaction is officially channeled
through the Department of Budget and
Management in the form of budget estimates
as endorsed by the President.
 FISCAL CONTROL MECHANISMS
ENSURE THE WISDOM AND PROPRIETY OF EXPENDITURE

•Claims for payment from public funds, legality,

prudence, reasonableness, the morality of the
claim or charge should be established.
•A review of existing contracts and transactions
should be made.
 FISCAL CONTROL MECHANISMS
PREVENT DEFICITS

•Supervision and control may be useful but

should not unduly interfere with agency
prerogative to carry out programs mandated
by the constitution and the laws.
 FISCAL STATE IN
PREVIOUS ADMINISTRATION

• Fiscal policy during the Marcos administration was

primarily focused on indirect tax collection and on
government spending on economic services and
infrastructure development.
• The Aquino administration inherited a large fiscal deficit
from the previous administration, but managed to reduce
fiscal imbalance and improve tax collection through the
introduction of the 1986 Tax Reform Program and the Value
Added Tax.
• The Ramos administration experienced budget surpluses
due to substantial gains from the massive sale of
government assets and strong foreign investment in its
early years.
 A THING OF THE PAST

• From 1986 to 2010, the fiscal deficit averaged 2.2

percent of GDP annually, primarily due to anemic
revenue collections, and worsened by global crises
and other exigencies.
• While there were periods of stability, especially when
surpluses were achieved in 1994 to 1997, the Asian
financial crisis of 1997, as well as the political
instability that followed, hiked the fiscal deficit to a
peak of 5 percent of GDP in 2002.
 HISTORICAL PERSPECTIVE

• Early into the Arroyo administration’s term, the

country went through additional serious fiscal and
public debt distress during 2002-2005, resulting in
sovereign credit downgrades and difficulties in
securing foreign capital (ADB, 2007).
• To address the fiscal crisis, the previous
administration enacted new revenue measures from
2004 to 2005, most significantly the increase in the
value added tax (VAT) to 12 percent.
 HISTORICAL PERSPECTIVE

• Even as the government managed to achieve a near-

fiscal balance in 2007, the fiscal deficit worsened to 3.7
percent of GDP by 2009 due to the global financial crisis
from 2008 to 2009.
• As a result, the deficit averaged 2.9 percent of GDP from
2001 to 2010, compared to the average deficit of 1.7
percent of GDP during the three previous
administrations.
• Even as the Asian crisis of 1997 and the recent global
crisis destabilized economic growth and took their toll
on the government’s financial health, the deterioration
of the fiscal picture was not entirely beyond its control.
 AN ANALYSIS

• Poor governance— illustrated by leakages in revenue

collections, poor management of debts, and leakage-
prone expenditure management—is the core reason
for the unstable fiscal situation during the previous
decade.
• International rating agencies have kept the
Philippines’ sovereign credit rating within “junk bond”
status: an indication that investors still did not
consider the Philippines.