Public Financial Management

Public financial management entails all the necessary complex processes and methods of using the machinery of government to raise and expend public fund. It refers to the measures put in place to control public fund. It is also conceived as being concerned with how public fund is provided and its judicious use to enhance national economic growth and development.

Basically, the subject of public financial management concerns the acquisition and disposal of financial resources by the government and its agencies through proper management control. In the context of the foregoing definitions of public financial management, its study then entails the study of the complexity of problems that centre on the revenue generation and expenditure processes and the repercussions of different monetary and fiscal policies adopted by government.

I essence, the study of public financial management is essentially concerned with the fundamental issues of how public fund is raised, its expenditure and the implications on the economic situation of the individuals, institutions and the national economy generally.

The Need for the study of Public Financial Management

People are increasingly becoming interested in how government gets its finance and how it expends it. This is because their lives are in fundamental ways, affected by government economic and financial policies like monetary and fiscal policies. For instance, policies or decisions in respect of workers’ salaries, the price of petroleum, taxation, debt management, government revenue and expenditure sources and pattern, all effect in varying degree, individual citizens, institutions and the economy generally.

For this, there is increasing need and interest in studying and understanding public finance and its management by academics and practitioners alike. The need for the study of public financial management also becomes more compelling in consideration of the fact that many of today’s governance problems border on how to raise and allocate public fund effectively, how to maintain accurate account of public fund, ensure financial discipline and adherence to due process in expending public fund.

Government Revenue and Expenditure

The two key aspects of public finance are revenue and expenditure. For this we need to explain what government revenue and expenditure means respectively.

Government Revenue: government revenue is an income generated by the public sector (government) from various services rendered. The major sources of revenue for government include, profit from oil, import and export duties, personal income tax, company income tax, stamp duties, capital gain tax, value added tax, income from government investment.

It is necessary to note that government revenue is of two types, the non-tax revenue and tax revenue. Non-tax revenue includes income from pubic undertakings, fees, fines, forfeiture, property inherited by government, gifts, grants and indemnities paid to government. Tax revenue are personal income tax, company tax etc. tax revenue is undoubtedly the most important and largest single source of government revenue. In Nigeria, the major source of government revenue is from oil and gas.

The income from tax in Nigeria, for reasons of tax evasion and avoidance, is usually not substantial. The government perhaps having a more reliable revenue source from the petroleum sector does not show more concern in developing effective tax system.

Government Expenditure: as the need of the society increases, government expenditure, in similar manner increases. Government expenditure increases in the course of providing infrastructural facilities and rendering other important social, economic and political services. Broadly, government incurs expenditure on the following:

  • Administration of law and order: expenses here are made on the police, law courts, prison service, civil service, government agencies, foreign affairs etc.
  • Defense: government expends money on the Army, Navy, the Air Force, Police, and other Para military group.
  • Social amenities: here government incur expenditure on the course of providing services in the area of education, health, housing, social welfare, environment and recreation etc.
  • Economic development: in this area government expends money on agriculture, mining, power and electricity, oil and gas, commerce and industry, transportation and communication.
  • Miscellaneous: here government makes expenses on national debt interest payment, grants to local government, social security, pension payment, aid to other countries.