Public Finance and Economic Development

1. Public Finance &
Economic Development
Tonderayi Chikanda
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2. Governance and Development
____________________________
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3. Development
• Development is a sustained effort.
• Development is a long process involving changes
and requiring effort.
- there is no such thing as "instant
development."
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4. • Economic growth and economic development are often
used interchangeably.
• However, there are two distinctions between two
concepts.
ECONOMIC GROWTH AND ECONOMIC
DEVELOPMENT
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5. • Economic growth means increase in output or
production.
• Economic development means both more output or
production and changes in the technical and institutional
arrangements by which factors of production are
produced and distributed.
ECONOMIC GROWTH AND ECONOMIC
DEVELOPMENT
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6. • Growth in a human being means the increase in weight and height
of the individual.
• These are purely physical in nature like increases in weight from 5
kilos to 50 kilos or increases in height from 91 centimetres to 191
centimetres.
GROWTH
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7. • In similar fashion, growth in a country’s economy means increases
in physical output or production.
GROWTH
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8. • Development in human means not only physical growth but also the
necessary changes that he has to undergo to develop into a matured
individual.
• This means that the individual’s attitudes, habits, emotions, feelings
and intelligence must have undergone changes to fit into the concept
of matured individual.
DEVELOPMENT
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9. DEVELOPMENT
Example:
Growth
Development
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10. • In similar fashion, development in a country’s economy means both
increases in output or production and changes in the technical and
institutional arrangements by which the factors of production are
produced and distributed.
ECONOMIC DEVELOPMENT
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11. • Economic development of any nation can be characterized by the
following:
1. Increases in output or production has to be
sustained over a long period of time.
2. Changes in economic structure would spread out in
the entire economy.
3. Growth has to be accompanied by an increase in
efficiency.
ECONOMIC DEVELOPMENT
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12. • Economic development is shaped not only by economic factors but
also by non-economic factors like environmental, social, and
cultural conditions of the economy.
ECONOMIC DEVELOPMENT
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13. • One can get the economic growth of a country by comparing its GDP
at present with the GDP last year.
• However, it is not so easy to measure development as it is based
upon many parameters such as health, education, literacy levels, and
life expectancy and so on.
ECONOMIC GROWTH VS. ECONOMIC
DEVELOPMENT
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14. • Examples of countries like China and India that have
huge GDP but not labeled developed because of their
lowly ranks on other parameters such as health,
education and life expectancy is enough to demonstrate
the difference between economic growth and
development.
ECONOMIC GROWTH VS. ECONOMIC
DEVELOPMENT
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15. • In the study of economics, economic growth is
taken as a quantitative measure while
development is both a quantitative as well as a
qualitative measure which makes it difficult to
quantify.
ECONOMIC GROWTH VS. ECONOMIC
DEVELOPMENT
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16. 16
Economic Efficiency and the Role of
Government
• Most goods and services are provided by private firms—and almost
everyone agrees that is how it should be
• Widespread agreement that certain goods and services should be
provided by government
o Such as general police protection, the court system, and national defense
• Much of this agreement is based on ideas about economic efficiency

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The Meaning of Efficiency
• What, exactly, does efficiency mean?
o Economic efficiency is achieved when there is no way to rearrange
the production or allocation of goods in a way that makes one
person better off without making anybody else worse off
• A limited concept in that an efficient economy is not
necessarily a fair economy

18. The Meaning of Efficiency… cont’d
• Why do economists put so much stress on efficiency,
rather than fairness?
o Issues of fairness must be resolved politically
• Economics can make a major contribution to our
material well being by
o Helping us understand the preconditions for economic efficiency
o Teaching us how we can bring about those preconditions
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19. 19
Pareto Improvements
• A trade in which both parties are made better off, and no
one is harmed
• Named after Italian economist, Vilfredo Pareto (1848-1923)
o First systematically explored the issue of economic efficiency
• Helps us arrive at a formal definition of economic efficiency
o Achieved when every possible Pareto improvement is exploited

20. Pareto Improvements… cont’d
• Alternatively, we can look at the economy as a whole
o If we discover remaining Pareto improvements that are not occurring
then we would deem the economy economically inefficient
• Perfectly competitive markets tend to be economically
efficient
• Well-functioning market economics tend to lie close to the
economically efficient end of the spectrum
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21. 21
Markets and Economic Efficiency
• In a market system, firms and consumers are
largely free to produce and consume as they
wish, without anyone orchestrating the process
from above
• Can we expect such unsupervised trading to be
economically efficient?
• Yes—as long as trading takes place in perfectly
competitive markets

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The Efficiency Role of Government
• When a well-functioning, perfectly competitive
market is permitted to reach its equilibrium, the
outcome is efficient
o No opportunities for mutual gain remain unexploited
o Any government intervention that changes the market
quantity (say, a price ceiling or a price floor) will create
inefficiency—a welfare loss

23. The Efficiency Role of Government… cont’d
• Government can—and does—contribute to the
economic efficiency of markets
o Provides infrastructure that permits markets to function
• Physical infrastructure—bridges, airports, waterways, and buildings
• Institutional infrastructure—laws, courts, and regulatory agencies
o Stepping in when markets are not working properly
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24. 24
The Institutional Infrastructure of a Market
Economy
• Americans take their institutional infrastructure almost
completely for granted
• In some countries
o Police are more likely to steal from citizens than to protect them from thievery
o People have no effective rights to their own property
o If a person is injured by a drunk driver, there may be no system for compensating
her or punishing the driver
o Powerful mafias exist that extort protection money by threatening to shut down
businesses or physically harm their owners
• In nations with highly developed and stable legal infrastructures,
such incidents are the exception

25. Financial Management Transformation
CatalystStrategistStewardOperator
Controllership:
 Focused on the prudent use
of resources by standardizing,
consolidating and automating
processes.
 Procedural policies.
 Establishing financial data
integrity, timeliness and
accuracy
Results Planning:
 Ensuring effective
budgeting, forecasting and
planning systems in place.
 Asset/Capital Management.
 Establish policy framework
 Risk management and
effective controls
Decision Support:
 Focused on performance
management and supporting
effective investment decisions
 Ensure value-for-money
 Policies that strengthen
performance by promoting
positive behaviours.
 Robust Cost/Benefit analysis
Leader:
 Support decision-makers and
identify opportunities for
service delivery transformation
 Creates partnerships to drive
innovation and service delivery
efficiency
 Finance integrated with policy
and operational considerations
 Enterprise risk management
 Effective horizontal
management
* Four Faces Framework discussed in Deloitte study “Mastering finance in government:
Transforming the government enterprise through better financial management”
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26. Required Financial Management Elements
• Management Decision Support
– Financial evaluation expertise
– Business risk management
expertise
– Capital investment analysis
expertise
– Financial performance
management expertise
• Business Planning, Fiscal
Planning and Budgeting
– Strategic business planning
expertise
– Risk-based Fiscal planning
expertise
– Capital planning expertise
– Integrated capital, operating and
cash-flow budgeting expertise
– In-year fiscal management
expertise
• Accounting, Appropriations and
Financial Reporting
– Accounting policy application and
control expertise
– Appropriation compliance and
control expertise
– Costing and pricing expertise
– Financial reporting expertise
– Financial information analysis
and integrity assurance expertise
• Risk Management,
Accountability and Control
– Program risk management and
control expertise
– Project risk management and
control expertise
– Asset and Liability risk
management and control
expertise
– Transfer Payment, Agency and
Trust risk management and
control expertise.
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27. Financial Competencies needed
Business Knowledge
Effective Costing, Planning & Evaluation
Risk Management
Standards Compliance
Effective Communication
Performance Management
Forecasting, Planning and Budgeting
Accounting/ Financial Knowledge
Valued-added
Advice
Value-
for-
Money
Strategic
Focus
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28. Key Requirements for Success
• Informed Decisions: Further integration of risk and performance
management into the fabric of financial decision-making.
• Effective Governance: establishing clear roles and
accountabilities, linked to decision-making structure and supported
by a robust policy framework.
• Financial Leadership: to set priorities, support capacity
improvements and provide a strategic financial “voice” at the
decision-making table.
• Financial transformation: continue to migrate the financial
function away from a transaction-rules focus to an “advisory”
decision support and oversight role.
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29. Key Requirements for
Success…cont’d
• Business “ownership” of Finance: progressively, delegate
financial management to program managers and other government
organizations, while maintaining accountability and oversight.
• Measuring Progress: establish clear performance measures,
evaluate progress toward achieving the desired goals and taking
remedial action when necessary.
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30. Key Requirements for Success…cont’d
• Communications: open and transparent communications to allow
knowledge of risks, challenges and solutions to flow throughout the
organization(s).
• Financial Capacity: attract, retain and develop financial capacity
that is aligned to future needs.
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31. THANK YOU
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