PROFESSOR DOCTOR KHAWAJA AMJAD SAEED
Traditionally speaking, the study of economics was divided into five constituents namely; consumption, production, exchange, distribution and public finance. In recent years, public finance has sprung into prominence. Resource mobilisation has assumed a high importance. Its utilisation has become a critical factor in developing countries, which are generally faced with the problem of deficit finance.
Consequently, reliance on foreign loans has been growing. Today’s world is caught up in financial crisis and the whole world is in search of a new financial architecture, which may provide financial defence. Accordingly, need for developing a sound system for public expenditure and financial accountability is the crying need of today. Therefore, this paper addresses basic issues in respect of the above subject.
IT HAS BEEN DIVIDED INTO THE FOLLOWING THREE PARTS:
PART – I: Rationale for having a clean government.
PART – II: Public financial management with focus on public expenditure.
PART – III: Financial accountability.
EACH OF THE ABOVE ARE NOW EXPLAINED BELOW:
Today’s outcry is to have a clean Government. The term good governance is in great currency. Global financial institutions are stressing hard for ensuring a sound and stable system of good governance in the governments. We hope that their message will be well understood and all governments will implement the spirit of this message to usher in an era of prosperity on a wider scale.
The earlier this message is comprehended and sincerely complied with, the better. It will be in the interest of the society and its social stability, failing which the de-stabilisation will continue to the detriment of the country and its people.
The rationale supporting clean government is that it promotes good governance. It minimises corruption, mitigates frauds and reduces wastages and abuse in the use of public finances. It highlights the breakdown in the rule of law to alleviate poverty. It serves as an effective public financial accountability. It ensures transparent decision-making, facilitates stakeholders’ participation and encourages ethical practices.
The traditional game of financial management consists of three parts namely, resource mobilisation, resource utilisation and resource protection. However, the current thinking on financial management consists of only two elements namely, maximising returns and minimising risks. This piece focuses attention in respect of various innovations, which have been tried in the optimal utilisation of public expenditures.
In this respect, governments are involved in a diagnostic processing. A more integrated and co-ordinated assignment is being made in respect of public expenditure for operationalizing appropriate controls. There is a greater support for integrated and consequential action plan. Better understanding of the impact of governance and incentives on the performance and reforms of public financial management system is growing.
Moreover, three tenets are being implemented to achieve the above goals. These include: emphasis on domestic accountability arrangement. However, it must be noted that donors can only support these efforts but it is not a substitute. The challenges are with the Governments rather than with the donors.
However, capacity enhancement and performance of public financial management continues to be improved in terms of institutional arrangement, managerial aspects and technical dimensions. Moreover, monitoring and evaluation on accomplishment continues to be made from time to time. Five basic issues have been identified in respect of sound public financial management relating to public expenditure. These include the following:
1) Budget formulation and executive
5) Internal and external controls
There is a growing emphasis on user friendliness and quality of information. There is a freedom to participate in the discussion as part of transparency. Oversight bodies have been established in parliaments and civil society constituents and public at large. Challenges have been identified to accomplish the above goals. These include:
1) Imaginative approach
2) Change management
3) Good and clean government
4) Good governance
5) Stewardship function through value of money
6) Productive and positive role of Governments
7) Strengthening internal audit, external audit and internal controls
8) Public policy debate
The contents of financial accountability are determined by users group eg, policy makers, legislatures, investors, academics and general public etc. The traditional contents for financial accountability include: Review of budget, scrutiny of audited annual accounts and intra-fiscal year indication of the fiscal accounts. More recently, greater emphasis has been focused on the following four areas:
1) Quality of public finance
2) Sound approach to policy-making
3) Meaningful contents of public expenditures
4) Continuing reforms and adjustment efforts and study of their impact
“Information needs to be generated relating to structure and policy sphere, fiscal management through clarity of objectives, analysis of consolidated budget, developing sound macroeconomic framework, governing annual budget, announcement of annual policy, informative disclosure to debt position, development of performance orientation, pursuit of efficiency and effectiveness and supporting changes to be introduced in administrative infrastructure.”
Five areas have acquired attention to constant implementation of budget. These include: release of funds, cash management, proper award of contracts, co-ordination between budgetary amounts and outcomes and operationalizing performance measures. Other areas, which have attained importance for implementing the spirit of financial accountability, include: accounting and reporting, evaluation, audit, implementation of independent international accounting standards and legislative review.
Financial accountability in general consists of three types namely; general accountability (accountability for action, sanction, public scrutiny and citizens participation), fiscal accountability (approval and no impairment on fiscal capacity of community) and managerial accountability (appropriate rules, risks within the delegated persons, services delivered relating to cost, quality and time schedules and observance of three Es namely; economy, efficiency and effectiveness).
It is high time that all governments may address the foregoing issues so that the basic objective of clean government is achieved. Optimal utilisation of public resources in the interest of the society and the country is undertaken and finally a sound framework for financial accountability is not only developed but implemented to the advantage of the country and its stability for the benefit of society.
(The writer is the Founder Principal, Hailey College of Banking & Finance, University of the Punjab)