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

LOCAL GOVERNMENT ADMINISTRATION

DR. LOURDES G. BANDOY

Professor
Presented by:

LOUIE A. MEDINACELI & DAVID GOLLA

PUBLIC FISCAL ADMINISTRATION defined
 Refers to the
 Formulation
 Implementation
 Evaluation
 TAXATION
 REVENUE
ADMINISTRATION
of the  RESOURCE
Policies ALLOCATION
and  BUDGETING
Decisions  PUBLIC EXPENDITURE
on  BORROWING
 DEBT MANAGEMENT
 ACCOUNTING
 AUDITING
 NGAs
Government GOCCs
Sector GFIs
LGUs
beneficiaries,
voters,
people whom the
taxpayers,
government serve
youth, farmers,
urban poor

Closely linked with other policy

FISCAL instruments of the government
 FISCAL = refers to POLICIE such as MONETARY, PRICE and
S TRADE POLICY, INVESTMENT
and WAGE.

Formulation
Government’
 ADMINISTRATION = refersImplementatio s
n FISCAL
to the Evaluation
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 POLITICS
referring to formulating of laws and policies as
referring to carrying out or implementing that expression of the collective will of the state
collective will of the society

Legislature

Formulate and recommend Rule Making

urgent policy measures for
congressional deliberation Also engaged in POLICY
and approval implementation thru their
PORK BARREL funds
 Bureau of
Internal  Implementation
Revenue of policies on
(1) TAXATION and
Department TARIFF
Bureau
of of Custom
Finance

Bureau of Custodian of
Treasury Government Funds

(2)
leads the formulation
Department of of expenditure policy
Budget and as well as borrowing
Management
 central planning body
(3)
National
Economic formulate, review, and assess fiscal policy
Developmen
t Authority
prepares / prescribes the programs, projects and
activities of government and how these prioritized and
finance
(4)
Bangko major actor in the fiscal policy process to ensure
that monetary policies are in consonance with
Sentral Ng
fiscal policy decisions
Pilipinas

International Lending
Institutions both
(5) influence
Government giving
External the fiscal
agencies
Forces policy
( e.g. IMF, WB, ADB )
give advise on fiscal and adminis-
other tration
policies of the
government
  formulates the policy framework for the
National Budget
 determines the level of deficit establishes
(6) the priorities and the amount of allocation for
Development the sectors
Budget and
Coordination
Council Department of Budget
and Management Secretary –
(Chairman)

National Economic Development

Authority
Composition
(Director – General)

Department of Finance Secretary -

Member

Office of the President – Bangko Sentral Ng Pillipinas

Representative – Member Governor - Member
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.
 General Appropriation Act
= called the national government budget
NGAs = contain subsidies, transfers, and/or
allotments
to GOCCs, GFIs, and LGUs

GOCCs
Have their own distinct
GFIs and separate budgets
LGUs
 PUBLIC FISCAL
ADMINISTRATION
= closely related
= both talk about revenue and expenditures
Alsotalks about government revenues and
expenditures and their impact in the economy
 concerned with the implementation and
PUBLIC FINANCE
 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
 has always been considered part of

practicalities of these concepts economics

 Economics – Deals with the utilization of

scarce resources that have alternative uses to

satisfy human wants.
financial
 Encompasses the practical aspects of fiscal issues
governance such as:  deals with certain
> revenue collection at a rather broad
> preparation of budgets e.g. real problems as economic
conceptual level
> budget allocation and spending incentives , aggregate employment, &
> management of debt inflation
> auditing of account
 PUBLIC FISCAL PUBLIC FINANCE
ADMINISTRATION
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:  concerned with the control of the aggregate
TAXATION supply of money (cash in pockets and balances
EXPENDITURES adopted by the in bank accounts) in the economy and is
BORROWING government monitored and shaped primarily by the Central
BUDGETING to achieve Bank
ACCOUNTING objectives  tight and easy money regimes are simply its
AUDITING
effects
 End product of fiscal administration  its major objectives are price stabilization, full

employment, and economic growth

 Serves as tools to achieve general welfare  its conduct is an art, involving a delicate
objectives, and shape and influence by the balancing act, the use of appropriate tools, the
POLITICAL PROCESS 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,
Distributio The distribution of income and wealth is shaped by the distribution of the
and direct provision of social goods.
n 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  Development is an expensive endeavor. For it to be achieved by

developing countries, a radical shift in revenue and expenditure priorities is
t
called for.
(in developing  Human development – process of enlarging the range of people’s
countries) 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  Refer to the different measures of money. As per the Quantity Theory of Money,
Aggregates money supply increases do tend to raise the inflation rate
Interest  It does not directly target. Rather, BSP uses the policy interest rates for
Rates 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 The government’s inflation target is defined in terms of the average

Targeting 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 (%) Annual increase (%)

2003 – 2004 = (16.17 – 15.40) 2003 – 2004 = (115.5 – 110)
15.40 110
= 5.0% = 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.
TOOLS OF MONETARY POLICY
(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.
TOOLS OF MONETARY POLICY

 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.
TOOLS OF MONETARY POLICY
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
Thank
You