Good Managing Financial Resources In The Public Sector Case Study Example

In the development of the fiscal framework in this case, four options are raised. Option one offers a budgetary expenditure of 5.850 billion with budgetary revenues coming up to 5.190. In this case, a budgetary deficit of 660 million is expected for that year. The total debt for the province will increase by 570 million while the Total Cash Requirements in non-budgetary accounts will stand at 995 million. It also means that the revenue will grow by 9% though taxation rates will remain constant. The growth in expenditure and debt will grow by 7.3% and 10.2% respectively. The option first implies that funding for new programs (both economic and social) will be cut and given the importance attached to these by the community it will not be politically feasible to pursue this. The other implication is the absorption of the increasing inflationary rates by the restraint achieved by reduced spending.
In the second option, the total budgetary expenditure will be at 5500 million while the revenue in the budget stands at 5190. This option offers a considerable reduction in the deficit compared to option one; the deficit will be 310 million. The total Cash Requirements in non-budgetary accounts will stand at 645 million while the net increase in debt will be at 220 million. The revenue in the province will grow by 9% with tax reductions implemented. The growth in expenditure and debt will grow by 0.9% and 3.9% respectively. The implications of option two are that spending for the province is greatly reduced which leads to a considerable reduction in the deficit levels. The issue, however, is the unavailability of funds for the introduction of new economic and social programs.
The third option will see the budgetary expenditure reach the level of 6200 while budgetary revenues will be at 5300; this will see an increased deficit of 900 million. The total Cash Requirements in non-budgetary accounts will considerably rise to 1235 which is the highest of the four options. The net increase in debt will also be highest in this option getting to the level of 890 million. The net revenue for the province will grow by 11.3% with no change in the rates of taxation. The growth in expenditure and debt will be higher compared to all other options and will see growth rates of 13.7% and 14.5 % respectively. Implementation of the third option in the budget will see an increase in the level of spending by the province. This will avail funds required for maintenance and even expansion of the economic and social programs already in place, with more money available for initiation of new programs. The downside to the option, however, is the increase in the deficit for the province.
Option four, on the other hand, offers a forecasted budgetary expenditure of 5850. The budgetary revenues will hit the 5250 mark, making the total deficit stand at 600 million. The total Cash Requirements to run the non-budgetary accounts will stand at 995 million while the increase in the net debt for the province will amount to 510 million. The year will see an increase of 10% in the revenue rates for the province while the growth in expenditure and debt grows by 7.3% and 10.2% respectively. This option points at a reduction of expenditure of the province in that year. This is likely to have an impact on limiting expansion of economic and social programs for the province. This option will also see a Considerable increase in the tax rate, necessary for funding the expenditure of the province.
I view the second option as being the most feasible budget option to choose. It is practical in the current economic conditions and with gradual implementation can lead to a sense of balance in the budget for the province.
Option two provides a considerable decrease in the amount of deficit from the current 600 million to the forecasted 310 million. This gives room for the province to put into effect a fiscal stimulus package. Given the sharp decrease in revenue and fiscal deficits, it becomes possible to carry out a fiscal stimulus by reducing expenditure. From the budget plan options table, it is seen that the rate of growth in cash requirements will be -35%. At this rate, the government will be able to introduce the stimulus plan. This is the best option around given the current economic situation.
Fiscal stimulus is important for any state going through difficult economic times. Through the fiscal policy, governments are able to alter or influence the taxation and spending rates of the province in order to influence the economy. In this case, the province through option two will be able to bring down expenditure and thus allow the government to offer more support to the various financial systems. Fiscal stimulus also goes a long way in protecting the vulnerable citizens from the effects of harsh economic times (Horton, El-Ganainy, n.p). When such measures are taken, the unemployed, for instance, are covered by improved social welfare packages while high earners may be forced into paying higher tax rates.
As pointed out above, implementation of option two will see the province achieve some good economic benefits. The growth rate of budgetary expenditure will be at a minimal figure of 0.9% compared to the average of 10% in the other budget options. The net growth of debt for the province will also be low, at 3.9 % while the growth in cash requirements for the province is the most impressive statistic in option two. The growth will be significantly reduced to the rate of -35.8%.
Expenditure restraint, as shown in option two, is essential in times of slow economic growth. In such times, the policy makers should do away with unnecessary spending, allowing resources to go to waste and duplication activities that demand revenue (Fresnel 45). They should move towards privatization of some functions and even review of certain entitlement benefits in place to ensure that only the deserving people get them. Option two goes a long way in helping the province achieve this.
The downside to this option is the relationship with the potential creditors. If implemented, the province's credit rating will be under more scrutiny. Poterba points that different factors influence the doubt creditors have on doing business with the government (61). Among those is the uncertainty of whether the governments are able to reverse the fiscal stimulus once the tide passes. The creditors also question the general weakness in the public finance set up due to issues of tax structures and rising spending needs. The provinces’ rating is, therefore, likely to be affected.
The focus of option two is guiding the province through the harsh economic conditions currently being experienced. Dealing with the dynamics involved in unemployment is, therefore, more important since the election budget can be dealt with later through other avenues and provisions in the financial system.
The net debt for the province needs to be controlled in order to ensure that it does not exceed certain levels that are harmful to the economy. The fiscal deficits and the general debt ratio to the GDP are likely to increase given the current economic situation. Allen is of the view that though many governments have the ability to operate with minimum debt and fiscal deficits, the increase of their ratio compared to the GDP over a long period can harm the states (34). This means that procedures need to be put in place to correct the situation in the fiscal policy while at the same time coming up with growth strategies. Failure to do this is likely to affect the economic opportunities in the province.
Currently, the expenditure on social programs triple that of economic programs. This impedes the growth agenda for the province. Fiscal challenges and pressure from the social sector makes it difficult for major changes to be made. The option is reviewing these social programs to ensure they are affordable covering the intended people and especially those in the greatest need. Unnecessary waste and spending should, therefore, be controlled in these social programs.

Works Cited

Fresnel, Jacob A. Fiscal policies and growth in the world economy. MIT press, 1996.
Horton, El-Ganainy. “Fiscal Policy: Taking and Giving Away” imf.org. International monetary fund, March 28, 2012. Web 17 February 2015. <http://www.imf.org/external/pubs/ft/fandd/basics/fiscpol.htm >
Poterba, James M. State Responses to Fiscal Crisis: The Effects of Budgetary Institutions and Politics. No. w4375. National Bureau of Economic Research, 1993.
Schick, Allen. "The role of fiscal rules in budgeting." OECD Journal on Budgeting 3.3 (2003): 7-34.