FISCAL

POLICY
AND
MONETARY
POLICY
Development Issues and Cases
A LESSON
TO TALK ABOUT:

• Role of Financial System in Economic Development

• Role of Central Bank and Alternative Arrangements

• Informal Finance and Rise of Micro Finance

• Fiscal Policy for Development

• State Owned Enterprises and Privatization

INTRODUCTION

• The financial system is essential for Economic Development as it

mobilizes savings, allocates resources efficiently, and manages risks.
• It channels savings into investments, supports innovation, facilitates
trade, provides liquidity, and helps implement government policies.
• Additionally, it promotes financial inclusion, enables capital
formation, and funds technological advancements, driving long-term
growth.
 FISCAL POLICY
Fiscal policy involves the government changing tax rates
and levels of government spending to influence aggregate
demand in the economy.

• Level of government spending

• Levels of taxation

MONETARY POLICY
• Managed by a country's central bank (e.g., Federal Reserve in the
US), focusing on controlling the money supply and interest rates.
Monetary policy involves changing the interest rate and influencing
the money supply.
• Interest Rates (see table 01)
• Open Market Operations
MONETARY
POLICY
 WHICH IS
MORE
EFFECTIVE
MONETARY
OR FISCAL
POLICY?
FINANCIAL SYSTEM'S
ROLE IN ECONOMIC
DEVELOPMENT DEFINITION:
• Mobilizes savings, facilitates investment, promotes
resource allocation.
• Comprises institutions like banks and stock
exchanges.

MOBILIZATION OF SAVINGS
• Collects savings from households and businesses
•Makes funds available for
productive investments
FINANCIAL SYSTEM'S
ROLE IN ECONOMIC
DEVELOPMENT RESOURCE ALLOCATION
• Directs resources to productive uses.
• Involves banks, stock markets, and financial
intermediaries.

RISK MANAGEMENT
• Provides mechanisms for managing risks (credit,
market, operational).
• Promotes economic stability and confidence.
FINANCIAL SYSTEM'S
ROLE IN ECONOMIC
DEVELOPMENT
TRADE AND COMMERCE
• Provides credit and payment services.
• Supports domestic and international trade.

INNOVATION AND TECHNOLOGICAL

ADVANCEMENT
• Enables investment in research and development.
• Drives innovation and technological progress.
ROLE
OF CENTRAL BANK

The central bank plays a crucial role in both fiscal and

monetary policy, influencing economic development and
addressing various development issues. Alternative
arrangements also contribute to these policies, impacting
economic stability and growth.
MONETARY POLICY
IMPLEMENTATIONCURRENCY
ISSUANCE MANAGEMENT
• Control of Inflation
• Interest Rate Management
•Money Supply Regulation
• Issuance of Currency
• Foreign Exchange Management
FINANCIAL STABILITY FISCAL POLICY SUPPORT
•Bank Supervision and
• Government Financing
Regulation
• Policy Coordination
• Lender of Last Resort
INFORMAL FINANCE AND
RISE OF MICRO-FINANCE
EMERGENCE AND ROLE
• Promotes financial inclusion and economic development.
• Provides accessible, flexible financial options to those excluded from formal
systems.
• Supports entrepreneurship, alleviates poverty, and empowers marginalized
groups.
• Enhances economic resilience and growth in low-income communities.

INFORMAL FINANCE
• Operates outside regulatory authorities.
• Depends on personal relationships between providers and users.
• Includes NGOs, savings and credit associations, farmers' associations, self-help
groups, unregulated microfinance institutions, moneylenders, and deposit
collectors.
INFORMAL FINANCE AND
RISE OF MICRO-FINANCE
CHARACTERISTICS
• FLEXIBILITY
• ACCESSIBILITY
• COMMUNITY-BASED

RISE OF MICRO-FINANCE
Microfinance refers to the provision of financial services, such as small
loans, savings accounts, insurance, and other financial products, to low-
income individuals or groups who typically lack access to conventional
banking services.
FISCAL POLICY FOR
DEVELOPMENT
FISCAL POLICY
— Use of government spending and taxation to influence the
economy.

GOALS
— Promote strong, sustainable growth and reduce poverty.

HISTORICAL CONTEXT
— Increased prominence during economic crises (e.g., Great
Depression, 2008 financial crisis).

Mechanism of fiscal policy

— GOVERNMENT SPENDING
—TAXATION
 TYPES OF
FISCAL POLICY
EXPANSIONARY (Loose): the government
will cut tax and increase spending (leading to a
higher budget deficit)

CONTRACTIONARY (Tight): To reduce

demand and reduce inflation, the government
can increase tax rates and cut spending (leading
to a smaller budget deficit)
EQUATION

National Income Accounting Equation

GDP = C + I + G + NX
C: Private consumption
I: Private investment
G: Government spending
NX: Net exports (exports minus imports)
 GOAL OF
FISCAL POLICY
MACROECONOMICS
STABILIZATION SHORT-TERM GOALS:
Stabilize the economy during downturns.
LONG-TERM GOALS: Support
sustainable economic growth
CHALLENGES WITH FISCAL
DEFICITS AND PUBLIC DEBT
• Rising Deficits and Debt Ratios
• Maintaining Confidence
RESPONSE TO THE GLOBAL
FINANCIAL CRISIS
• Automatic Stabilizers
• Discretionary Fiscal Stimulus
STATE-OWNED
ENTERPRISES • Government-owned or controlled companies
• Undertake commercial activities for the state

INDUSTRIES
- Utilities
- Transportation
- Natural resources

OBJECTIVES
- Economic development - Public services
- Revenue generation

BENEFITS
- Provide essential public services (water,
electricity, transit, healthcare)
- Stabilize the economy
-Generate revenue for government funding and reduce borrowing
 PRIVALIZATION
CHALLENGES OF STATE-OWNED ENTERPRISES
(SOES)
• Efficiency
• Political Interference
• Financial Burden

The process of transferring ownership,

control, or management of a business,
enterprise, or public service from the
government to private individuals or
organizations. This is often done to
increase efficiency, reduce government
debt, and encourage private investment
and competition.
The End
of Presentation

GROUP 7 & GROUP 8

Calanza,Trisha Fate Abdul, Far-ainie
Tose, Donnatilla Lois Compra, Monica Joy
Villamor, Hazel Joy Diez, John
Villarin, Angelique Legare, Leah Janne
Zaragoza, Daisiry Ruales, Crystelle Yvonne