FISCAL ADMINISTRATION 2

1. LOCAL GOVERNMENT ADMINISTRATION Presented by: LOUIE A.

MEDINACELI & DAVID GOLLA DR. LOURDES G. BANDOY Professor 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

2. AUDITING ACCOUNTING  DEBT MANAGEMENT  BORROWING  PUBLIC

EXPENDITURE  BUDGETING  RESOURCE ALLOCATION  REVENUE
ADMINISTRATION  TAXATION  Evaluation of the Policies and Decisions on 
Implementation  Formulation  Refers to the PUBLIC FISCAL ADMINISTRATION
defined
3. ADMINISTRATION = refers to the Closely linked with other policy instruments of
the government such as MONETARY, PRICE and TRADE POLICY, INVESTMENT
and WAGE. FISCAL POLICIE S NGAs GOCCs GFIs LGUs Government Sector
people whom the government serve beneficiaries, voters, taxpayers, youth, farmers,
urban poor Formulation Implementatio n Evaluation Government’ s FISCAL
POLICIES FISCAL = refers to 
4. Public Fiscal Administration and Political Process are interrelated and influence
each other ADMINISTRATION referring to carrying out or implementing that
collective will of the society Formulate and recommend urgent policy measures for
congressional deliberation and approval POLITICS referring to formulating of laws
and policies as expression of the collective will of the state Legislature Rule Making
Also engaged in POLICY implementation thru their PORK BARREL funds
Administration of FISCAL POLICIES actually takes place within a Political System 
5. Implementation of policies on TAXATION and TARIFF Custodian of Government
Funds (2) Department of Budget and Management leads the formulation of
expenditure policy as well as borrowing(1) Department of Finance Bureau of
Internal Revenue Bureau of Custom Bureau of Treasury
6. central planning body formulate, review, and assess fiscal policy prepares /
prescribes the programs, projects and activities of government and how these
prioritized and finance (3) National Economic Developmen t Authority (4) Bangko
Sentral Ng Pilipinas major actor in the fiscal policy process to ensure that monetary
policies are in consonance with fiscal policy decisions (5) External Forces
International Lending Institutions both influence the fiscal policy adminis- tration
Government giving agencies ( e.g. IMF, WB, ADB ) give advise on fiscal and other
policies of the government
7. determines the level of deficit establishes the priorities and the amount of
allocation for the sectors Office of the President – Representative – Member (6)
Development Budget and Coordination Council National Economic Development
Authority (Director – General) formulates the policy framework for the National
Budget Composition Bangko Sentral Ng Pillipinas Governor - Member Department
of Budget and Management Secretary – (Chairman) Department of Finance
Secretary - Member

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8. 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.
9. NGAs General Appropriation Act = called the national government budget =
contain subsidies, transfers, and/or allotments to GOCCs, GFIs, and LGUs GOCCs
GFIs LGUs Have their own distinct and separate budgets
10. Encompasses the practical aspects of fiscal governance such as: Economics –
Deals with the utilization of scarce resources that have alternative uses to satisfy
human wants.  has always been considered part of economics  concerned with
the implementation and practicalities of these concepts  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 Also talks about government
revenues and expenditures and their impact in the economy PUBLIC FISCAL
ADMINISTRATION PUBLIC FINANCE = closely related = both talk about revenue
and expenditures > revenue collection > preparation of budgets > budget allocation
and spending > management of debt > deals with certain at a rather broad
conceptual level financial issues e.g. real problems as economic incentives ,
aggregate employment,auditing of account & inflation
11. 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.
12. its conduct is an art, involving a delicate balancing act, the use of appropriate
tools, 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). Serves as tools to achieve general welfare objectives, and shape
and influence by the POLITICAL PROCESS  its major objectives are price
stabilization, full employment, and economic growth  End product of fiscal
administration  tight and easy money regimes are simply its effects  concerned

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with the control of the aggregate supply of money (cash in pockets and balances in
bank accounts) in the economy and is monitored and shaped primarily by the
Central Bank  refers to the combination of policies on: TAXATION
EXPENDITURES adopted by the BORROWING government BUDGETING to
achieve ACCOUNTING objectives AUDITING FISCAL POLICY MONETARY
POLICY
13. 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The distribution of income and wealth is
shaped by the distribution of the factors of production.  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.Distributio n  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. Fiscal Policy
Functions Allocation
14. 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 c 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. 
Development is an expensive endeavor. For it to be achieved by developing
countries, a radical shift in revenue and expenditure priorities is called for.  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 t (in
developing countries)  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.  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. Fiscal Policy Functions Stabilization onsistent
15. The government’s inflation target is defined in terms of the average year-on-
year change in the consumer price index (CPI) over the calendar year It does not
directly target. Rather, BSP uses the policy interest rates for 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 Targeting  Refer to the different measures of
money. As per the Quantity Theory of Money, money supply increases do tend to
raise the inflation rate Interest Rates 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 Aggregates

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16. 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 (%) 2003 – 2004 = (16.17 – 15.40)
15.40 = 5.0% Annual increase (%) 2003 – 2004 = (115.5 – 110) 110 = 5.0%
17. 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)
18. 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.
19. Allowable Open Foreign Exchange Position. Banks' allowable open foreign 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). 
“Open Foreign Exchange Position” shall refer to the extent that banks' foreign
exchange assets do not match their foreign exchange liabilities  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. 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
20. 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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  Penalties on excess overbought and oversold positions of banks when
PDS trading is suspended shall be waived. Any excess of the allowable limit shall
be settled on a daily basis. 
21. 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. The transaction thus increases

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the buyer’s holdings of central bank reserves and expands the money supply. 
When the BSP buys securities, it pays for them by directly crediting its
counterparty’s Demand Deposit Account with the BSP.  The transactions are
conducted using the BSP’s holdings of government securities.  In an outright
transaction, the parties do not commit to reverse the transaction in the future,
creating a more permanent effect on money supply.  refer to the direct
purchase/sale by the BSP of its holdings of government securities from/to banking
institutions. ii. Outright transactions
22. 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.Changes in reserve requirements have a significant effect on money
supply in the banking system, making them a powerful means of liquidity
management. 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. 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.
23. Required reserves consist of two forms: regular or statutoryTOOLS OF
MONETARY POLICY & 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.
24. 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.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. 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. 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 BSP extends discounts, loans and advances to banking institutions in
order to influence the volume of credit in the financial system. TOOLS OF
MONETARY POLICY b. Rediscounting
25. 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 Process of
Colonization  Scars and Traumas of Wars  Historical Experience  Level of

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Economic Development Differences between Developed and Developing
Countries in FISCAL SYSTEMS stems from the following:
26. ThankThank YouYou