PUBLIC FISCAL ADMINISTRATION defined

 Refers to the
 Formulation
 Implementation
 Evaluation

 TAXATION
 REVENUE ADMINISTRATION
of the  RESOURCE ALLOCATION
Policies  BUDGETING
and  PUBLIC EXPENDITURE
Decisions  BORROWING
on  DEBT MANAGEMENT
 ACCOUNTING
 AUDITING
 NGAs
Government GOCCs
Sector GFIs
LGUs

beneficiaries,
people whom the voters, taxpayers,
government serve youth, farmers,
urban poor

Closely linked with other policy

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

Formulation
 ADMINISTRATION = refers Implementation
Government’s
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 expression of the collective will of the state
that 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 of
Revenue 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 as
Budget and well as borrowing
Management
 central planning body
(3)
National
Economic formulate, review, and assess fiscal policy
Development
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 fiscal policy
Sentral Ng
decisions
Pilipinas

International Lending
Institutions both
(5) influence
External the fiscal
Forces Government giving agencies policy
( e.g. IMF, WB, ADB ) adminis-
give advise on fiscal and other tration
policies of the government
  formulates the policy framework for the
National Budget
 determines the level of deficit establishes the
(6) priorities and the amount of allocation for the
Development 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
Also talks about government revenues
and expenditures and their impact in the
economy
 concerned with the implementation
and practicalities of these concepts
 Encompasses the practical aspects of
fiscal governance such as:
> revenue collection
> preparation of budgets
> budget allocation and spending
> management of debt
> auditing of account
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
economics
 Economics – Deals with the utilization
of scarce resources that have alternative
uses to satisfy human wants.
 deals with certain financial issues
at a rather broad
conceptual level
e.g. real problems as economic
incentives , aggregate employment, &
inflation
 PUBLIC FISCAL ADMINISTRATION PUBLIC FINANCE
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
TAXATION aggregate supply of money (cash in pockets
EXPENDITURES adopted by the and balances in bank accounts) in the
BORROWING government economy and is monitored and shaped
BUDGETING to achieve primarily by the Central Bank
ACCOUNTING objectives
AUDITING  tight and easy money regimes are simply
its effects
 End product of fiscal administration  its major objectives are price
stabilization, full employment, and
economic growth
 Serves as tools to achieve general  its conduct is an art, involving a delicate
welfare objectives, and shape and influence balancing act, the use of appropriate tools,
by the POLITICAL PROCESS the 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, and direct provision of social goods.
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.
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.
Development  Development is an expensive endeavor. For it to be achieved by
(in developing developing countries, a radical shift in revenue and expenditure
countries) priorities is called for.
 Human development – process of enlarging the range of people’s
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 with future as well as present needs.
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
Aggregates of Money, 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
 focused mainly on achieving a low and stable inflation
 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)
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

exchange position (either overbought or oversold) shall be the lower of 20
percent (20%) of their unimpaired capital or USD50 million.
 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